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Moody's Place Spain's Aaa Sovereign Rating On Review For Downgrade

Tyler Durden's picture


Always late Moody's is that last rating agency to have Spain at the perfect (Aaa) rating on the country. Moody's cites challenges Spain faces to achieve fiscal targets.

Full report:

London, 30 June 2010 -- Moody's Investors Service has today placed
Spain's Aaa local and foreign
currency government bond ratings on review for possible downgrade.


Moody's decision to initiate this review was prompted by (1) the
deteriorating (short-term and long-term) economic growth
prospects; (2) the challenges the government faces in achieving its
fiscal targets; and (3) concerns over the impact of rising funding
costs over the medium term.


If at the conclusion of the review, Spain's ratings are lowered,
it would most likely be by one, or at most two, notches,
according to Moody's. The rating agency intends to conclude
its review within a three-month period.


The Spanish government's Prime-1 short-term rating is not
affected by this review. Spain's falls under the Eurozone's Aaa
regional ceilings, which are not affected by the review of the Spanish
government's ratings.




"Spain's growth prospects are weaker than those of other Aaa-rated
sovereigns," says Kathrin Muehlbronner, a Moody's
Vice President -- Senior Analyst and lead analyst for Spain.
In the short term, the government's accelerated fiscal consolidation
combined with the higher borrowing costs currently facing the
consumers, and businesses will likely depress growth.


From a longer-term perspective, it will take several years
for the economy to adjust to the fallout from the collapse of the
boom, to reduce the high level of private sector indebtedness to
levels more in line with other EU countries, and to find new,
internal sources of economic growth. Accordingly, Moody's
now expects GDP growth to average just slightly above 1% over the
entire 2010-2014 period.


The weaker growth trajectory in turn complicates an already very
fiscal consolidation programme. "Moody's believes that
more fundamental adjustments to key spending items will be required in
order to achieve the government's budget deficit targets,"
says Ms Muehlbronner. Moody's own forecasts for Spain's
fiscal deficits are higher than the government's targets. According
to Moody's projections, Spain's debt-to-GDP
ratio is likely to rise to about 80% by 2014.


Moody's noted that the government's efforts to put forward
structural reforms -- in the labour market, the banking sector
and potentially also the pension system -- are positive developments
that could help revive Spain's growth potential in the medium term.
These proposals, however, have yet to restore investor confidence.
As a result, the government's funding costs remain elevated
and its debt affordability ratio (the ratio of interest on the debt to
government revenues) is likely to become increasingly out of line with
those of other top-rated countries over time.




The review of Spain's sovereign rating will assess the broader political

commitment to structural reform and the likelihood that the reforms
by parliament will be far-reaching enough to significantly stimulate
long-term growth. Specifically, Moody's will
also review Spain's upcoming 2011 budget plan, due to be presented
in September, to assess whether the deficit target for 2011 can
be achieved. The rating agency will also consider the contribution
from the country's regional and local governments towards the fiscal
consolidation effort.


The outcome of the review could also be affected if the costs of
Spain's banking sector, which Moody's currently believes
to be manageable, were to turn out to be much larger than expected.


For further information, please see Moody's Special Comment "Key
Drivers of Decision to Review Spain's Aaa for Possible Downgrade"
available on




Moody's last rating action affecting Spain was implemented on 29
July 2009, when the rating agency affirmed Spain's Aaa local and
foreign currency government bond ratings and their stable outlook.
The last rating action on Spain prior to that was taken on 24 May 2006,
when the rating agency affirmed the Aaa foreign and domestic currency
country ceilings of the Eurozone. Prior to that, the last
rating action on Spain was implemented on 13 December 2001, when
Moody's raised the government's local and foreign currency bond ratings
to Aaa with a stable outlook from Aa2/positive.


The principal methodology used in rating the government of Spain is
Sovereign Bond Methodology", published in 2008, which
can be found at in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies
on Moody's website.


