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Announcement:

Moody's changes ceilings of Bulgaria, Israel and Lithuania

18 Jul 2013

London, 18 July 2013 -- Moody's Investors Service has today adjusted the local-currency bond and deposit ceilings, and the foreign-currency bond and deposit ceilings of Bulgaria, Israel and Lithuania. The sovereign ratings of these countries are unaffected by these changes.

The ceilings relate to the highest rating that can be assigned to a domestic issuer in these countries, or to a structured finance security backed by local currency receivables. The changes are as follows:

- - BULGARIA

Moody's has adjusted the long-term foreign and local-currency bond ceilings to A3 from Aa3. The ceiling for local-currency deposits has been adjusted to A3 from Baa2, while the foreign-currency deposit ceiling remains unchanged at Baa2. The short-term foreign-currency bond ceiling has been changed to P-2 from P-1. The short-term foreign-currency deposit ceiling remains unchanged at P-2.

-- ISRAEL

Moody's has adjusted the long-term foreign-currency bond and local-currency bond ceilings to Aa3 from Aa1. The long-term local-currency deposit ceiling has been adjusted to Aa3 from Aa2. The long-term foreign-currency deposit ceiling remains unchanged at A1. The short-term foreign-currency bond and deposit ceilings remain unchanged at P-1.

-- LITHUANIA

Moody's has adjusted the long-term foreign-currency bond ceiling to A2 from Aa2 and the ceiling for local-currency bonds and deposits have also been adjusted to A2 from Aa1. The foreign-currency deposit ceiling remains unchanged at Baa1. The short-term foreign currency bond and deposit ceilings remain unchanged at P-1 and P-2, respectively.

RATINGS RATIONALE

RATIONALE FOR CHANGE IN CEILINGS

Moody's has adjusted country ceilings to better reflect the linkages between the different sectors in the economy and to better capture the default correlation between the government and private-sector borrowers. These adjustments have been taken under Moody's methodology "Local-Currency Country Risk Ceiling for Bonds and Other Local Currency Obligations", re-published on 15 March 2013 and initially published in August 2012. As a result, the rating agency has aligned country ceilings more closely with the government bond ratings.

The ceiling encapsulates elements of the economic, financial, political, and legal risks in a country, including political instability, the risk of government intervention, the risk of systemic economic disruption, severe financial instability risks, currency redenomination, and natural disasters among other factors. These factors need to be incorporated into the ratings of even the strongest domestic issuers. The ceiling caps the credit rating of all issuers and transactions with material exposure to those risks -- in other words, it affects all domestic issuers and transactions other than those whose assets and revenues are sourced from or located outside of the country, or which benefit from an external credit support.

- - BULGARIA

Moody's decision to adjust the local and foreign currency country ceilings for Bulgaria is based on assessment of the moderate economic strength and moderate susceptibility of event risks. Moody's decision to adjust the country ceilings for Bulgaria also takes into account the country's currency board arrangement, which limits the central bank's lender of last resort function. Moody's has adjusted the local-currency ceilings to better capture the country's systemic risk and the default correlation between the government and private-sector borrowers.

Moody's rates Bulgaria's government debt at Baa2 with a stable outlook. The government rating is underpinned by the country's moderate economic and institutional strength, as well as high financial strength, which contribute to the moderate susceptibility to event risk. The economy's reliance on natural resource-based exports is high but declining, which should improve the economy's stability and reduce its pro-cyclicality over time. Institutional capacity was strengthened in the process of accession to the European Union, which Bulgaria joined in 2007, and the macroeconomic policy framework has been fairly predictable for some time. Bulgaria's government effectiveness and the rule of law score low relative to the European average. Moody's assessment incorporates both the progress already made as well as the ongoing challenges to improving the rule of law.

