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Fitch Publishes State of Mecklenburg-Western Pomerania's 'AAA' Ratings
February 16, 2017 / 5:06 PM / in 8 months

Fitch Publishes State of Mecklenburg-Western Pomerania's 'AAA' Ratings

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: State of Mecklenburg-Western Pomerania - Rating Action Report here FRANKFURT/LONDON, February 16 (Fitch) Fitch Ratings has published the German federated State of Mecklenburg-Western Pomerania's Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) of 'AAA'. The agency has assigned a Short-Term Foreign Currency IDR of 'F1+'. The Outlooks on the IDRs are Stable. The agency has also affirmed the region's senior unsecured long-term rating at 'AAA'. KEY RATING DRIVERS The ratings reflect the strong support mechanisms that apply to all members of the German Federation, including the State of Mecklenburg-Western Pomerania, and the extensive liquidity facilities they benefit from, which ensure timely debt and debt service payment. The support mechanisms apply uniformly to all members of the German Federation: the Federal Republic of Germany (Germany; AAA/Stable/F1+) represented by the federal government (Bund) and the 16 federated states, which include the State of Mecklenburg-Western Pomerania. All Laender are equally entitled to financial support in the event of financial distress irrespective of differences in economic and financial performances. Liquidity risk is mitigated by the bilateral and mutual agreements linking all the federated states and the Bund and ensuring their ability to assist one another. Cash would only fail to be forthcoming for a Land in the event of a complete federation-wide breakdown, in which neither other Laender nor the Bund itself could provide cash. Active liquidity management and proper treasury facilities prevent any temporary delays in the provision of support. Extensive equalisation systems and an ambitious solidarity pact compensate for financial disparities. This framework requires the financially stronger Laender to transfer part of their above-average tax proceeds to the financially weaker ones and to reduce the gap in financial strength among Laender to a minimum. Mecklenburg-Western Pomerania showed stable fiscal performance in 2011-2015 with operating margins between 14.6% (2015) and 17.4% (2012). Following a decline of the state's debt last year, we assume 2016 fiscal performance to be at least close to 2015 results. In 2015, the operating balance was sufficient to cover interest paid by at least 4x. Due to low interest expenses (2015: 4%), the state's current margin in 2015 was strong at 11% and the current balance was sufficient to self-finance 74% of its capital expenditure in 2015%. The state further reported a surplus before debt variation in 2011-2015, representing 4.5% of total revenues in 2015. It is currently in compliance with the debt brake starting 2020, and Fitch expects this to be maintained when the regulatory requirement becomes effective in 2020. Direct debt totaled EUR8.7 billion at end-2016 and Mecklenburg-Western Pomerania and its debt/capita of EUR5,777 is below the Laender's average of EUR6,509 in 3Q16. Mecklenburg-Western Pomerania reduced debt since 2007 by EUR1.5 billion or over 15% of total debt. Its direct debt-to-current revenue declined to 130% in 2015 from 172% in 2008 and its debt payback declined to 12 years in 2015 from 20 years in 2010, which is low in the Laender's context. Fitch expects debt to remain at least stable in 2017 and 2018. The state of Mecklenburg-Western Pomerania is located in the north-east of Germany with a population of 1,600,600 at end-2015. Its GDP of at least EUR40 billion accounted for just 1.3% of national GDP in 2015. Its GDP per capita of EUR24,909 is 33% below Germany's average of EUR37,099. The unemployment rate was 10.3% in January 2017, above that of Germany (6.3%) and the highest among the eastern German states (average: 8.7%). RATING SENSITIVITIES A downgrade of the sovereign ratings would lead to a downgrade of the Laender and consequently the ratings of Mecklenburg-Western Pomerania. An adverse change of an important institutional feature (solidarity principle, equalisation system, liquidity exchange mechanism) would result in a review of the German Laender ratings. Contact: Primary Analyst Guido Bach Senior Director +49 69 768076 111 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50 D - 60311 Frankfurt am Main Secondary Analyst Nilay Akyildiz Director +49 69 768076 134 Committee Chairperson Christophe Parisot Managing Director +34 1 44 29 91 34 Media Relations: 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=1019104 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. 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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

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