TEXT-Fitch:Spanish corporate rtgs unaffected by sovereign action

Jan 30 - Fitch Ratings says following the agency's downgrade of Spain's rating to 'A'/Negative Outlook from 'AA-'/Rating Watch Negative (RWN) (see "Fitch Takes Rating Actions on Six Eurozone Sovereigns", dated 27 January 2012 at www.fitchratings.com) Spanish corporates' Issuer Default Ratings (IDR) are unaffected but highly rated utility bonds are affected.

Following the sovereign rating action, Enagas' senior unsecured rating has been downgraded to 'A+' from 'AA-'/RWN. Red Electrica's senior unsecured rating has been downgraded to 'A' from 'A+'/RWN. Endesa's senior unsecured and preferred stock ratings have been downgraded to 'A-' from 'A'/RWN and 'BBB-' from 'BBB'/RWN respectively. Endesa's ratings are equalised with the ratings of its Italian parent Enel S.p.A. Fitch had previously placed all these bonds on RWN (see "Spanish Corporate ratings Unaffected by Sovereign Action; Some Utility Bonds on RWN" dated 19 December 2011 at www.fitchratings.com).

Fitch has articulated parameters for the corporates' rating action should eurozone sovereigns' ratings be adversely affected. Generally, both corporates' IDRs and senior unsecured debt ratings within the eurozone may exceed the local sovereign rating, subject to the 'AAA' eurozone country ceiling for all issuers.

However, the additional notch for higher recoveries, which Fitch applies to relevant utility's senior unsecured debt is not applied where a sovereign's rating falls below that of the utility's senior unsecured debt rating. Instead, the senior unsecured debt rating is aligned with the utility's IDR. Fitch believes that the traditionally higher rates of recovery for the utility's senior debt are less predictable in a distressed sovereign environment than in the case of an idiosyncratic default of a single utility.

While this is more frequently an issue in emerging markets with much lower country ceilings, Fitch has already applied this approach in a eurozone context in the cases of EDP-Energias de Portugal ('BBB+'/Negative/'F2'/'BBB+') and Electricity Supply Board ('BBB+'/Negative/'F2'/'BBB+') in Ireland. These entities' ratings are not affected by today's sovereign rating actions.

Under Fitch's approach, the IDR may nonetheless remain several notches above the sovereign rating. For more details on corporate rating interaction with sovereign issuers, please see the related research below.