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Fitch Affirms Cassa del Trentino at 'A-'; Outlook Stable
July 12, 2017 / 1:16 PM / a month ago

Fitch Affirms Cassa del Trentino at 'A-'; Outlook Stable

(The following statement was released by the rating agency) MILAN/PARIS/LONDON, July 12 (Fitch) Fitch Ratings has affirmed Cassa del Trentino's (CdT) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'A-' with Stable Outlook, and Short-Term Foreign Currency IDR at 'F1'. Fitch has also affirmed CdT's bonds and notes at long-term 'A-'. Fitch rates CdT, using a top-down rating approach under its 'Rating of Public-Sector Entities - Outside the United States' criteria, to reflect the credit links between CdT and its sponsor, the Autonomous Province of Trento (PAT; A-/Stable), such as those underlined by the presence of a statutory guarantee issued by the sponsor on CdT's financial liabilities. KEY RATING DRIVERS The ratings of CdT reflect PAT's continued solid financial support, its strong integration with and extensive control by the sponsor, and its key role in the province's financial strategy. CdT's ratings are equalised with those of PAT by virtue of the guarantee it provides for CdT's debt under provincial law 13/1973 art. 8bis. The Stable Outlook reflects Fitch's expectation of no major rating changes in the foreseeable future. Legal Status (Mid-Range): CdT is 100%-owned by PAT for which it is the financial arm, with the statutory mission and mandate to manage and provide financial resources for public investments within the regional territory on behalf of PAT, while providing support to the local economy, financial policies and provincial development. Despite its joint-stock company status, the not-for-profit mission of CdT increases its dependence on the province. Integration (Stronger): CdT is tightly integrated within the provincial wider public sector and PAT retains a close grip on its strategies and operations. Although CDT's finances are not directly consolidated in the sponsor's budget, CDT must comply with provincial indebtedness limits. In addition, CdT is fully dependent on PAT for its funding needs, which means the latter also has extensive and explicit control over its finances. If necessary, CdT can access credit lines from PAT's treasury bank or receive advanced subsidies. Control (Stronger): PAT directly and solely appointed CdT's Board of Directors, approves the company's financial statements and retains control over the company's major strategic decisions. The statutory provincial guarantee (unconditional, irrevocable and on first demand) on 100% of CdT's outstanding debt is the key determinant of PAT's tight control. According to PAT, CdT may eventually issue additional liabilities to accommodate a potential enlargement of its responsibilities, albeit under the close scrutiny of the province. Strategic Importance (Stronger): CdT disburses funds, including capital subsidies, on behalf of the province, to finance municipalities' and public sector entities' (PSEs) investments, as well as performing treasury service. In Fitch's view, the unique role of CdT as the province's financial arm supports its strategic importance for PAT. The guarantee also extends to CdT's future issuance, provided it is within the limits stated by law for public sector borrowing to which PAT must comply. Ninety-five per cent of CdT's liabilities, or EUR2.2 billion, comes from loans and bonds that CdT issues on behalf of the province and whose repayment is backed by provincial transfers, matching debt amortisation and assisted by provincial guarantees. Supported by solid profitability (return on equity of 6.5% in 2016), CdT distributes reserves to PAT (EUR6 million in 2016; on average EUR4 million per year in 2012-2015), offsetting the higher-than-market average spread on interest paid by the province. CdT has negligible market and concentration risks, excellent asset quality with no impaired loans, and maintains strong access to capital markets. Fitch believes CdT would most likely receive extraordinary support from its sponsor in case of need. Its EUR1.4 billion total outstanding debt as of end-2016 - of which one third are bullet bonds backed by cash provisions - represents only one-third of the provincial budget. Fitch expects CdT's net interest margin to remain below 1% of assets over the medium term (0.6% in 2016), with assets declining to around EUR2 billion and interest margin at around EUR14 million (on average EUR15 million in 2014-2016). We forecast net income will be around EUR5 million in 2017-2019 due to CdT's not-for-profit mission (on average EUR6.5 million in 2013-2016). CdT's solvency is underpinned by a stable revenue structure based on PAT's support. CdT traditionally maintains adequate liquidity with cash averaging at about one third of the its financial debt. CdT's access to credit lines from the province's treasury bank and to future subsidies from PAT provide an additional safety net. RATING SENSITIVITIES As CdT's ratings mirror PAT's IDRs a change in the sponsor's ratings would therefore be reflected on those of CdT. A dilution of support from or weaker integration with PAT, resulting from an increase in non-guaranteed financial debt towards one-third of total debt or a change in statute or the legislative framework weakening CdT's links with the province, may lead to a negative rating action. Contact: Primary Analyst Federica Bardelli Associate Director +39 02 87 90 87 261 Fitch Italia SpA Via Morigi 6 - Ingresso Via Privata Maria Teresa, 8 20123 Milan Secondary Analyst Gian Luca Poggi Director +39 02 87 90 87 293 Committee Chairperson Christophe Parisot Senior Director + 33 1 44 29 91 34 Media Relations: Stefano Bravi, Milan, Tel: +39 02 879 087 281, Email: stefano.bravi@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@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 Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 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. 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