Moody's Refuses To Junk Spain Ahead Of US Election, Raffirms Baa3 Rating - Full Text

Tyler Durden's picture

For those who are curious why Tim Geithner has been invisible in the past 2 months, the answer is he has been manning the phones like a true patriot, and making sure nobody dares to rock the European boat ahead of the US election (as was already disclosed), in this case exemplified by Moody's just released announcement that the rating agency will not downgrade Spain to junk, soaring debt, collapsing GDP and laughable unemployment rate notwithstanding (unless of course the ECB fails in its mission to scare all shorts from approaching within 10 miles of an SPGB, and Spain loses private market access again, in which case Moody's would proceed with a "multiple notch downgrade"). At least not until the US election that is. After that... well, with the fiscal cliff, debt ceiling, Greece vs Troika, etc, etc, buy VIX.

From Moody's

Moody's confirms Spain's government bond rating at Baa3/(P)P-3, assigns negative outlook

London, 16 October 2012 -- Moody's Investors Service has today confirmed the Kingdom of Spain's Baa3 government bond rating and assigned a negative outlook to the rating. In addition, Moody's has confirmed Spain's short-term rating at (P)Prime-3. Today's rating action concludes the review for possible further downgrade of Spain's rating that Moody's had initiated on 13 June 2012.

The decision to confirm the Kingdom of Spain's sovereign ratings reflects the following positive developments since June:

1.) Moody's assessment that the risk of the Spanish sovereign losing market access has been materially reduced by the willingness of the European Central Bank (ECB) to undertake outright purchases of Spanish government bonds to contain their price volatility. The rating agency believes that Spain will likely apply for a precautionary credit line from the European Stability Mechanism (ESM). This should in turn help sustain demand for Spanish government bonds by allowing the ECB to activate its Outright Monetary Transactions (OMT) program of secondary market purchases. Entry into an ESM precautionary program would not in itself lead to a downgrade as long as the rating agency believes that the government is likely to retain access to private capital markets.

2.) Evidence of the Spanish government's continued commitment to implement the fiscal and structural reform measures that are needed to stabilize its debt trajectory, as indicated by the package of fiscal measures announced in July, the changes to the institutional framework for regional government finances and, more recently, the announcement of further structural reforms to be implemented in the coming months. In this respect, Moody's considers the external monitoring of the Spanish government's implementation of its plans that would accompany an ESM precautionary credit line to be a positive factor. The rating agency's base case assumes that the Spanish government will be successful in gradually reducing its large budget deficit and arresting the rise in its debt burden.

3.) The ongoing progress towards restructuring the Spanish banking sector and enhancing the solvency of the affected banks, which should help to restore market confidence in Spain's banking system as a whole.

In summary, Moody's believes that the combination of euro area and ECB support and the Spanish government's own efforts should allow the government to maintain capital market access at reasonable rates, providing it with the time it needs to stabilise public debt over the next few years. In Moody's view, the maintenance of market access is critical because the risk that some form of burden-sharing will be imposed on bondholders is material for those countries that rely entirely or to a very large extent on official-sector funding for an extended period of time.

The negative rating outlook reflects Moody's assessment that the risks to its baseline scenario are high and skewed to the downside. In particular, Spain's credit standing would be negatively affected by a lack of progress in placing the country's public finances on a sustainable footing. Shocks at the euro area level could also have negative repercussions on Spain's rating, for example in the absence of concrete progress in reforming the euro area's fiscal, economic and regulatory institutions. The possibility of Greece exiting the euro area continues to constitute a major event risk for all the weaker euro area member states. Should any such factors lead the rating agency to conclude that the Spanish government had either lost, or was very likely to lose, access to private markets, then Moody's would most likely implement a downgrade, potentially of multiple notches.

In addition to the confirmation of Spain's sovereign ratings, the rating agency has today also confirmed the Baa3/Prime-3 ratings of the Fund for Orderly Bank Restructuring (Fondo de Reestructuración Ordenada Bancaria or FROB) and assigned a negative outlook. Spain's local and foreign-currency bond and deposit ceilings remain unchanged at A3.



Moody's decision to confirm Spain's Baa3 sovereign rating is primarily driven by the developments in the euro area policy framework since mid-June (when Moody's initiated its review of Spain's ratings), which support the Spanish government's ability to refinance maturing debt with private investors. Specifically, Moody's believes that the government will likely ask for an Enhanced Conditions Credit Line (ECCL) from the ESM as a prerequisite for the ECB activating its OMT program in relation to Spanish government debt. Moody's believes the ECB's willingness to act to contain volatility in Spanish government bond yields will reduce the risk of loss of market access for the Spanish sovereign for the foreseeable future. The rating agency places only limited weight on the ability of a backstop ESM facility -- the size of which would, on its own, be insufficient to support debt issuance for a lengthy period -- to sustain investor confidence. Moody's views positively (i) the stricter and more timely surveillance of Spain's program implementation that would accompany an ESM program, and (ii) the possible involvement of the International Monetary Fund (IMF) which would provide an independent assessment of program implementation. Moody's would expect easier funding conditions to continue to filter through to other Spanish borrowers, thereby potentially easing the current lack of available credit that is hampering economic growth.

