Ratings of five other Spanish regions affirmed
Madrid, March 11, 2011 -- Moody's Investors Service has today implemented the following downgrades
for four Spanish regions:
- Castilla-La Mancha: the long-term issuer
and debt ratings were downgraded to A2 from A1.
- Catalunya: the long-term issuer and debt ratings
were downgraded to A3 from A2, and the short-term rating
was downgraded to Prime-2 from Prime-1.
- Comunidad Autonoma de Murcia: the long-term issuer
and debt ratings were downgraded to A1 from Aa3.
- Region of Valencia: debt ratings were downgraded to A2
from A1, while the Prime-1 short-term rating is unchanged.
At the same time, the debt rating of the Instituto Valenciano de
Finanzas (IVF) was downgraded to A2 from A1.
Further to today's rating actions, the rating outlooks for
these four regions and IVF remain negative.
Moody's has also today affirmed the ratings of the following regions:
- Junta de Andalucia: issuer and debt ratings affirmed at
Aa2 with negative outlook.
- Junta de Castilla y León: issuer and debt ratings
affirmed at Aa2 with negative outlook.
- Junta de Extremadura: issuer and debt ratings affirmed
at Aa2 with negative outlook.
- Comunidad Autónoma de Galicia: issuer rating affirmed
at Aa2 with negative outlook.
- Comunidad Autónoma de Madrid: issuer rating affirmed
at Aa2 with negative outlook.
RATINGS RATIONALE FOR DOWNGRADES
Today's downgrades reflect the wide deviations registered by these
regions from the deficit limits set for 2010 and the subsequent difficulties
Moody's anticipates they will encounter in controlling their deficit
and debt trajectories in 2011-12. In addition, the
downgrades reflect consistent weaknesses in budget management over the
past few years, as illustrated by unreliable forecast budget figures.
Although Moody's recognises that these regions have begun to implement
cost-cutting measures, they failed to bring expenditure into
line with a significant fall in tax revenue in 2010. As a result,
these regions registered high negative gross operating balances and deviated
from the deficit targets set by the central government for that year (2.4%
of regional GDP). In addition, in some cases, the deterioration
in regional fiscal performance translated into very stretched cash positions,
as the amount of debt authorised by the central government did not always
match the deficits accrued, thereby resulting in increasing commercial
obligations.
Given the wide deficits registered in 2010, Moody's notes
that the extent of the fiscal consolidation required to reach a deficit-to-GDP
ratio of 1.3% in 2011 is unprecedented. Moreover,
elections in May 2011 in Castilla-La Mancha, Murcia and Valencia
are not conducive to launching structural reforms, especially those
related to healthcare and educational matters.
The negative outlooks for these four regions reflect: (ii) the slow
economic growth prospects for Spain (Aa2, negative outlook) that
will continue to impact regional tax bases, thereby making it more
difficult for the regions to achieve budget rebalancing going forward;
(ii) the uncertainty associated with the regions' ability to meet
forthcoming borrowing requirements at an affordable cost in the context
of constrained market conditions.
CASTILLA-LA MANCHA, JUNTA DE COMUNIDADES DE
Moody's has today downgraded the region's long-term
issuer and debt ratings to A2 from A1, with the outlook remaining
negative.
The downgrade reflects the greater-than-expected deterioration
in the region's financial performance in 2010, which is expected
to lead to higher debt metrics and further pressure on the regional budget
in 2011. Moody's notes that the extent of the deviation from
the deficit-to-GDP limit in 2010 proved to be substantially
larger than anticipated (estimated deficit of 6.2%,
compared to the target of 2.4% set by the central government),
and will require commensurate cuts in the regional cost base to bring
its deficit in line with target for 2011 (1.3% deficit-to-GDP).
As of today, the rating agency believes that Castilla-La
Mancha will most likely deviate from the deficit limit for 2011.
CATALUNYA, GENERALITAT DE
Moody's has today downgraded Catalunya's long-term
issuer and debt ratings to A3 from A2, with the outlook remaining
negative. The short-term rating was downgraded to Prime-2
from Prime-1.
The downgrade reflects the stronger-than-anticipated deterioration
in the region's financial performance in 2010. Despite a 10%
reduction in the region's operating expenses during the year,
Catalunya's gross operating balance deteriorated to -EUR3.8
billion or -16.7% of its operating revenue (2009:
-EUR3.4 billion), driven by a fall in its tax revenue.
