Paris, August 09, 2022 -- Moody's Investors Service ("Moody's") has today affirmed the ratings of 17 Italian regional and local governments (RLGs) and two Government Related Issuers (GRIs) and changed their outlooks to negative from stable. At the same time, Moody's affirmed the ratings of the regions of Valle d'Aosta at Baa2/Prime-2, Piedmont at Ba2 and Molise at Ba2 and changed the outlooks to stable from positive.
The rating actions were prompted by the corresponding action on Italy's government bond rating, on August 5. For further information on the sovereign rating action, please refer to Moody's press release https://www.moodys.com/research/--PR_463267.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL468352 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.
RATIONALE FOR AFFIRMING THE RATINGS AND CHANGING THE OUTLOOKS TO NEGATIVE FROM STABLE ON 19 SUB-SOVEREIGN ENTITIES
Regional and Local Governments
The decision to affirm the ratings of 17 RLGs and change the outlooks to negative from stable reflects their close institutional, operational, and financial linkages with the central government. Risk of delays in the implementation of the structural reforms at national and local level combined with sluggish growth, higher funding costs as well as weakened economic prospects stemming from energy supply challenges add new risks for RLGs, which outweigh their successful budgetary consolidation efforts.
Institutional linkages. Italian RLGs are strongly regulated by the central government. These rules have strengthened in the last few years due to several changes to the institutional framework, leading to higher supervision and greater government control mechanisms.
Operational linkages. Regions strongly rely on the Italian sovereign for the funding of the healthcare sector, their main responsibility, which accounts for up to 80% of their budgets. More broadly, the dependence of Italian RLGs on sovereign transfers has been reinforced by stricter limits on budgetary rules and financial autonomy. Evidence of consistent financial support during the Covid-19 pandemic underscores these linkages. In this context, a weakening of Italy's fiscal strength would have negative effects on the RLGs.
Financial linkages. All RLGs are largely dependent on the sovereign for capital borrowing needs. As such, their cost of funding largely depends on sovereign credit conditions. The Italian government is the sector's main creditor accounting for around 85% of regional and local governments' debt.
The ratings within this group, ranging from Baa1 (Autonomous Provinces of Bolzano and Trento) to Ba1 (several RLGs), reflect differences in fiscal performance, level of financial autonomy, economic strength, budgetary flexibility and governance.
The Baseline Credit Assessments (BCAs) were also affirmed.
The negative outlooks mirror the outlook on the Government of Italy.
The decision to affirm MM S.p.A.'s long-term issuer and senior secured ratings at Baa3 and Cassa del Trentino S.p.A.'s long-term issuer and backed senior unsecured ratings at Baa1 while changing the outlooks to negative from stable mirrors the corresponding decision on their respective owners (City of Milan, Baa3, Negative and Autonomous Province of Trento, Baa1, Negative). From a credit perspective, there is no meaningful distinction between these two entities and their respective owners because of the tight operational and institutional linkages between them.
RATIONALE FOR AFFIRMING THE RATINGS FOR THE REGIONS OF VALLE D'AOSTA, PIEDMONT AND MOLISE AND CHANGING OUTLOOKS TO STABLE FROM POSITIVE
Region of Valle d'Aosta (Valle d'Aosta)
Moody's affirmed Valle d'Aosta's baa2 BCA, Prime-2 short-term issuer ratings and Baa2 long-term issuer and senior unsecured debt ratings reflecting Valle d'Aosta's special status which offers the region enlarged fiscal and legislative autonomy, reinforced by recent agreements with the central government. The statutory protection provided by its special status combined with the region's exceptional financial performance and strong governance led to positioning Valle d'Aosta's rating above the sovereign.
The stable outlook reflects Valle d'Aosta's inherent strengths and Moody's view that the current rating positioning will withstand further potential pressure stemming from the possible deterioration of the sovereign's credit quality.
Piedmont, Region of (Piedmont) and Molise, Region of (Molise)
Moody's affirmed Piedmont's and Molise's ba3 BCAs and Ba2 long-term issuer and senior unsecured debt ratings and changed the outlooks to stable from positive. In recent years, both regions improved their liquidity positions while their debt stocks have gradually declined. Moody's expects both issuers to continue to improve their management and governance practices in line with their recent track-record.
The stable outlooks indicate Moody's view that continuous improvement in the issuers' intrinsic creditworthiness will counterbalance the potential pressure coming from the sovereign.
The sovereign action required the publication of these credit rating actions on a date that deviates from the previously scheduled release date in the sovereign release calendar, published on https://ratings.moodys.com.
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: Italy, Government of
GDP per capita (PPP basis, US$): 46,161 (2021) (also known as Per Capita Income)
Real GDP growth (% change): 6.6% (2021) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 4.2% (2021)
Gen. Gov. Financial Balance/GDP: -7.2% (2021) (also known as Fiscal Balance)
Current Account Balance/GDP: 2.5% (2021) (also known as External Balance)
External debt/GDP: 131.7% (2021)
Economic resiliency: a2
Default history: No default events (on bonds or loans) have been recorded since 1983.