In terms of the government's financial strength, debt remains very low by any standard. A new fiscal rule has been approved that assures the continuation of low deficits and relatively small government. In 2012, Bulgaria was removed from the Excessive Deficit Procedure that it had been in since 2010, owing to the country's success in bringing its budget deficit-to-GDP ratio below 3% in 2011. Susceptibility to event risk is moderate (instead of low) owing to the euroisation of the economy and the currency peg, which drive financial risk, and the economy's and banking system's close ties with Greece, which drive economic event risk. The electorate has become increasingly disgruntled with austerity measures, and voter disenchantment has been expressed through street demonstrations in recent months. Although such public pressure may slow the pace of fiscal consolidation and force early parliamentary elections, all the major parties remain committed to prudent fiscal policies.

--ISRAEL

Moody's has adjusted the local and foreign-currency country ceilings for Israel to better capture the country's systemic risk and the default correlation between the government and private-sector borrowers.

Moody's rates the government of Israel at A1 with a stable outlook. The country's resilient growth model is based on a diversified high-tech export sector, an industry that benefits from a well-educated population and substantial investment in research and development, sourced both from the private and the public sectors. A culture of entrepreneurship and a robust venture capital industry have furthermore enabled Israeli companies to effectively monetise innovation.

At the same time, Israel's economic strength is constrained by low levels of educational attainment and earnings potential among a sizeable proportion of the country's fast-growing Arab and ultra-Orthodox communities. Maintaining and improving productivity performance over the longer term will therefore depend on the government's ability to raise educational and living standards for poor households and integrating them into the labour force. The flexibility of the Israeli economy is again being tested by the ongoing euro area debt crisis and the concurrent slowdown in the global economy.

Israel's institutional strength is assessed as high by Moody's, reflecting its high scores for government effectiveness, regulatory quality, rule of law and control of corruption, indicators for which Israel ranks slightly above or at the 'A' category median according to international surveys. By contrast, Israel scores very low relative to its peers and in absolute terms for political stability/absence of violence. This ranking reflects the unstable security situation caused by the ongoing Israeli-Palestinian conflict and by Israel's difficult relationship with some of its neighbours as well as its volatile coalition politics. These factors also explain Israel's moderate susceptibility to event risk; its financial and economic event risk is deemed to be low.

--LITHUANIA

Moody's decision to adjust the local and foreign currency country ceilings for Lithuania is based on assessment of the moderate economic strength and the low susceptibility of event risks. This assessment also incorporates the limitations of the lender of last resort function of the central bank due to the currency board arrangement currently in place. At the same time, the assessment captures the institutional improvements that come with the accession to the European Union and eventually the Euro area. The adjustment to the local-currency ceilings has been taken to better capture the country's systemic risk and the default correlation between the government and private-sector borrowers.

Moody's rates Lithuania's government debt at Baa1 with a stable outlook. The economy has recovered strongly in 2011 and growth has averaged around 5% over the past two years, registering some of the strongest growth in the EU. Moody's assessment of high institutional strength reflects the progress made in strengthening the country's public administration and policymaking over the past decade and the consensus amongst various stakeholders towards adopting the euro in 2015.

Lithuania's susceptibility to event risk continues to diminish with the reduction in its external vulnerabilities since 2009, as evidenced by the rapid decrease in the current account deficit and the decline in financial stress. Moreover, the banking sector has been consolidated and around 90% of the system is now owned by foreign banks. In particular, the Nordic banks that own the major Lithuanian banks continue to view Lithuania as their home markets and Moody's expects them to provide liquidity and capital support to their subsidiaries in a time of stress.

For a more detailed discussion of Moody's approach to country risk ceilings, please see Moody's Rating Implementation Guidance entitled "Local-Currency Country Risk Ceiling for Bonds and Other Local Currency Obligations", published on 15 March 2013.

REGULATORY DISCLOSURES

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this 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.

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 Moody's Ratings Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the time horizon in which a credit rating action may be after a review or outlook action took place.

Please see 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.

Please see the ratings disclosure page on www.moodys.com/disclosures for disclosures on significant Moody's shareholders and on certain relationships between Moody's, its shareholders and/or rated issuers.

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 analyst and the Moody's legal entity that has issued the ratings.

Alpona Banerji
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Bart Jan Sebastian Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes ceilings of Bulgaria, Israel and Lithuania
No Related Data.
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