RPT-Fitch Assigns Mecklenburg-Western Pomerania's EUR500m Bond Final 'AAA' Rating

Wed Jun 18, 2014 7:18am EDT

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June 18 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Mecklenburg Western-Pomerania's (Mecklenburg) EUR500m 1.625% fixed-rate bonds (DE000A12TWL1), due 18 June 2024, a final Long-term rating of 'AAA'. This is Fitch's first issue rating on the region. The senior unsecured bond ranks pari passu with all Mecklenburg's other outstanding debt.

KEY RATING DRIVERS

The rating reflects the strong support mechanism that applies to all members of the German Federation, including Mecklenburg undertaking this issue, and the extensive liquidity facilities they benefit from, which ensure timely debt and debt service payment.

The support mechanism applies uniformly to all members of the German Federation: the Federal Republic of Germany (AAA/Stable) represented by the federal government (Bund) and the 16 federated states, which include Mecklenburg. All Laender are equally entitled to financial support in the event of financial distress, irrespective of differences in economic and financial performances. The new EUR500m issue's liquidity is underpinned by the safe cash management system the Laender operate in, which allows overnight cash exchanges between Laender and the Bund when necessary, and recourse to appropriate short-term credit lines. The issue is zero risk-weighted and European Central Bank repo-eligible.

Mecklenburg is located in north-east Germany and had a population of about 1.62 million at end-2013. Its capital is the City of Schwerin. Its GDP of EUR37bn accounted for almost 1.4% of national GDP in 2013. Its GDP per capita of EUR22,817 is about 32% below Germany's average. Since 2006 the state has not accumulated new debt and has the fourth lowest level of indebtedness per capita within the national context. The unemployment rate was 10.9% in May 2014, above that of Germany (6.8%) and slightly above that of eastern Germany (9.7%).

RATING SENSITIVITIES

A downgrade of the sovereign ratings could lead to a downgrade of the Laender and consequently the bond's rating. An adverse change of an important institutional feature (solidarity principle, equalisation system, liquidity exchange mechanism) would result in a review of the German Laender ratings.

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