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May 29, 2017

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Fitch threatens junk-bond status for Catalonia

MADRID -- Fitch Ratings said Thursday it had placed the debt of northeastern Spanish region Catalonia on review for a possible downgrade to junk-bond status.

Fitch said it was worried about how fast the central government will act to help the region, which last month reached out for a 5-billion-euro (US$6.4 billion) rescue.

Catalonia, whose economy is larger than Portugal's and accounts for one-fifth of Spanish output, is struggling to make repayments on its 40-billion-euro debt.

London-based Fitch Ratings said it placed Catalonia's BBB-minus credit rating on "rating watch negative." Any downgrade would place it on a "speculative" or junk bond rung.

The decision reflected uncertainty over the "timely availability" of help for Catalonia from the central government's planned 18-billion-euro fund for struggling regional governments, it said.

The fund was created in July but is not yet up and running. "Fitch considers that until the fund is formalized and in place, the regions' liquidity positions are under pressure," said the credit rating agency.

Catalonia's request would cover debt repayments, estimated at 4.795 billion euros in the final quarter of this year, and the 2012 deficit, Fitch Rating said.

"If the creation of the fund is likely to be protracted and thereby hinder the access to liquidity for the regions, Catalonia could be downgraded to below investment level," Fitch said.

The region could also be downgraded if it decided not to access the fund and had no other long-term funding option.

Catalonia has said it will request a central government bridge loan if the rescue fund is not ready in time because it has been "practically cut off from market access to funding" by the high borrowing costs it faces, Fitch Ratings said.

"Nevertheless, Fitch believes that there is still uncertainty as to whether this loan will be granted and if this is the case, believes that at present, the region does not have any viable alternatives to cover its funding needs," it said.

Fitch announced the decision two days after a vast march in Barcelona, estimated by police at more than a million-strong, in favour of independence from the rest of crisis-struck Spain.

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