A slight reduction in capital expenditure during the year failed to prevent
the region from registering a record high financing deficit equivalent
to 29.6% of its operating revenue. This led Catalunya
to deviate significantly from the deficit-to-GDP target
set by the central government for 2010 (3.9%, compared
with a target of 2.4%). Moody's notes that
cost-cutting measures implemented in May 2010 failed to translate
into a substantial reduction in cash requirements, leading the region
to use its short-term credit facilities extensively, and
to accumulate healthcare-related commercial debt. Difficult
market conditions further complicated the region's debt management.
As the region's financing needs remain very high in 2011 (EUR11.6
billion), these challenges will persist throughout the year.
Although Moody's is encouraged by the new regional government publicly
announced intention to implement drastic cost-cutting measures
in its forthcoming 2011 initial budget, the rating agency also note
that the draft plan relies on additional state transfers, which,
as of today, remain uncertain.
MURCIA, COMUNIDAD AUTONOMA DE
Moody's has today downgraded Murcia's long-term issuer
and debt ratings to A1 from Aa3, with the rating outlook remaining
negative.
Moody's notes that the downgrade reflects the higher-than-expected
deterioration in the region's financial performance in 2010,
as evidenced by a significant decline in its gross operating balance to
-16%, from a positive gross operating balance of 4.5%
in 2009. At the same time, Murcia's financing deficit
in 2010 widened to -28.5% of its operating revenue
(vs. -6.4% in 2009), or -5.0%
of regional GDP, thereby significantly exceeding the deficit limit
of 2.4% established by the central government. This
increased the region's moderate ratio of net direct and indirect debt-to-operating-revenue
to 63% in 2010 from 34% in 2009. In addition,
in line with other Spanish regions, Murcia's healthcare-related
commercial debt rose significantly throughout 2010. Moody's believes
that drastic cost-cutting measures will have to be implemented
to comply with the deficit target for 2011 (1.3% of GDP),
and that there is a high degree of uncertainty surrounding Murcia's
capacity to achieve this end, particularly given its poor track
record in containing expenditure in recent years.
VALENCIA, GENERALITAT DE
Moody's has downgraded Valencia's debt rating to A2 from A1,
with the outlook remaining negative. The Prime-1 short-term
rating is unaffected by today's rating action.
The downgrade is based on the rapid deterioration in the region's operating
performance in 2010 (gross operating balance: -7.7%),
as the 7% reduction of operating expenditure failed to compensate
for an 11% fall in operating revenue. Owing to capital expenditure
growth of 28% year-on-year, Valencia recorded
a high financing deficit of 26% of its operating revenue.
This led to a substantial increase in its recourse to debt during the
year, bringing its net direct and indirect debt-to-operating
revenue ratio to approximately 158% at YE2010 (2009: 121%).
This is significantly higher than the average of 88% for Moody's-rated
regions in Spain. As Valencia deviated from the deficit target
set by the central government for 2010, Moody's believes that,
despite its cost-cutting initiatives, the region will have
difficulties in meeting the target for 2011 (1.3% of GDP).
INSTITUTO VALENCIANO DE FINANZAS
Moody's has today also downgraded the long-term debt rating of
the Instituto Valenciano de Finanzas (IVF) to A2 from A1; the outlook
remains negative. This rating action was prompted by the downgrade
of the Region of Valencia's rating. As a public credit-policy-making
body of the Generalitat de Valencia, IVF's rating essentially reflects
the fact that, according to governing law, its debt is explicitly
guaranteed by the Generalitat de Valencia.
The last rating actions on the five public entities were implemented by
Moody's as follows:
Castilla-La Mancha: Long-term issuer and debt ratings
downgraded to A1/negative from Aa3/negative on 21 December 2010.
Generalitat de Catalunya: Long-term issuer and debt ratings
downgraded to A2/negative from A1/negative on 19 October 2010.
Comunidad Autónoma de Murcia: Long-term issuer and
debt ratings downgraded to Aa3/negative from Aa2/negative on 21 December
2010.
Generalitat de Valencia: Debt rating downgraded to A1/negative from
Aa3/negative on 19 November 2010.
Instituto Valenciano de Finanzas: Long-term debt rating downgraded
to A1/negative from Aa3/negative on 19 November 2010.
The principal methodologies used in this rating were "Regional and
Local Governments Outside the US" published in May 2008, and "The
Application of Joint Default Analysis to Regional and Local Governments"
published in December 2008.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Madrid
Marisol Blazquez
Analyst
Sub-Sovereign Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Thomas Amenta
Senior Vice President
Sub-Sovereign Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Madrid
Sebastien Hay
VP - Senior Credit Officer
Sub-Sovereign Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades four Spanish regions; outlooks remain negative
