Moody’s downgrades Spain’s regions

Moody’s cut its debt ratings of most of Spain’s regions Wednesday, one day after delivering a sovereign downgrade to the country, warning it still lacked a “credible” resolution to its economic crisis.

Moody’s cut the ratings of nine regions, two Basque provinces and five other government-related entities by one or two steps each, and labeled them with a negative outlook, suggesting possible future downgrade.

One region, Castile-La Mancha, was hit with a five-notch ratings cut to Baa2.

“Large financing needs alongside constrained access to long-term funding sources have forced regions to deplete their cash reserves, extensively use short-term credit lines, and expand their commercial debt obligations,” Moody’s said in a statement.

It also cited persistent budget shortfalls “due to the regions’ difficulty in reining in their cost bases significantly.”

Castile-La Mancha’s sharper downgrade came based on recent disclosures that put the large central-Spain region’s finances “incompatible with an investment-grade rating.”

Moody’s cited “the emergence of unexpectedly large deficits and commercial liabilities following a recent audit of its accounts.”

Earlier Wednesday Spain’s Treasury challenged the sovereign downgrade, saying in a letter to investors the downgrade “may be motivated more by a short-term reaction to negative news about the eurozone debt markets” than by long-term fundamentals.

“The nation’s significant deleveraging has significantly reduced its external financing needs,” the Treasury said. “The Spanish government remains committed to fiscal consolidation and structural reform.”