The ICL reflects our view of the very "predictable and supportive"
institutional framework for Austrian states, Tyrol's excellent budgetary
performance with surpluses after capital accounts on average over five years,
the state's low tax-supported debt burden, its wealthy economy with the lowest
unemployment rates in the European Union, and the very positive liquidity
situation of the state. These strengths are partly mitigated by the moderate
contingent liabilities stemming from the ownership of a financial institution.
the ICL also takes into account Tyrol's relatively high unfunded pension
The consensus-based decision-making and the national stability pact binds all
governments to aim for a zero deficit for the general government sector in
Austria, we therefore do not expect that the upcoming tax sharing regime from
2014 onward will differ significantly from the current one. Tyrol also
benefits from its excellent budgetary performance, with an operating surplus
of 6.7% of operating revenues and balanced accounts after capital accounts on
average over a five-year period. Compared with national and international
peers, we expect the state to post low tax-supported debt at 14.3% of
operating revenues under our base-case scenario for 2014.
The ICL is further supported by Tyrol's high wealth levels, with GDP per
capita close to EUR38,000, which translates into about 130% of the EU-27
average. Tyrol posts the lowest unemployment rate in Europe, highlighting this
Partly offsetting these positives are Tyrol's moderately high contingent
liabilities, mainly stemming from its 100% ownership of a financial
institution, Hypo Tirol Bank (not rated). Explicitly guaranteed liabilities of
the bank account for more than EUR7.1 billion, or 261.4% of the state's
operating revenues in 2011. We estimate that the contingent liability from the
ownership of Hypo Tirol Bank amounts to less than 15% of Tyrol's operating
revenues in an 'A'-type stress scenario. In addition, we believe the
moderately high net financial liabilities at 68.2% of operating revenues,
stemming predominantly from unfunded pension liabilities, could limit the
state's future budgetary flexibility.
In our view, the ICL could deteriorate by one level to 'aa+' if the state
loosens its hold on expenditures, leading to a significant decline in
budgetary performance. In addition, another major capital injection into the
state bank could burden the ICL. However, we regard this as currently unlikely.
We view Tyrol's overall liquidity situation as "very positive," with free
cash, liquid assets, and committed facilities covering twice the state's
yearly debt service. Cash flows follow a similar pattern over the year, making
them highly predictable. Cash at hand during the year is usually low. We see
the state's potentially unlimited access to liquidity from the Austrian
Federal Financing Agency as a central credit strength, granting the state
exceptional access to liquidity. Tyrol currently does not use its access to
the agency, but is entitled to do so at any time.
The negative outlook on Tyrol mirrors that on Austria.
Tyrol's indicative credit level is 'aaa', and we do not envisage a realistic
downside scenario under which Tyrol's ICL would weaken by two notches. We
would therefore more likely downgrade the state following a sovereign
downgrade than as a result of a change in the state's ICL within our outlook
horizon of two years. The revision of the outlook on Austria to stable would
likely trigger a similar action on Tyrol.
Related Criteria And Research
-- Methodology For Rating International Local And Regional Governments,
Sept. 20, 2010
-- Methodology And Assumptions For Analyzing The Liquidity Of Non-U.S.
Local And Regional Governments And Related Entities And For Rating Their
Commercial Paper Programs, Oct. 15, 2009
-- Methodology: Rating A Regional Or Local Government Higher Than Its
Sovereign, Sept. 9, 2009
-- Credit FAQ: What Prompted Standard & Poor's Recent Rating Actions On
Austrian States?, Jan. 30, 2012
-- Rating Actions Taken On Six Austrian States Following Sovereign Rating
Action, Jan. 25, 2012