The second driver underlying today's announcement is evidence [ZH: uhm, what evidence?] of the Spanish government's commitment to implement the fiscal and structural reform measures that are needed to reverse its debt trajectory. Ultimately, the Spanish government's ability to refinance maturing debt will depend on the credibility of its efforts to reduce its large fiscal deficit and reverse the rising public debt trajectory. The government has taken significant fiscal measures since coming into office, including structural reforms in the areas of healthcare and education, as well as measures to reduce the public-sector wage bill and improvements in the budgetary framework for the regions. The unfavourable economic outlook constitutes the most significant risk to the government's fiscal objectives and Moody's continues to expect some, albeit relatively limited, deviation from the budget deficit plans. Nevertheless, the rating agency's central expectation is that the government will succeed in gradually reducing the budget deficit over the coming years and begin the process of stabilising and eventually reversing the debt trajectory.

The third driver of the confirmation of Spain's ratings is the progress being made towards the restructuring and recapitalisation of the banking system. While below the rating agency's own estimate of a capital shortfall of EUR100 billion for the system, the more than EUR50 billion capital needs that resulted from the recent independent stress tests [Independent Stress Tests? Oh this: "How Oliver Wyman Manipulated The Spanish Bank Bailout Analysis")will enhance the solvency of the affected banks and should help to restore market confidence in Spain's banking system as a whole [no, that would be the ECB].


The negative outlook on Spain's confirmed Baa3 rating reflects Moody's view that the risks to its baseline scenario are high and skewed to the downside. Risks to the economic outlook in Spain are significant, with repeated downward revisions of the country's growth forecasts over the past year. Further downward revisions could have significant negative implications for the government's ability to bring its public finances back onto a sustainable path and reverse its debt trajectory. Moody's current baseline expectation is a resumption of growth in 2014, based mainly on the expectation of renewed growth in Spain's core EU markets and hence continued positive export performance. Crucially, Moody's fiscal forecasts of a gradual reduction in the general government's budget deficit (to around 4.5% of GDP by 2014) are based on the expectation of a gradual and moderate recovery in economic growth. Should growth appear likely to weaken further still, Moody's would need to reassess the government's ability to achieve its fiscal objectives.

In addition, the central government continues to depend on the regional governments to contribute their part of the required fiscal consolidation. Despite measures to improve central control over the regions and the regions' progress with implementing important measures to restrain their spending, Moody's still expects some slippage from regional-level fiscal targets in aggregate. Should the measures taken prove less effective than intended, Moody's would reassess the consequences for the central government's programme.

Moody's observes that the wider European environment remains fragile. The ECB's OMT announcement has bought time for the euro area authorities to push forward the broader financial, fiscal and economic reforms that are needed to address the institutional flaws that led to the crisis and to avoid further shocks to the financial system. However, there is significant uncertainty around the limits on the ECB's willingness to undertake debt purchase operations on a large scale. Moreover, while progress continues to be made, the future path of policy remains very unclear. For example, while the proposed euro-wide banking union is a potentially significant step toward integration of financial regulation, the continued clear tensions between member states have the potential to materially slow down the process. Also, the possible exit of Greece from the euro area remains a risk and further source of contagion.

Overall, Moody's assessment assumes that the Spanish government will continue to be able to refinance its maturing debt at affordable rates. Should any of the factors listed above lead the rating agency to conclude that the Spanish government had either lost, or was very likely to lose, access to private markets, then Moody's would need to reassess its debt rating.


Moody's would downgrade Spain's rating if its current expectations regarding euro area and ECB support were to fail to materialise, or if the Spanish government failed to implement the necessary fiscal and other reform measures.

In view of the currently negative outlook on Spain's sovereign rating, no upward rating movement is likely over the short term. However, Moody's would consider returning the outlook on Spain's rating to stable if the pace and strength of the country's economic recovery were to exceed Moody's current expectations.

The principal methodology used in these ratings was Sovereign Bond Ratings published in September 2008. Please see the Credit Policy page on for a copy of this methodology.

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The Reich's picture

True Patriots! Shamed be he who thinks evil of it.



e-man's picture

That is the motto for the Royal Order of the Garter.  In this case, you would need a motto for the Royal Order of the Gag.

