DBRS improves the outlook for the Generalitat’s debt due to forgiveness

2023-12-15 22:15:52

Before running, ERC’s agreement with the socialists to forgive 15,000 million euros20% of the debt of the Generalitat with the regional liquidity fund (FLA) is beginning to have positive effects for Catalan accounts. The agency DBRS Morningstaralthough it maintains the grade for the passive, has decided to improve its outlook from “stable” to “positive,” which is usually a step prior to improve rating. According to the terms of the agreement, this measure will mean an interest saving of around 1,300 million until 2033, the year in which the Government expects to have completely liquidated the FLA, whose debt amounted to 71,308 million as of September 30, 84.4%. of the total liabilities of the Generalitat.

The agency is based on the agreement, which the ERC-PSOE hopes will be executed for the investiture of Pedro Sánchez, which, in its opinion, will mean a “relief” in the burden borne by the Catalan administration and “better fiscal prospects.” DBRS is convinced that the return to fiscal rules in the euro zone after the parenthesis due to pandemic with a deficit set at 0.1% of gross domestic product (GDP) for the autonomies, will contribute to achieving the objectives in public accounts. Another factor that the agency highlights is that economic growth in Catalonia it will be “low”, compared to that of 2023, but “stable”.

The agency affirms that the Catalan debt is supported by its improvement since 2016 and the financial support from the state, which “significantly reduces refinancing risks.” In the opinion of the agency, The relations between the Generalitat and the central Executive “have been strengthened slowly but steadily over the last few years.” And, although the issue of independence remains a theme “structural in the medium and long term” and tensions could resurface, The financial and institutional relations between both governments “will not deteriorate significantly.”

Grade improvement

DBRS Mornigstar affirms that the credit rating of Catalonia will improve as soon as the debt forgiveness mechanism is implementedwhich will produce a substantial reduction in the financial burden, while The political and institutional relationship between the Generalitat and the central Executive continues to tend “towards normalization”. Other variables that can help improve the credit score are that the community continues with measures to achieve the budget balance or that the rating for the kingdom of Spain rises, which is ‘A’ “stable.”

The agency warns that the outlook will worsen if the forgiveness agreement is not implemented or if its characteristics or magnitude “are insufficient for rapid and substantial debt relief.” And the grade for the Generalitat may even be lowered if tensions grow between both governments and this translates into less financial support for autonomy or if there is “a structural deterioration of the Catalan accounts and the deficit skyrockets and the debt metrics deviate.”

DBRS, que was the second to remove the junk bond label from the debt of the Generalitatmaintains the Generalitat’s debt grade at ‘BBB’ “low”, with a stable trend since March 11, 2022. Fitch Ratings, the first to remove the rubbish label from the Catalan dueda, has it at ‘BBB-‘, stable outlook since July 16, 2021. For its part, Moody’s Investors Service It is rated ‘Ba1’, with a stable outlook from July 22, 2022, which means keeping it at the speculative grade; and Moody’s ESG Solutions, which measures social responsibility and governance, ‘A2’ as of November 3, 2021.

Related news

The Government, which planned to return to the market gradually starting in the current year, decided to delay it to 2024. The idea was to start with 5% of the total debt, which in principle will be from next year and then they would continue 10%, 15% and 20% in 2025, 2026 and 2027, respectivelyaccording to the budget guidelines report that the Department of Economy directed by Natàlia Mas presented in Parliament.

Since 2012, the Generalitat has had the State as a financier through the mechanisms that were created to alleviate the closure of markets to the autonomous communities. One of them is the regional liquidity fund (FLA), with which the outstanding debt of communities that fail to meet the deficit objective is amortized. According to the forecasts of the Catalan Executive, they will continue to have the State as a creditor until 2034.