London, 23 October 2018 -- Moody's Public Sector Europe (MPSE) has today downgraded the long term
ratings of 18 Italian regional and local governments (RLGs) and two Government
Related Issuers (GRIs) and changed the outlooks to stable. At the
same time, Moody's has confirmed the Ba1 rating of the Autonomous
Region of Sicily and changed the outlook to stable and has affirmed the
Ba2 ratings with a stable outlook of the Region of Lazio. Moody's
also confirmed the Prime-2 short term issuer rating of the Autonomous
Region of Valle d'Aosta.
The rating actions conclude the review for downgrade that commenced on
29 May 2018.
The rating actions were prompted by the rating agency's downgrade of Italy's
government bond rating from Baa2/RUR down to Baa3 with a stable outlook.
For further information on the sovereign rating action, please refer
to Moody's press release dated 19 October 2018 (https://www.moodys.com/research/Moodys-downgrades-Italys-ratings-to-Baa3-stable-outlook--PR_390302).
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_201338
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
RATIONALE FOR DOWNGRADING 18 REGIONAL AND LOCAL GOVERNMENTS' LONG
TERM RATINGS AND CHANGING TO STABLE OUTLOOKS
Rationale for downgrading the long term ratings
The decision to downgrade by one notch the long term ratings of 18 regional
and local governments (RLGs) reflects their close operational and financial
linkages with the central government. The negative implications
for medium-term growth of the stalling of plans for structural
economic and fiscal reforms pose risks for RLGs and outweigh recent successful
budgetary consolidation efforts.
Italian RLGs are enduringly linked with the central government via close
institutional, economic and financial links. These links
have strengthened in the course of the last few years due to several changes
in the institutional framework, leading to higher supervision and
greater control mechanisms exerted by the central government.
Moody's notes that regions strongly rely on the Italian sovereign for
the funding of the healthcare sector, their main responsibility
which absorbs in most cases around 80% of their budgets.
The dependence of Italian RLGs on sovereign transfers has been reinforced
by stricter limits on their financial autonomy. As a result,
a weakening in Italy's fiscal strength may lead to fiscal pressure for
RLGs over the medium term.
Furthermore all RLGs are largely dependent on the sovereign for their
borrowing needs for capital expenditures. As such their cost of
funding is largely reliant on sovereign credit conditions. The
Italian government is the sector's main creditor accounting for
around 83% of regional and local governments' existing debt.
Rationale for changing to stable outlooks
The stable outlook on the Italian regional and local governments is based
on recent consolidation efforts undertaken by Italian RLGs and Moody's
expectation that they will continue going forward. The healthcare
sector has improved in all Italian regions, and the healthcare budgets
are all either at or close to equilibrium, giving the Italian regions
some limited budgetary flexibility.
Rationale for confirming the Prime-2 short-term issuer rating
of Valle d'Aosta
Moody's confirmed the Prime-2 short-term issuer rating
of Valle d'Aosta reflecting the steady and high level of liquidity
at 8.5x debt repayments and low net direct and indirect debt (NDID)
at nearly 35% of operating revenues at YE2017.
RATIONALE FOR DOWNGRADING TWO GOVERNMENT RELATED ISSUERS AND CHANGING
TO STABLE OUTLOOKS
The decision to downgrade MM S.p.A.'s ratings
to Baa3 with a stable outlook from Baa2, RUR- and Cassa del
Trentino S.p.A.'s ratings to Baa1 with a stable
outlook from A3, RUR - mirrors the corresponding rating actions
on their respective owners - City of Milan now at Baa3/Stable and
Autonomous Province of Trento now at Baa1/Stable. From a credit-risk
perspective, there is no meaningful distinction between these two
entities and their respective owners because of the intrinsic operational
ties between them.
RATIONALE FOR CONFIRMING THE RATING OF THE REGION OF SICILY WITH STABLE
OUTLOOK
Moody's confirmed the Region of Sicily's rating at Ba1 with
a stable outlook. The region's liquidity position significantly
improved over the last three years while deleveraging continues with a
moderate NDID ratio of 49% at YE2017. The confirmation reflects
the on-going budgetary consolidation efforts, which may accommodate
potential pressure driven by the deterioration of the sovereign's
credit quality.
