Outlook on ratings of Region of Molise and City of Naples remains negative
Milan, February 18, 2014 -- Moody's Investors Service has today changed the outlook to stable from
negative on the ratings of 19 Italian sub-sovereigns following
a similar action on Italy's Baa2 government bond rating.
For full details please refer to the sovereign press release (https://www.moodys.com/research/Moodys-changes-outlook-to-stable-on-Italys-Baa2-government-bond--PR_292815).
The outlook on the ratings of the Region of Molise and the City of Naples
remains negative. All ratings have been affirmed.
A detailed list of the issuers and ratings affected by this rating action
is provided at the end of this press release.
RATINGS RATIONALE
RATIONALE FOR OUTLOOK CHANGE TO STABLE
The outlook change to stable is primarily driven by a similar outlook
change on Italy's Baa2 government bond rating on 14 February 2014.
The stabilisation of the sovereign outlook indicates a reduction in the
systemic risk and budget pressure faced by regional and local government
(RLGs) given the close financial and macroeconomic linkages between the
central government and RLGs in Italy.
Moreover, Moody's notes that Italian RLGs rated between A3
and Baa3 have generally managed to consolidate their budgets to accommodate
for falling intergovernmental revenue, limiting their borrowing
needs. In addition, healthcare deficits have been reduced
over time, and regions remain committed to balancing the sector's
accounts under the oversight of the national government.
Moody's also notes that Ba-rated regions were able to ease
their liquidity pressures by clearing accumulated payables with low-cost
sovereign funding, although their lower ratings continue to incorporate
their current, and likely increase in, debt levels.
Moody's also notes that these regions have been active in consolidating
their finances and streamlining the healthcare sector, providing
the basis for structural fiscal improvement in the medium term.
RATIONALE FOR THE NEGATIVE OUTLOOK ON MOLISE AND NAPLES
Moody's decision to maintain the negative outlook on Molise's
Baa3 ratings reflects (1) the lack of resolve in consolidating the regional
finances, including healthcare accounts; and (2) the uncertainties
associated with the ongoing review of account payables and receivables
in regional books, which could lead to the disclosure of an unfunded
budgetary deficit.
The negative outlook on Naples's B1 rating reflects persistent uncertainties
associated with the city's recovery framework, following doubts
expressed by the Court of Auditors on Naples's forecasts.
RATIONALE FOR AFFIRMATIONS
Following today's affirmations, Italian sub-sovereign
ratings will continue to be grouped as follows: (1) issuers with
ratings above that of the sovereign; (2) issuers rated at the sovereign
level; and (3) issuers rated below the sovereign.
-- ENTITIES RATED ABOVE THE SOVEREIGN --
This group includes the Autonomous Province of Bolzano (A3 stable),
the Autonomous Province of Trento (A3 stable) and its financial company
Cassa del Trentino (A3 stable), and the Region of Lombardy (Baa1
stable).
Bolzano's and Trento's ratings remain two notches above Italy's
Baa2 sovereign rating. Key features supporting their higher credit
quality include: (1) their statutory independence, which provides
a greater degree of financial and legislative autonomy; (2) their
exceptionally strong fiscal positions and budgetary flexibility;
and (3) their very low debt exposure. Cassa del Trentino's rating
action mirrors the action on the Autonomous Province of Trento.
Lombardy's Baa1 rating remains one notch above Italy's Baa2 sovereign
rating. Although Lombardy lacks special constitutional status,
it benefits from Italy's largest and most diversified economic base.
The rating also considers the region's large budget and fiscal flexibility,
combined with very low and declining debt.
-- ENTITIES RATED AT THE SOVEREIGN LEVEL --
This group includes the regions of Basilicata, Liguria, Puglia,
Sardinia, Umbria and Veneto, the cities of Milan and Venice,
as well as Lombardy's regional financial company Finlombarda.
These entities are all rated Baa2 with stable outlook.
Moody's does not view these sub-sovereign governments as having
special characteristics that could support ratings exceeding that of the
sovereign. As a result, the national government and these
RLGs share comparable levels of credit risk due to the tight financial
and operational linkages between them.
Regions in this group have sound financial positions, supported
by a diversified economic base and overall good governance practices.
These regions also have low-to-moderate debt levels,
notwithstanding a recent increase for some entities due to refinancing
of overdue payables with sovereign funding.
The cities of Milan and Venice have been successful in governing their
rigid budgets and consolidating their finances, as reflected by
improving budgetary performances and a progressive reduction in their
high debt levels.
The rating of Finlombarda reflects Moody's assessment of the degree of
subordination to its sole shareholder, the Region of Lombardy.
This group also includes the state-backed issuances of the Regions
of Umbria and Sicily, which are fully serviced by the central government
and remain aligned to the sovereign rating.
-- ENTITIES RATED BELOW THE SOVEREIGN --
This group comprises the regions of Abruzzo (Baa3 stable), Campania
(Ba1 stable), Lazio (Ba2 stable), Molise (Baa3 negative),
Piedmont (Ba1 stable), and Sicily (Ba1 stable). Also included
in this group are the City of Civitavecchia (Baa3 stable) and the City
of Naples (B1 negative).
Regions in this group display moderate to very high debt levels,
as well as inherent liquidity pressure stemming from their large contingent
liabilities.
Abruzzo features a tight budgetary position, but lower debt levels
and liquidity pressures than its lower-rated peers. These
features also apply to Molise, whose Baa3 ratings with negative
outlook also incorporate lack of progress in consolidating regional finances
and a small and stagnant economy.
