Moody’s: Risk Emerges for Spain Electric ABS

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Deals backed by Spanish electricity tariff deficits could be hurt by a proposed energy reform bill due to become law by year’s end, according to a release by Moody’s Investors Service.

The agency is keeping transactions in this asset class, which are rated ‘A3(sf)', on review for downgrade.

The thrust of Moody’s argument for the downward bias is that the soon-to-be law could convert at least some of the securitized rights into sovereign liabilities from their current status as fully secured obligations of the electric system, codified under Spanish law.

“The Spanish government said in a press conference…that it would assume €2.5 billion of the deficit by taking €2.1 billion of past tariff deficit annuities and interest onto the state budget,” the agency said.

Moody’s downgraded these transactions in July following a sovereign downgrade, but they are still above Spain’s rating, which is presently ‘Baa3.’ It appears that tightening their link to the government could diminish the three-notch distance from Spain they currently enjoy.  

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