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Fitch Revises Autonomous Community of the Basque Country's Outlook to Stable; Affirms at 'BBB+'
March 3, 2017 / 7:03 PM / 9 months ago

Fitch Revises Autonomous Community of the Basque Country's Outlook to Stable; Affirms at 'BBB+'

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: The Autonomous Community of Basque Country - Rating Action Report here BARCELONA/MILAN/LONDON, March 03 (Fitch) Fitch Ratings has revised the Autonomous Community of the Basque Country's (Basque Country) Outlook to Stable from Positive and affirmed the Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB+'. Fitch has also affirmed the Short-Term Foreign Currency IDR at 'F2'. The ratings on the senior unsecured outstanding bonds have also been affirmed at 'BBB+'. KEY RATING DRIVERS The Outlook revision reflects the following rating drivers and their relative weights: High: Fiscal Performance The revision reflects that the improvement of Basque's operating performance has been slower than Fitch had expected in September 2014 when it placed the autonomous community on Positive Outlook. Despite the recovery of the economy combined with the tax reform and operating spending restraint preliminary data indicated an operating margin of 3.8%, below the 5% expected by Fitch. Nevertheless, we expect the operating margin would structurally rise above 5% over the medium term. Medium: Debt As a consequence of the deficit reported, debt continued to increase in 2016, albeit at a more moderate pace. Preliminary data for 2016 indicated debt totalled 96.8% of current revenue versus 89.8% in 2014, and Fitch expects it to remain at a high 97%-100% over the next three years. Debt servicing in 2016 accounted for about 8.5% of current revenue despite the regional government having been successful in reducing interest payments over the last three years. The debt portfolio is rather conservative and the regional government was able to issue medium-term bonds in the last five years, especially during 2011-2013, when capital markets were challenging. The Basque Country's 'BBB+' IDRs also reflect the following key rating drivers: Strong Regional Economy With a 2015 GDP estimated at about EUR66.5 billion and a GDP per capita above 32.8% of the national average, the Basque Country's economy is strong and diversified. It has a solid and significant manufacturing sector (21.4% of nominal GDP) and a higher-than-average employment rate of 49.7% in 4Q16 (47.9% nationally). Housing sales also illustrate Basque as a wealthier Spanish region with housing prices consistently 57% above the national average. The positive momentum in the economy is further illustrated by the positive reversal in the labour market started in 2014, as total registered workers rose 1.9% yoy in 2015, a trend that was extended in 2016. RATING SENSITIVITIES A positive rating action may result from the operating margin being structurally above 5% in the medium term, and a debt payback improving towards 20 years (2016: 50 years). An upgrade of the sovereign IDRs (BBB+/Stable/F2) would also result in an upgrade of Basque Country's IDRs. A negative rating action may result from direct debt exceeding120% of current revenue. Contact: Primary Analyst Guilhem Costes Senior Director +34933238410 Fitch Ratings Espana. S.A.U. Av. Diagonal, 601, Barcelona 08028 Secondary Analyst Julia Carner Analyst +34933238401 Committee Chairperson Raffaele Carnevale Senior Director +39 879087203 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:; Pilar Perez, Barcelona, Tel: +34 93 323 8414, 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=1020040 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 © 2016 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. 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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. 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