Maybe something like: "Boiled in hot oil shall be he who mentions Spain."

Dr. Engali's picture

Uncle Warren isn't going to bite the kleptocratic hand that feeds him.

Kitler's picture

Would that be his left hand or right hand?

(In my books Baa3 is still Baa Baa Baa-d.)

surf0766's picture

Red Diaper babies sticking together?

LongSoupLine's picture

Do you really think BarryO's administration (aka - the "market" makers) are going to scuttle the ship prior to Nov?

No fucking way....hence the MSM foam at the mouth bullishness and massive market moves.

SilverDOG's picture

Junk is as Junk does, Forrest.

CPL's picture






...fucking rating agencies.


Spain if you are online.  You need all of your money out of your accounts asap.  A liquidity crunch is coming hard to your local region.

España, si usted está en línea. Usted necesita todo el dinero de sus cuentas lo antes posible. Una crisis de liquidez que viene duro a su región local.

machineh's picture

Let's see how Moody's announcement looks after the monthly capital flight numbers for Spain are released.

If I were Spanish and watching Rajoy dither, I'd be moving my deposits to Germany or Switzerland TODAY.

Spain's not going to go begging to the ESM until depositors are lined up in the streets ... when it's already too late.

CPL's picture

I think this is the loon Lagarde's hand in the matter she's been sucking dick begging for a bailout.  

I think she is trying on the big girl pants to force a bailout by turning off the faucet of credit.  That dullwitted twit.  The blowback on Germany on this is enormous.  If it's her I wish her luck on her next career engagement as a victim of an angry mob.

I would not keep anything in Europe, not a thin red dime.  WW3 starts on this nonsense, your capital is trapped in the eye of the storm.  You cannot assume those computer systems are available and the one that knows who you are is on.  WW1 and WW2, there were tonnes of families that attempted the same thing.  Remember casablanca the movie with Humphry Bogart, lots of old money trapped.  Trapped in the eye of the storm.

So do not assume that any particular technology will exist to make getting money abroad easier.  Seriously I know Iraq has ATM's and the rest of that now.  But they are mostly down because of power outages.  Why those outages happen in a resource "jackpot" like Iraq, is a different matter.  Cash on hand.  Invest in a safe, or pour one with concrete and a lock smith there.

Don't start electronically shuffling this shit or you are asking for trouble.  We have sabre rattling in the middle east.  Countries losing money hand over fist.  And about fifty other really bad things on a global scale.  

kito's picture

what about the citizens of the newly formed country Catalonia? what do they do? 

BandGap's picture

Party. They have a six month grace period.

CPL's picture

Like anyone should with a spanish/euro account, worry a lot, panic, drink heavily.

Because they didn't downgrade them, they can't print more capital.  Liquidity brick wall.  Pow!

BandGap's picture

They are another slice of chaos in the big stirring pot, the jalapenos in the chili.

How much money is being moved out of southern Europe these days? I saw prognostications that once the collapse starts it will just domino around the world. What kind of lag time does the US get?

CPL's picture

As fast as fibre can carry a signal.


Which is the speed of light.  All the banks were all tied at the head to coordinate efforts last spring.  It was because they were not completely connected that things didn't blow up completely.  They were lashed to together so all countries could continue printing cash.  There's no firewall anymore, it is an all for one, one for all...unless it's Lagarde going bonkers because her homeland is about to be next on the trash heap.  I doubt she would be that sentimental, but there is no reason for the US to meddle with this.  They are presently occupied.


ebworthen's picture

The real question is, how much did Moody's get paid to not downgrade Spain before the election?

Or was it some calls from Timmy and S.E.C. about a certain case against Egan-Jones?

fonzannoon's picture

"Hello Moody's? This is Tim"

"We know Tim, we know"


timehill's picture

Will Egan-Jones follow suit?  Maybe not!

SheepDog-One's picture

If all this 'Everything is in suspended disbelief, cuz of the elections' stuff thats been the tag for every story for the last year at least is at all true then in only a few weeks we should see the biggest market collapse ever.

Besides, what do 'ratings' mean at all anyway? Here we are at near all-time record highs still regardless of all this ratings high drama....seems to mean nothing.

BandGap's picture

No market collapse, just a change of polka dotted ponies for the ride. There is always optimism with a new administration, because you know they'll fix it. They said they would.

Whose in charge when we are transitioning from one administration to the next and the SHTF?

Hope and change, baby. Duck and cover. Stop, drop and roll. Don't fire till you see the whites of their eyes.


fonzannoon's picture

Sheep your overall thesis is still intact. The market will run higher after the election. Then higher after we announce a fiscal agreement that never actually comes to pass. Higher until it just implodes one day. It's that simple. To think it would hold until someone is elected, then fall apart is to just mark another day as the endpoint which never is the day.