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Wed, 06/30/2010 - 14:08 | 444571 EscapeKey
EscapeKey's picture

"What, me worry?" - the markets to Moody's

Wed, 06/30/2010 - 14:15 | 444590 Pamela Anderson
Pamela Anderson's picture

At 11:11 am CNBC reported this same news.... as always CNBC behind Zero Hedge

Wed, 06/30/2010 - 14:21 | 444598 LoneStarHog
LoneStarHog's picture

That is because Zero Hedge takes it hot off the wires, while CNBS & Foolberg require it be audited/reviewed by the respective Spin Control Department of PhDs.

Wed, 06/30/2010 - 15:29 | 444752 carbonmutant
carbonmutant's picture

All the MSMs need is a little guidence from their thought leaders in the "Casa blanco" before saying anything in front of a camera...

Wed, 06/30/2010 - 14:12 | 444578 akenathon
akenathon's picture

With this Gold can rocket and with USD/JPY below 88.00. Russia is not important but more important is how much IMF has still left for sale at 1250..I bet not much anymore..

Wed, 06/30/2010 - 14:33 | 444616 DosZap
DosZap's picture


Supposedly 3000 Tons..................which ain't shit,compared to what they had last yr.

Wed, 06/30/2010 - 15:35 | 444772 traderjoe
traderjoe's picture

The next move in gold is down - as the markets tank margin clerks will use it for proceeds. But, as the currency collapses the physical will go parabolic while GLD, etc. go bankrupt. And at point there will be no sellers of physical gold...

Wed, 06/30/2010 - 14:12 | 444579 lettuce
lettuce's picture

but wait, if moody's is on review for downgrade, doesn't that mean double-negative for spain? buy spanish bonds!

Wed, 06/30/2010 - 14:13 | 444586 sheeple
sheeple's picture

good one

Wed, 06/30/2010 - 14:19 | 444596 lettuce
lettuce's picture

thank you thank you i'll be here all week

Wed, 06/30/2010 - 14:33 | 444617 Cognitive Dissonance
Cognitive Dissonance's picture

Try the roast beast, it's to die for.

Wed, 06/30/2010 - 14:12 | 444580 Going Loco
Going Loco's picture

For 'challenges' read insurmountable obstacles.

Wed, 06/30/2010 - 14:12 | 444581 kaiten
kaiten's picture

And who´s rating the rating agencies?

Wed, 06/30/2010 - 14:35 | 444622 DosZap
DosZap's picture


S & P (rumor) was said to be downgrading Moody's!

Wed, 06/30/2010 - 14:38 | 444627 Cognitive Dissonance
Cognitive Dissonance's picture

I give them an "FFF" for F**king Fantastic Failures.

Wed, 06/30/2010 - 14:37 | 444629 nonclaim
nonclaim's picture


Wed, 06/30/2010 - 14:13 | 444583 sheeple
sheeple's picture

I was waiting for Moody's move on McGraw [bleh forget about sovereign debt, battle of rating agencies' more fun to watch]

Wed, 06/30/2010 - 14:13 | 444584 curbyourrisk
curbyourrisk's picture

Ha Ha!!


Still waiting on their imminent down grade of S&P after gettin bitch slapped last night by their step sister.

Wed, 06/30/2010 - 14:13 | 444587 jkruffin
jkruffin's picture

Would they lie as much as Michael Vick does?  LOL

Wed, 06/30/2010 - 14:15 | 444589 lizzy36
lizzy36's picture

guess they passed on downgrading fitch?

Wed, 06/30/2010 - 14:23 | 444599 doolittlegeorge
doolittlegeorge's picture

and of course this is a "shirt first ask questions later" market so just the mention of a downgrade moves the market.  this is why Buffet (said right to Phil Angeledies face no less!) "loves this company."  In other words, "they kill countries, too!"  Don't know what the deal with Bernanke's phot-op on monday with said "Team Obama" and "you're on board, too, fucker" was but that struck me as very ominous indeed.  in other words, "go fuck yourself Spain" comes to mind.

