Moody’s today placed Spain’s Aa1 local and foreign currency government bond ratings on review for possible downgrade, but said it will most likely conclude that Spain’s rating will remain in the Aa range.
The main triggers for placing the rating on review for possible downgrade are:
- Spain’s vulnerability to funding stress given its high refinancing needs in 2011. This vulnerability has recently been amplified by fragile market confidence.
- A potential further increase in the public debt ratio should the cost of bank recapitalisation prove to be higher than expected so far, whether to meet higher-than-expected asset impairments or simply to retain the confidence of the wholesale markets.
- Increased concerns over the ability of the Spanish government to achieve the required sustainable and structural improvement in general government finances given the limits of central government control over the regional governments’ finances.
Moody’s has also placed the Aa1 rating of Spain’s Fondo de Reestructuración Ordenada Bancaria (FROB) on review for possible downgrade as the FROB’s debt is fully and unconditionally guaranteed by the government of Spain. No further ratings or outlooks have been changed as part of today’s rating action.
“Moody’s believes that the above-mentioned downside risks warrant putting Spain’s rating under review for downgrade”, says Ms Muehlbronner, Moody’s Vice President and lead analyst for Spain. “However, Moody’s also wants to stress that it continues to view Spain as a much stronger credit than other stressed Euro zone countries. This is reflected in the significantly higher rating for the Spanish sovereign. Moody’s review will therefore most likely conclude that Spain’s rating will remain in the Aa range.”