Frankfurt am Main, February 07, 2020 -- Moody's Public Sector Europe ("Moody's") has today
affirmed all the ratings of six German regional governments and three
government-related issuers. The stable outlooks for all
entities are maintained. The baseline credit assessments (BCAs)
of all issuers were also affirmed.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
RATIONALE FOR THE RATINGS AFFIRMATIONS
Moody's has affirmed the Aaa ratings of Baden-Wuerttemberg,
Bavaria and Brandenburg. The affirmations were driven by the regions'
prudent budgetary management, sound financial performance,
as well as their strong and diversified economies, particularly
Baden-Wuerttemberg and Bavaria, where GDP per capita is more
than 10% above the national average. Bavaria and Baden-Wuerttemberg
will also benefit from the adjusted equalisation scheme that is effective
from 2020, which will allow them to keep more tax revenues within
their budget and ensure revenue predictability. Brandenburg will
further benefit from additional transfers incorporated in the new system.
The ratings also reflect the regions' limited fiscal flexibility.
Baden-Württemberg has a moderate debt burden, reflected
in its net direct and indirect debt (NDID) ratio of around 85%
of operating revenues in 2019, down from 94% in 2018.
This is expected to decline further over the coming two years towards
80%. Bavaria's debt burden continues to decline,
with NDID declining to a low 31.3% of operating revenues
in 2019 based on preliminary figures from 33.5% in 2018,
and expected to decline further to below 30% by 2021. Bavaria
has a strong commitment to become debt free in the long run. The
debt burden of Brandenburg is relatively high compared to other Aaa peers,
although moderately declining, with NDID likely to remain stable
at 146% of operating revenues in 2019, and expected to decline
to 140% by 2021.
Moody's has also affirmed the Aa1 long-term ratings of Berlin,
Nordrhein-Westfalen and Saxony-Anhalt, as well as
the (P)P-1 short-term ratings of Nordrhein-Westfalen
and the Other Short Term (P)P-1 of Saxony-Anhalt.
The affirmations reflect the revenue predictability, good financial
performance and financing surpluses, as well as conservative financial
management of the regions. These are counterbalanced by the regions'
high debt levels and limited financial flexibility. The debt level
of Saxony-Anhalt remains high, but is steadily declining,
with NDID likely decreasing slightly to 206% of operating revenues
as per preliminary 2019 figures, from 210% one year before,
and expected to decline below 200% by 2021. Although Berlin
substantially reduced its NDID in recent years, it remains very
high at slightly above 200% of operating revenue projected as of
year-end 2019. Moody's expects Berlin's debt
level will continue to decline, but at a slower pace than in the
recent past. The debt level of Nordrhein-Westfalen will
also continue to decline from its still very high level of NDID of about
220% of operating revenue projected at year-end 2019,
down from 233% in 2018.
The ratings affirmations of Erste Abwicklungsanstalt, hsh finanzfonds
AoR and hsh portfoliomanagement AoR are based on the fact that they were
set up as public-sector entities (Government Related Issuers,
GRIs) and reflects Moody's view that from a credit risk perspective,
it is not meaningful to distinguish between the entities and their guarantors,
because of the support provided by their shareholders. Therefore
their ratings are derived from the credit strength of the respective supporting
regional governments that provide full, unconditional and irrevocable
guarantees for all debt of the entities.
In addition to the Government-Related Issuers methodology,
we used Rating Transactions Based on the Credit Substitution Approach:
Letter of Credit-backed, Insured and Guaranteed Debts published
in May 2017.
RATIONALE FOR THE STABLE OUTLOOKS
The stable rating outlooks on the regions' ratings reflects Moody's
expectation that their administrations will continue to demonstrate balanced
accounts in the near future, the overall favourable -- although
slowing -- macroeconomic environment in Germany, leading to
nominal growth of Land's tax revenue, and the stable outlook on
Germany's Aaa rating, given the extremely strong macroeconomic,
fiscal and institutional links between the sovereign's and the regional
governments' credit risks.
The stable rating outlooks on the GRIs' ratings reflects the outlooks
on the guarantors' credit strength, given the direct linkage
with the entities.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Environmental risks are not material to the regional administrations'
ratings. They have only very limited exposure to flood risk,
nevertheless this is not material, given the central government
would provide support in such a scenario. Social risks are also
not material to their ratings. German Länder face a trend
of ageing population, resulting in declining labour supply and higher
pension and social cost. However, Moody's assesses
these effects as well manageable. Governance considerations are
material to the RLGs' ratings. Budgetary discipline in Germany
is a constitutional requirement, which requires each of the regions
to maintain structurally balanced budgets. Budget planning is prudent,
transparent and predictable.
Environmental risks are not material to the GRIs' ratings.
Social risks are not material for their ratings either, given their
activities are not focused on areas where they would be exposed to these
risks, and the support coming from their owners. Governance
risks are material to the ratings. The governance framework is
intrinsically intertwined with the supporting government, which
exerts strong oversight and ultimately takes key decisions.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Upward rating pressure on the Aa1 rated regions (Berlin, Nordrhein-Westfalen
and Saxony-Anhalt) could be exerted by significant improvement
in their financial performance, including a substantial reduction
of their debt burden, combined with a sustained track record of
balanced financial budgets, in line with the debt break criteria.