The City of Civitavecchia features a small and concentrated budget and
economic base, as well as relatively high debt levels, although
these are falling progressively.
The ratings of Campania, Piedmont, and Lazio primarily reflect
the fiscal challenges associated with their high and fast-growing
debt levels due to sovereign on-lending undertaken in 2013 and
expected in 2014 to refinance their substantial accumulated payables.
Although the favourable terms of this lending and the obligation to cover
incremental debt-servicing costs with tax hikes protect these regions'
debt-affordability, increased debt stock adds long-term
fiscal rigidity to their budgets. Moody's does note,
however, that these regions are committed to substantial consolidation
efforts that, if successfully implemented will rebalance their accounts
over time.
Sicily's rating continues to account for the persistent difficulties
it faces overseeing its fiscal consolidation, as well as the challenges
stemming from its weak and demanding socio-economic environment,
which features below-average wealth and employment levels and rely
on regional spending. Moody's expects Sicily will record
only a moderate increase in its debt levels to clear overdue payables.
Naples's B1 rating with negative outlook continues to reflect the
fiscal challenges associated with a still sizeable budgetary deficit,
its large and growing debt load and its tight liquidity position.
The rating also considers the fiscal pressure stemming from its weak and
demanding socio-economic environment, as well as Naples's
exposure to financial risks off-balance sheet through existing
swaps and the challenges posed by its burdensome public sector.
These credit negatives are partially offset by the city's commitment to
fiscal consolidation, and close national government oversight.
WHAT COULD CHANGE THE RATINGS UP/DOWN
An upgrade would require evidence of an RLG's capacity to structurally
improve its finances and debt metrics. An upgrade of Italian sub-sovereign
ratings could also be triggered by an upgrade of Italy's sovereign
rating.
Conversely, downward pressure on any of the RLG ratings would arise
from a failure to consolidate their finances in response to more rigid
budgets, leading to deteriorating fiscal and debt metrics,
or heightened liquidity pressure. A downgrade of the sovereign
rating will trigger downward rating actions on Italian sub-sovereigns.
A stabilisation of the outlook Molise's and Naples' ratings
would require evidence of these entities' ability to consolidate
their finances and overcome liquidity pressure.
AFFECTED RATINGS
-- ENTITIES RATED ABOVE THE SOVEREIGN --
- Autonomous Province of Bolzano: issuer rating of A3 affirmed;
outlook changed to stable from negative
- Autonomous Province of Trento: issuer rating of A3 affirmed;
outlook changed to stable from negative
- Region of Lombardy: issuer and debt ratings of Baa1 affirmed;
outlook changed to stable from negative
- Cassa del Trentino SpA: issuer and debt ratings of A3 affirmed;
outlook changed to stable from negative
-- ENTITIES RATED AT THE SOVEREIGN LEVEL --
- Region of Basilicata: issuer rating of Baa2 affirmed;
outlook changed to stable from negative
- Region of Liguria: debt rating of Baa2 affirmed; outlook
changed to stable from negative
- Region of Puglia: debt rating of Baa2 affirmed; outlook
changed to stable from negative
- Region of Sardinia: debt rating of Baa2 affirmed;
outlook changed to stable from negative
- Region of Umbria: issuer and debt ratings of Baa2 affirmed;
outlook changed to stable from negative; senior secured debt rating
of Baa2 affirmed
- Region of Veneto: issuer and debt ratings of Baa2 affirmed;
outlook changed to stable from negative
- City of Milan: issuer and debt ratings of Baa2 affirmed;
outlook changed to stable from negative
- City of Venice: issuer and debt ratings of Baa2 affirmed;
outlook changed to stable from negative
- Finlombarda SpA: issuer rating of Baa2 affirmed; outlook
changed to stable from negative
-- ENTITIES RATED BELOW THE SOVEREIGN LEVEL --
- Region of Abruzzo: issuer and debt ratings of Baa3 affirmed;
outlook changed to stable from negative
- Region of Campania: issuer and debt ratings of Ba1 affirmed;
outlook changed to stable from negative
- Region of Lazio: debt rating of Ba2 affirmed; outlook
changed to stable from negative
- Region of Molise: issuer and debt ratings of Baa3 affirmed,
with negative outlook
- Region of Piedmont: issuer and debt ratings of Ba1 affirmed;
outlook changed to stable from negative
- Region of Sicily: issuer and debt ratings of Ba1 affirmed;
outlook changed to stable from negative; senior secured debt rating
of Baa2 affirmed
- City of Civitavecchia: issuer and debt ratings of Baa3
affirmed; outlook changed to stable from negative
- City of Naples: debt ratings of B1 affirmed, with
negative outlook
The sovereign action required the publication of this credit rating action
on a date that deviates from the previously scheduled release date in
the sovereign release calendar, published on www.moodys.com.
Specific economic indicators as required by EU regulation are not applicable
for these entities.
On 12 February 2014, a rating committee was called to discuss Italian
sub-sovereign ratings. The main points raised during the
discussion were: The systemic risk in which the issuers operates
has materially decreased.
The principal methodology used in rating Italian RLGs was Regional and
Local Governments published in January 2013. The principal methodology
used in rating Italian 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.
The weighting of all rating factors is described in the methodology used
in this rating action, if applicable.
REGULATORY DISCLOSURES
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 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 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 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.
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Francesco Maria Soldi
Vice President - Senior Analyst
Sub-Sovereign Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100
David M Rubinoff
MD - Sub-Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100
Moody's changes outlook to stable on 19 Italian sub-sovereigns; ratings affirmed
