Frankfurt am Main, May 19, 2017 -- Moody's Investors Service, (Moody's) has today upgraded
the issuer rating and senior unsecured debt ratings of the Brandenburg,
Land to Aaa from Aa1; upgraded the EMTN programme to (P)Aaa from
(P)Aa1, and upgraded its baseline credit assessment (bca) to aa2
from aa3.
Moody's affirmed the issuer rating and senior unsecured debt ratings
of Land of Baden-Wuerttemberg of Aaa and upgraded its bca to aa1
from aa2.
Moody's affirmed the issuer rating of Free State of Bavaria at Aaa
and upgraded its bca to aaa from aa1.
Moody's affirmed the issuer rating and senior unsecured debt rating
Land of Nordrhein-Westfalen at Aa1 and upgraded the bca to aa3
from a1. Further, Nordrhein-Westfalen's Other
short term rating has been affirmed at (P)P-1.
At the same time, Moody's maintained the stable outlooks.
A full list of affected ratings is provided towards the end of this press
release.
RATINGS RATIONALE
RATINGS RATIONALE FOR UPGRADING BRANDENBURG TO Aaa
Today's upgrade of Brandenburg, Land's long term issuer
rating to Aaa and the upgrade of its bca to aa2 from aa3 are driven by:
(1) the Land's continuous consolidation efforts over the past years
resulted in strongly improving financial performance and declining net
direct and indirect debt-to-operating-revenues ratio
from 175.5% in 2015 to 160.9% in 2016;
(2) the good economic development reducing unemployment from around 10.7%
in 2011 to 8.0% in 2016, and (3) continued financial
support beyond 2020 through the national equalization system following
the agreement on the German new equalisation system in late October 2016.
RATIONALE FOR AFFIRMING ALL OTHER RATINGS
Baden-Wuerttemberg's bca upgrade to aa1 from aa2 and the
affirmation of its Aaa issuer rating reflect: (1) its positive financing
result since 2014 resulting in net direct and indirect debt-to-
operating-revenues ratio to decrease to 117% in 2016 from
125.7% in 2015; (2) its commitment to have balance
budgets, hereby already accomplishing the debt break mechanism requirements;
and (3) its very strong and diversified economy, with GDP per capita
at around 110% above the national average.
We have upgraded Bavaria's bca to aaa from aa1 and affirmed the
Aaa issuer rating reflecting: (1) the Land's commitment to
use fiscal surpluses to lower its nominal debt burden which has resulted
in sharply declining net direct and indirect debt to 45.3%
of operating revenues in 2016 from 55.5% in 2015.
We expect this trend to continue in the next few years; (2) the Land's
favourable demographic development reflected in its population expected
to grow from around 12.8 million in 2015 by 5.4%
until 2035; and (3) the expectation that Bavaria will be able to
lower its financial transfers towards the weaker regions as part of the
new equalization system starting in 2020.
Nordrhein-Westfalen's bca upgrade to aa3 from a1 and the
affirmation of its Aa1 issuer rating reflect (1) the Land reaching a fiscal
surplus in 2016 for the first time since 1973, paired with declining
debt levels; (2) strongly declining risks associated with the insolvency
of West LB, as the remaining assets of Portigon and Erste Abwicklungsanstalt
have been more than halved well ahead of initial plans; and (3) healthy
economic development over the past years.
All German regional ratings reflect our very high support assumption from
the Federal Government due to elevated reputation risk for Germany in
case of a default of a Land as well as the "Bundestreuekonzept",
according to which all Laender and the Federal Government must express
mutual solidarity in event of financial distress. The new equalization
system agreed in 2016, the introduction of the debt break mechanism
in 2010, and the proved effectiveness of the stability council have
resulted in an increased cohesion within the Laender sector and strengthen
our support assumption.
RATINGS RATIONALE FOR A STABLE OUTLOOK
The stable outlook on the four Laender mirrors the stable outlook on Germany's
Aaa government bond ratings, given the extremely strong macroeconomic,
fiscal and institutional linkages between the sovereign's and the
regional governments' credit risk.
WHAT COULD MOVE THE RATINGS UP / DOWN
Upward ratings pressure of the one Aa1 rated Laender could be triggered
by continued reduction of debt levels combined with building a track record
of balanced financial performance.
Downward ratings pressure could arise if the creditworthiness of the sovereign
were to weaken. Moreover, a substantial deterioration of
the Laenders' individual credit profiles or a weakening of our assessment
of systemic support would also trigger downward pressure on their individual
ratings.
The publication of this rating action deviates from the previously scheduled
release date in the sovereign release calendar published on www.moodys.com.
The reason for the deviation reflects our recognition improving financial
metrics due to strengthened institutional framework.
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: Germany, Government of
GDP per capita (PPP basis, US$): 48,111 (2016
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.9% (2016 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.7%
(2016 Actual)
Gen. Gov. Financial Balance/GDP: 0.8%
(2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 8.5% (2016 Actual) (also
known as External Balance)
External debt/GDP: [not available]
Level of economic development: Very High level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 17 May 2017, a rating committee was called to discuss the rating
of the Brandenburg, Land of ; Baden-Wuerttemberg ,
Land of ; Bavaria, Free State of ; and Nordrhein-Westfalen,
Land of. The main points raised during the discussion were:
The issuer's fiscal or financial strength, including its debt profile,
has materially increased.
The principal methodology used in these ratings was Regional and Local
Governments published in January 2013 . Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
LIST OF AFFECTED RATINGS
Upgrades:
..Issuer: Brandenburg, Land
....LT Issuer Rating, Upgraded to Aaa
from Aa1
....Senior Unsecured MTN Program, Upgraded
to (P)Aaa from (P)Aa1
...Senior Unsecured Regular Bond/Debenture,
Upgraded to Aaa from Aa1
Affirmations:
..Issuer: Baden-Wuerttemberg, Land of
....LT Issuer Rating, Affirmed Aaa
....Senior Unsecured Regular Bond/Debenture,
Affirmed Aaa
..Issuer: Bavaria, Free State of
....LT Issuer Rating, Affirmed Aaa
..Issuer: Nordrhein-Westfalen, Land of
....LT Issuer Rating, Affirmed Aa1
....Senior Unsecured MTN Program, Affirmed
(P)Aa1
....Other Short-Term, Affirmed
(P)P-1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Aa1
Outlook Actions:
Issuer: Baden-Wuerttemberg, Land of
.Outlook, Remains Stable
..Issuer: Bavaria, Free State of
....Outlook, Remains Stable
..Issuer: Brandenburg, Land
....Outlook, Remains Stable
..Issuer: Nordrhein-Westfalen, Land of
....Outlook, Remains Stable
The weighting of all rating factors is described in the methodology used
in this credit 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 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 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 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.
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.
Janko Lukac
Analyst
Sub-Sovereign Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
David Rubinoff
MD - Sub Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
