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Fitch Publishes State of Thuringia's 'AAA' Ratings, Outlook Stable
February 22, 2017 / 5:05 PM / 10 months ago

Fitch Publishes State of Thuringia's 'AAA' Ratings, Outlook Stable

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: State of Thuringia - Rating Action Report here FRANKFURT/LONDON, February 22 (Fitch) Fitch Ratings has published the German federated State of Thuringia'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 state'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 Thuringia, 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 Thuringia. 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. Thuringia sustained improvements in its fiscal performance during 2010-2015 as its operating margins rose steadily to 17.7% in 2015 from 9% in 2010. It reported a surplus before debt variation and an overall surplus in 2012-2015. According to preliminary figures for 2016, the operating margin was at least 13% and the surplus before debt variation amounted to EUR583 million. In 2015, the operating balance was sufficient to cover interest payments by at least 3.2x. Due to low interest expenses (2015: 5.6% of operating revenue), the state's current margin in 2015 was strong at 12% and the current balance was sufficient to self-finance 92% of its capital expenditure in 2015. The state further reported a surplus before debt variation in 2012-2015, with the surplus in 2015 representing 3.1% of total revenues for that year. 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. Thuringia's direct debt totaled EUR15.6 billion at end-2016 and its debt/capita of EUR6,834 was slightly above the Laender's average of EUR6,486 in 2016. Thuringia reduced its debt to EUR15.6 billion in 2016 from EUR16.3 billion in 2011. Its direct debt-to-current revenue declined to 176% in 2015 from 203% in 2010 and its debt payback declined to 14 years from 197 years during the same period, which is low in the Laender's context. Fitch expects debt to remain at least stable in 2017 and 2018. The State of Thuringia is located in the middle of Germany with a population of 2,154,800 at end-2015. Its GDP of at least EUR59 billion accounted for just 1.9% of national GDP in 2015. Its GDP per capita of EUR26,364 is 29% below Germany's average of EUR37,099. The unemployment rate was 7% in January 2017, above that of Germany (6.3%) and the lowest 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 Thuringia. 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: 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=1019371 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. 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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. 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