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Rating Action:

Moody's downgrades Italian sub-sovereign ratings following sovereign downgrade

05 Oct 2011

Milan, October 05, 2011 -- Moody's Investors Service has today downgraded the long-term ratings of 30 Italian sub-sovereign entities, including regional and local governments (RLGs) as well as two related issuers. The rating outlooks are negative.

Today's action concludes the review for downgrade initiated for most ratings on 21 June 2011 and extends to all Italian sub-sovereign ratings.

RATINGS RATIONALE

Today's action follows Moody's downgrade of Italy's government bond ratings to A2 with a negative outlook, from Aa2. For full details please refer to the Sovereign press release (http://www.moodys.com/research/Moodys-downgrades-Italys-government-bond-ratings-to-A2--PR_227333 ).

Deteriorating sovereign creditworthiness and the challenging austerity measures imposed by the central government are expected to affect sub-sovereign entities to varying degrees. For full detail of analytical considerations leading to this action, please refer to our dedicated Special Comment (http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_136453 ).

In Italy, the local public sector accounts for roughly 30% of the country's general government expenditures and is required to contribute to the nation's efforts to reach fiscal consolidation targets through cuts in state transfers and fiscal tightening.

As a result of today's action, Italian sub-sovereign ratings can 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.

A detailed list of the issuers and ratings affected by this rating action is provided further below.

- ENTITIES RATED ABOVE THE SOVEREIGN

Moody's has downgraded the entities in this group by three rating notches, mirroring the change in the sovereign rating. Entities in this group are the Autonomous Province of Bolzano, the Autonomous Province of Trento and its financial company Cassa del Trentino, and the Region of Lombardy.

Bolzano and Trento were downgraded to Aa3 with a negative outlook from Aaa. Their unique constitutional status support ratings that are two notches higher than that of the sovereign in view of their independence, which is expected to continue insulating them from the weakening sovereign operating environment. Although the ongoing austerity measures are affecting them negatively, Moody's expects these entities' excellent financial performance and very high fiscal flexibility to continue. At the same time, Cassa del Trentino's Aaa rating was downgraded to Aa3 with a negative outlook, mirroring the action on the Autonomous Province of Trento.

Lombardy has been downgraded to A1 with a negative outlook from Aa1. Unlike Trento and Bolzano, Lombardy lacks special constitutional status, and as such it is not insulated from financial exposure to the sovereign. However, it benefits from Italy's largest and most diversified economic base, generating 20% of national GDP. Despite the central government's austerity measures, Lombardy is expected to maintain strong budgetary performance and low debt levels, reflecting its institutional strength. Moody's is therefore keeping Lombardy's rating one notch above that of the sovereign.

- ENTITIES RATED AT THE SOVEREIGN LEVEL

Moody's has downgraded the entities in this group to A2 with a negative outlook -- the same level as the sovereign rating -- from Aa2-Aa3. This group comprises six regions, three provinces, three cities and one government-related issuer (Finlombarda).

Moody's does not view these entities as having special characteristics that could support ratings higher than that of the sovereign. The tight financial and operational linkages between the state and these RLGs leads to comparable levels of credit risk. Although these entities have rich economic bases, healthy financials and good governance practices, they remain dependent on transfers and decisions of the central government, which maintains a high degree of control over the sector via legislation. The downgrade of Lombardy's financial company Finlombarda to A2, reflects Moody's assessment of the degree of subordination to its sole shareholder, Lombardy, which is rated A1.

This group also includes the state-backed issuances of the regions of Marche, Umbria and Sicily, which are fully serviced by the central government. They will continue to follow the sovereign rating and were therefore downgraded to A2 from Aa2.

- ENTITIES RATED BELOW THE SOVEREIGN

Moody's has generally downgraded entities in this group by two notches to reflect the fiscal pressure on their already-tight budgets and to preserve the ordinal ranking of their credit quality relative to the sovereign. The group includes nine regions, one province and three cities.

The relative ranking within the A3-Baa3 rating range reflects differing financial, economic and institutional strengths, which ultimately translate into diverse capabilities to withstand a deteriorating operating environment and to absorb the impact of austerity measures. The three-notch downgrades of the City of Florence and the Region of Lazio reflect the sensitivity of the ratings to the weakened sovereign and therefore generate less uplift in the ratings, in line with Moody's Joint Default Analysis methodology.

