KBRA Assigns A-/K1 Ratings to the Kingdom of Spain

Kroll Bond Rating Agency Europe Limited (KBRA Europe) assigns A- long-term issuer ratings to the Kingdom of Spain. KBRA also assigns K1 short-term issuer ratings to the sovereign. The long-term ratings carry a Stable Outlook. The sovereign credit report is available here.

Main credit support factors:

• EU and Euro area membership underpins institutional strengths.
• Stronger economic structure as characterised by the growing importance of exports, improved efficiency and competitiveness gains, and increased participation in global value-added chains.
• Spain is a large and diversified economy and real GDP growth has outpaced the Euro area average in recent years.
• Active debt management has reduced refinancing risks and substantially strengthened the government debt profile.
• Deleveraging of the corporate and household sectors improves prospects for macroeconomic stability.

Main credit concerns:

• The elevated government debt burden limits fiscal flexibility and renders the country vulnerable to shocks, especially considering Spain’s heavy reliance on external funding markets as indicated by its large negative net international investment position.
• The high total and youth unemployment rates are revealing of structural, supply-side constraints in the economy, inefficiencies, and an incomplete reform effort.
• Potential growth is constrained by structural rigidities, regulatory burdens and demographic pressures.
• Low productivity, albeit improving, reflects the prevalence of SME’s in the Spanish economy, relatively weaker educational standards compared to peers, and the high non-completion secondary school ratio. These act as impediments to economic performance.
• A fractured political structure hampers policymaking.

The sovereign ratings on the Kingdom of Spain are supported by the country’s high level of economic and institutional development as underpinned by EU and Euro area membership, as well as its strong post-crisis macroeconomic performance. The primary rating constraints relate to the elevated government debt burden and the economy-wide reliance on external financing.

The ratings are based on KBRA’s Sovereigns Rating Methodology published on 11 May 2017. Weights used for assigning these ratings are described in the methodology used for this credit rating action.

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1Unsolicited where the rated entity or a related third party did participate in the rating process
2Unsolicited where the rated entity or a related third party did not participate in the rating process
*With access to the accounts and other relevant internal documents
**Without access to the accounts and other relevant internal documents

Disclosures

Further disclosures relating to this rating action are available in the EU Information Disclosure Form. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

This is an unsolicited rating. The rated entity or related third party did participate in the rating process and KBRA did not have access to the accounts and other relevant internal documents.

Related Publications: (available at www.kbra.com)

• Sovereigns Rating Methodology
• Kingdom of Spain Rating Report

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

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