December 15, 2017 / 9:27 PM / a month ago

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

(The following statement was released by the rating agency) MILAN/BARCELONA, December 15 (Fitch) Fitch Ratings has affirmed the Italian Region of Calabria's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB' with Stable Outlooks and Short-Term Foreign-Currency IDR at 'F2'. The affirmation reflects the region's modest operating performance and Fitch's expectations of low debt. The Stable Outlook reflects the evenly balanced risks of a weaker operating margin resulting from accelerated spending, including in the healthcare sector after years of spending rationalisation, and of a stronger operating margin following higher-than-expected budget allocations from the national government or a stronger economic recovery. KEY RATING DRIVERS Fiscal Performance (Weakness) Fitch expects Calabria's operating performance to remain within our expectations of a 2%-3% adjusted operating margin, or about EUR150 million in 2017-2019, similar to the ratios in 2015/2016 when netted of uncollected taxes and unspent transfers. Stability remains contingent on spending restraint as revenue remains rigid due to continued curtailment of national allocations and an enfeebled economy. Possible revenue inflows from a crackdown on tax evasion may fund one-off costs from delayed payment of past commercial liabilities in the healthcare sector. Fitch believes that operating spending may edge higher over the medium term from EUR4.6 billion in 2016, due to growth both in salaries, after years of wage freeze, and in pharmaceuticals. The subsequent expected fall in the healthcare sector surplus to close to EUR25 million from 2017, versus EUR50 million (1% of operating revenue) in 2015 will be offset by lower cost for healthcare (patients) mobility outside the region. Fitch expects Calabria's budget to be roughly balanced over 2017-2020 as national and EU transfers largely fund the region's EUR6 billion capex for transport, hospitals and economic development to narrow the infrastructure gap with other more developed regions in Italy and Europe. Debt and Liquidity (Strength) Fitch expects Calabria's debt to remain close to EUR1.5 billion or one-third of current revenue, all at fixed rate and with an amortising structure. Liquidity is weakening somewhat as the waste recycling responsibility taken over from municipalities in 2015-2017 depletes reserves by about EUR300 million. The region pays for the costs but only collects about 20% of the EUR110 million tax due from the municipalities. However, liquidity remains satisfactory, covering annual interest and principal repayments of about EUR115 million without drawing down liquidity bank lines. Management (Neutral) Calabria continues to target free reserves at about 1% of the budget, or 5% by Fitch's calculation, which excludes the "residui perenti", commitment, as this could be debt-funded in future from the fund balance. The conservative approach of the core administration is offset by weak administrative capacity in some of the region's healthcare units, which took about five years to pay off the EUR2 billion of commercial liabilities outstanding in 2013. Payment delay has now improved with invoices in the healthcare and other sectors being paid closer to the standard 60 days from the date of issue. Economy (Neutral) Fitch expects the Calabrian economy to grow about 1% in 2017 and 1.5% over 2018-2019 on the back of increasing tourist flows (5% yoy in 2015-2017) and regional capex doubling to near EUR2 billion per year in 2017-2019. Fitch expects spending to upgrade the socio-economic infrastructure to add up to 3pp to Calabria's low 40% employment rate. With a GDP of nearly EUR33 billion and a population of two million Calabria's socio-economic wealth indicators are below the EU average. Fitch expects the unemployment rate to remain close to 20% over the medium term, despite the resumption of public works such as in the transport sector, lower corporate debt and rising profit margins of local businesses, and falling non-performing loans. Economic growth, however, has only a modest impact on regional revenue as resources for healthcare, which account for nearly 80% of Calabria's budget, are largely funded by the national government to compensate for weaker fiscal capacity and raise health services close to national standards. Institutional Framework (Neutral) Fitch assesses Italian inter-governmental relations as neutral to the ratings. Sub-nationals with a weak economic base, such as Calabria, receive transfers to raise service provisions to national standards. However, this predictability is offset by weak enforcement of prudential regulation to preserve fiscal balance, which at times leads to off-balance sheet liabilities. Amortising debt structures and repayment of financial debt in priority over commercial liabilities as required by national legislation underpin timely debt servicing even during liquidity stress. RATING SENSITIVITIES A stronger economic recovery leading to a sustained recovery of the employment base underpinning tax-raising flexibility, coupled with an improvement in the region's operating margin towards 5% on Fitch's calculation could benefit only the region's intrinsic credit profile since Calabria's IDR cannot be higher than Italy's (BBB/Stable). Relaxation of spending amid rigid revenue leading to debt servicing requirements not being fully covered by operating balance could result in a downgrade. Contact: Primary Analyst Raffaele Carnevale Senior Director +39 02 879087 203 Fitch Italia S.p.A. Via Morigi 6 - Ingresso Via Privata Maria Teresa, 8 20123 Milan Secondary Analyst Gian Luca Poggi Director +39 02 879087 289 Committee Chairperson Guilhem Costes Senior Director +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 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. 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO’s credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see here), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.

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