TEXT-Fitch cuts Autonomous Community of Murcia to 'BBB-'
Feb 25 - Fitch Ratings has downgraded the Autonomous Community of Murcia's Long-term foreign and local currency ratings to 'BBB-' from 'BBB' and affirmed its Short-term foreign currency rating at F3. The Outlooks on the Long-term ratings are Negative. KEY RATING DRIVERS The downgrade reflects Fitch's expectation that the weak financial performance will persist up until 2014, making it difficult to foresee a positive current balance. Fitch believes the financial debt may increase to EUR5bn. Other contributing factors to the downgrade are the higher than expected negative current balance in 2012, and Spain's fragile economy. The region has recorded a negative current balance for the third consecutive year. However, the ratings benefit from the strengthening of the central government control mechanisms, which impose more robust budgetary discipline and transparency. The preliminary accounts show that for 2012, Murcia's deficit was equivalent to 2.8% of its regional GDP, above the 1.5% deficit target, but significantly less than the 4.3% deficit recorded in 2011. This is despite the Budgetary Stability Law that instils some fiscal discipline and gives instruments to the central government to intervene in the regions' finances to prevent them from deviating from fiscal targets. Despite all the austerity measures adopted, meeting the deficit target of 0.7% for 2013 and 0.1% for 2014 of regional GDP will still be challenging, and the 'BBB-' rating factors in a negative current balance up until 2014. The region has requested EUR631m through the liquidity fund for regions (FLA) for 2013, higher than the EUR528m requested in 2012. By 2014, debt servicing will represent almost 25% of its current revenue, compared with less than 4% in 2006-2007. Spanish regions face challenges in re-financing their debt as few now have access to capital markets. The Negative Outlook reflects the uncertainty on the recovery of the Spanish economy, and the medium-term reliance on the liquidity fund for regions which supports the current rating. Although Murcia's credit fundamentals are weaker than its current rating, Fitch believes the central government would ensure sufficient liquidity was available to the region to service maturing debt obligations. KEY SENSITIVITIES The ratings are sensitive to a number of assumptions: - Fitch assumes that the liquidity mechanism introduced by the central government will be extended beyond 2013 if access to borrowing remains difficult. - Fitch also assumes that the region's debt will not increase substantially above EUR5bn by 2014. - Fitch assumes that in 2013 and 2014 the current balance may still be negative but will have improved with respect to 2012. - Fitch also assumes that there are no significant accounting adjustments by the central government to the budgetary out-turn of the region which would make the final outcome significantly worse than Fitch's expectations. Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, "Tax-Supported Rating Criteria", dated 14 August 2012, and "International Local and Regional Governments Rating Criteria outside United States", dated 17 August 2012, are available on www.fitchratings.com. Applicable Criteria and Related Research Tax-Supported Rating Criteria International Local and Regional Governments Rating Criteria - Outside the United States