Moody’s downgrades 5 Spanish regions

23 Oct

Moody’s cut its debt rating for five Spanish regions Monday by one or two notches each, citing their weak financial positions and looming debt redemptions.

Extremadura was cut to Ba1 due to a “persistently high” operating deficit and frail liquidity.

Andalucia (Ba2), Castilla-La Mancha (Ba3), Catalunya (Ba3) and Murcia (Ba3) were all cited for poor liquidity and large maturing debt obligations.

Their downgrade “was driven by the deterioration in their liquidity positions, as evidenced by their very limited cash reserves as of September 2012 and their significant reliance on short-term credit lines to fund operating needs,” Moody’s said.

While most have benefited from the government’s liquidity fund, the FLA, lowering the risk that they might default, their fundamental weaknesses remain in place, Moody’s said: lack of long-term funding alternatives, and the difficulties of taming their huge debt and deficit burdens.

Moody’s assessment reflects its view “that these regions, faced with persistent fiscal challenges and weak liquidity positions, will need to seek further external support in the next year.”

But Moody’s said the new ratings also presume the higher probability of central government support for them.

Meanwhile Moody’s held unchanged its ratings for Valencia, Basque Country, Bizkaia, Castilla y Leon, Galicia and Madrid.


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