DBRS has downgraded its ratings on the Portuguese banking group that sparked market worries last week, Espirito Santo Financial Group, S.A. (ESFG), noting that its liquidity is under increasing pressure, and a lack of transparency continues to fuel market concerns.
The rating agency announced that it is cutting the bank’s senior long-term debt rating to CC from B and its subordinated debt rating to CC (low) from B (low). All of its ratings also remain under review with negative implications, where they were placed on July 11.
The rating agency says that it is lowering the ratings due to its “significant concerns regarding the rapid deterioration in the group’s liquidity position”. It is also worried that if entities within the banking group continue to face financial difficulties that this could impact the repayment of their obligations to various lenders, including subsidiaries of ESFG.
“Given the short-term nature of certain lending activities by ESFG subsidiaries and the related short-term funding, DBRS is cognizant of the elevated risk of default on these liabilities with ESFG’s weakened liquidity position,” it says.
Additionally, DBRS says that the lack of transparency into the group’s restructuring plan, and about the extent of financial difficulties in certain subsidiaries, is contributing to a high level of uncertainty, “pressuring ESFG’s access to the wholesale markets and making future debt issuance challenging.”
It notes that it “remains concerned about the high level of uncertainty around the extent of intercompany exposures and linkages to other ES Group entities,” adding that it views ESFG as being “highly vulnerable to the deteriorating financial position of ES Group entities.”
“The market has elevated concerns regarding ES Group entities and the pace of events continues to move very quickly. DBRS views ESFG’s access to the wholesale markets as highly challenged,” it concludes.