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Fitch Affirms Italy's Region of Marche at 'BBB+'; Outlook Negative
March 21, 2014 / 4:45 PM / in 4 years

Fitch Affirms Italy's Region of Marche at 'BBB+'; Outlook Negative

(The following statement was released by the rating agency) LONDON/MILAN, March 21 (Fitch) Fitch Ratings has affirmed the Italian Region of Marche's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB+' and its Short-term foreign currency IDR at 'F2'. The rating action affects EUR1.143bn of outstanding debt, including two outstanding bonds of EUR540m, as well as future borrowings. The Outlook is Negative. KEY RATING DRIVERS Debt: The region's stock of bonds and loans stood at EUR1.143bn at end-2013, including EUR88m subsided by the national government. Fitch expects it to remain stable, accounting for about one third of the budget by 2015, also in light of low accumulated borrowing needs. In its base case scenario Fitch expects debt servicing to remain low, and the debt service cover ratio to eventually fall to 1x the operating balance in 2014, from close to 1.2x in 2013. Fiscal performance: Marche continues to perform in line with Fitch's expectations of an operating balance of 4% of revenue for 2013-2015. The region aims to cut back on spending should transfers from the national government be curtailed. However, the scope for spending cuts becomes thinner each year while tax-raising potential is limited by already high tax rates at the national level, including the personal income tax. Capital spending halved to 7% of total spending over 2008-2012, and may contract further to about 6% in 2014-2015 as the region sizes investment according to available non-debt resources. Management: Marche has a track record of overall balanced budgets and, particularly, in health care. As a result, Fitch does not expect health care to be a source of pressure for the regional budget though it absorbs 75% of the revenue. Tax hikes in the past have contributed to maintaining the sector in balance and Marche's administration is confident that cost control may avoid or make affordable any tax hikes eventually needed to keep the revenue/spending match. Investment planning and renovation of hospital premises help stabilise healthcare costs over the medium-term, which Fitch expects to average EUR2.8bn per year in 2013-2015. Economy: Fitch expects Marche's GDP to have contracted by 2% in 2013 as low demand hit manufacturing, such as house appliances, and as declining public spending weakened the real estate sector. Core exports of furniture, clothes and shoes, and a low 40% household debt-to-GDP ratio, amid an employment rate hovering just above 60%, will be conducive to a modest economic recovery. Fitch expects GDP to grow 0.5% in 2014 with a modest, if any, impact on revenue generation. The agency continues to expect Marche's revenue to be close to EUR3.5bn per annum for 2013-2015. Institutional framework: The 'BBB+' rating is also reflective of Italy's rating cap as regions with an ordinary statute, such as Marche, lack the financial autonomy that can isolate their finances from those of the national government and allow them to be rated higher than the sovereign. RATING SENSITIVITIES Given the sovereign cap Marche's rating would be downgraded in parallel with Italy's rating if the latter is downgraded. A change of Italy's Outlook to Stable would lead to a similar rating action on Marche's Outlook, provided the region continues to perform in line with Fitch's projections. Conversely, a halving of the current balance compared with Fitch's expectation of an average of EUR100m, or 2% of revenues, or deterioration in the unreserved fund balance deficit towards 10% of the budget from 1% in 2012 could be rating-negative. An unexpected prolonged recession with the unemployment rate rising towards 15% could also trigger a rating downgrade. Contacts: Primary Analyst Raffaele Carnevale Senior Director +39 02 87 90 87 203 Fitch Italia - Societa Italiana per il Rating S.p.A. Via Morigi, 6 20123 Milan Secondary Analyst Federica Bardelli Analyst +39 02 87 90 87 260 Committee Chairperson Guilhem Costes Senior Director +34 93 323 8410 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria 'Tax-Supported Rating Criteria' dated 14 August 2012 and 'International Local and Regional Governments Rating Criteria ' dated 9 April 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here International Local and Regional Governments Rating Criteria 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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