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Fitch Affirms Trentino Trasporti at 'BBB+'; Stable Outlook
July 12, 2017 / 1:25 PM / 5 months ago

Fitch Affirms Trentino Trasporti at 'BBB+'; Stable Outlook

(The following statement was released by the rating agency) MILAN/PARIS/LONDON, July 12 (Fitch) Fitch Ratings has affirmed Trentino Trasporti S.p.A.'s (TT) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB+' with Stable Outlook. Fitch has also affirmed TT's Short-Term Foreign Currency IDR at 'F2'. The ratings of TT are credit linked to, and notched off once from, those of the Autonomous Province of Trento (PAT; A-/Stable). The ratings primarily reflect the strategic importance TT represents for its 73% shareholder, PAT and the extensive control by and financial support from its sponsor. TT is rated using a top-down approach under Fitch's criteria for rating public-sector entities outside the U.S. The one-notch differential between TT and PAT mainly reflects the lack of consolidation of TT's debt within PAT's financials. KEY RATING DRIVERS Strong Strategic Importance: TT is a pivotal vehicle for implementing PAT's transportation services, is one of the public sector entities (PSEs) that are tightly managed by PAT and receives funding from the province for investments. As mandated by provincial law, TT leases out rolling stock, bus fleets and cable cars for public service to Trentino Trasporti Esercizio (TTE), a fully owned company of the province, based on a service agreement that expires in 2017. Under the public service scheme adopted by PAT, TT's revenue is driven by rental income, which combined with PAT's subsidies, accounted for nearly 80% of TT's total revenue in 2016. As part of a restructuring of the province's PSEs, PAT plans to merge TT and TTE and the local small airport to achieve synergies, cost savings and improve governance. The merger will be effective from 1 January 2018. As TTE is debt-free the merger should not result in a material impact on the combined entity's financial profile provided that PAT's financial support scheme remains unchanged. Strong Control, Mid-range Integration: TT acts under tight supervision from PAT. Board members of TT and TTE are mostly appointed by the province to ensure ease of strategy implementation for the public service sector. Under the provincial financial scheme PSEs such as TT fund their investments with their own debt that are subsidised or guaranteed by the province. The track record of funding from PAT to support TT's capex and its guarantees to back TT's loans underpin Fitch's view that extraordinary support from the province is highly likely in case of need, hence limiting the rating differential to one notch. PAT is a full guarantor of TT's EUR70 million loans with the European Investment Bank (EIB) although TT's debt is not consolidated within PAT's accounts. Legal Status Mid-range: Fitch views TT's legal links with the sponsor as mid-range and therefore moderately supportive of the company's credit quality. TT's by-law, whose modification would require PAT's approval, stipulates that the province's stake - alone or together with other public entities - cannot fall below 51% of TT's equity from the current 73% shareholding. TT plans to invest nearly EUR120 million over 2017-2019, mainly to upgrade its railway network, trains and the bus depot system and to purchase trains and buses. Funding will come from a combination of sponsor-provided capital transfers, drawings under existing facilities with EIB and market debt backed by a full and an unconditional guarantee from the province. As a result, Fitch expects TT's debt to exceed EUR115 million by 2019, putting pressure on the company's liquidity over the medium term. However, these funding requirements will not add material pressure to PAT as total risk from its PSE network represents less than 10% of the province's revenue. RATING SENSITIVITIES As TT's IDR is credit-linked to the province's rating, it is sensitive to changes to the province's ratings. 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 the rating differential between TT and PAT to two notches. Consolidation of TT's debt into PAT's budget and full guarantee from the province on all of TT's financial liabilities may lead to an upgrade. Contact: Primary Analyst Gian Luca Poggi Director +39 02 87 90 87 293 Fitch Italia - Societa Italiana per il Rating S.p.a. Via Morigi, 6 20123 Milan Secondary 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:; 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. 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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