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Fitch Affirms Patrimonio del Trentino at 'BBB+'; Stable Outlook
July 12, 2017 / 1:40 PM / 5 months ago

Fitch Affirms Patrimonio del Trentino at 'BBB+'; Stable Outlook

(The following statement was released by the rating agency) MILAN/PARIS/LONDON, July 12 (Fitch) Fitch Ratings has affirmed Patrimonio del Trentino S.p.A.'s (PDT) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB+' with a Stable Outlook. Fitch has also affirmed PDT's Short-Term Foreign Currency IDR at 'F2'. Its unsecured bond issues have been affirmed at 'BBB+' while those guaranteed by the Province of Trento (PAT, A-/Stable) have been affirmed at 'A-'. The affirmation reflects the unchanged strategic importance that PDT holds for its sole shareholder, PAT, in the implementation of the latter's real estate strategy for the province. The ratings also reflect the strong credit links between PDT and PAT through the province's funding support for PDT's debt servicing, while exercising extensive control and oversight over the company, which is underlined in Fitch's top down rating approach. The notching difference between PDT and PAT reflects that the guarantee from the province currently covers only part of PDT's financial liabilities and that PDT's debt is not consolidated into PAT's accounts. The Stable Outlook reflects Fitch's expectations that the framework in which PDT operates will remain unchanged and that the company will continue to play a major role in PAT's strategy. KEY RATING DRIVERS Strategic Important Link with Sponsor: PDT is the real estate arm of a network of public service entities (PSEs) controlled by PAT and also a vehicle used to deploy PAT's public investment strategy in multiple sectors such as transportation, real estate, finance, technology and investments. PDT's real estate portfolio focuses on prime and secondary properties, as well as asset rationalisation as mandated by the province. Debt servicing is regularly subsidised by the province, underlining strong financial support from PAT. Strong Provincial Oversight: As with all other PSEs, PDT's investment strategy is strongly driven by the sponsor. The province has recently outlined a plan to streamline the number of PSEs to increase efficiencies and reduce costs, which will result in the merger of PDT with Trento Fiere - another small PSE that is active in fairs and manages EUR8 million of assets - expected in 2017. In Fitch's view, PDT remains instrumental to the province's real estate strategy given the growing number of quality projects for social housing and the large portfolio of assets managed on behalf of the province. Despite a tepid recovery of the real estate market in the province, PDT maintains a sound quality portfolio with minimal impairments of assets centred on fairs, sport facilities, hospitals and libraries, which are less exposed to price volatility. Over a three-year horizon, Fitch expects PDT to be supported by a recurring stream of revenue from rents of EUR8 million-EUR9 million, albeit mostly below market rates, and modest opportunistic asset disposals (about EUR10 million), which remain challenged by a sluggish real estate market in the province. The company's real estate portfolio under management will expand to over EUR600 million by 2019, following projected EUR130 million new investments approved by the province over 2017-2019. Funding will be provided by a combination of transfers from the province and new debt in the form of bonds or loans, which will reach EUR220 million over the next three years. Moderate Integration with Sponsor: PDT's financial profile is conservative with healthy cash generation and liquidity relying on cash balances (EUR17 million at end-2016) that are sufficient to pay a regular EUR1 million dividend to the sponsor. Debt servicing is subsidised by PAT with about 75% of PDT's debt being guaranteed by the province. PDT's debt, however, is not consolidated into PAT's financials, which leads Fitch to assess PDT's integration attribute as mid-range. Mid-Range Legal Status: PDT is a limited-liability company fully owned and controlled by PAT and acts as a department of the latter. The company can be liquidated in which case its assets will be repossessed by the province. Furthermore, PDT is subject to Italian bankruptcy law and company by-laws restrict ownership by PAT to a minimum of two-thirds of PDT's equity, and the remainder to public entities only (i.e., the province, Trento's municipalities and provincial companies). Fitch therefore judges the entity's legal link with the sponsor as moderately supportive of PDT's credit quality. RATING SENSITIVITIES As PDT's IDR is credit-linked to PAT it is sensitive to a rating action on the province. More formalised support from the province, such as an explicit guarantee on all financial liabilities, could trigger a positive action on PDT's ratings, leading to a rating equalisation with PAT. Conversely a dilution of provincial support as evidenced by material unsubsidised borrowing or income losses not compensated by support from PAT may lead to a downgrade, thereby widening PDT's rating differential from the sponsor to two notches. Contact: Primary Analyst Gian Luca Poggi Director +39 02 879087 293 Fitch Italia S.P.A Via Morigi, 6 20123 Milan Secondary Analyst Federica Bardelli Associate Director +39 02 879087 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: 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 Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation 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. 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Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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