LULZBank's picture

You dont have to be junked just because you are going down, huh?

chump666's picture

It's truly an awful sleight of hand here.

Obama has staged the biggest stock bubble, housing spike is nothing, since 2007.  Allowing Wall Street to hold profits through a 50/50 not-so-good Oct profit reporting.  The banks are holding the indexes up (yes from the slight housing spike reinforced by QEforever).

As for Europe, Spain is pathetic until the riots turn deadly.  Which may happen just before the US elections.  Wouldn't that be a treat?

Martdin's picture

Trolled yet again, lol

q99x2's picture

Awk Geitner wouldn't pay them before the election. Banksters like the Democrats better than the Republicans and their military industrial complex.

chump666's picture

Moodys are one f*cked up rudderless rating agency.

Just put the kibosh on Argentina:

BUENOS AIRES--Argentine stocks and bonds did well Tuesday as fears following the Chaco incident faded and the local market fell back into lock-step with Wall Street.
Earlier this month, Chaco province failed to make a U.S. dollar-denominated bond payment in pesos, saying the central bank wouldn't let it buy U.S. dollars on the foreign exchange market.
That sent the local market reeling, but confidence has slowly returned as government officials have repeatedly assured bondholders that they plan to pay dollar-denominated bonds in dollars.
On Tuesday, Economy Minister Hernan Lorenzino said Argentina's government will make a $200 million bond payment in U.S. dollars as scheduled on Wednesday and lashed out at Moody's Investors Service for saying recent developments raise questions about Argentina's future foreign currency debt payments.
On Monday, Moody's said that the dollar shortage and increased government intervention in the economy are "credit negative for all Argentine debt instruments payable in foreign currency."
Mr. Lorenzino called Moody's statement "a speculative attack" and said the government is keeping its commitments to investors. He described the Moody's note as a "terrorist report" that scared investors.
The government is set to pay out the $200 billion on dollar-denominated 2017 Bonar X bonds tomorrow. The Bonar X bonds added 0.2% in price terms to close at ARS535 ($114) Tuesday.
The market is expecting much of that payout to be poured back into the bond market as investors are tempted by the 10% yields with bonds like the Boden 2015, financial consultants Estudio Ber said in a market note.
The dollar-denominated Boden 2015 bonds ended the day 0.3% lower in price terms at ARS578.
The heavily traded peso-denominated GDP warrants rose 0.7% to ARS15.17.
Meanwhile, the stock market caught a tailwind from the gains in the U.S., where a string of solid earnings reports boosted stocks on Wall Street.
Argentina's benchmark Merval stock index rose 0.9% to close at 2,427.33 points, amid thin volume of ARS28 million.
Banks did particularly well. BBV Banco Frances (BFR, FRAN.BA) rose 3.3% to close at ARS8.78. Banking group Grupo Financiero Galicia (GGAL, GGAL.BA) added 1.7% to ARS3.7%.
The peso closed at ARS4.7315 to the U.S. dollar on the MAE foreign-exchange wholesale market, compared with ARS4.7265 in the previous session. On the black market, Argentines were paying between ARS6.20 and ARS6.21 for a dollar, according to financial newspaper El Cronista.

hawk nation's picture

If obama looses the election the media will go negative on the economy to justify how partisan they are toward obama 


the media will blame romney for the bad economy and will keep bringing up all the concerns that are stated on zh


the sheep will be shocked that america is in such economic decline and the media will blame it on romneys policies


buy gold


bugs_'s picture

maybe the Moody's guys don't have their personal positions in place yet?

Any text messages from Deep Shah?

SokPOTUS's picture

Here ya' go ZH'ers:




Now Junk it.

AnAnonymous's picture

'Americans' protect their own. Who could have figured?

In the meantime, pit countries, with plenty of resources, did less and got downgraded.

Opening the door to repoing. In 'american' economics, much better to be insolvent, 'american', and indebted past the point of sustainability, 'americans' will thumb you up.

Dont be solvent and indebted below the point of no return, 'americans' will downgrade you fast in order to transfer your remaining wealth from you to them through repoing.

People who are solvent are much juicy than people who are not.

Watch out for the 'american' tale of living within your means, just a trick to provide them with fresh meat...

TheFourthStooge-ing's picture

AnAnonymous shat this out and stepped in it:

'Americans' protect their own. Who could have figured?

Yes, sure, because Egan-Jones isn't an 'American' company, right Hop Sing?

People who are solvent are much juicy than people who are not.

That must leave your AnAnonymist roadsides a slippery mess.

awakening's picture

Amazing how they seem to put the entire world on hold for a puppet show (election? I don't see no election) in the US.