SUMMARY OF MINUTES FROM RATING COMMITTEE
On 04 August 2022, a rating committee was called to discuss the rating of the Abruzzo, Region of; Friuli Venezia Giulia, Autonomous Region of; Liguria, Region of; Lombardy, Region of; Molise, Region of; Puglia, Region of; Sardinia, Autonomous Region of; Sicily, Autonomous Region of; Venice, City of; Veneto, Region of; Umbria, Region of; Trento, Autonomous Province of; Basilicata, Region of; Bolzano, Autonomous Province of; Campania, Region of; Lazio, Region of; Milan, City of; Piedmont, Region of; Roma Capitale, Metropolitan city of; Valle d'Aosta, Autonomous Region of. The main points raised during the discussion were: the systemic risk in which the issuer operates has materially increased.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
ESG considerations for the 20 RLGs are summarized as follows:
Environmental risks are not material for the RLGs' credit profiles. Their main environmental risk exposures relate to physical climate due to flooding and heatwaves. However, this is predominantly managed by national authorities in case of an emergency.
Social risks are material for the RLGs' credit profiles, with issuer profile scores ranging from neutral to highly negative. Exposure to social risks associated to demographics and unemployment is moderate for regions as healthcare expenses are almost fully covered by dedicated national funding (Fondo Sanitario Nazionale).
In terms of Governance, the RLGs have demonstrated strong budget management by implementing budgetary control plans. All rated sub-sovereigns also provide financial reports generally transparent and timely.
Cassa del Trentino S.p.A.
Environmental risks are not material to Cassa del Trentino S.p.A.'s ratings. The issuer is exposed to avalanche and landslide risks. Nevertheless, these risks are not material for the ratings, given Cassa del Trentino S.p.A.'s strategic role and the support coming from the Autonomous Province of Trento.
Social risks are not material to Cassa del Trentino S.p.A.'s ratings. Cassa del Trentino S.p.A. is exposed to social risks associated to demographic, labour income and education. Nevertheless, these risks are not material for the rating, given Cassa del Trentino S.p.A.'s strategic role and the support coming from the Autonomous Province of Trento.
Governance risks are material to Cassa del Trentino S.p.A.'s ratings. The governance framework is intertwined with the supporting government, which exerts strong oversight and ultimately takes key decisions.
Environmental risks are not material to MM S.p.A.'s ratings. MM S.p.A. is exposed to flooding risks. Nevertheless, these risks are not material for the ratings, given MM S.p.A.'s strategic role and the support coming from the City of Milan.
Social risks are not material to MM S.p.A.'s ratings. MM S.p.A.'s is exposed to social risks associated to housing. Nevertheless, these risks are not material for the ratings, given MM S.p.A.'s strategic role and the support coming from the City of Milan.
Governance risks are material to MM S.p.A.'s ratings. The governance framework is intertwined with the supporting government, which exerts strong oversight and ultimately takes key decisions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Regional and local governments
The strengthening of Italy's credit profile, as reflected by an upgrade of the sovereign rating, albeit unlikely given the current negative outlook on the Government of Italy, would exert upward pressure on Italian sub-sovereign ratings in general, particularly on those ratings currently on par or above the sovereign. In addition, upward pressure would develop on sub-sovereigns currently rated below the sovereign, if their fiscal and financial performance were to improve, reflected in positive and growing gross operating balances, and a significant reduction in their debt burdens sustained over time.
A downgrade of Italy's sovereign rating and/or indications of weakening government support for the Italian sub-sovereigns, or a deterioration in their fiscal performance, would likely lead to a downgrade of the ratings.
The ratings of Cassa del Trentino S.p.A. and MM S.p.A. would have upward pressure following a strengthening of the credit profiles of their owners, the Autonomous Province of Trento and the City of Milan respectively.
A downgrade of the owners' ratings or a weakening of their support would likely lead to a downgrade of the ratings.
The principal methodology used in rating Friuli Venezia Giulia, Autonomous Region of, Lombardy, Region of, Sardinia, Autonomous Region of, Veneto, Region of, Venice, City of, Umbria, Region of, Trento, Autonomous Province of, Sicily, Autonomous Region of, Molise, Region of, Puglia, Region of, Liguria, Region of, Abruzzo, Region of, Basilicata, Region of, Lazio, Region of, Milan, City of, Bolzano, Autonomous Region of, Piedmont, Region of, Roma Capitale, Metropolitan city of, Valle d'Aosta, Autonomous Region of, and Campania, Region of was Regional and Local Governments published in January 2018 and available at https://ratings.moodys.com/api/rmc-documents/66129. The principal methodology used in rating Cassa del Trentino S.p.A. and MM S.p.A. was Government-Related Issuers Methodology published in February 2020 and available at https://ratings.moodys.com/api/rmc-documents/64864. Alternatively, please see the Rating Methodologies page on https://ratings.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.
The List of Affected Credit Ratings announced here are a mix of solicited and unsolicited credit ratings. For additional information, please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL468352 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:
• EU Endorsement Status
• UK Endorsement Status
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Lead Analyst
• Releasing Office
• Person Approving the Credit Rating
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
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 issuer/deal page for the respective issuer on https://ratings.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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The below contact information is provided for information purposes only. For disclosures on the lead rating analyst and the Moody's legal entity that issued the rating, please see the issuer/deal page on https://ratings.moodys.com for each of the ratings covered.
Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
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