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June 27, 2017

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S&P downgrades several Spain regions, cities

MADRID -- Ratings agency Standard and Poor's downgraded five Spanish regions and the cities of Madrid and Barcelona to just a notch from "junk" status on Wednesday, after cutting the country's overall rating.

The agency lowered the credit ratings of Andalusia, Aragon, the Canary Islands, Galicia and the greater Madrid region each by one or two notches to BBB minus, one step above speculative or junk-bond status.

It held steady its score of BBB minus for the Balearic Islands, it added, in a series of statements.

"The negative outlooks on these six regions reflect, among other factors, our negative outlook on the long-term rating on Spain and our view of the risk of regional noncompliance with fiscal targets," it said.

The agency cut the rating on the cities of Barcelona and Madrid by two notches to BBB minus.

It also lowered the ratings of two other regions, the Basque Country and Navarra, as well as the province of Vizcaia, from A to BBB plus, all in-line with the Spanish sovereign rating.

The credit outlook for all the entities reviewed was negative, meaning they are at risk of further downgrades if conditions worsen.

Spain won breathing space Tuesday when another major credit ratings agency, Moody's, said it was leaving the Spanish sovereign credit rating at Baa3, just one notch above junk-bond status, with a negative outlook.

Moody's cited expectations of a sovereign rescue, noting the ECB's willingness to buy Spanish bonds as well as Madrid's commitment to fiscal and structural reforms to repair its finances.

The rate on Spanish 10-year government bonds fell on Wednesday, a sign of easing market tension over its finances, as world stock markets gained ground and the euro rose against the dollar after the Moody's decision.

But economists warned that even if Madrid secures a rescue in which the European Central Bank buys its bonds so as to lower borrowing costs, Spain will be left with deep-seated economic problems unresolved.

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