TEXT - S&P affirms 4 Italian regions ratings

Wed Dec 19, 2012 11:50am EST

-- We have adjusted downward our economy and budgetary flexibility scores 
on four Italian regions: Friuli-Venezia Giulia, Umbria, Marches, and Liguria. 
     -- We have therefore revised the indicative credit level of three of the 
regions, but our ratings remain capped at the level of the rating on Italy.
     -- We are affirming our 'BBB+' long-term rating on all four regions. 
     -- The outlooks remain negative, reflecting our outlook on the sovereign.

MILAN (Standard & Poor's) Dec. 19, 2012--Standard & Poor's Ratings Services 
said today that it has affirmed its 'BBB+' long-term issuer credit ratings on 
four Italian regions: Friuli-Venezia Giulia (FVG), Umbria, Marches, and 
Liguria. 

The outlooks on all four regions remain negative.

The ratings on the four Italian regions primarily reflect our long-term rating 
on Italy (unsolicited BBB+/Negative/A-2). We cap our ratings on the four 
regions at the level of the long-term rating on Italy because the regions do 
not fulfill all the criteria that would allow them to be rated above the 
sovereign. 

As a result of changes to the economic, fiscal, and institutional backdrop for 
Italian regions, we have reviewed the indicative credit level (ICL) of the 
four regions. The ICL is not a rating but a means of assessing the intrinsic 
creditworthiness of a local or regional government (LRG) under the assumption 
that there is no sovereign rating cap. The ICL results from the combination of 
our assessment of an LRG's individual credit profile and the institutional 
framework in which it operates (see "Methodology For Rating International 
Local And Regional Governments," published Sept. 20, 2010). 

As a result, we have revised the ICLs on three regions as follows:
     -- To 'aa-' from 'aa' for FVG,
     -- To 'a+' from 'aa-' for Umbria and Marches.

The ICL on Liguria remains at 'a+'.

Our review of all four regions' ICLs takes into account our revised economic 
score and fiscal flexibility score. We believe that the Italian regional tier 
is exposed to a deteriorating economy--we forecast a 2.4% fall in GDP for 
Italy in 2012, and a 0.7% fall in 2013--and has little flexibility to increase 
its revenues. The central government's continuous transfer cuts will, in our 
view, lead these regions to increase taxes, thereby reducing their future tax 
revenue flexibility.

In addition, in the case of FVG, our reassessment of the ICL also reflects our 
view that the institutional framework for special-status regions has gradually 
become more constraining since the start of the economic crisis. 

We have not revised our assessment of the other elements that make up the ICL. 
According to the terms defined in our criteria, for all four regions we assess:
     -- Liquidity as very positive.
     -- Financial management as positive.
     -- Debt burden as very low.
     -- Budgetary performances as manageable with a good track record of 
fiscal discipline. In our base-case scenarios, the regions should be able to 
absorb the budgetary impact of the existing central government consolidation 
measures.

FVG's ICL is higher than that of the other three regions mainly because it 
boasts a stronger economy and budgetary performance.

The negative outlook on the four regions mirrors that on Italy. The outlook 
reflects the possibility that we could lower the rating on these regions, all 
other things being equal, if we lowered our rating on Italy.

Given the strong fundamentals that support the ICLs of the four regions, we 
currently do not envisage a realistic downgrade scenario based on a weakening 
of the regions' intrinsic creditworthiness. Hence, we would most likely lower 
our rating on the regions as a result of our downgrade of the sovereign rather 
than as a result of a region's ICL weakening over the coming two years.

If we revised our outlook on Italy to stable from negative, we would most 
probably take the same action on the regions.
 
RELATED CRITERIA AND RESEARCH 
All articles listed below are available on RatingsDirect on the Global Credit 
Portal.
     -- The Eurozone Enters An Uncertain 2013 As The New Recession Drags On, 
Dec. 13, 2012
     -- Methodology For Rating International Local And Regional Governments, 
Sept. 20, 2010
     -- Methodology: Rating A Regional Or Local Government Higher Than Its 
Sovereign, Sept. 9, 2009
     -- Italian Region Of Friuli-Venezia Giulia Affirmed At 'BBB+'; Outlook 
Remains Negative In Line With Sovereign, Dec. 19, 2012
     -- Italian Region of Liguria Affirmed At 'BBB+'; Outlook Remains Negative 
Reflecting Sovereign Outlook, Dec. 19, 2012

RATINGS LIST
Ratings Affirmed 
Friuli-Venezia Giulia (Autonomous Region of) 
Umbria (Region of)
Marches (Region of)
Liguria (Region of)
Issuer credit rating           BBB+/Negative/--
FILED UNDER: