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A Week After Madeira-Gate, Moody's Downgrades Them to B3

Tyler Durden's picture


Last Friday, Blooomberg reported the mysterious appearance of unreported debts by the island of Madeira. A week later, Moody's steps up to the plate and slaps a two-notch downgrade on the Autonomous Region due to (among other things) "grave irregularities" in the region's budget reporting. It is little wonder that investors are reducing exposure to government debt throughout Europe as these little anomalies keep popping up among the weaker oh-so-desperate-to-be-among-the-in-crowd sovereigns.


Full Statement: Moody's downgrades the Autonomous Region of Madeira to B3 from B1 (Portugal)


Madrid, September 23, 2011 -- Moody's Investors Service has today downgraded the long-term issuer rating of the region of Madeira to B3 from B1 following concerns over the region's poor governance and management as well as its weak budget execution. The rating action concludes a review for possible downgrade commenced on 7 July. The rating remains on review for further possible downgrade.




Today's downgrade reflects Moody's concerns over the region's poor governance and management as well as its weak budget execution, which were heightened by the Ministry of Finance's publication of a press release revealing "grave irregularities" in the region's budget reporting. Madeira has failed to report around EUR1.2 billion (approximately 130% of the region's annual revenue) in commercial liabilities over the last few years. This adds to the EUR568 million (around 65% of the region's revenue) to be recorded in the regional deficit and debt for H1 2011, which was already announced in early September by the Portuguese Finance Minister.


Given the magnitude of the amounts disclosed, we believe that Madeira will continue experiencing budget pressure for some time, as absorbing those liabilities into its budgets is likely to take several years. When including these unfunded liabilities in the region's debt metrics -- as these obligations will most likely have to be funded through the recourse to financial debt -- Madeira's net direct and indirect debt stock would soar to more than five times its revenue by the end of 2011. This represents a substantial increase from the already high debt ratio of roughly 380% of revenue recorded at the end of 2009 driven mainly by the significant debt of regional companies. Moreover, Moody's notes that the region's high funding requirements will prove difficult to fund via bonds or even long-term loans at an affordable cost, should the current market sentiment towards Portuguese issuers be further protracted, therefore rendering essential the central government's support in resolving this matter.




Moody's understands that Madeira has solicited the collaboration of the central government to develop a restructuring plan. The central government is currently scrutinising the region's finances and over the next few weeks, a clearer picture of the regional accounts and that of its related companies will emerge. Thereafter, the central government is expected to propose concrete measures to redress the financial position of the region, including a timetable for it to repay its newly disclosed commercial obligations.


Moody's review will focus on the content of this package. We will examine the measures to be applied in order to rein in costs and bolster revenue (such as the suspension of investment programmes, scope and scale of potential tax hikes) in order to assess the implementation risks in the context of the region's track record of poor fiscal discipline. The timeframe of this rebalancing plan and the involvement of the central government in its realisation will also be critical to our analysis.


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Thu, 09/22/2011 - 18:44 | 1699165 prophet
prophet's picture


Thu, 09/22/2011 - 18:46 | 1699173 frugartarian
frugartarian's picture

Contagion in 3...2..1..

Thu, 09/22/2011 - 18:48 | 1699180 Yamaha
Yamaha's picture

Hold on to your butttttttts! When they recognize it - we are all f_____ed!

Thu, 09/22/2011 - 18:49 | 1699181 JailBank
JailBank's picture

Wait I thought the Brenanke said that soveign debt was contained two years ago? Oh shit son looks like all SHTF!

Thu, 09/22/2011 - 18:48 | 1699182 Global Hunter
Global Hunter's picture

Greece going to be well pissed off if Madeira takes this ship down!

Thu, 09/22/2011 - 19:34 | 1699305 knukles
knukles's picture

What with no austerity packages to take.
Yooo hoo!  We're home!

Thu, 09/22/2011 - 19:36 | 1699313 Rodent Freikorps
Rodent Freikorps's picture

Portugal owns Madeira.

Thu, 09/22/2011 - 19:56 | 1699354 knukles
knukles's picture

Sell it to Greece and contain the contagion.

(Sounds like a next EuroVision Song Contest Winner: "Contain the Contagion")

Thu, 09/22/2011 - 21:20 | 1699545 Mallenet
Mallenet's picture

Show me the receipt!

