S & P Lowers Valencia’s Rating

June 27th, 2011

Standard and Poor’s (S&P), the credit rating agency, on Wednesday cut one notch off Valencia’s long-term debt ratings from ‘A+’ to ‘A’ and has warned that the autonomous region may face further downgrades.

The fall in revenue due to the Spanish economic crisis, level of debt, difficulty in implementing tough cost-cutting measures and high political costs, have all contributed to weakening the Valencian Community’s execution of their budget, the rating agency added, suggesting that they feel Valencia can not balance its books within a reasonable time without “intense” efforts.

Despite the cut, Valencia’s long-term note continues to recognise the region’s ability to meet its payments, albeit with moderate sensitivity to an adverse environment.

However, S&P is maintaining a negative outlook on the rating, and may cut it again in the near future depending on fiscal consolidation plans in the region and the probability of support from the State.

In turn, S&P has also downgraded the rating of the Valencian Institute of Finance to an ‘A’, and has placed it on negative watch.

The President of the Valencian Government has also blamed the downgrade granted by S&P on their long term debt on “the current economic crisis crossing Spain which is affecting regional finances” but was keen to point out that S&P gives an “A” rating to those bonds with a strong capacity to repay interest and capital and said that “in fact the grade “A” is the sixth highest in the twenty-one potential grades granted by this agency.”