October 23, 2017 / 4:58 PM / 5 months ago

Fitch Affirms Instituto Valenciano de Finanzas at 'BBB-'/Stable

(The following statement was released by the rating agency) BARCELONA/PARIS/LONDON, October 23 (Fitch) Fitch Ratings has affirmed Instituto Valenciano de Finanza's (IVF) Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'BBB-' and Short-Term Foreign Currency IDR at 'F3'. The Outlooks are Stable. The affirmation reflects the unchanged statutory guarantee for IVF's financial obligations from the Autonomous Community of Valencia (Valencia), whose ratings were affirmed at 'BBB-'/'F3' with Stable Outlook on 20 October 2017. KEY RATING DRIVERS IVF's IDR are equalised with Valencia to reflect its statutory guarantee on IVF's liabilities. Under Law 5/2013, and updated by law 13/2006, all IVF's financial obligations are explicitly, directly, unconditionally and irrevocably and jointly guaranteed by Valencia. IVF is the only public sector entity (PSE) in Valencia that benefits from such an explicit guarantee from the regional government. IVF's Stable Outlook mirrors that of the regional government. Fitch views IVF's strategic importance as moderately supportive of the entity's credit quality. IVF was created as the vehicle for the regional government to implement its financial policy and channel public credit to promote the economic and social development of the region. It is also responsible for the debt management of Valencia and the region's many other PSEs. Since 2015, IVF also regained the responsibility to manage loans granted by Valencia to the private sector, essentially to small and medium-sized enterprises (SMEs). Fitch believes that the mission of IVF may change in the medium term, but links with the regional government would remain strong. Currently, IVF is in the process of becoming a public bank with the aim of increasing its exposure to SMEs and social projects. Fitch views the control and oversight by Valencia of IVF as highly supportive of the latter's credit quality. IVF reports to Valencia's Department of Finance and Economic Model, which is highly involved in defining IVF's strategy. Six out of IVF's eight Board of Directors are appointed by the regional government of Valencia. Valencia's annual budget law sets limits on IVF's debt (EUR900 million in 2017 versus EUR1,000 million in 2016) and on the amount of debt guaranteed by IVF (EUR600 million in 2017 versus EUR700 million in 2016). Fitch assesses IVF's integration as moderately supportive of the entity's credit quality. IVF has received capital injections from its sponsor to cover non-performing loans. The national regulator decided in March 2011 to consolidate IVF within the perimeter of the autonomous communities to estimate its deficit and financial debt. IVF is also eligible to tap financial instruments funded by the central government to service IVF's debt. Total gross credit risk, including doubtful loans, was estimated at EUR1.4 billion, mainly comprising loans and debt guarantees. Exposure to the public sector was high at almost 64% at end-2016. Doubtful loans at end-2016 were estimated at EUR261 million, of which 73% was covered by provisions. RATING SENSITIVITIES IVF's ratings could be downgraded if the Autonomous Community of Valencia is downgraded, or if the statutory guarantee for IVF's financial obligations diminishes. Conversely, a positive rating action on Valencia will be reflected in IVF's ratings. Contact: Primary Analyst Guilhem Costes Senior Director +34 93 323 8410 Fitch Ratings Espana, S.A.U. Av. 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: 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 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. 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. 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