(Repeats to additional subscribers)
* ECB takes highest ratings when assessing collateral
* DBRS says downside risk persists to Irish export-led
* Keeps Spain at AA, changes trends on debt to negative
(Adds DBRS comments on Spain)
By Padraic Halpin
DUBLIN, Aug 17 Canadian credit rating agency
DBRS cut Ireland's debt one notch on Wednesday but kept its A
grade status, sparing the country's banks a painful 5 percent
penalty charge for using Irish bonds as collateral in return
for crucial European Central Bank funding.
DBRS downgraded Ireland's debt to A (low) from "A" and put
its trend on negative owing to weaker-than-expected growth
prospects even though the new government had shown strong
commitment to fiscal consolidation.
The Toronto-based agency also changed its trends on Spanish
debt to negative from stable but maintained it at AA, saying
the rating balanced relatively low public-sector indebtedness
and progress on fiscal targets with high fiscal deficits.
DBRS's A (low) rating for Ireland compares with its three
larger rivals' much lower valuations, but the ECB looks at the
highest of the ratings when assessing collateral.
Moody's rates Ireland at Ba1, one notch below junk, while
S&P and Fitch both have Ireland at BBB-plus, three notches
DBRS said that while Ireland was regaining competitiveness
and that it could change its rating trend to stable, the
downside risks to the country's export-led recovery persist,
especially given heightened uncertainty over the outlook in the
"The evolution of Ireland's ratings ultimately depends on
the prospects for debt stabilisation. If fiscal targets are
achieved and there is clear evidence of economic recovery, the
trend could be changed to stable," the ratings agency said.
"On the other hand, possible downward rating action could
be triggered by fiscal slippage or a material worsening of
Ireland's growth prospects."
DBRS said the the increased risks to U.S. growth also
influenced its decision to put Spain's trend on negative, as
did the sharp rise in uncertainty in financial markets due to
economy-wide funding conditions.
Moody's put its Aa2 rating of Spain on review for possible
downgrade last month. Moody's rating is in line with fellow
rating agency S&P's AA setting, while Fitch Ratings has the
country one notch higher at AA+. [ID:nLDE76S04W]
DBRS gained significance in Europe at the start of 2008
when the ECB added it to the a list of firms whose ratings
govern which bonds can be used as collateral in its lending
Irish banks, at the root of the country's financial crisis,
are dependent on emergency loans from the ECB to fund their
Ireland's domestic banks had loans of 72 billion euros from
the ECB at the end of June, around 15 percent of the total
overall loans Frankfurt made to banks across the euro zone.
For a table of the ECB's collateral haircuts, click:
(Reporting by Padraic Halpin; Editing by Susan Fenton and Dan