RATIONALE FOR AFFIRMING THE RATING OF THE REGION OF LAZIO WITH STABLE
OUTLOOK
Moody's affirmed the Ba2 ratings with stable outlook of the Region
of Lazio reflecting the region's significant progress towards budgetary
consolidation, its enhanced liquidity position, healthcare
sector equilibrium and slow debt decline. The affirmation in the
context of weaker sovereign credit conditions reflects Moody's expectations
that the region will continue to post positive gross operating balances
and further improve its budgetary results despite a still high debt level.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on the ratings of RLGs and GRIs could result from the
strengthening of the sovereign credit profile. For issuers rated
below the sovereign bond rating, evidence of a given entity's ability
to display comparatively stronger credit fundamentals and an ability to
withstand a challenging operating environment could also exert upward
rating pressure.
A further weakening of the Italian sovereign credit profile could lead
to downward adjustments in ratings of some RLGs and GRIs. Additionally,
financial difficulties resulting in cash-flow pressures and consistently
high or excessively growing debt levels could lead to downward rating
actions independent of sovereign rating movements.
The sovereign action required the publication of these credit rating actions
on a date that deviates from the previously scheduled release date in
the sovereign release calendar, published on www.moodys.com.
The specific economic indicators, as required by EU regulation,
are not available for these entities. The following national economic
indicators are relevant to the sovereign rating, which was used
as an input to this credit rating action.
Sovereign Issuer: Italy, Government of
GDP per capita (PPP basis, US$): 38,233 (2017
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.6% (2017 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0.9%
(2017 Actual)
Gen. Gov. Financial Balance/GDP: -2.4%
(2017 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 2.8% (2017 Actual) (also
known as External Balance)
External debt/GDP: [not available]
Level of economic development: High level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
SUMMARY OF MINUTES FROM RATING COMMITTEE
On 18 October 2018, a rating committee was called to discuss the
rating of the Abruzzo, Region of; Basilicata, Region
of; Bolzano, Autonomous Province of; Campania, Region
of; Lazio, Region of; Milan, City of; Piedmont,
Region of; Roma Capitale, Metropolitan city of; Valle
d'Aosta, Autonomous Region of; Civitavecchia, City of;
Liguria, Region of; Lombardy, Region of; Molise,
Region of; Puglia, Region of; Sardinia, Autonomous
Region of; Sicily, Autonomous Region of; Trento,
Autonomous Province of; Umbria, Region of; Veneto,
Region of; Venice, City of. The main point raised during
the discussion was: the systemic risk in which the issuers operate
has materially increased.
The principal methodology used in rating Abruzzo, Region of,
Basilicata, Region of, Bolzano, Autonomous Province
of, Campania, Region of, Civitavecchia, City of,
Lazio, Region of, Liguria, Region of, Lombardy,
Region of, Milan, City of, Molise, Region of,
Piedmont, Region of, Puglia, Region of, Roma Capitale,
Metropolitan city of, Sardinia, Autonomous Region of,
Sicily, Autonomous Region of, Trento, Autonomous Province
of, Umbria, Region of, Valle d'Aosta, Autonomous
Region of, Veneto, Region of, and Venice, City
of was Regional and Local Governments published in January 2018.
The principal methodology used in rating Cassa del Trentino S.p.A.,
and MM S.p.A. was Government-Related Issuers
published in June 2018. Please see the Rating Methodologies page
on www.moodys.com for a copy of these methodologies.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_201338
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Releasing Office
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
The person who approved Cassa del Trentino S.p.A.,
and MM S.p.A. credit ratings is David Rubinoff,
MD - Sub Sovereigns, Sub-Sovereign Group, Journalists
Tel: 44 20 7772 5456, Client Service Tel: 44 20 7772
5454. The person who approved Abruzzo, Region of, Basilicata,
Region of, Bolzano, Autonomous Province of, Campania,
Region of, Civitavecchia, City of, Lazio, Region
of, Liguria, Region of, Lombardy, Region of,
Milan, City of, Molise, Region of, Piedmont,
Region of, Puglia, Region of, Roma Capitale, Metropolitan
city of , Sardinia, Autonomous Region of, Sicily,
Autonomous Region of; Trento, Autonomous Province of,
Umbria, Region of, Valle d'Aosta, Autonomous Region
of, Veneto, Region of, and Venice, City of credit
ratings is Mauro Crisafulli, Associate, Managing Director,
Sub-Sovereign Group, Journalists Tel: 44 20 7772 5456,
Client Service Tel: 44 20 7772 5454.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Elise Savoye
Asst Vice President - Analyst
Sub Sovereign Group
Moody's Investors Service EMEA Limited France Branch
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Mauro Crisafulli
Associate Managing Director
Sub Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Nedejda Seu
Analyst
Sub Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service EMEA Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
