Milan, July 16, 2012 -- Moody's Investors Service has today downgraded the long-term issuer
and debt ratings of 23 Italian sub-sovereign entities, including
regional and local governments (RLGs) as well as two associated entities.
The downgrades were prompted by the weakening of the Italian government's
credit profile, as captured by Moody's recent downgrade of Italy's
government bond rating to Baa2 from A3. For full details please
refer to the Sovereign press release (http://www.moodys.com/research/Moodys-downgrades-Italys-government-bond-rating-to-Baa2-from-A3--PR_250567).
Further to today's action, the outlooks on Italian sub-sovereign
ratings remain negative in line with the outlook on the sovereign rating.
RATINGS RATIONALE
The deterioration in Italy's sovereign creditworthiness has affected
Italian sub-sovereign entities to varying degrees. For full
details of the correlation between sub-sovereign and sovereign
credit risk, please refer to Moody's Special Comment published
on 15 February (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_139829).
The centralised architecture of the local public sector in Italy establishes
close operational and financial linkages between the national and peripheral
governments. Although this is well-established and designed
to ensure the stability of the RLG finances, the institutional framework
does not grant RLGs sufficient autonomy to withstand a deterioration of
the sovereign rating. RLGs are contributing to Italy's fiscal
consolidation through fiscal tightening measures imposed by the central
government. Lower state resources and stricter budgetary restraints
are in turn resulting in increased budgetary rigidity and worsened budgetary
performance.
Moody's has today downgraded sub-sovereign issuers that were
previously positioned within the A1-Baa1 rating range by two rating
notches, mirroring the change in the sovereign rating. Conversely,
sub-sovereign ratings that were previously positioned at Baa2 and
Baa3 have been lowered by one rating notch to Baa3 and Ba1, respectively,
to reflect greater tolerance of lower ratings to sovereign credit deterioration.
Further to today's action, Italian sub-sovereign ratings
can continue to be grouped as follows, although the composition
of each group has shifted: (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 two rating notches.
Entities in this group include the Autonomous Province of Bolzano,
the Autonomous Province of Trento and its financial company Cassa del
Trentino, and the Region of Lombardy. For full detail of
the analytical considerations explaining Trento's and Bolzano's
credit profile, please refer to our dedicated Issuer Comment,
published on 4 April (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_140694).
Bolzano and Trento were downgraded to A3 from A1, and remain rated
two notches above Italy's Baa2 sovereign rating. Key features
supporting their higher credit quality include: (i) their statutory
independence, which provides a greater degree of financial and legislative
autonomy and is expected to continue insulating them from the weakening
sovereign environment; (ii) their exceptionally strong fiscal positions
and budgetary flexibility, which provides them with the scope to
implement large-scale fiscal adjustments; and (iii) their
very low exposure to financial market dislocations. At the same
time, Cassa del Trentino's A1 rating was downgraded to A3 with a
negative outlook, mirroring the action on the Autonomous Province
of Trento.
Lombardy was downgraded to Baa1 from A2, and remains rated one notch
above Italy's Baa2 sovereign rating. Unlike the two autonomous
provinces, 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 about 20% of national GDP. Furthermore,
its large budget and fiscal flexibility, combined with low debt,
enable it to implement large-scale fiscal adjustments in response
to budgetary restraints.
- ENTITIES RATED AT THE SOVEREIGN LEVEL
Moody's has downgraded the entities in this group to Baa2 --
the same level as the sovereign rating -- from A3.
This group comprises seven regions, 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
generally display medium-to-large economic bases,
good financials, and low-to-moderate contingent liabilities,
they remain dependent on state transfers and central government's
decisions affecting their finances. The downgrade of Lombardy's
financial company Finlombarda to Baa2 reflects Moody's assessment of the
degree of subordination to its sole shareholder, Lombardy,
which is rated one notch above at Baa1.
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
Moody's has downgraded entities in this group by one or two notches to
reflect their tight budgetary position and high debt, including
contingent liabilities, and to preserve the ordinal ranking of their
credit quality relative to the sovereign. The group includes six
regions and two cities.
The Regions of Abruzzo and Piedmont were downgraded by two notches to
Baa3 from Baa1 to reflect their tight budgets, including cash flows,
and moderate-to-high debt. The City of Civitavecchia
was also downgraded to Baa3 from Baa1 to reflect its weak budgetary position
and growing debt.
