Ratings agencies downgrade Spain’s Valencia region

Moody’s and Standard & Poor’s downgraded the credit rating of Spain’s Valencia Monday, amid growing financing difficulties as the autonomous region’s debt levels worry the markets.

S&P dropped Valencia’s rating by three notches to BBB-, with a negative outlook, meaning it could be cut further within 90 days. The credit ratings agency cited the region’s recent difficulties in raising short-term funding.

The negative outlook was justified because of a lack of visibility on how the region can raise finance next year, it added.

Soon afterwards, Moody’s took aim at the same Spanish region, downgrading its creditworthiness by two notches to Ba1.

“Although Moody’s recognises that the region of Valencia’s solvency remains acceptable despite some recent deterioration, the region’s growing liquidity problems have become more pronounced in the last few months due to wider market confidence problems in the euro area,” Moody’s said in a statement.

On Friday, S&P cut the Canary Islands from A+ to AA-, a further danger sign for the country’s struggling public finances.

“We expect a further deterioration of the Autonomous Community of Canary Islands’ budgetary performance, resulting in a weaker liquidity position,” it said.

Spain has already imposed spending cuts on its regions in its efforts to trim the country’s deficit, which is a big worry for the financial markets that lend it money.

In the third quarter, the combined total debt of Spain’s 17 provinces came to 12.6 percent of gross domestic product, up from 10.6 percent a year earlier, according to Bank of Spain figures.

Standard and Poor’s warned Spain and 14 other eurozone members, including Germany and France, early this month that they faced a possible downgrade of their sovereign debt because of strains on their finances as the economy slumped.