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Fitch Affirms Italy's Province of Venice at 'BBB+'; Outlook Negative
March 14, 2014 / 4:36 PM / 4 years ago

Fitch Affirms Italy's Province of Venice at 'BBB+'; Outlook Negative

MILAN/PARIS/LONDON, March 14 (Fitch) Fitch Ratings has affirmed the Province of Venice's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB+' and Short-term foreign currency IDR at 'F2'. The rating action affects around EUR70m of debt outstanding, as well as future borrowings. The Outlooks are Negative, mirroring those on Italy's sovereign rating. KEY RATING DRIVERS Venice is one of the 10 largest Italian provinces that will likely have their status changed from ordinary province to metropolitan city from 2H14 if the government's proposed abolition of provinces is approved. This could expand its responsibilities to include inter-municipal services, and funding will largely depend on a recovery of both Italy's economy and its public finances. However, Fitch believes the new metropolitan city should benefit from a wealthy provincial economy and some tax leeway, including the possibility to introduce new taxes, such as a levy on port and airport transits. The affirmation incorporates Fitch's expectation of satisfactory operating performance, supported by Venice's wealthy economy and control over spending, as well as by a continued balanced budget, despite expected additional budgetary pressure stemming from national fiscal adjustment. After recording a strong performance in 2012 with an operating margin of 18%, preliminary results for 2013 indicate that additional cuts in national transfers of about EUR10m per year, or 10% of revenues, have been partially offset by growth in car-related taxes, resulting in a margin of 13%-14% (EUR16m), in line with Fitch's expectations. In Fitch's view, the province will maintain this operating margin in the medium term, ensuring a full debt servicing coverage of 1x. Fitch expects investments, mainly in roads and school networks, to be around 20% of total revenue in the medium term (or EUR20m-EUR25m per year), to be funded by non-debt resources. Fitch forecasts new borrowing totalling EUR10m during this period to complement Venice's asset disposal plan (of stakes and real estate properties), which could be negatively affected by the country's protracted economic downturn and uncertainties about the future status of Italian provinces. Nevertheless, debt should continue to decline to EUR60m by 2015, with a debt payback ratio of 5 years, below the average life of its debt. Although 50% of the debt carries floating rates, Fitch does not expect a rise in interest rates to pressurise the budget, as the province can always curtail spending to ensure full coverage of debt-service. Due to high collection rates on taxes and fees and despite full payment of suppliers in compliance with the requirements of Law Decree DL35/2013 (exceeding EUR10m), Venice should have maintained a sound liquidity position in 2013, with cash reserves of about EUR60m (EUR57m at end-2012), covering debt service requirements by 3x. With a fund balance exceeding EUR10m at end-2013, and despite the execution of some projects may further absorb reserves in 2014-2015, liquidity should not represent a risk. Despite a modest GDP growth forecast of 0.5% in 2014 Fitch expects the operating margin to benefit from Venice's resilient taxes, mainly concentrated in the car sector. Although the unemployment rate could rise to 9% in 2014-2015 from 6%-7% in 2012-2013, the wealthy local economy, as indicated by a per capita GDP that is 15% above the EU27 average, shields Venice's tax proceeds from economic fluctuations. RATING SENSITIVITIES Failure to control spending leading to debt service coverage below 1x, or a sovereign downgrade could prompt a rating downgrade. The Outlook may be revised to Stable upon the same rating action on the Italian sovereign, provided that Venice's operating margin remains at 12%-15% and its debt levels are in line with Fitch's expectations. Contact: Primary Analyst Sergio Ciaramella Director +39 02 879087 216 Fitch Italia S.P.A. Via Morigi 6 - Ingresso Via Privata Maria Teresa, 8 20123 Milan Secondary Analyst Raffaele Carnevale Senior Director +39 02 879087 203 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on 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 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.

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