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.
Explaining the change:
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