Wed, 06/30/2010 - 14:25 | 444602 doomandbloom
doomandbloom's picture

do they have sovereign stress tests..?

Wed, 06/30/2010 - 14:30 | 444610 John McCloy
John McCloy's picture

Please do not give Tim any more brilliant ideas Doom

Wed, 06/30/2010 - 14:30 | 444611 jkruffin
jkruffin's picture

Yea, Timmy went over there to show them how to cook the books better.

Wed, 06/30/2010 - 14:36 | 444624 mikla
mikla's picture

do they have sovereign stress tests..?

Yes.  It's called "War".

Wed, 06/30/2010 - 15:03 | 444679 cougar_w
cougar_w's picture

That's right. And people think there is nothing important at stake here. It's all bullshit until someone gets hurt.

Wed, 06/30/2010 - 14:40 | 444608 Mako
Mako's picture

In other news, we landed on the moon!!!!!

Seriously though, all Moody's, Fitch or S&P has to do is look at the Federal Reserve Z1 report, everything across the board should be downgraded well over a year ago.

Moody's downgrades Earth on negative watch.

Wed, 06/30/2010 - 14:45 | 444641 Dismal Scientist
Dismal Scientist's picture

Wages to come down to make Spain more competitive vs Germany, deflation to triumph, I hear you say ?

Its already here. Labour costs to fix my car at authorised dealer in Italy today €25 per hour. Equivalent in Germany €45 per hour. A better job too, with no attitude.

Wed, 06/30/2010 - 15:07 | 444691 walküre
walküre's picture

so youa lika da pizza ina da fuela injecta?

huh? maka da auto driva fasta?

Wed, 06/30/2010 - 18:00 | 445216 Dismal Scientist
Dismal Scientist's picture

Leck mich am Arsch ;-)

Wed, 06/30/2010 - 15:18 | 444713 Rusty Shorts
Rusty Shorts's picture

 -  -

Wed, 06/30/2010 - 15:27 | 444740 CustomersMan
CustomersMan's picture



Soverign Stress Tests = Riots


Level 1 - Tear Gas applied liberally, clouds everywhere, some arrests


Level 2 - Tear Gas, Beatings, 100+ Arrests, burning tires and blockades, some smoldering cars and buses


Level 3 - Burning buildings, deaths, mass arrests, flamings cars and buses, burning barricades, 250+ arrests, water-canons, amored personel Carriers, gunshots ringing out.


Level 4 - Helicopters shot down, blood visible in the streets, large explosions, multiple flaming buildings, molatov's, RPG's...flame throwers,you get the idea...


Moody's , S&P , and Fitch should incorporate these into their models. Also would not want to be AMBAC

Wed, 06/30/2010 - 15:45 | 444807 carbonmutant
carbonmutant's picture

Some market disruption may occur...

Wed, 06/30/2010 - 16:48 | 445047 Jean Valjean
Jean Valjean's picture

I love that word... "barricade".

"Beyond the barricade is there a world you long to see?"

Wed, 06/30/2010 - 15:29 | 444751 NumberNone
NumberNone's picture

Dear Spain,

Do not let the downgrade intimidate you.  You need to spend more money so that you can grow your way out of this problem.


Paul Krugman

Wed, 06/30/2010 - 17:01 | 445088 glenlloyd
glenlloyd's picture

This is really starting to very closely resemble a circle jerk.

Wed, 06/30/2010 - 20:56 | 445545 downwiththebanks
downwiththebanks's picture

Is "this" capitalism?

Thu, 07/01/2010 - 00:30 | 445817 Grand Supercycle
Grand Supercycle's picture


On May 4th I called the end of the March 2009 bear market rally.

The proprietary indicators I use in my technical analysis can identify trend changes before they occur.

Sat, 08/21/2010 - 11:16 | 534728 herry
herry's picture

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