March 2, 2017 / 5:09 PM / 9 months ago

Fitch Affirms ICAF at 'BBB'; Outlook Stable

(The following statement was released by the rating agency) BARCELONA/PARIS/LONDON, March 02 (Fitch) Fitch Ratings has affirmed Instituto de Finanzas de Cantabria's (ICAF) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB' and its Short-Term Foreign Currency IDR at 'F2'. Fitch has also affirmed ICAF's outstanding bonds at 'BBB'. The Outlook is Stable. The affirmation reflects ICAF's unchanged strong links with the sponsor, the government of Cantabria (BBB/Stable/F2). The Stable Outlook reflects that of Cantabria. The ratings are based on ICAF's strong links to the Autonomous Community of Cantabria and on the explicit financial support from the regional government stated in its charter. The institute is wholly owned by the Cantabrian government and its objectives are to contribute to the region's sustainable economic and social development and to manage Cantabria's equity investments in several public sector entities (PSEs). KEY RATING DRIVERS Legal Status Stronger: In December 2011 the Autonomous Community of Cantabria decided to explicitly guarantee the obligations and liabilities that ICAF has with any third parties and to provide ICAF with the relevant economic resources to meet those obligations. Fitch also believes that in a financial distress scenario ICAF would not be liquidated unless all its liabilities have been repaid. Under article 15 of ICAF's charter set up by Law/5/2011, financial instruments contracted by the entity rank pari passu with any financial liabilities contracted by the autonomous community. ICAF is the only Cantabrian PSE that benefits from such a strong statutory guarantee. Control Stronger: Control and oversight by the Cantabrian administration is strong and is therefore highly supportive of ICAF's credit quality. Control by the regional administration has been strong since the creation of the ICAF and it has gradually increased. In particular, since the 2015 budget, ICAF requires a specific authorisation from the Department of Finance to contract debt, including short-term debt, with an explanatory report on the purpose of the new debt. Strategic Importance Midrange: The aim of ICAF is to facilitate the social economic development of Cantabria through providing financial support to the public sector. Although ICAF fulfils an important role, Fitch deems it to be different to other PSEs whose missions are more strategically important (such as those involved in public transport, healthcare or education). Integration Stronger: In November 2011, the Spanish regulator informed the regional government that ICAF now belongs to the administrative public sector of Cantabria. Previously, ICAF was deemed to be within the market sector of the autonomous community. Since the creation of ICAF 10 years ago, the regional government has provided capital injections in almost every year, totalling EUR47.2 million, which is a significant amount relative to the activity of ICAF. Last year the regional government injected EUR11.4 million into ICAF to offset operating loss and 2015 credit losses associated with several loans. Despite a slight decline in the last three years, its financial debt was high at EUR119.2 million at end-2016. Although ICAF has benefitted from a large amount of capital injections from the regional government, its financial debt was about 92% of its assets at end-2016. Preliminary data showed ICAF's 2016 financial debt at EUR119.6 million and with a smooth debt repayment profile over the medium term. ICAF's lending activity has been stable and its total credit exposure, including loans and debt to third parties guaranteed by ICAF, was fairly moderate at EUR157.2 million at end-2016. The public sector exposure continued to represent around 65% of total outstanding loans. Since 2013, ICAF has made available to small and medium enterprises (SMEs) located in Cantabria a programme of loans totalling EUR100 million that could be used to fund investments by or to improve the liquidity of SMEs. In December 2016, Fitch affirmed the ratings of Cantabria on expectations that its fiscal performance will improve gradually while its direct debt will rise to 136% of current revenues in 2017. RATING SENSITIVITIES A rating action on Cantabria would be mirrored on ICAF. A downgrade could result from a negative change in Fitch's assessment of Cantabria's extraordinary support for ICAF. Contact: Primary Analyst Guilhem Costes Senior Director +34933238410 Fitch Ratings Espana. S.A.U. Avenida Diagonal, 601, Barcelona 08028 Secondary Analyst Julia Carner Analyst +34 93 323 8401 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:; Pilar Perez, Barcelona, Tel: +34 93 323 8414, Email: Additional information is available on 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 _id=1019956 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. 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