Fitch Affirms Autonomous Community of La Rioja at 'BBB'; Outlook Stable

Fri Jun 13, 2014 11:37am EDT

(The following statement was released by the rating agency) BARCELONA/PARIS/LONDON, June 13 (Fitch) Fitch Ratings has affirmed the Spanish Autonomous Community of La Rioja's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB' with Stable Outlook. Fitch has also affirmed the Short-term foreign currency IDR at 'F2.' Its bond issues/senior unsecured ratings have been also affirmed at 'BBB'. KEY RATING DRIVERS The affirmation reflects Fitch's expectations that operating performance will continue to improve over the medium term. The agency forecasts that operating margin will rise to 5%-7% in 2015 and 2016 from 1.94% in 2013 as revenues recover, while operating expenditure is expected to be volatile. Fitch expects direct debt to increase until 2016 before stabilising. Fitch expects the recovery in operating revenue in 2015 and 2016 to be driven by likely growth of allocations from the central government and a regional economic upturn, with forecasted growth of 1.2% in nominal GDP. However, operating expenditure may increase slightly in the medium term, given limited scope for further austerity cuts. La Rioja reported a smaller negative current balance of EUR13m in 2013, or 1.37% of current revenue, compared with a negative current balance of EUR42.4m in 2012, which reflected an exceptional EUR70m of invoices related to 2011. The regional government intends to comply with deficit targets, as illustrated by the 5% reduction in staff costs between 2011 and 2013 and in current transfers to La Rioja's public sector entities (PSEs). Under Fitch's base case scenario, deficit is expected to narrow and debt to continue rising in the medium term but at a slower pace. Direct debt is forecasted to rise to EUR1.1bn-EUR1.2bn in 2014 and to EUR1.3bn-EUR1.4bn in 2015. The current balance should cover a small share of debt repayment (around 9%-17%) in 2015 and 2016. In 2013, La Rioja extended its debt amortisation calendar by restructuring a large amount of short-term debt into long-term debt. Payables fell 41% from 2012 and Fitch expects a further reduction of payables in 2014, under the new state law 9/2013. The region has a strong manufacturing sector, which represents a higher share of regional nominal GDP in 2013 than the national average. La Rioja's unemployment rate in 4Q13 was 20.2%, lower than 25.7% nationally. In 2013, GDP per capita in La Rioja was 13.5% higher than Spain's. RATING SENSITIVITIES The Outlook could be revised to Positive if the current balance improves so that it largely covers debt repayment, and if debt stabilises. The ratings could be downgraded, if the Spanish sovereign (BBB+/Stable) is downgraded. The ratings could also be downgraded if La Rioja's performance continues to report a material negative current balance in 2015 or if debt increase exceeds expectations. Contacts: Primary Analyst Julia Carner Analyst +34 93 323 8401 Fitch Ratings Espana, S.A.U. Paseo de Gracia, 85, Barcelona 08008 Secondary Analyst Guilhem Costes Senior Director +34 93 323 8410 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, "Tax-Supported Rating Criteria", dated 14 August 2012, "International Local and Regional Governments Rating Criteria outside the United States", dated 23 April 2014 are available at www.fitchratings.com. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here International Local and Regional Governments Rating Criteria - Outside the United States here Additional Disclosure Solicitation Status 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 WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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