Portugal's troubled bank downgraded… again

Portugal's struggling lender Banco Espirito Santo (BES) and its parent companies were hit with more bad news on Thursday morning, as its debt was downgraded into junk territory.

Ratings agency Standard & Poor's (S&P) announced that it had downgraded BES' long-term debt rating to a "B minus" from a "B plus", and maintained its negative outlook. It follows a separate downgrade that was announced on Friday, and pushes BES' debt to six rungs below investment grade.

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Patricia de Melo Moreira | AFP | Getty Images

S&P said the move reflects its assessment that BES' capital position has weakened as a result of higher losses that it is likely to face, given its direct exposure to other units of the financial group that it belongs to.

BES' parent company, Espirito Santo International (ESI), has been at the center of investor concerns over Portugal, after an audit by the country's central bank in May showed "irregularities" in its accounts.

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The flames were fanned once again last week when debt repayments to clients on commercial paper issued by ESI were delayed. Shares in another part of the conglomerate, Espirito Santo Financial Group (ESFG), were temporarily suspended on the news, after it cited "material difficulties" at ESI.

Moody's also got in on the action Thursday morning, downgrading EFSG to a "Ca" rating from "Caa2". It said the downgrade reflected the heightened risk of default of ESFG, and significant losses for ESFG's creditors as a result of recent developments.

Shares of BES fell to the bottom of pan-European benchmarks on Thursday morning, with its stock trading down 11 percent. The bank's bonds were also marginally weaker.