The Regions of Lazio, Campania, Calabria and Molise were downgraded
by one notch to Baa3 from Baa2. These issuers feature low capacity
to withstand a deteriorating operating environment and to face budgetary
restraints, in light of their tight budgets, high debt and
contingent liabilities.
The one-notch downgrade of the City of Naples to Ba1 from Baa3
reflects Moody's assessment of Naples' fragile budgetary position,
high debt and exposure to financial risks off-balance sheet.
Naples is particularly exposed to the pressure arising from budgetary
restraints imposed by the central government, given its high dependence
on state resources and the systemic pressure stemming from its weak and
demanding socio-economic environment.
WHAT COULD CHANGE THE RATINGS UP/DOWN
The negative outlooks on Italian sub-sovereigns mirror the negative
outlook on Italy's sovereign rating and reflect systemic pressure.
Italian sub-sovereign ratings are likely to follow the trajectory
of Italy's government rating. An imminent deterioration of a given
RLG's financial profile and its ability to service its debt obligations
would also trigger a downward rating action.
A stabilisation of the outlooks or an upgrade of Italian sub-sovereign
ratings will require a stabilisation or upgrade of the sovereign rating,
or evidence of a given RLG's capacity to display comparatively stronger
credit fundamentals and ability to withstand the deterioration of the
operating environment.
RATINGS AFFECTED
- ENTITIES RATED ABOVE THE SOVEREIGN
- Autonomous Province of Bolzano: issuer rating downgraded
to A3, with negative outlook, from A1
- Autonomous Province of Trento: issuer rating downgraded
to A3, with negative outlook, from A1
- Region of Lombardy: issuer and debt ratings downgraded
to Baa1, with negative outlook, from A2
- Cassa del Trentino SpA: issuer and debt ratings downgraded
to A3, with negative outlook, from A1
- ENTITIES RATED AT THE SOVEREIGN LEVEL
- Region of Basilicata: issuer rating downgraded to Baa2,
with negative outlook, from A3
- Region of Liguria: debt rating downgraded to Baa2,
with negative outlook, from A3
- Region of Umbria: issuer and debt ratings downgraded to
Baa2, with negative outlook, from A3; senior secured
debt rating downgraded to Baa2 from A3
- Region of Veneto: issuer and debt ratings downgraded to
Baa2, with negative outlook, from A3
- Region of Puglia: debt rating downgraded to Baa2,
with negative outlook, from A3
- Region of Sardinia: debt rating downgraded to Baa2,
with negative outlook, from A3
- Region of Sicily: issuer and debt ratings downgraded to
Baa2, with negative outlook, from A3; senior secured
debt rating downgraded to Baa2 from A3
- City of Milan: issuer and debt ratings downgraded to Baa2,
with negative outlook, from A3
- City of Siena: issuer rating downgraded to Baa2,
with negative outlook, from A3
- City of Venice: issuer and debt ratings downgraded to Baa2,
with negative outlook, from A3
- Finlombarda SpA: issuer rating downgraded to Baa2,
with negative outlook, from A3
- ENTITIES RATED BELOW THE SOVEREIGN
- Region of Abruzzo: issuer and debt ratings downgraded to
Baa3, with negative outlook, from Baa1
- Region of Calabria: issuer rating downgraded to Baa3,
with negative outlook, from Baa2
- Region of Campania: issuer and debt ratings downgraded
to Baa3, with negative outlook, from Baa2
- Region of Lazio: debt rating downgraded to Baa3,
with negative outlook, from Baa2
- Region of Molise: issuer and debt ratings downgraded to
Baa3, with negative outlook, from Baa2
- Region of Piedmont: issuer and debt ratings downgraded
to Baa3, with negative outlook, from Baa1
- City of Civitavecchia: issuer and debt ratings downgraded
to Baa3, with negative outlook, from Baa1
- City of Naples: debt rating downgraded to Ba1, with
negative outlook, from Baa3
RATING METHODOLOGIES USED
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 ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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 entities or their related third parties within
the two 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.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the lead analyst and the office that
has issued the credit rating.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
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
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Milan 20122
Italy
Telephone:+39-02-9148-1100
Moody's downgrades Italian sub-sovereign ratings following sovereign downgrade
