The rating agency DBRS, one of the three that assesses the debt of the Generalitat de Catalunya, has improved the rating to the point of removing it from the speculative level, popularly known as good crap. This is the second agency to place Catalan debt on safe ground, after Fitch did so last July.
DBRS’s note reinforces Fitch’s note and allows Catalonia to consider issuing debt again, as the Ministry of Economy has said it wants to do. Along the way, Catalonia has spent a decade sunk to the levels filth. It was in 2012 when international investors stopped financing the Generalitat and it was forced to ask for a bailout in the markets.
A decade ago, Catalonia demanded a ransom from the state and was excluded from the capital markets
DBRS, in particular, has raised its debt to the BBB level, while Fitch has placed it in the BBB–. In the complex slang of rating agencies, this is the note from which international investors would already consider investing. And even more important: with these notes, the Generalitat can now ask the State for permission to return to the markets. The Minister of Economy, Jaume Giró, has said on more than one occasion that he wants Catalonia to return to the markets during this legislature. Although he knows that the price will be more expensive than if the debt is obtained directly through the State (which has better ratings from the rating agencies), he considers that in this way Catalonia will be able to “recover financial sovereignty”. .
Specifically, in order to access capital markets, communities must have at least one rating agency that does not consider their debt to be junk. There is also a second fundamental requirement, which is to have met the stability targets (i.e., that the debt and deficit do not exceed the thresholds set by the central government). However, as these stability objectives have been suspended since the beginning of the pandemic, the Generalitat considers that this second criterion is not an obstacle.
DBRS was already on the verge of placing Catalonia’s debt out of speculative territory during 2020. The agency had hinted at this, but the arrival of the pandemic radically changed the situation. In fact, Giró’s predecessor, the current president Pere Aragonès, also wanted to issue green bonds during 2020. The covid ended these plans.
There is a third rating agency that evaluates Catalan debt: it is Moody’s, which still considers it crap. The world’s fourth largest agency, Standard & Poor’s, has not examined the Generalitat’s debt since it broke its contract in 2018.