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Announcement:

Moody's changes outlook to negative on German and Dutch sub-sovereigns following outlook change on sovereign ratings

Global Credit Research - 24 Jul 2012

Frankfurt am Main, July 24, 2012 -- Moody's Investors Service has today changed to negative from stable the outlooks on the long-term ratings of six Länder and one government-related issuer (GRI) in Germany, and on five GRIs in the Netherlands. The ratings on all the above sub-sovereign entities remain unchanged.

The outlook change was prompted by Moody's recent decision to change to negative from stable the outlooks on the sovereign ratings of Germany and the Netherlands, as announced on 23 July, given the strong correlation between sub-sovereign and sovereign credit risk, as reflected in macroeconomic and fiscal linkages, institutional factors and financial market conditions.

For full details of the correlation between sub-sovereign and sovereign credit risk, please refer to Moody's Special Comment published on 15 February 2012. (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_139829).

For additional information on Sovereign ratings, please refer to the webpage containing Moody's related announcements http://www.moodys.com/eusovereign .

A full list of affected ratings is included at the end of this press release.

RATINGS RATIONALE

GERMAN SUB-SOVEREIGNS - RATIONALE FOR OUTLOOK CHANGE

Affected entities: Baden-Wuerttemberg, Bavaria, Berlin, Brandenburg, North-Rhine Westphalia, Saxony-Anhalt, Erste Abwicklungsanstalt (GRI).

The negative outlook on the Länder mirrors the corresponding change of outlook on the German sovereign. The extremely strong financial and operational linkages between the central government and German Länder imply a high correlation between the credit standing of the German federal government and that of the Länder. These linkages arise from (i) the country's very robust equalisation system; (ii) the solidarity principle (Bundestreue) anchored in the German constitution, according to which all German Länder and the Federal Republic are committed to mutual support in the event that one of them faces severe financial pressures; and (iii) the budgetary coordination and the debt-brake mechanism enshrined in the constitution. In addition, the very high debt stocks and refinancing needs of the German Länder expose them to the same market conditions as the sovereign; and the equalisation system means that the Länder and the federal government are similarly exposed to the impact of broad macroeconomic conditions on Länder budgetary positions.

GERMAN SUB-SOVEREIGNS - WHAT COULD CHANGE THE RATINGS UP / DOWN

Given that the negative outlooks on German Länder mirror the negative outlook on Germany's sovereign rating, downward ratings pressure on all German Länder would likely be prompted by a deterioration in the creditworthiness of the sovereign. Additionally, any issuer-specific risks that might emerge would exacerbate downward ratings pressure.

Conversely, a stabilisation of the outlooks or upward rating pressure for German Länder would require a stabilisation of the sovereign rating, or evidence of a given entity's capacity to display comparatively stronger credit fundamentals than peers.

The ratings of the German GRI, Erste Abwicklungsanstalt, are directly linked to the creditworthiness of Land North-Rhine Westphalia, based on the strength of the guarantee mechanism provided.

DUTCH GRIs - RATIONALE FOR OUTLOOK CHANGE

Affected entities: Bank Nederlandse Gemeenten N.V. (BNG), Nederlandse Waterschapsbank N.V. (NWB), Stichting Waarborgfonds BVE (WBVE), Stichting Waarborgfonds Eigen Woningen (WEW) and Waarborgfonds Sociale Woningbouw (WSW).

The negative outlooks on Dutch GRIs mirror the negative outlook on the Netherlands' sovereign rating. The financial and operational linkages between the central government and Dutch specialised lenders (BNG and NWB) are reflected in the robust policy interest of the central government in the activities of these entities, given their role in providing efficient funding to the sub-sovereign sector.

The financial and operational linkages between the central government and Dutch guarantee funds (WBVE, WEW, WSW) reflect strong government support for the sectors benefiting from guarantee funds (housing associations, homeowners and further education). WSW and WEW feature robust direct support mechanisms through which the Dutch government is committed to intervene if needed. In the case of WBVE, Moody's notes the strong indirect link to the Dutch government, through WBVE's power to call capital from its almost exclusively government-funded members in relation to their annual government appropriations.

DUTCH GRIs - WHAT COULD CHANGE THE RATINGS UP/DOWN

Given that the negative outlooks on Dutch GRIs mirror the negative outlook on the Netherlands' sovereign rating, a downgrade of the Netherlands' sovereign ratings would likely result in a downgrade of all affected GRIs based on the strong linkages and supportive structure. In all cases, a weakening of ownership or support structure, or an alteration in the risk profile of the sectors in which they operate could exert downward pressure on the ratings.

A stabilisation of the outlooks or upward rating pressure for Dutch GRIs' ratings would require a stabilisation of the sovereign rating.

RATINGS AFFECTED

-GERMAN REGIONAL AND LOCAL GOVERNMENTS (RLGs)

-Baden-Wuerttemberg Aaa long-term ratings

-Bavaria Aaa long-term ratings

-Berlin Aa1 long-term ratings

-Brandenburg Aa1 long-term ratings

-North-Rhine Westphalia Aa1 long-term ratings

-Saxony-Anhalts Aa1 long-term ratings

-GERMAN GRI

-Erste Abwicklungsanstalt (EAA) Aa1 long-term ratings

-DUTCH GRIs

-Bank Nederlandse Gemeenten N.V. (BNG) Aaa long-term ratings

-Nederlandse Waterschapsbank N.V. (NWB) Aaa long-term ratings

-Stichting Waarborgfonds BVE (WBVE) Aa1 long-term rating

-Stichting Waarborgfonds Eigen Woningen (WEW) Aaa long-term rating

-Waarborgfonds Sociale Woningbouw (WSW) Aaa long-term rating

RATING METHODOLOGIES USED

The principal methodologies used in rating German RLGs were Regional and Local Governments Outside the US published in May 2008, and The Application of Joint Default Analysis to Regional and Local Governments published in December 2008. The principal methodology used in rating German and Dutch GRIs was Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings of rated entities Baden-Wuerttemberg, Land of and Bavaria, Free State of were initiated by Moody's and were not requested by these rated entities.

Rated entities Baden-Wuerttemberg, Land of and Bavaria, Free State or their agent(s) participated in the rating process. These rated entities or their agent(s), if any, provided Moody's access to the books, records and other relevant internal documents of the rated entities.

The ratings have been disclosed to the rated entities or their designated agents and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating(s) for German RLGs and GRIs are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Information sources used to prepare the rating(s) for Dutch GRIs are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see for each issuer the ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

The below contact information is provided for information purposes only. Please see the issuer page on www.moodys.com for Moody's regulatory disclosure of the name of the lead analyst and the office that has issued the credit rating.

The relevant Releasing Office for each rating is identified under the Debt/Tranche List section on the Ratings tab of each issuer/entity page on moodys.com

Andrea Wehmeier
Vice President - Senior Analyst
Sub-Sovereign Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

David Rubinoff
MD - Sub-Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes outlook to negative on German and Dutch sub-sovereigns following outlook change on sovereign ratings
No Related Data.

 

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