Tuesday, July 5, 2011

Moodys Downgrades Portugal to Junk Status

All the silly loans and "voluntary rollovers" do not seem to be working out.

Moodys has dongraded Portugal debt 4 notches from Ba2 from Baa1, now junk status and with negative outlook. The downgrade places Portugal in "Non-Investment Grade Speculative" category.

The reasons:

  • growing risk that Portugal will require a second round of official financing before it can return to the private market
  • increasing possibility that private sector creditor participation will be required as a pre-condition.
  • heightened concerns that Portugal will not be able to fully achieve the deficit reduction and debt stabilisation targets set out in its loan agreement with the European Union (EU) and International Monetary Fund (IMF) due to formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system.

The agency says there s now an increasing probability that Portugal will not be able to borrow at sustainable rates in the capital markets in the second half of 2013 and for some time thereafter.

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