September 6, 2017 / 11:20 AM / 10 months ago

Fitch Rates Finlombarda's Upcoming Notes 'BBB-(EXP)'

(The following statement was released by the rating agency) MILAN/LONDON/PARIS, September 06 (Fitch) Fitch Ratings has assigned Finlombarda SpA's (BBB-/Stable) upcoming EUR50 million fixed-rate notes an expected local currency long-term rating of 'BBB-(EXP)'. The notes will be issued by end-September 2017, with a maturity of up to seven years. The final rating of the notes is contingent on the receipt of documents confirming the information already received. The notes will be issued under Finlombarda's EUR200 million euro medium term note (EMTN) programme and proceeds will be used for general funding purposes, including funding of infrastructures of public interest, research and development and innovation of SMEs. The notes will constitute direct, unconditional, unsubordinated and unsecured obligations of Finlombarda and will rank at least pari passu with all present and future unsecured and unsubordinated obligations of the issuer. KEY RATING DRIVERS Finlombarda's ratings are credit-linked and notched down from the internal assessment of the company's sponsor, the Region of Lombardy, as per Fitch's 'Rating of Public-Sector Entities - Outside the United States' criteria. This reflects Fitch's expectation of timely ordinary and extraordinary support from the region, which exercises direct control and oversight of Finlombarda. Finlombarda taps the capital market to diversify its funding by debt type and maturity. Fitch's base case scenario expects lending to SMEs to grow towards EUR300 million in the medium term from about EUR150 million in 2015-2016. An interest margin close to EUR10 million and net commission of around EUR16 million will cover staff costs and impaired loans, keeping Finlombarda's profitability close to the EUR3 million annual average in 2012-2016 (EUR1.6 million in 2016). Finlombarda's credit portfolio has deteriorated over the last couple of years, with non-performing loans up at nearly 9% of the stock of lending (loans and bond of SMEs), from 4% in 2013. The ratio is close to the regional average of 11% in the banking sector and somewhat better than the 18% nationally. Fitch expects Finlombarda's risk-monitoring to help maintain sound asset quality despite a growing loan and bond portfolio. Finlombarda's debt will rise towards EUR0.5 billion over the medium term from nearly EUR125 million in 2016, or about 50 of equity. Fitch's base case expects loans from European Investment Bank to be drawn down and funds to be raised on capital markets to finance growth of total assets towards EUR1 billion by 2018. RATING SENSITIVITIES Changes to Finlombarda's Long-Term IDRs will be mirrored in the EMTN programme's and the notes' rating. For more information on the key sensitivities related to Finlombarda's ratings, see " Fitch Downgrades Finlombarda to 'BBB-; Outlook Stable" dated 8 May 2017 on Contact: Primary Analyst Raffaele Carnevale Senior Director +39 02 87 90 87 203 Fitch Italia SpA Via Morigi 6 - Ingresso Via Privata Maria Teresa, 8 20123 Milan Secondary Analyst Federica Bardelli Associate Director +39 02 87 90 87 261 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Stefano Bravi, Milan, Tel: +39 02 879 087 281, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Relevant rating committee date: 5 May 2017 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 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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