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Fitch Affirms Italian Region of Calabria at 'BBB'; Outlook Stable
August 22, 2014 / 4:10 PM / 3 years ago

Fitch Affirms Italian Region of Calabria at 'BBB'; Outlook Stable

(The following statement was released by the rating agency) MILAN/BARCELONA/LONDON, August 22 (Fitch) Fitch Ratings has affirmed the Italian Region of Calabria's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB', and its Short-term foreign currency IDR at 'F2'. The Outlooks are Stable. The rating action affects approximately EUR1.26bn of outstanding debt, as well as future borrowing KEY RATING DRIVERS Institutional Framework: Calabria is an Italian ordinary status region benefiting from strong public sector support, including state loans and extraordinary state funds predominantly directed to finance its problematic healthcare sector. The entity is rated one notch below the Republic of Italy's rating of 'BBB+', which is also on Stable Outlook. Fiscal Performance: Calabria reported an operating balance of EUR833m at end-2013, resulting in a satisfactory operating margin of 16.7%. Performance, however, was inflated by unspent one-off revenues of about EUR600m. Fitch-reclassified data for 2013 point to an adjusted operating deficit of EUR36.3m, with a negative operating margin of 0.83%. The agency expects the region to return to positive, albeit weak, adjusted operating performance, with margins in the 1% to 3% range in 2014 and 2015. Calabria's expenditure is severely constrained by the internal stability pact as well as by bills verification issues, resulting in sizeable historical fund balances. Adjusted fund balance at end-2013 amounted to about EUR5.2bn, of which EUR420m were unreserved, according to Fitch reclassification criteria. At end-July 2014 the stock of unpaid healthcare liabilities stood at EUR1.1bn, down from EUR2bn in the summer of 2013. The region aims to pay them off by end-2014, a target that Fitch considers difficult to achieve owing to the current absence of a Commissioner for the execution of the existing regional healthcare recovery plan, as well as administrative hurdles including bills verification. Calabria's healthcare liabilities pre-dating 2011 are being funded in part via a EUR428m state loan issued in 2011 with 30-year maturity and approximately EUR700m of state funds reallocated from socio-economic development. Owing to administrative and accounting hurdles, at present only EUR178m of the state loan have been drawn. Debt and Liquidity: Debt stands at EUR1.26bn and is expected by Fitch to remain below EUR1.5bn in the medium term. The region has consistently recorded a strong debt/current revenue ratio of below 30% over the past five years. Despite declining operating revenues over the last three years, Fitch expects the debt/current revenue ratio to remain below 35% in the medium term, continuing to outperform the 'BBB' median. Management: Calabria's operations are only affected to a limited extent by the recent resignation of the President of the Region, whose functions are now largely performed by its deputy until new elections are held in the autumn of 2014. The region has now achieved balanced healthcare accounts - obtained through increases in taxation combined with efforts to restructure its healthcare system - and is one of few Italian regions with a budgetary policy targeting an unreserved fund surplus. Economy: Regional GDP declined 2.8% in 2013 against an average decline of 3.5% in aggregate GDP in southern Italy, marking the sixth consecutive year of local and southern Italian output contraction. Unemployment stands at about 22%. However, the official data do not take into account the region's large informal economy, which Fitch estimates to be at least 30% of local GDP. The economy in Calabria and southern Italy in general is expected to remain in recession in 2014 and 2015. However, impact on revenues will be limited as a result of Italy's existing equalisation mechanisms. RATING SENSITIVITIES A significant economic recovery combined with an improvement of the region's operating margin towards 5% could lead to a positive rating action. Failure to return to operating surplus and significantly reduce the remaining stock of healthcare liabilities could result in a negative rating action. Contact: Primary Analyst Mirta Fava Director +39 02 879087 293 Fitch Italia S.p.A. Via Morigi 6 - Ingresso Via Privata Maria Teresa, 8 20123 Milano Secondary Analyst Raffaele Carnevale Senior Director +39 02 879087 203 Committee Chairperson Guilhem Costes Senior Director +34 93 323 8410 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on 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 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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