July 21, 2017 / 8:16 PM / a year ago

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

(The following statement was released by the rating agency) MILAN/LONDON/PARIS, July 21 (Fitch) Fitch Ratings has affirmed the Italian Region of Marche's Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'BBB' with Stable Outlook and Short-Term Foreign Currency IDR at 'F2'. The issue ratings on Marche's senior unsecured bonds have also been affirmed at 'BBB'. The affirmation and Stable Outlook reflect Marche's low debt and contingent liabilities, solid liquidity amid sound operating performance, including a balanced healthcare sector, and the administration's proactive management. KEY RATING DRIVERS Low Debt, Good Liquidity: Under Fitch's central scenario Marche's direct debt will remain at a low 30% of current revenue in 2017-2018, below the EUR1 billion threshold. Based on the region's 2016 preliminary accounts, direct debt amounted to EUR921 million, including outstanding EUR406 million bullet bonds, of which EUR272 million is accrued under the sinking fund. The region also has EUR28 million loans charged to the state. Marche has 80% its bonds and loans at fixed interest rates, which results in debt service requirements absorbing less than 3% of current revenue. Fitch expects Marche's liquidity to remain sound in 2017-2019, broadly in line with the region's average cash balance of nearly EUR400 million in 2016. Solid Budgetary Performance: The region retains a solid capacity to manage risks associated with a normal economic cycle given its prudent budgetary management, low revenue volatility and legal tax-raising capacity. Under Fitch's rating case scenario, Marche is expected to post a stable medium- term operating balance of around EUR180 million (or 5% of revenue), due primarily to tight cost control and expectations of stable funds from the national healthcare equalisation system (Fondo Sanitario Nazionale). This will ensure predictable debt servicing with a debt payback ratio of less than 10 years, approximately matching the average life of the region's debt. Despite an investment plan of around EUR700 million over 2017-2019, Fitch expects Marche to maintain balanced funding through a prudent combination of debt and non-debt resources. Proactive Management: The administration has continued to demonstrate its commitment to preserving the region's stable operating performance by maintaining a balanced budget, including on the healthcare sector, which absorbs 80% of the budget. The regional administration focuses on enhancing economic development through tax relief and upgrades of infrastructure such as roads and new hospitals. Neutral Institutional Framework: Marche's profile is constrained by Italy's ratings (BBB/Stable). This reflects the cap at the sovereign rating for ordinary statute regions, as they lack the financial autonomy that can isolate their finances from the national government and make them eligible for a rating higher than the sovereign's. As with other Italian regions, Marche benefits from national state aid, such as transfers and support in case of unpredictable events such as last year's earthquake, but remains subject to Italy's consolidation efforts through making contributions to the national government to balance the national accounts, with repeated revenue curtailments. Modest Economic Recovery: Located at the centre of Italy, Marche is a medium-to-large region and has an estimated population of 1.5 million inhabitants and a GDP of about EUR40 billion. After a mild recovery in 2015, which was lower than the 0.8% national average, Fitch's expectations of muted regional GDP growth in 2017 may be affected by the recent earthquake impacting parts of Marche's territory. The economy is driven by traditional industry activities (mainly furniture and mechanics), while textiles and shoes continue to suffer from declining exports. Unemployment, albeit growing, is still below the national average (10.6% in 2016 versus 9.9% in 2015) but may add pressure to the regional tax base. RATING SENSITIVITIES Marche's ratings would be downgraded if the sovereign rating is downgraded. A negative rating action may also result if operating performance deteriorates to levels such that Marche is unable to cover most of its debt servicing requirements. Conversely, given the sovereign cap, a revision of Italy's Outlook to Positive could lead to a similar rating action on Marche, provided the region continues to perform in line with Fitch's projections. Contact: Primary Analyst Gian Luca Poggi Director +39 02 879087 293 Fitch Italia S.p.A. Via Morigi 6 Milan 20123 Secondary Analyst Primary 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: 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 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. 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