Standard & Poor's  lowered its long-term sovereign credit ratings on the Kingdom of Spain to 'AA+' from 'AAA' because the current economic and financial market conditions have highlighted  structural weaknesses in the Spanish economy that are inconsistent with a 'AAA' rating.

The 'A-1+' short-term ratings on the Kingdom were affirmed and the outlook is stable.

The downgrade of the sovereign reflects the rating agency’s expectations that public finances will suffer along with the expected the decline in Spain's growth prospects, and that the policy response may be insufficient to effectively counter the related economic and fiscal challenges.

The downgrade also applies to those institutions with ratings linked to the sovereign. "Any security that received a rating due to the government's guarantee will now be rated 'AA+' rather than 'AAA'," said Trevor Cullinan a credit analyst at S&P.

The Spanish government has backed one of the largest SME securitization programs in Europe.

Last year, the Spanish government agency, Instituto de Credito Oficial (ICO), announced two guarantee programs with the guarantee of Kingdom of Spain for 2008, one of them for SME loans that provides medium term liquidity to banks funding SMEs. It is executed through the FTPYME program, applicable to triple- A or double-A tranches of SME loans securitizations, with a total size of the guarantee of up to €3 billion ($3.9 billion). 

But there have been specific worries related to SME ABS. Societe Generale said last year that in case of recession, SMEs credit risk is seen as more correlated to economic downturns than retail assets.

S&P said its stable outlook reflects the significant progress in bringing government debt-to-GDP back to the 2008 level, alongside liberalization of labor and product markets in order to increase productivity growth, improve competitiveness, and reduction in unemployment.

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