July 7, 2017 / 8:17 PM / in 21 days

Fitch Affirms Autonomous Community of Castile La Mancha at 'BBB-'; Outlook Stable

14 Min Read

(The following statement was released by the rating agency) BARCELONA, July 07 (Fitch) Fitch Ratings has affirmed the Autonomous Community of Castile-La Mancha's (CLM) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB-' with Stable Outlooks. Fitch has also affirmed the Short-Term Foreign Currency IDR at 'F3'. The ratings on the senior unsecured outstanding bonds have been affirmed at 'BBB-'. The affirmation reflects the unchanged 'BBB-' Support Rating Floor being applied to Spanish autonomous communities, including CLM. This supports CLM's 'BBB-' rating, which is stronger than the region's intrinsic credit profile. Fitch will monitor the ongoing debate regarding liquidity support from the central government to Spanish regions. KEY RATING DRIVERS Central Government Support The rating floor is based on a number of supporting factors that mitigate a region's liquidity risk, reducing the likelihood of default. These include the absolute priority of debt servicing by law as per article 135 of the Spanish Constitution; access to state liquidity mechanisms such as the Regional Liquidity Fund (FLA) and the Financial Facility Fund, as well as the budgetary stability law, which enforces fiscal discipline on local and regional governments. The region had around EUR10 billion debt from state liquidity mechanisms at end-2016, which represented approximately 70% of its total debt, illustrating strong support from the central government. This includes the FLA, which was established in 2012 by the central government to support Spanish regions facing difficulties in accessing capital markets, and the Supplier's Fund (FFPP), a mechanism that helps regions pay their arrears to suppliers. Debt contracted under these mechanisms is repaid evenly over 10 years. Debt Redemption Backed-Up In Fitch's view, CLM's access to state support will continue to ensure timely debt servicing, as the region faces high redemptions over the next three years, which exceeded 25% of outstanding debt as of end-2016. State liquidity mechanisms in 2017 are expected to distribute at least EUR18.2 billion to support debt amortisation of the Spanish regions that have requested it, although the 2017 state budget has estimated allocations of up to EUR25 billion in support. The Ministry of Finance and Civil Service (MinHap) coordinates with the participating regions to service debt principal and interest, and Fitch does not expect a major change to this scheme over the medium term. However, a potential change in the regional financial system as expected for 2018 may result in a progressive phase-out of the liquidity support mechanism. This is not included under Fitch?s base case scenario. Under Fitch's base case scenario, CLM's funding needs of EUR1.8 billion in 2017 will rely on the FLA, increasing the share of state liquidity support in the region?s total debt to close to 80% at end-2017, from 75% in 2016. However, CLM is willing to diversify its funding sources and to tap capital markets, all within the region's prudential policy limits. Fiscal performance is likely to continue improving so that debt increase will slow, and expected higher operating revenue may result in a stabilisation of the debt-to-current revenue ratio over the medium term to around 265%-270%, after peaking at 273% in 2015. Current Balance Still Negative Negative current balances since 2008 and a high debt burden mean that the standalone credit metrics of CLM are weaker than its ratings indicate. Budgetary performance improved in 2016, mainly driven an additional EUR260 million inflow stemming from higher allocations from the funding system as well as a lower debt burden and, to a lesser extent, minor tax reforms. Overall, the negative current balance narrowed to about 9% in 2016 from 13.58% in 2015. Slight Fiscal Improvement Ahead Fitch expects further improvement in 2017, due to an extra EUR160 million revenue allocation from the financial system and expenditure constraint after the regional government failed to agree its budget for 2017, thus limiting spending to 2016's levels. Nevertheless, CLM is still far from fully rebalancing its budget to allow deleveraging, which Fitch believes will remain the case under the present regional financial system. According to its base case scenario, Fitch expects CLM to post a negative current balance above 5% over the medium term. Regional Economy in Recovery With a GDP of EUR38 billion, CLM has a weaker economic profile than Spain, with a GDP per capita equivalent to 78% of the national average in 2016. Fitch expects nominal GDP to grow around 3% in 2017, slightly below the national rate, and for this trend to continue. The labour market has also improved as unemployment decreased to 23.6% in 2016 (Spain 19.6%), from 26.3% in 2015. Exports saw a record 7.5% yoy growth as of end-October 2016, although the region still suffers from a trade deficit. RATING SENSITIVITIES As CLM's IDRs are supported by the 'BBB-' Support Rating Floor for Spanish autonomous communities, they would likely be downgraded if the floor is removed KEY ASSUMPTIONS Fitch assumes that the state will continue providing support to the Spanish regions over the medium term. Moreover, Fitch will review the rating floor if state support measures are withdrawn or if the central government's ability and willingness to continue providing extraordinary support to the regions weakens. Discussion on the regional financial system is ongoing in Spain, and changes are likely over the medium term. Nevertheless, Fitch believes the revenue of CLM is unlikely to decrease as a result. Contact: Primary Analyst Patricio Novales Associate Director +34 93 323 8417 Fitch Ratings Espana. S.A.U. Avda. Diagonal, 601, Barcelona 08028 Secondary Analyst Guilhem Costes Senior Director +34 93 323 8410 Committee Chairperson Christophe Parisot Managing Director + 33 1 44 29 91 34 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Pilar Perez, Barcelona, Tel: +34 93 323 8414, Email: pilar.perez@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below