Dec 6 - Fitch Ratings has affirmed Italian Agenzia Territoriale per la Casa
della Provincia di Torino's (ATC) long-term foreign and local currency ratings
at 'BBB+' and short-term foreign currency rating at 'F2'. The long-term rating
Outlooks are Negative.
ATC's ratings reflect its strong balance sheet with small financial debt of less
than EUR6m at the end of 2012, and high liquidity reserves, albeit declining.
The ratings also take into account annual losses, the increasing stock of
arrears in the medium term and the gradual reduction in capital subsidies for
investment from the Region of Piemonte ('BBB+'/Negative). As a result, ATC may
need to borrow to fund construction and modernisation of housing over the medium
A downgrade could occur if ATC continues to report losses which deplete cash
reserves. Conversely, the Outlook could be revised to Stable if ATC reported a
balance net of depreciation, which is most likely to stem from higher proceeds
from asset sales, an increase in rental revenue and/or a lower tax burden.
ATC's rating of 'BBB+' no longer includes support from the Region of Piemonte,
its sponsor under Fitch's Public Sector Entities criteria. Therefore a downgrade
of the region would not automatically lead to a downgrade of ATC.
ATC's ratings are underpinned by its strong balance sheet, although
profitability is declining. The falling stock of debt, less than 10% ATC's
revenue in 2012, is accompanied by growth in tangible assets to more than
EUR640m at the end of 2012, up from EUR500m in 2008. Fitch considers that ATC's
budgets are under pressure from new tax costs, Piedmont's budget restraints and
difficulties in collecting rents. As a consequence, it may find it hard to
undertake self-funded investments.
The gross stock of unpaid rents is likely to rise to c.EUR100m by 2012 as the
worsening economy, rising unemployment and austerity measures reduce tenants'
ability to pay rents. ATC has improved organization and IT procedures for
collecting rents but Fitch doubts that these actions will compensate for the
weaker financial position of tenants. Rent arrears were covered by provisions
for doubtful receivables of EUR20m and net working capital of EUR90m at
For 2012, Fitch expects ATC's overall loss to double to about EUR15m, following
the introduction of a new tax on primary homes which ATC has to pay. The
operating side of the income statement, however, should benefit from capital
gains and stable rents. For 2013-2014, Fitch expects the overall deficit to
narrow to c.EUR10m - or a balanced result when depreciation is considered -
thanks to cost savings arising from renovation works, construction and purchase
of new dwellings in 2009-11 which averaged EUR30m annually.
Mounting collection issues and overall losses are reducing ATC's cash reserves,
which, however, Fitch expects to be above 3x the debt outstanding in the medium
term. Fitch thus sees ATC's liquidity declining to c.EUR50m by end-2015 from
c.EUR70m at end-2012.
At the same time, declining regional subsidies and sales' volumes will constrain
investments in construction and renovation, some of which may be partly debt
funded. Yet even if debt grows threefold to EUR15m, it would still be small at
3% ATC's equity and one fifth of its annual turnover, underpinning ATC's
capacity to repay its debts.
ATC is the sole public housing provider in the Province of Turin, with about
31,000 dwellings under management, representing 70% of total public units in the
region and approximately 9,000 commercial units.
Additional information is available at www.fitchratings.com.
The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.
Applicable criteria, 'Revenue Supported Rating Criteria', dated 12 June 2012;
dated 12 June 2012; 'Ratings of Public sector Entities - Outside the US' dated
05 March 2012 are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Rating of Public Sector Entities - Outside the United States