RATIONALE FOR NEGATIVE OUTLOOKS

The negative outlooks on all Italian sub-sovereign ratings mirror the negative outlook on Italy's sovereign rating.

Although Moody's acknowledges that Italian RLGs have navigated the global crisis without significant fiscal deterioration, RLGs share the pressure facing Italy's general government budget. They are not immune to the credit condition of the sovereign and are exposed, to varying degrees, to the macroeconomic conditions in the country.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Italian sub-sovereign ratings are likely to follow the trajectory of Italy's government rating.

A stabilisation of the outlooks or an upgrade of Italian sub-sovereign ratings would require a stabilisation or upgrade of the sovereign rating, or evidence of a given RLG's capacity to display comparatively stronger credit fundamentals than its peers.

RATINGS AFFECTED

- ENTITIES RATED ABOVE THE SOVEREIGN

- Autonomous Province of Bolzano: issuer rating downgraded to Aa3, with negative outlook, from Aaa

- Autonomous Province of Trento: issuer rating downgraded to Aa3, with negative outlook, from Aaa

- Region of Lombardy: issuer and debt ratings downgraded to A1, with negative outlook, from Aa1

- Cassa del Trentino SpA: issuer and debt ratings downgraded to Aa3, with negative outlook, from Aaa

- ENTITIES RATED AT THE SOVEREIGN LEVEL

- Region of Basilicata: issuer rating downgraded to A2, with negative outlook, from Aa3

- Region of Liguria: debt rating downgraded to A2, with negative outlook, from Aa3

- Region of Marche: debt rating downgraded to A2, with negative outlook, from Aa3; senior secured debt rating downgraded to A2 from Aa2

- Region of Tuscany: issuer and debt ratings downgraded to A2, with negative outlook, from Aa2

- Region of Umbria: issuer and debt ratings downgraded to A2, with negative outlook, from Aa3; senior secured debt rating downgraded to A2 from Aa2

- Region of Veneto: issuer and debt ratings downgraded to A2, with negative outlook, from Aa2

- Province of Florence: issuer rating downgraded to A2, with negative outlook, from Aa3

- Province of Milan: issuer and debt ratings downgraded to A2, with negative outlook, from Aa3

- Province of Turin: issuer and debt ratings downgraded to A2, with negative outlook, from Aa3

- City of Milan: issuer and debt ratings downgraded to A2, with negative outlook, from Aa3

- City of Siena: issuer rating downgraded to A2, with negative outlook, from Aa2

- City of Venice: issuer and debt ratings downgraded to A2, with negative outlook, from Aa3

- Finlombarda SpA: issuer rating downgraded to A2, with negative outlook, from Aa2

- ENTITIES RATED BELOW THE SOVEREIGN

- Region of Abruzzo: issuer and debt ratings downgraded to Baa1, with negative outlook, from A2

- Region of Calabria: issuer rating downgraded to Baa2, with negative outlook, from A3

- Region of Campania: issuer and debt ratings downgraded to Baa2, with negative outlook, from A3

- Region of Lazio: debt rating downgraded to Baa2, with negative outlook, from A2

- Region of Molise: issuer and debt ratings downgraded to Baa1, with negative outlook, from A2

- Region of Piedmont: issuer and debt ratings downgraded to A3, with negative outlook, from A1

- Region of Puglia: debt rating downgraded to A3, with negative outlook, from A1

- Region of Sardinia: debt rating downgraded to A3, with negative outlook, from A1

- Region of Sicily: issuer and debt ratings downgraded to A3, with negative outlook, from A1; senior secured debt rating downgraded to A2 from Aa2

- Province of Rieti: issuer rating downgraded to A3, with negative outlook, from A1

- City of Civitavecchia: issuer and debt ratings downgraded to Baa1, with negative outlook, from A2

- City of Florence: debt rating downgraded to A3, with negative outlook, from Aa3

- City of Naples: debt rating downgraded to Baa3, with negative outlook, from Baa1

The principal methodologies used in rating Italian 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 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.

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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating 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 entity, obligation or credit satisfactory for the purposes of issuing a rating.

In addition to the information provided below please find on 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 each of the ratings.

Moody's adopts all necessary measures so that the information it uses in assigning a rating 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 entity or its related third parties within the three 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 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 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 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.

Francesco 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 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 downgrades Italian sub-sovereign ratings following sovereign downgrade
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