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
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
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
- 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