TEXT-Fitch affirms Cassa Del Trentino at 'AA-'; outlook negative
(The following statement was released by the rating agency)
Sept 28 - Fitch Ratings has affirmed Cassa del Trentino SpA's (CdT) Long-term foreign and local currency ratings at 'AA-' with Negative Outlooks and Short-term foreign currency rating at 'F1+'.
CdT's ratings reflect the Province of Trento's ('AA-'/Negative/'F1+') continued strong financial support and close control, which Fitch does not expect to change in the medium term. The zero-notching between the province and CdT is triggered by the guarantee provided by the province on CdT's debt under provincial law 13/1973 art. 8bis. It is Fitch understanding that the same guarantee will be provided to CdT's future issuances.
The Province of Trento is CdT's sponsor under Fitch's criteria "Ratings of Public Sector Entities - Outside the United States", with a top down approach, therefore any change in the sponsor's ratings would be reflected on those of CdT. A downgrade for Cdt could also result from a change in statute and/or in the legislative framework that weakens the link with the province.
Fitch expects CdT's net interest margin to remain in line with the 2010-2011 result and average EUR9m in 2012-2014. The company's net result, despite its not-for-profit mission, should hover around EUR5m in Fitch's base scenario. CdT's headcount has recently been expanded and is now consistent with the company's operational needs The risk of an increase of rigid costs stemming from new hiring is therefore limited and Fitch forecasts a substantial stability of CdT's net result.
Starting from 2013, through a merger by incorporation of Tecnofin Trentina, the province will directly hold 100% stakes in CdT, (currently 66% held by the Province and the remaining by Tecnofin Trentina). The Province appoints CdT's board of directors and regulates CdT's funding and disbursing criteria via a service contract (convenzione). Fitch sees no risk of upcoming changes in CdT's governance policy arising from upcoming new shareholder structure.
CdT's main activity continues to be disbursing funds on behalf of the province, to finance local municipalities' and not-for-profit entities' investments. CdT funds its activities by issuing bonds whose repayment is backed by provincial subsidies. CdT also injected liquidity in the provincial system depositing current resources of about EUR65m at end 2011 in Medio Credito Trentino Alto Adige and Cassa Centrale Banca. The company's specific core business, with respect to other local financial institutions and the strengthening role of advisor of provincial entities - for issues such as liquidity management - leads Fitch to regard as "high" the strategic importance of CdT for the Province. Given the strict functional interrelation between CdT and the Province, Fitch assesses the sustainability of CdT's debt incorporating it in the Province's budget.
Fitch expects CdT's outstanding external debt to be close to EUR1bn up to end 2012-2013, up from the current EUR860m, and stabilize or slightly decline afterwards. The likely setup of a new company, owned by the municipalities and aimed at financing cities' investments, should gradually re-direct CdT's activity to that of a consulting and funding entity for the Province itself and its network of policy based companies. Debt sustainability should remain high with CdT's debt forecasted by Fitch at roughly 1.0x Trento's operating balance in 2012-13.
The match between liquidity and annual interest service is deemed sound by Fitch with the latter forecasted to total about EUR50m in 2012-2013 and cash close to EUR300m at end 2011. Supporting the rating equalization with its sponsor is also CdT's access to liquidity lines from the Province in the unlikely case of need as well as the possibility to retain interest proceeds from financial investments as advances on future transfers from the province.
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