Reuters logo
Fitch Affirms Italian Region of Lazio at 'BBB'; Outlook Stable
February 24, 2017 / 5:07 PM / 7 months ago

Fitch Affirms Italian Region of Lazio at 'BBB'; Outlook Stable

(The following statement was released by the rating agency) MILAN/LONDON, February 24 (Fitch) Fitch Ratings has affirmed Lazio's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB' with a Stable Outlook, and Short-Term Foreign Currency IDR at 'F3'. The affirmation affects the region's senior unsecured debt, including two bonds (XS0198341587, and XS0197857856) for an original amount of EUR300m. The affirmation reflects our expectations that the region's operating balance will cover debt servicing requirements over the medium term. The Stable Outlook balances the risk of rising direct debt or a reverse of the policy to gradually overcome the fund-balance deficit with the benefit of a potentially stronger than-expected 8% operating margin. KEY RATING DRIVERS Fiscal Performance (neutral): Fitch expects the Region of Lazio's operating surplus to hover above EUR1bn, or 8% of revenue over 2017-2019, in line with preliminary figures for 2016. The region aims to offset a 1% growth in national allocations for healthcare from 2017 with a partial removal of the personal income tax increases passed in 2015. The latter will allow the city headroom for future tax increases if need be. The eventual sale of real estate assets would allow for enlarged capex which nonetheless remains fairly compressed at a low 5% of total spending. Operating spending growth maintained at about 1% per annum contributes to a budget being close to balance, which nevertheless remains rigid as underscored by an ongoing fund deficit. Preliminary figures for 2016 suggest the latter has shrunk close to EUR1bn or 7% of revenue, on Fitch's calculation basis, which excludes nearly EUR0.5bn of perenti (long-standing, unused commitments for investments) and EUR9.5bn of subsidised loans from the national government to accelerate commercial payments in 2013-2015. Debt (weakness): Lazio's financial debt grew to EUR21.5bn in December 2016, nearly 1.5x operating revenue, up from EUR20.5bn in December 2015 as the region funded capex already committed, hence narrowing the fund deficit. Fitch expects financial debt, including subsidised loans, to remain high at about EUR21bn, nearly 1.5x operating revenue in 2017-19. Weak debt sustainability, as measured by a debt-to-current balance ratio of around 40 years, is offset by a low (10%) proportion of market debt on the region's balance sheet. Lazio's EUR15bn of 30-year maturity, state-subsidised and mostly fixed-rate loans contribute to the debt's extended average life of about 17 years, stabilising debt servicing requirements at 8% of revenue. Management (neutral): Fitch's assessment remains underpinned by Lazio's policy to gradually replenish the fund balance, removing a source of cash tension, amid sound budgetary planning and execution capacity. The health care sector is now nearly balanced without the contribution of tax surcharges and Fitch expects a continued grip on Lazio's network of public sector entities, translating into low regional indirect debt and guarantees granted to support their operations/capex. Economy (strength): Lazio's GDP grew around 1.5% in 2016, according to Fitch's preliminary estimates, underpinned, among others, by pharmaceuticals and car manufacturing, while the employment base stagnated close to 2.35 million Fitch expects Lazio's economy to expand about 1% in 2017, supporting revenue growth towards EUR15bn over the medium term, from EUR14.5bn in 2015-16. Despite the subdued economic growth expected over the medium term, Lazio's above-EU average socio-economic wealth indicators and diversified economy largely underpin the region's revenue-raising potential. Institutional framework (neutral): Fitch assesses Italian inter-governmental relations as "neutral" to Lazio's ratings. Weak enforcement of prudential regulation aimed at preserving fiscal balances can, at times, lead to off-balance sheet liabilities, such as Lazio's fund balance deficit, as well as healthcare deficits in previous years. However, legislation prioritises the repayment of financial over commercial liabilities in case of liquidity stress. Furthermore, the national government usually intervenes with corrective budgetary measures when a subnational finds itself unable to deliver basic services. RATING SENSITIVITIES A fall in the operating margin to around 5% or unexpected widening of the fund balance deficit could result in a downgrade. Sustained economic recovery buoying revenue growth, with the operating margin exceeding 10% or debt liabilities on a downward trend towards 1x operating revenue could lead to a positive rating action. Contact: Primary Analyst Raffaele Carnevale Senior Director +39 02 87 90 87 203 Fitch Italia - Societa Italiana per il Rating S.p.A. 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 Guilhem Costes Senior Director +34 34 93 323 8410 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 Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019525 Solicitation Status here 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. 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

Our Standards:The Thomson Reuters Trust Principles.
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