RPT-Fitch Affirms ICAF at 'BBB'; Outlook Revised to Stable

Wed Mar 5, 2014 7:39am EST

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March 5 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Instituto de Finanzas de Cantabria's (ICAF) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB' and its Short-term foreign currency rating at 'F2'. Fitch has also affirmed ICAF's outstanding bonds at 'BBB'. The Outlook has been revised to Stable from Negative.

KEY RATING DRIVERS

ICAF's ratings are based on its clear link to the Autonomous Community of Cantabria (BBB/Stable/F2), and on the explicit financial support from the regional government stated in its charter. The institute's objectives are to contribute the region's sustainable economic and social development and carry out the financial management and supervision of Cantabria's stake holding in several public sector entities' (PSEs). The Outlook revision reflects its sponsor's Outlook.

In December 2011 the Autonomous Community of Cantabria decided to explicitly guarantee the fulfilment of any obligations and liabilities that ICAF has with any third party and the regional government will provide the relevant economic resources to do so. Fitch also understands that in the extreme event that ICAF would have to be liquidated, such an outcome would not occur before all its liabilities had been fulfilled.

ICAF meets all the criteria under the agency's methodology to be classified as a dependent entity of the region. Since November 2011, the national regulator has classified ICAF as an entity that belongs to the regional government's administrative sector. The consequence for the Autonomous Community of Cantabria is that the deficits incurred by ICAF as well as its debt will now be included in its fiscal targets, therefore the regional administration may become even more vigilant to any deviations from ICAF's initial budget.

ICAF had financial debt at end 2013 of EUR133.5m with moderate debt repayment in the medium term. The credit exposure including the debt guaranteed by ICAF is relatively moderate at EUR157m and essentially on the public sector constituting about 65% of total risk including loans and debt guarantees. In the past three years, ICAF made significant reserves on potential impaired loans that totalled EUR24.7m at end 2013 or about 19% of its assets. In particular, ICAF had to assume liabilities of the soccer club Racing Santander for a total of EUR11.8m. In 2014 ICAF expects to receive financial compensation from the regional government through a capital injection, with the aim to bring the capital ratio at 12% in 2014 (equity / loans net of impairment charges) while it was negative in 2013.

RATING SENSITIVITIES

A change in ICAF's legal status, which is rather unlikely, or a downgrade of Cantabria's ratings would automatically be reflected in a change in ICAF's ratings.

Conversely, an upgrade of Cantabria will be necessary for an upgrade of ICAF.

RATING ASSUMPTIONS

Fitch assumes there will be no change in ICAF's legal status or to the explicit guarantee from the Autonomous Community of Cantabria.

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