Tag: ratings agency

S&P Confirms Merlin’s Investment Grade Rating

21 April 2016 – El Mundo

Standard & Poor’s (S&P) has ratified the BBB rating that it assigned to Merlin Properties back in February, after the Socimi successfully closed its recent €850 million bond issue, according to reports from the company.

The ratings agency considers that Merlin’s investment grade reflects the “optimal risk profile” of the Socimi, which is further supported by a portfolio of property assets worth around €6,100 million.

The firm also assigns a stable outlook to the rating for the company led by Ismael Clemente, because it considers that its “large and diversified” property portfolio constitutes a “source of recurring revenue generation”.

“The assets are also well located, which allows the company to benefit from the recovery in the real estate sector that Spain is currently enjoying”, added the ratings agency.

The ratings firm has also assigned the same BBB rating to the €850 million bond issue that the Socimi recently placed. Through this operation, the company will restructure one tranche of the debt that it inherited from Testa when it acquired the company from Sacyr.

Moreover, S&P leaves the door open to a possible increase in Merlin’s rating, in the event that the Socimi adopts a “more conservative” financing policy, however it also warns of a downgrade in the event that its debt exceeds the threshold of 50% of the value of its assets.

Original story: El Mundo

Translation: Carmel Drake

Moody’s: Cataluña’s Anti-Eviction Law Will Deter Investment

2 February 2016 – Expansión

The ratings agency Moody’s considers that the Law for urgent measures against evictions and energy poverty carries a serious risk of affecting real estate investment and the mortgage market in both the autonomous region, as well as across Spain. In its report, to which Expansión has had access, the entity says that the legislation, approved by the Catalan Parliament in July 2015, “has a negative impact” on the mortgage funds in the Spanish residential market.

According to the ratings agency, the Catalan law, processed through a Popular Legislative Initiative (ILP), promoted by the Platform for those Affected by Mortgages (PAH), contains an additional provision that may seriously harm transactions involving mortgage portfolios. Specifically, the law establishes that if, for example, a bank sells a mortgage to a third party, then the debtor may be freed from the loan originally contracted and will only have to repay the third party the amount that said third party has paid to acquire the debt.

Many investment funds have entered the Spanish market (in recent years) to buy mortgage portfolios from the banks at significant discounts. They typically buy risky mortgages, overdue mortgages, and those that are at risk of default, but the investors entering into these operations focus on the yield that they may be able to obtain for the difference between the loan value originally contracted and the price that they have effectively paid to acquire the debt. But that difference may now disappear. “The new law is likely to discourage potential buyers from acquiring delinquent mortgage loans”, say Moody’s in their report. The reason is that “the law potentially deprives the buyer from receiving any kind of profit from these types of transactions”.

The ratings agency says that if an operation is completed at a price below the contracted price, then this “situation may result in part of the mortgage effectively being subject to a discount”.

Moreover, the agency says that a similar measure already exists in the Spanish Civil Code, although there are “significant differences”. According to the state law, the debtor may only exercise this right if he/she pursues it through a judicial dispute and he/she may only exercise this right during the first nine days immediately following the operation. In the Catalan case, although it applies only to primary residences, no legal action is required and no term is established for settling the debt.

The Housing Minister for the Generalitat in Cataluña, Carles Sala, said to this newspaper that he understands the position of the ratings agency, but he highlights that the solution chosen by the Catalan Parliament is based on the fact “that a problem exists that must be addressed”.

When the law was approved, the Government announced that it expected to submit the bill to the Constitutional Court, although that has not happened yet and the law “is now being deployed”, say sources at the Generalitat. The law was passed unanimously, including by the PP.

Nevertheless, its backers consider that the regional Government, led by Carles Puigdemont, is not making enough effort to implement it. The group, which presented the ILP on the housing crisis, has recently demanded another meeting with the new regional president to force the application of the legislative initiative.

In a letter sent to Puigdemont, the backers of the bill, namely, the Platform for those Affected by Mortgages (PAH), the Alliance against Energy Poverty and the DESC Observatory, claim that the right to housing is still being violated and energy poverty is still growing.

After the “historical milestone”, namely, the unanimous approval of the housing ILP in July, the backers say that Puigdemont now seems “vague” and “confused” about the “importance of the legislation”; they demand that he progresses with its implementation.

Original story: Expansión (by Bernat García)

Translation: Carmel Drake

S&P Increases Spain’s Rating To BBB+ With “Stable” Outlook

5 October 2015 – Expansión

On Friday, the credit rating agency Standard & Poor’s (S&P), one of the world’s three main players in this sector, together with Fitch and Moody’s, announced an increase in its rating for Spain’s long term sovereign debt from BBB to BBB+, with a “stable” outlook. In this way, the agency rewarded Spain for the impact that the structural reforms approved in recent years have had on the economy.

In a statement, S&P said that “the increase in the rating reflects our view of the behaviour of the Spanish economy over the last four years – we consider that it has been strong and balanced, and that it is gradually benefitting the public finances”. The agency has been particularly encouraged by the two employment law reforms that have been approved since 2010 (under the governments of Zapatero and Rajoy), which have, in its opinion, improved the competitiveness of Spain’s exports and its service sector.

