Feb 25 - Fitch Ratings has affirmed the Autonomous Community of Castile la
Mancha's (CLM) Long-term foreign and local currency ratings at 'BBB-'. The
Outlook is Negative. Fitch has also affirmed the Short-term rating at 'F3'.
KEY RATING DRIVERS
The ratings reflect CLM's weakened fiscal revenues, rigid costs, large debt and
still weak financial performance despite a series of measures introduced to
reduce spending and to streamline the regional public sector. The ratings
benefit from the strengthening of the mechanisms of control from the central
government, which imposes more robust budgetary discipline and transparency.
CLM's rating is also supported by the liquidity facilities established by the
central government. Although the regional government expects to continue to
reduce its operating expenditure in the medium term, it will still be difficult
to record a positive current balance by 2014, in part due to the higher cost of
Fitch considers the revised Budgetary Stability Law, passed in April 2012, as
supportive of the ratings. This law gives wider powers to the central government
to intervene in the regions' finances to ensure that they comply with nationally
agreed fiscal targets. Preliminary data suggests that CLM recorded a deficit
under national accounting of EUR552m or the equivalent of 1.48% of its GDP,
which is just within the 1.5% objective established by the central government.
This preliminary result compares favourably with the deficit recorded in 2011,
equivalent to 7.7% of regional GDP.
By end-2012, CLM debt is estimated to have reached EUR8.55bn, including the
EUR2.9bn financing that was granted by the central government to the region to
repay commercial debt. While the concern on the reliance on short-term debt has
diminished, there is still a high refinancing risk, as 52% of the debt is due in
the 2013-17 period.
Fitch expects CLM's operating revenue to grow marginaly through to 2014, while
operating expenditure is projected to decline further in 2013 and 2014 as a
result of a large series of measures introduced by both the central government,
particularly in civil servant salaries, and the region in health care and
education. Fitch considers that in the case of an unexpected continued decline
in current revenue, the regional government would still take additional measures
to cut costs.
Fitch expects that the region's stock of direct debt could increase to about
EUR10bn-EUR11bn by end-2015, which means that debt would represent 170% of
current revenue compared to only 56% in 2009. This is despite a strong reduction
in capital expenditure in 2013 coupled with the sales of assets that would allow
the region to post net capital expenditure of EUR91m in 2013 according to the
regional budget. This looks quite ambitious considering net capital expenditure
in 2011 was EUR955m.
The Outlook is Negative, which reflects the uncertainty on the recovery of the
Spanish economy, and the reliance over the medium term on the liquidity
mechanisms established by the central government by way of the Regional
Liquidity Fund, which supports the current rating.
Although CLM's credit fundamentals are still weaker than its present rating
level, Fitch is of the opinion that the central government would ensure that the
region has sufficient liquidity to service any maturing debt obligations, and
that the operating performance of the region will improve in the next three
The ratings are sensitive to a number of assumptions.
- Fitch assumes that the liquidity mechanism introduced by the central
government will be extended in 2014 and beyond, if borrowing remains difficult.
- Fitch also assumes that there are no significant accounting adjustments by the
central government to the budgetary out-turn of the region which would make the
final outcome significantly worse than Fitch's expectations.
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, "Tax-Supported Rating Criteria", dated 14 August 2012, and
"International Local and Regional Governments Rating Criteria outside United
States", dated 17 August 2012, are available on www.fitchratings.com.
Applicable Criteria and Related Research
Tax-Supported Rating Criteria
International Local and Regional Governments Rating Criteria - Outside the