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Rating Action:

Moody's upgrades Carinthia's rating to Aa2 and stabilizes Lower Austria's outlook, other Austrian Sub-Sovereign ratings affirmed at Aa1 stable

10 Jun 2022

Frankfurt am Main, June 10, 2022 -- Moody's Investors Service ("Moody's") has today upgraded the State of Carinthia's long-term issuer ratings to Aa2 from Aa3 and changed the State of Lower Austria's outlook to stable from negative. Lower Austria's and other Austrian sub-sovereign entities' Aa1 ratings have been affirmed, including the Aa1 long-term issuer rating of the City of Vienna; the Aa1 long-term senior unsecured debt and issuer ratings of the State of Lower Austria; the Aa1/(P)Aa1 backed senior unsecured debt and MTN programme ratings for Autobahnen- und Schnellstrassen-Finanzierungs-AG (ASFINAG); the Aa1 backed senior secured debt rating for Kaerntner Ausgleichszahlungs-Fonds (KAF); and the Aa1 long-term issuer and Aa1/(P)Aa1 senior unsecured debt and MTN programme ratings and P-1 commercial paper rating of Bundesimmobiliengesellschaft m.b.H. (BIG). The outlooks for the City of Vienna, State of Carinthia, ASFINAG, KAF and BIG remain stable.

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL466371 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

RATIONALE FOR UPGRADING CARINTHIA'S RATING

The upgrade of the State of Carinthia's rating reflects its relatively sound financial performance with operating surpluses maintained during the pandemic as well as only moderate financial deficits of up to -5% of total revenues. Last years' management efforts to contain operating expenditure growth have been effective and the state was able to manage the challenges from the pandemic with very limited additional debt increase, considerably better than initially expected. Its net direct and indirect debt ratio, albeit elevated, remains relatively stable at below 140% of operating revenues and it is expected to remain below this level over the next three years. Moody's views the state's debt and financial management in line with Austrian peers, its governance and management practices are in compliance with Austrian standards, which are considered prudent, highly transparent and well predictable. Austria's strong institutional framework and possibility to access funding via the government's debt agency allows Carinthia to access funding at competitive cost. Compared with other Austrian regions, Carinthia's liquidity profile appears somewhat weaker, as financial reserves have been used to generate revenue over last decades.

The State of Carinthia's rating incorporates a BCA of a1 and a high level of extraordinary support from the Government of Austria.

RATIONALE FOR RATINGS AFFIRMATION

The City of Vienna's and the State of Lower Austria's rating affirmation reflects the consolidation of budgets with shrinking deficits. Moody's views that both will be able to contain operating cost and to reduce current budgetary pressure and will be able to return to balanced budgets in the coming years, Lower Austria quicker than the City of Vienna though.

Both governments' debt metrics have been on an elevated level and continued increasing for several years, most recently a fall out from the pandemic related budgetary pressure. Over the coming three years, the city of Vienna is expected to consolidate its debt level at around 75% of operating revenues, we project Lower Austria's debt ratio to slightly decline after peaking at 135% of operating revenues.

The city of Vienna is aiming to contain cost increases and reduce budgetary pressure, which is mainly caused by need to expend public services and infrastructure provision for its growing population. The city of Vienna is the economic center of Austria and around 25% of the country's gross domestic product (GDP) is generated within the city. On the other side, Lower Austria is somewhat below national average economic strength.

Both governments governance and management practices are in compliance with Austrian standards, which are considered prudent, highly transparent and well predictable. Both entities' liquidity profile is considered similarly strong, including some financial reserves and assets held.

Vienna's rating incorporates a BCA of aa2, which has been lowered from aa1 to reflect the above described challenges to return towards balanced budgets, and Lower Austria's rating incorporates a BCA of aa3, while both incorporate a high level of extraordinary support from the Government of Austria.

The rating affirmations of ASFINAG and KAF are based on the existence of a full, explicit, direct, unconditional and irrevocable guarantee of the Government of Austria (Aa1 stable); therefore we rate their debts on the same level as their guarantor.

In case of BIG, although not guaranteed by the state, the company benefits from the close links through full ownership and strong oversight of the federal government, the company's strategic role and special mandate of managing Government of Austria's real estate portfolio, as well as its business model which is strongly linked to revenues from the sovereign. The company can use Austria's government debt agency (OeBFA), to refinance maturing debt or to fund new investments. Therefore, BIG's rating is derived solely based on the rating of the Government of Austria.

RATIONALE FOR THE STABLE OUTLOOKS

The state of Carinthia's, state of Lower Austria's and city of Vienna's stable outlooks reflect Moody's view that current financial deficits will diminish over the coming years and their ability and efforts to manage current budgetary pressure will enable them to return to balanced budgets in the coming years. Debt metrics will stabilize or slightly decline from current levels.

The stabilization of Lower Austria's ratings takes into account Moody's view that the state benefited from better than previously expected economic and financial development, especially higher than expected tax revenues, but also that the management is able to contain expenditure rises and take action to limit debt increases.

The stable outlook on the three government-related issuers reflects the stable outlook on the Government of Austria.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

The City of Vienna's ESG Credit Impact Score is positive (CIS-1), reflecting neutral-to-low exposure to environmental and social risks, along with very strong governance and policy effectiveness that mitigate the city's susceptibility to these risks.

