TEXT-Fitch: Catania, Italy faces manageable pressure from higher liabilities

Fri Nov 23, 2012 11:45am EST

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Nov 23 - In relation to the recent administrative court outcome, calling on
the Province of Catania to pay approximately EUR23m compensation, Fitch Ratings
believes that Catania has sufficient resources to address the issue without
jeopardizing its credit quality. This payment request stems from the damage from
fraudulent behaviour of some employees in the early 1970s. This amount compares
to the contingent liability which the Province had previously deemed to finalise
with the transaction of a sum totaling EUR11m.

At present, it is still unclear whether the province will pay this compensation
either in a lump-sum or, alternatively, in tranches. Nevertheless, Fitch
believes that Catania could still partly cover this liability with the fund
balance surplus of about EUR15m and partly with recourse to debt, hinging upon a
prudent debt management track record - a payback ratio of about eight years,
below average life of debt, and debt service at 1.3x. Also, should the province
decide to prioritise the refund payment (or the debt service) by subordinating
payments to suppliers, it could exploit the robust cash reserves amounting to
above EUR100m.

However, the recourse to the fund balance surplus and/or borrowing could
negatively affect the EUR50m investment plan for 2012-2014, as the province does
not expect a substantial contribution either from the state or from the region
of Sicily.

Province of Catania full rating report is available at www.fitchratings.com.

Additional information is available at www.fitchratings.com.
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