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Fitch Affirms Italian City of Busto Arsizio at 'BBB+'; Outlook Negative
March 3, 2017 / 5:07 PM / 9 months ago

Fitch Affirms Italian City of Busto Arsizio at 'BBB+'; Outlook Negative

(The following statement was released by the rating agency) MILAN/BARCELONA, March 03 (Fitch) Fitch Ratings has affirmed the Italian City of Busto Arsizio's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB+' and Short-Term Foreign Currency IDR at 'F2'. The Outlook is Negative. The affirmation reflects Busto Arsizio's solid budgetary performance, as well as the city's robust debt metrics and liquidity position, while a wealthy socio-economic profile continues to underpin the city's tax base. The Negative Outlook reflects that of Italy's Long-Term IDRs. KEY RATING DRIVERS Stable Operating Performance: In line with our base case scenario, Busto Arsizio recorded a preliminary operating margin of 10.9%, corresponding to EUR7.4 million. This was due to stricter control on tax evasion, which partially compensated declining transfers, while cost control kept operating spending in line with 2015 figures. The administration retains high budgetary flexibility of about 10% of revenue - due to a wealthy economy and prudent budgetary management - which will allow the city to maintain solid margins. In Fitch's base case scenario Busto Arsizio 's operating margin should average 9% in 2017-2019, supported by the city's continued operating spending control and tax revenue growth. Stable Debt, Solid Liquidity: Busto Arsizio's direct debt is fully amortising and euro-denominated. It totalled EUR22 billion at end-2016 or a moderate 32.5% of operating revenue, with debt service requirements (about 8% of current revenue) fully covered by the current balance (1.3x). Fitch central scenario estimates the city's debt service to have amounted to 8% of current revenue in 2016, with a healthy debt payback ratio of four years. Fitch expects Busto Arsizio's liquidity position will remain sound in 2017 (EUR14.4 million at end-2016), covering debt service requirements by 4x and providing a buffer against possible inflow/outflow mismatches. However, its liquidity position may weaken over the medium term, as the relaxation of national rules on capital spending may lead the city to carry out committed investments. Economy Sustaining Revenue: Busto Arsizio is a medium-sized city in the Region of Lombardy with about 83,000 inhabitants. Busto Arsizio benefits from the proximity of the City of Milan (BBB+/Negative) and Malpensa Airport, which bolsters its population and employment. Fitch expects GDP growth to be in line with the national average, which should keep the city's unemployment rate below the national average at around 8% (Italy: 11%), due to industry and commercial activities. Traditional sectors such as chemicals, textile, and transports continue to ensure a solid tax base. Active Management: In Fitch's view, the administration elected in mid-2016 remains committed to maintaining the city's balanced and sound budgetary performance and sustainable debt metrics, with a small positive free fund balance at below 1% of the budget. The administration has room for manoeuvre due to the city's broad fiscal leeway and strong liquidity. The administration also aims to strengthen city's economy with investments (buildings, roads and sport facilities), tax relief and the high quality of services. Neutral Intergovernmental Relations: Busto Arsizio's standalone profile is constrained by Italy's IDR (BBB+/Negative), reflecting the cap at the sovereign rating for cities, as they lack the financial autonomy to isolate their finances from the national government. As with other Italian cities, Busto Arsizio benefits from national state support, such as transfers and extraordinary support in case of unpredictable events, but remains a contributor to Italy's consolidation efforts to balance the national accounts. RATING SENSITIVITIES As Busto Arsizio's ratings remain capped by the sovereign, a downgrade of Italy's ratings would therefore lead to similar rating action on the city. A continuing debt service (including principal repayment)-to-operating balance ratio of above 1x, as well as sharp deterioration in economic conditions impacting budgetary performance, could also prompt a downgrade. Contact: Primary Analyst Federica Bardelli Associate Director +39 02 879087 261 Fitch Italia S.p.A. Via Morigi 6 Milan 20123 Secondary Analyst Gian Luca Poggi Director +39 02 87 90 87 293 Committee Chairperson Guilhem Costes Senior Director +34 93 323 84 10 Media Relations: Stefano Bravi, Milan, Tel: +39 02 879 087 281, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on 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=1020024 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. 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