“The rating from S&P is a sign of confidence in the future of the Spanish economy and an acknowledgement that the political uncertainties do not carry significant weight”, said the Minister for the Economy, Luis de Guindos, yesterday, after S&P made its statement. In reality, the agency is not quite so optimistic – it says that there is still “considerable uncertainty” over whether the next government to emerge, following the elections on 20 December, will continue or even increase the pace of reforms that are still required to improve the economy and fulfil the growth and deficit targets in the medium term. “It is unclear just what a potential change in government would mean for the Spanish economy’s primary weakness, its unemployment rate”, it said.

S&P does not see much danger in the secessionist challenge and believes that Cataluña will continue to form part of Spain; furthermore, it expects that the tension between the central Government and the regional authorities will gradually dilute. However, it warns that a hypothetical independence would hit the Spanish economy hard, including its GDP per capita, its foreign trade balance and the public finances.

Risks still remain

Nevertheless, there are also some purely macroeconomic factors that could divert the country from its positive path…”We would consider reducing the rating if economic growth does not reach our projections; if the monetary policy does not manage to stop the deflationary pressures from eroding the fiscal performance and growth in Spain; and if, contrary to our expectations, net debt exceeds 100% of GDP”. The agency expects this ratio to decrease as the economy improves, and forecasts that it will peak at 98.4% this year and drop to 98% in 2016.

Similarly, the agency says that it is important to remember that certain exogenous factors have favoured the (recent) economic recovery, such as for example, the price of oil and the euro exchange rate.

For the time being, Standard & Poor’s expects nominal GDP to grow by around 4% over the next three years. Last Wednesday, the agency improved its growth forecast for Spain in 2015 by 2 p.p., from 3% to 3.2%, and by 1 p.p. in 2016, to 2.7%. Its estimation for 2017 is 2.4%. (…).

Original story: Expansión (by Yago González)

Translation: Carmel Drake

Fitch: House Prices In Spain Have Bottomed Out

12 February 2015 – El Mundo

The ratings agency expects prices to stabilise at their current levels, 40% below their peak.

It also predicts that the increase in house prices will be “marked” by the greater availability of credit and a substantial improvement in the labour market.

The credit rating agency Fitch Ratings expects house prices in Spain to stabilise at their current levels, 40% below the peak levels recorded before the crisis. The agency notes that the data now shows that an equilibrium has been reached and prices will not decrease any further.

According to its report about the mortgage market in Spain, the theoretical benefits of greater access to credit are still a long way off from compensating for the over-supply (of homes) and the lack of confidence caused by high unemployment. Similarly, Fitch adds that the increase in house prices will be “marked” by greater availability of credit and a substantial improvement in the labour market.

In this sense, it stresses that interest rates are currently low and that it expects debt servicing to continue to be manageable in the medium term, but it warns that households that are in the process of deleveraging remain sensitive to interest rate rises.

On the other hand, it considers that banks are more willing to grant mortgages to solvent customers and are gradually reducing their margins, as a result of their own lower financing costs. Nevertheless, the low forecast Euribor rates for 2015 will restrict any further decline in these margins.

The agency notes that, according to data from the National Institute of Statistics (el Instituto Nacional de Estadisticas or INE), house prices rose by 0.2% in Spain in the third quarter of 2014, the first time they had risen for two consecutive months since the third quarter of 2007.

Finally, Fitch notes that unemployment decreased by 2.3 percentage points year-on-year in the fourth quarter of 2014, to 24.2% and it believes that the “less bad” conditions in the labour market are reflected in a decrease in the number of loans falling into arrears.

Original story: El Mundo

Translation: Carmel Drake

Fitch: Recovery In Housing Market, But No Rapid Rise In Prices Or Mortgages

15 January 2015 – Expansión

The ratings agency Fitch believes that the downward trend in house prices in Spain is coming to an end after seven years, but that unemployment and the real estate “stock” mean that there will not be a rapid recovery in prices.

Fitch explains that the stabilisation of house prices and of the mortgage market is a reflection of the macroeconomic recovery in Spain and the growing willingness of banks to lend to the most creditworthy customers.

However, despite the efforts made by the European Central Bank (ECB) and the “cheap money” that has been made available to Spanish banks, Fitch does not expect there to be a rapid recovery in the number of mortgages loaned, Efe reported.

According to the ratings agency, the depreciation in the value of foreclosed and sold homes has amounted to 70% in certain cases with respect to their initial valuations.

Similarly, the price range in which banks are selling foreclosed homes has also declined considerably, says Fitch.

Fitch’s analysis suggests that the discounts on forced sales are higher in the coastal regions, such as Andalucía and Cataluña, and that further price cuts are required to find buyers for foreclosed properties and those linked to mortgages signed before the financial crisis.

Nevertheless, although mortgage lending is returning, the high level of unemployment and the housing surplus mean that we should not expect to see a rapid rise in prices.

Furthermore, Fitch points out that 768,000 homes built between 2002 and 2011 remain empty, and that the real estate sector has now bottomed out in terms of prices, as indicated by data published by the National Institute of Statistics (INE), which indicate price increases of 0.8% in the second quarter of the year, the first increase since the outbreak of the crisis.

Original story: Expansión

Translation: Carmel Drake