Moody’s Investors Service has downgraded Spain’s government bond rating to Baa3 from A3, Moody’s reported on Wednesday.
The ratings agency also placed the rating on review for possible further downgrade. Moody’s expects to conclude the review within three months.
The decision was due to the Spanish government’s intention to borrow up to 100 billion euros ($126 billion) from the European Financial Stability Facility (EFSF) or from its successor, the European Stability Mechanism (ESM), to recapitalize its banking system, which will further increase the country’s debt burden.
The other key factors were the Spanish government’s “very limited financial market access” and continued weakness of the country’s economy.
On June 7, Fitch Ratings downgraded Spain’s long-term foreign and local currency Issuer Default Ratings (IDR) to ‘BBB’ from ‘A’. The short-term IDR was also downgraded to ‘F2’ from ‘F1’. The outlook on the long-term IDRs was negative.