Thu, 09/22/2011 - 18:49 | 1699183 The Fonz...befo...
The Fonz...before shark jump's picture

Wow Moody's has a lot of balls when it's a little island.... The cowardly bully afraid to give a proper rating to the USA

Thu, 09/22/2011 - 18:59 | 1699224 Cliff Claven Cheers
Cliff Claven Cheers's picture

I second that one.

Thu, 09/22/2011 - 19:50 | 1699333 knukles
knukles's picture

Every country is an island.

Every island needs a village.

Every village has its idiot.


Lucky us.
(wheezing sounds)

Thu, 09/22/2011 - 21:19 | 1699539 Mallenet
Mallenet's picture

Hey - takes one to know one!

Glad to know there is another one here: I was feeling lonely until you came along!

Thu, 09/22/2011 - 18:52 | 1699196 Blorf
Blorf's picture

Well, that does it! No more Spanish autonomous region bond ETFs for me. My broker at GS said the symbol was FXE and was a "sure bet".

Thu, 09/22/2011 - 18:52 | 1699197 wannabe traitor
wannabe traitor's picture

flying into and from their airport is one hell of a RUSH!

Thu, 09/22/2011 - 20:14 | 1699393 Captain Willard
Captain Willard's picture

Yes it is!

But that runway and new airport were not cheap. And neither was the causeway from the airport to Funchal (dug through solid rock much of the way).

Now we know where some of the money went anyway.

At least the Madeirans got a new ariport out of all of it. In America we spent $800 Billion and not a single fucking thing has gotten built. But the Oval Office got re-decorated. So that's something I guess.

Fri, 09/23/2011 - 02:13 | 1700116 jeff montanye
jeff montanye's picture

you make an excellent point.  your spending figure may possibly understate things by a power of ten or so.

Thu, 09/22/2011 - 18:53 | 1699201 FOC 1183
FOC 1183's picture

two words: fortified booze

Thu, 09/22/2011 - 19:03 | 1699205 Alvaro de Esteban
Alvaro de Esteban's picture

Wait and see what´s hidden in Spain...

But not so sure that the future government will have the balls of telling the truth

Has Mr. Draghi a holiday home in the island???

Thu, 09/22/2011 - 18:55 | 1699207 navy62802
navy62802's picture

I visited Madeira Island on my last deployment. Very pleasant place to visit if you ever get the chance.

Thu, 09/22/2011 - 18:57 | 1699212 PulauHantu29
PulauHantu29's picture

"Anomaly" Enron's "anomalies."

Thu, 09/22/2011 - 19:10 | 1699242 Sequitur
Sequitur's picture

TBTF = Enron's "Tier One" banks:

Thu, 09/22/2011 - 19:51 | 1699338 knukles
knukles's picture

temporal transitional anomoly

Thu, 09/22/2011 - 19:00 | 1699214 mynhair
mynhair's picture

Crap, I luv a good Madeira.

Doesn't store well, tho.

Prolly cuz Iz drinks it.


Thu, 09/22/2011 - 19:02 | 1699229 RobotTrader
RobotTrader's picture

If Moody's downgrades Uncle Gorilla Bonds, then the 30-yr. yield is most certainly going to go to 2.1% and the 10-yr. to 0.90%

Thu, 09/22/2011 - 19:23 | 1699276 mynhair
mynhair's picture

Your ratings don't affect you, do they?  So why should others matter?

Thu, 09/22/2011 - 19:52 | 1699340 knukles
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Thu, 09/22/2011 - 22:06 | 1699678 riley martini
riley martini's picture

 The 30 y is going to $155 downgrade or not via the Twist.

 No one cares about the yield they are just trying to time the top 155 or 165.

Thu, 09/22/2011 - 19:04 | 1699232 zorba THE GREEK
zorba THE GREEK's picture

This is disgusting, misreporting their debts. Are the Greeks the only honest people left?

Thu, 09/22/2011 - 19:14 | 1699250 Sequitur
Sequitur's picture

Does this have anything to do with Cheesecake Factory's Chicken Madeira?

Thu, 09/22/2011 - 19:18 | 1699265 jdelano
jdelano's picture

Just got done watching Tom Keene interview lagarde. Going by her body language, either her bowels released right before the interview began or her anxiety level is a notch above un-sedated schizophrenic. Stunning to consider that the burden of saving the world rests on literally a half dozen shoulders. Don't see how they can possibly pull it off. We're fucked.

