Further downgrades on Spain announced by Moody’s

Rating agency Moody’s has downgraded Spain’s government bond rating from A3 to Baa3, with a review for possible further downgrade to be completed in the next three months.

The rating decision was based on some key factors, the agency said today.

“The Spanish government intends to borrow up to €100bn from the European Financial Stability Facility or from its successor, the European Stability Mechanism, to recapitalise its banking system. This will further increase the country’s debt burden, which has risen dramatically since the onset of the financial crisis,” Moody’s said.

Moreover, the Spanish government has very limited financial market access and the Spanish economy’s continued weakness limits the government’s access to funding.

Moody’s also downgraded the rating of Spain’s Fondo de Reestructuración Ordenada Bancaria (FROB) to Baa3 from A3 with further possible downgrades in line with the sovereign rating action.

The review for downgrade will focus on the outcome of the ongoing external audits of the Spanish banking system, the conditionality and details of the EFSF/ESM loan agreement, and the specific execution strategy developed for the banking system’s recapitalisation, Moody’s  said.

On June 8, Fitch cut Spain’s credit rating to BBB in light of bailout fears. The rating is just two notches above junk status.


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