Moody´s slashes Spain´s credit rating by 3 notches

Date: Wednesday 13 Jun 2012

Approximately half an hour after the US market close ratings agency Moody´s has announced its decision to downgrade its rating on the sovereign debt issued by Spain by a full three notches, to Baa3 from A3 previously.

Furthermore, it has placed the country´s rating on review for further downgrade. Moody´s expects to take this latter decision within the next 3 months.

The decision to downgrade the country´s rating is based on three premises: 1. The recapitalisation of the banking sector will increase the country´s debt burden; 2. The government has very limited financial market access, as evidenced by the fact that its banks are the primary purchasers of its new bond issues; 3. The threat to its funding ability is much more serious “than would be the case if there was a reasonable expectation of vigorous economic growth within the next few years.”

As for the review for a possible further downgrade, the agency says that the result will depend 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 will also consider any further initiatives at the euro area level. In addition, Spain's rating -- as well as the ratings of other euro area countries -- could be adversely affected if the risk of a Greek exit from the euro area were to rise further,” its analysts add.

AB

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