The ratings of the GRIs could be upgraded in case of an improvement in
the respective guarantors' credit strength.
A significant deterioration in the regions' fiscal metrics leading
to a material increase in debt levels, or -- although not expected
-- any alterations in the fundamental supportive structure of the
Länder sector, or an -- also unlikely -- downgrade
of Germany's sovereign rating would lead to a downgrade.
The GRIs' ratings could be downgraded in case of a weakening of
the respective guarantors' credit strength, any weakening of the
guarantees, or change in the entities' legal status.
LIST OF AFFECTED RATINGS
Affirmations:
..Issuer: Baden-Wuerttemberg, Land of
.... LT Issuer Rating, Affirmed Aaa
..Issuer: Berlin, Land of
.... LT Issuer Rating, Affirmed Aa1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Aa1
..Issuer: Nordrhein-Westfalen, Land of
.... LT Issuer Rating, Affirmed Aa1
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Aa1
....Other Short Term, Affirmed (P)P-1
....Senior Unsecured Regular Bond/Debenture
, Affirmed Aa1
..Issuer: Erste Abwicklungsanstalt
.... LT Issuer Rating, Affirmed Aa1
.... ST Issuer Rating, Affirmed P-1
....Commercial Paper, Affirmed P-1
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Aa1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Aa1
....Other Short Term, Affirmed (P)P-1
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed Aa1
..Issuer: hsh finanzfonds AoR
....LT Issuer Rating, Affirmed Aa1
.... ST Issuer Rating, Affirmed P-1
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)Aa1
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed Aa1
..Issuer: hsh portfoliomanagement AoR
.... LT Issuer Rating, Affirmed Aa1
.... ST Issuer Rating, Affirmed P-1
....BACKED Commercial Paper, Affirmed
P-1
.... BACKED Senior Unsecured Medium-Term
Note Program , Affirmed (P)Aa1
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed Aa1
..Issuer: Bavaria, Free State of
....LT Issuer Rating, Affirmed Aaa
..Issuer: Brandenburg, Land
....LT Issuer Rating, Affirmed Aaa
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Aaa
....Senior Unsecured Regular Bond/Debenture,
Affirmed Aaa
..Issuer: Saxony-Anhalt, Land of
....Commercial Paper, Affirmed P-1
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Aa1
....Other Short Term, Affirmed (P)P-1
....Senior Unsecured Regular Bond/Debenture
, Affirmed Aa1
Outlook Actions:
..Issuer: Baden-Wuerttemberg, Land of
....Outlook, Remains Stable
..Issuer: Berlin, Land of
....Outlook, Remains Stable
..Issuer: Nordrhein-Westfalen, Land of
....Outlook, Remains Stable
..Issuer: Erste Abwicklungsanstalt
....Outlook, Remains Stable
..Issuer: hsh finanzfonds AoR
....Outlook, Remains Stable
..Issuer: hsh portfoliomanagement AoR
....Outlook, Remains Stable
..Issuer: Bavaria, Free State of
....Outlook, Remains Stable
..Issuer: Brandenburg, Land
....Outlook, Remains Stable
..Issuer: Saxony-Anhalt, Land of
....Outlook, Remains Stable
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: Germany, Government of
GDP per capita (PPP basis, US$): 52,386 (2018
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.5% (2018 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.7%
(2018 Actual)
Gen. Gov. Financial Balance/GDP: 1.9%
(2018 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 7.4% (2018 Actual) (also
known as External Balance)
External debt/GDP: [not available]
Economic resiliency: Very 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 04 February 2020, a rating committee was called to discuss the
rating of the Bavaria, Free State of; Brandenburg, Land;
Saxony-Anhalt, Land of; Baden-Wuerttemberg,
Land of; Berlin, Land of; Nordrhein-Westfalen,
Land of; Erste Abwicklungsanstalt; hsh finanzfonds AoR;
hsh portfoliomanagement AoR. The main points raised during the
discussion were: The issuer's fiscal or financial strength,
including its debt profile, has materially increased; The issuer
has become less susceptible to event risks.
The principal methodology used in rating Bavaria Free State of,
Baden-Wuerttemberg, Land of , Berlin Land of ,
Brandenburg, Land of , Nordrhein-Westfalen, Land
of and Saxony-Anhalt, Land of was Regional and Local Governments
published in January 2018. The principal methodology used in rating
Erste Abwicklungsanstalt, hsh finanzfonds AoR and hsh portfoliomanagement
AoR 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
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 Bavaria, Free State of, Baden-Wuerttemberg
Land of, Berlin Land of, Brandenburg Land of, Nordrhein-Westfalen
Land of, Saxony-Anhalt Land of and Erste Abwicklungsanstalt
credit ratings is Mauro Crisafulli, Associate Managing Director,
Sub-Sovereign, +44 20 7772 5456, +44 20 7772
5454. The person who approved hsh finanzfonds AoR and hsh portfoliomanagement
AoR credit ratings is David Rubinoff, Managing Director, Sub-Sovereign,
+44 20 7772 5456, +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.
Harald Sperlein
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
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
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
