Moody's May Cut Rating on Spain

Credit rating company Moody’s issued a warning Wednesday that it is considering downgrading the credit rating of Spain yet again, making it the latest financial entity to express concerns about the debt-laden Mediterranean country.

Moody’s analysts said that Spain’s high financing needs in 2011 and fragile market conditions for countries in similar financial shape put Spain’s “Aa1” rating in jeopardy. The agency said, however, that they don’t believe Spain is in as bad financial shape as Ireland or Greece and currently expects the country to keep a rating in the “Aa” range.

“Spain's substantial funding requirements, not only for the [national government] but also for the regional governments and the banks, make the country susceptible to further episodes of funding stress,” said Moody’s analyst Kathrin Muehlbronner in a statement. “This is one of the drivers behind the review for possible downgrade.”

Moody’s believes that with its current deficit, the Spanish government will have to raise 170 billion euros worth of debt in 2011 which does not include 30 billion euros in financing for Spanish regional governments and 90 billion euros for Spanish bank refinancing.

With its heavy financing needs, Moody’s says it suspects that the Spanish Government could have difficulty raising the capital it needs and may have to seek support from the IMF and European Union.

“Ongoing higher funding costs would strain Spain's debt affordability further beyond current expectations and could also negatively impact the availability and cost of credit to the widereconomy,” the agency said in a statement.

Like Greece, Ireland and Portugal, Spain is one of several Eurozone countries that have concerned investors for the past year. But Spain has the third-largest economy in the Eurozone and many suspect if thing deteriorate further, Spain will be the ultimate test on whether the EU has the political and financial power to contain what has been a year-long sovereign debt crisis.

Moody’s last downgraded Spain in late September from a “Aaa” rating to an “Aa” rating with a stable outlook.