TEXT-S&P cuts cities of Barcelona, Madrid to 'BBB-'

Wed Oct 17, 2012 12:07pm EDT

Related Topics

Overview
     -- We lowered our sovereign ratings on Spain to 'BBB-/A-3' from 
'BBB+/A-2' and assigned a negative outlook to the long-term rating on Oct. 10, 
2012.
     -- We cap the ratings on the Spanish cities of Barcelona and Madrid at 
the level of the long-term sovereign rating because, under our criteria, these 
two local and regional governments (LRGs) do not meet the conditions to be 
rated higher than the sovereign.
     -- Consequently, we are lowering our long-term ratings on these two LRGs 
to 'BBB-' from 'BBB+' and lowering our short-term rating on Madrid to 'A-3' 
from 'A-2'.
     -- The negative outlooks on the two LRGs reflect the negative outlook on 
Spain.


Rating Action
On Oct. 17, 2012, Standard & Poor's Ratings Services lowered its long-term 
issuer credit ratings on the Spanish City of Barcelona (Barcelona) and City of 
Madrid (Madrid) to 'BBB-' from 'BBB+'. We have also lowered our short-term 
issuer credit rating on Madrid to 'A-3' from 'A-2'. The outlooks on the 
long-term ratings on the two local and regional governments (LRGs) are 
negative.

Rationale
The downgrades reflect a similar action on Spain on Oct. 10, 2012 (see "Spain 
Ratings Lowered To 'BBB-/A-3' On Mounting Economic And Political Risks; 
Outlook Negative," published on RatingsDirect on the Global Credit Portal).

We cap our ratings on the cities of Madrid and Barcelona at the level of the 
long-term rating on Spain. This reflects our view that the cities do not meet 
the criteria under which we would rate a LRG higher than its sovereign (see 
"Methodology: Rating A Regional Or Local Government Higher Than Its 
Sovereign," published Sept. 9, 2009).

Under these criteria, an LRG can be rated higher than its sovereign only if it 
can maintain credit characteristics that are more resilient than the 
sovereign's in a stress scenario, has a predictable institutional framework 
that limits central government's interference, and displays high financial 
flexibility. At this stage, we believe that neither Madrid nor Barcelona 
display these characteristics.

We will review the indicative credit level (ICL) of Barcelona and Madrid as 
soon as we have new relevant information to assess their individual credit 
profiles, in accordance with our criteria for rating LRGs. The ICL is not a 
rating but a means we use to assess the intrinsic creditworthiness of an LRG 
under the assumption that there is no sovereign rating cap. The ICL results 
from the combination of our assessment of an LRG's individual credit profile 
and the institutional framework where it operates. 

Outlook
The negative outlooks on the long-term ratings on the cities of Barcelona and 
Madrid reflect that on Spain, since we do not rate Spain's local governments 
above the sovereign, according to our criteria.  


Related Criteria And Research
     -- Spain Ratings Lowered To 'BBB-/A-3' On Mounting Economic And Political 
Risks; Outlook Negative, Oct. 10, 2012
     -- Methodology For Rating International Local And Regional Governments, 
Sept. 20, 2010
     -- Methodology: Rating A Regional Or Local Government Higher Than Its 
Sovereign, Sept. 9, 2009


Ratings List
Downgraded
                        To                  From
Madrid (City of)
 Issuer Credit Rating   BBB-/Negative/A-3   BBB+/Negative/A-2
 Senior Unsecured       BBB-                BBB+

Barcelona (City of)
 Issuer Credit Rating   BBB-/Negative/--    BBB+/Negative/--


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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