Thu, 09/22/2011 - 20:41 | 1699453 Mallenet
Mallenet's picture

She is French - a land where a bottom-burp translates to 'I love you, or I would never have released in front of you': and that is why they have so many screwed up relationships with farm animals!

Thu, 09/22/2011 - 19:55 | 1699344 Edward Fiatski
Edward Fiatski's picture

EUR at 1.3 by next week's end.

P.S. Lots of news not being priced in lately, let's see if reality sets in this Friday, though there's a chance of a sucker's rally into the weekend on Hopium - excellente fade grandeur.

Thu, 09/22/2011 - 19:58 | 1699358 Buck Johnson
Buck Johnson's picture

Everyone is starting to figure out that the nations are hiding and lying their debt in order to look good.  When in reality they are insolvent as hell.

Thu, 09/22/2011 - 19:58 | 1699359 Mallenet
Mallenet's picture

Jersey (the original one, not the one we sold to America) has a population of close to 25% 'Portugues' - most from the island of Madeira.  Did you see the movie 'Scare-Face': same deal - they unloaded drug dealers and we got 'cheap' labour for hotels and restuarants.  Now 80% of crime is reported with names that are not local, not English or French: they are all Portugues.  Rape, Murder, Drugs, Protitution - simple beatings - all the same 'nationality'!  People who have lived in an island of 85,000 population know no English after 30+ years!  Their children (educated for 20 years for free) sound like illegal boat people!  Then the Polish workforce comes and speak perfect English, do a great job, want to work and are victimised by who: Madeiran's!

Madeira is Cuba - without a reason to be!  People of Madeira are thieves, drug lords, people trafficers and child molesters: I want to shot them all on sight!

But hey - I like killing animals!

Thu, 09/22/2011 - 20:01 | 1699364 Edward Fiatski
Edward Fiatski's picture

Fucking piece o chit cockaroaches and their motherfucking debts.

Thu, 09/22/2011 - 20:09 | 1699380 celticgold
celticgold's picture

hey mallenet , FYI the cubans are one of the most honest , hard working , healthy, happy and law abiding populations on the planet , AND the women are HOT , so back off buddy!

Thu, 09/22/2011 - 20:36 | 1699445 Mallenet
Mallenet's picture

BUT - I have a little friend, do you want to meet my little friend!

Only Al can make having a small one sound big!

Thu, 09/22/2011 - 20:32 | 1699433 Mallenet
Mallenet's picture

Cheers Pal, you just educated me: I always thought Cubans were sweaty, lazy and Cigar rolling drug dealers - just goes to show how wrong I can be: please do not take my investment advice, comments or even opinions as fact, I will probably be just as wrong!  I hope you and your family remain free of man made hell for as long as is possible!

Thu, 09/22/2011 - 20:41 | 1699455 Zaphod B.
Zaphod B.'s picture

          Madeira   =   Made IRA

Thu, 09/22/2011 - 20:48 | 1699465 Mallenet
Mallenet's picture

How wrong you are: USA Funded IRA bombings of shopping centres for 30 years until USA got Bombed by terrorists = British women & children x 30 years matter less than American Bankers in Twin Towers x 1 time (simple math)!

Thu, 09/22/2011 - 20:51 | 1699470 Mallenet
Mallenet's picture

And lets face it - today if you kill a banker you are qualified as a pest controller!

Thu, 09/22/2011 - 20:59 | 1699489 The Fonz...befo...
The Fonz...before shark jump's picture

Plus 1 for MallenetLol well said but I would add regulators, the fed, bureaucrats, rating agencies, politicians, analysts and Timothy Geitner

Thu, 09/22/2011 - 21:32 | 1699581 Mallenet
Mallenet's picture

Ta for the compliment - but your list is shorter than my 'dream' - you only deal with an area that is the United Supporters (of mafia) America: my view is global: places where a bullet (death) is welcome, food is unexpected and humanity - of any kind - is not even a dream.

But I have seen some of that in the "us of a" (small caps intended), so go home and fix what you can: the rest of the world will do well without your ignorance.  When you learn to learn, give us a call - we may even answer!

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