Reuters: US Dollar Report: Fitch Rates Italy's Region of Marche 'BBB+'; Outlook Negative

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Fitch Rates Italy's Region of Marche 'BBB+'; Outlook Negative Oct 11th 2013, 15:37 Share this Email Print Reprints Fri Oct 11, 2013 11:37am EDT Link to Fitch Ratings' Report: Region of Marche - Rating Action ReportPARIS, October 11 (Fitch) Fitch Ratings has assigned the Italian Region of Marche Long-term foreign and local currency ratings of 'BBB+' and a Short-term foreign currency rating of 'F2'. The rating action affects EUR1.176m of outstanding debt in 2012, including two bonds of nominal EUR557m at issuance, as well as future borrowings. The Outlook is Negative. KEY RATING DRIVERS The ratings reflect the following drivers and their relative weights: High: Low debt: The stock of bonds and loans hovered around EUR1.2bn in 2008-2012 and Fitch expects it to remain stable at about one third of the budget by 2015. This is also in light of low accumulated borrowing needs as highlighted by a close to zero unreserved fund deficit. In its base case scenario Fitch expects debt servicing to remain low, close to 4% of revenue and the debt service cover ratio to eventually fall to 1x the operating balance in 2014, from 1.7x in 2012. Weak operating margin: Fitch expects Marche's operating balance to remain low by international standards at about EUR150m, or 4% of revenue in 2013-2015, in line with the 2008-2012 average. The region aims to maintain a balanced budget by cutting back spending should transfers from the national government fall. However, the scope for spending cuts becomes thinner each year while tax-raising potential is limited by already high tax pressure, particularly the personal income tax surcharge. Balanced budget: Marche has a track record of an overall balanced budget and, particularly, in health care. As a result, Fitch does not expect health care to be a source of pressure for the regional budget though it absorbs 75% of the latter. Tax hikes in the past contributed to maintaining the sector in balance and Marche's administration is confident that its cost control makes affordable any tax hikes needed to keep the revenue/spending match. Investment planning and renovation of hospital premises will stabilise costs over the medium-term, which Fitch expects to average EUR2.8bn per year in 2013-2015. Medium: Weak economy: Fitch expects Marche's GDP to contract 2% in 2013 before growing 0.5% in 2014 as low demand hits manufacturing, such as of house appliances, and declining public spending weakens the real estate sector. Core exports of furniture, clothes and shoes, a low 40% household debt-to-GDP ratio, and a stable 62% employment rate should moderate the impact of economic slack. As corporate failures and restructuring run their course, revenue from the business tax IRAP may rebound to the 2010 level of EUR900m in 2015/16. This would compensate for a decrease in state transfers, leading regional revenue to be stable at EUR3.5bn by 2015 in Fitch's projections. Declining investments, narrow public sector: Capital spending halved to 7% of total spending over 2008-2012 and Fitch expects a further contraction to about 5% in 2013-2014 as the region sizes investment according to available non-debt resources. SVIM SpA, the development agency, remains largely dependent on regional funds, is limited in size compared with some other national peers and has negligible external debt. Institutional framework: The 'BBB+' is reflective of Italy's rating cap as regions with an ordinary statute lack the financial autonomy that can isolate their finances from those of the national government and which makes them eligible for a rating higher than the sovereign one. RATING SENSITIVITIES Given the sovereign cap, Marche's rating would be downgraded in parallel with Italy's rating if the latter is downgraded. A change of Italy's Outlook to Stable would lead to a similar rating action on Marche's Outlook, provided the region continues to perform in line with Fitch's projections. Conversely, a halving of the current balance compared with Fitch's expectation of an average of EUR100m, or 2% of revenues, or deterioration in the unreserved fund balance deficit towards 10% of the budget could be rating-negative. An unexpected prolonged recession with the unemployment rate rising towards 15% could also trigger a rating downgrade. Contacts: Primary Analyst Raffaele Carnevale Senior Director +39 02 87 90 87 203 Fitch Italia - Societa Italiana per il Rating S.p.A. Vicolo Santa Maria alla Porta, 1 20123 Milan Secondary Analyst Sergio Ciaramella Director +39 02 87 90 87 216 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria 'Tax-Supported Rating Criteria' dated 14 August 2012 and 'International Local and Regional Governments Rating Criteria ' dated 9 April 2013, are available at www.fitchratings.com Applicable Criteria andALL 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 WEBSITE '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. Link this Share this Digg this Email Reprints

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