Moody’s Investors Service, a week after deciding against cutting Spain’s credit-rating to below investment grade, lowered Catalonia and four other Spanish regions.
Catalonia, which will hold an early election on Nov. 25 focused on whether to seek independence for the region that accounts for a fifth of Spain’s economy, was reduced two steps to Ba3 from Ba1, the ratings firm said in a statement dated yesterday. Extremadura was lowered to Ba1 from Baa3, Andalucia was slashed to Ba2 from Baa3, and Castilla-La Mancha was cut to Ba3 from Ba2 and Murcia dropped to Ba3 from Ba1.
Moody’s decision to cut the regions 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,” the ratings firm said.
Moody’s also said that Catalonia, Andalucia and Murcia “face large debt redemptions” this quarter when retail bonds issued in 2011 are due to mature. The ratings of Basque Country, Diputacion Foral de Bizkaia, Madrid, Castilla y Leon, Galicia, Valencia and four government-related entities in Valencia were all left unchanged.
A week ago, Moody’s kept Spain’s sovereign rating at Baa3, the lowest level of investment grade, citing a reduction in the risk of losing market access because of the European Central Bank’s willingness to buy the nation’s debt.
Spain avoided joining euro-region peers Cyprus, Portugal, Ireland and Greece as below investment grade. Standard and Poor’s has a negative outlook on its BBB- rating, one step above junk, and Fitch Ratings has Spain at BBB, two levels higher.
Creditworthiness concerns have grown since Prime Minister Mariano Rajoy requested as much as 100 billion euros ($130 billion) in European Union aid to shore up Spanish lenders amid signals the nation may miss its budget deficit goals. S&P downgraded Spain on Oct. 10, saying it doubted the loans will be mutualized among euro-region nations.