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Moody's holds Spain rating pending eurozone moves

01 september 2012, 10:30
Moody's said Thursday that it would hold its review of Spain's credit rating until late September as it waits for more clarity on the European Stability Mechanism and moves for a eurozone banking union, AFP reports.

The rating agency said its review of Spain for a downgrade, as the country seeks more funds to prop up its banking system and economy, needed more clarity on the direction of two eurozone programs that could affect Madrid's financial situation.

"The Baa3 long term debt rating of the Spanish government remains on review for possible downgrade," Moody's said.

"The review commenced on 13 June 2012 and will likely continue through the end of September," it said.

It said it was waiting for more information on the size of bank recapitalization needs, and "the nature and size of support mechanisms available under the European Stability Mechanism", which is still awaiting a German constitutional court ruling.

In addition, Moody's said, it will wait to see what changes policy-makers make to the eurozone's existing crisis-management framework, including the planned banking union.

However, Moody's warned that it could act sooner on a possible downgrade if Madrid moves to seek fresh bailout capital to avoid a debt payment crisis.

"While full support under these market conditions would alleviate the risk of a default in the short term, Moody's believes that medium-term risks to bondholders would increase in such a scenario," it said.

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