The State of Lower Austria's ESG Credit Impact Score is neutral-to-low (CIS-2), reflecting neutral-to-low exposure to environmental and social risks, along with very strong governance and policy effectiveness that mitigate the region's susceptibility to these risks.

The State of Carinthia's ESG Credit Impact Score is neutral-to-low (CIS-2), reflecting neutral-to-low exposure to environmental risks, moderately negative exposure to social risk, as well as positive exposure to governance risk.

For these Austrian regions, the environmental issuer profile score is neutral-to-low (E-2), reflecting neutral-to-low risks for all environmental factors. In general, Austrian regions face a relatively low level of environment-related credit risk and are perceived to be resilient to climate shocks or negative trends. The reconstruction investments to respond to natural disasters, such as floods, is typically funded by the central government. Mitigation works to prevent and limit the exposure to certain climate risks are mostly initiated, funded and executed by the central government in cooperation with the regional government.

Vienna's and Lower Austria's neutral-to-low social issuer profile scores (S-2) reflect similar characteristics. We note that the city of Vienna has a slightly better profile with its more favourable demographics, education and access to basic services.

Carinthia's moderately negative social issuer profile score (S-3) is primarily driven by demographics, which scores highly negative. The region faces an ageing population trend, resulting in declining labour supply and higher pension and social cost.

The Austrian regions' governance issuer profile score (G-1) reflects Austria's very strong institutional and governance framework. Budgetary discipline in Austria is underpinned by the Austrian Stability Pact agreement for spending restraint between the Austrian federal government and lower tiers of government. Under this agreement, budgets should be structurally balanced. The approach of budget preparation is prudent, transparent and predictable.

In the case of BIG we assess the significance of ESG factors to its credit profile is as follows:

Environmental risks are not material to BIG's rating. The main environmental risk could be flooding, but it would be managed by its owner, because in case of any damage to the buildings, the central government would provide support to the company. Moreover, BIG's properties are insured.

Social risks are not material to BIG's rating, because any social demand — such as higher demand for capacity — would be managed by the Austrian government.

Governance risks are material to BIG's rating. It has to comply with its public mandate. However, the governance framework is intrinsically intertwined with the supporting government, which exerts decision-making power and strong oversight.

In the case of ASFINAG and KAF, the environmental, social and governance risk exposure is not materially different from the Government of Austria, given the guarantee on their rated debt.

The specific economic indicators, as required by EU regulation, are not available for these entities (Vienna, City of; Bundesimmobiliengesellschaft m.b.H.; Autobahnen-Und Schnellstrassen Finanzierungs-AG; Carinthia, State of; Kaerntner Ausgleichszahlungs-Fonds; Lower Austria, State of). The following national economic indicators are relevant to the sovereign rating, which was used as an input to this credit rating action.

Sovereign Issuer: Austria, Government of

GDP per capita (PPP basis, US$): 59,692 (2021 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 4.5% (2021 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 3.8% (2021 Actual)

Gen. Gov. Financial Balance/GDP: -5.9% (2021 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -0.5% (2021 Actual) (also known as External Balance)

External debt/GDP: [not available]

Economic resiliency: aa3

Default history: No default events (on bonds or loans) have been recorded since 1983.

SUMMARY OF MINUTES FROM RATING COMMITTEE

On 07 June 2022, a rating committee was called to discuss the rating of Bundesimmobiliengesellschaft m.b.H.; Autobahnen-Und Schnellstrassen Finanzierungs-AG; Kaerntner Ausgleichszahlungs-Fonds. The main points raised during the discussion were: The systemic risk in which the issuers operate has not materially changed.

The rating committee also discussed the rating of the Vienna, City of; Lower Austria, State of; Carinthia, State of. The main points raised during the discussion were:

Vienna's fiscal or financial strength, including its debt profile, has not materially changed.

Lower Austria's fiscal or financial strength, including its debt profile, has materially increased.

Carinthia's governance and/or management, have materially increased. Its fiscal or financial strength, including its debt profile, has materially increased.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS                

An upgrade of the regional governments' ratings would require an upgrade of the sovereign in combination with a structural improvement of financial performance or significant decline in debt level.

The GRIs' ratings would be upgraded if Austria's rating were upgraded.

A downgrade of the regional governments' ratings could result from a weakening of the sovereign's credit profile or significant weakening of the regions' financials or a weakening of extraordinary support assumptions for Austrian regional governments.

The GRIs' ratings would be downgraded if Austria's rating were downgraded. Similarly, any change affecting the government guarantee on ASFINAG's, or KAF's debt could lead to a downward pressure in their respective ratings. In the case of BIG, a change in the company's policy mandate, a deterioration in financial performance, or a decision to privatise the entity would also exert negative pressure on the rating.

The principal methodology used in rating Vienna, City of, Lower Austria, State of and Carinthia, State 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 Bundesimmobiliengesellschaft m.b.H. was Government-Related Issuers Methodology published in February 2020 and available at https://ratings.moodys.com/api/rmc-documents/64864. The principal methodology used in rating Kaerntner Ausgleichszahlungs-Fonds and Autobahnen-Und Schnellstrassen Finanzierungs-AG was Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts published in May 2017 and available at https://ratings.moodys.com/api/rmc-documents/75699. 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.

REGULATORY DISCLOSURES

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_ARFTL466371 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.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

Harald Sperlein
Vice President - Senior 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

Mauro Crisafulli
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

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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