Fitch Ratings-Milan/London-28 November 2008: Fitch Ratings has today affirmed the Italian Region of Piemonte's Long-term foreign and local currency ratings at 'AA-'(AA minus), and its Short-term foreign currency at 'F1+'. The Long-term rating Outlooks are Stable. The affirmations relate to approximately EUR4.1bn of financial debt outstanding expected at end-2008 as well as future new borrowings.
The ratings reflect Piemonte's full coverage of the healthcare deficits, satisfactory operating performance, though low by international standards, and the gradual absorption of the fund balance deficit. The ratings also take into account the region's relatively high financial debt in light of its significant budgetary rigidity and delayed state transfers.
Going forward, downward rating pressure may follow an unexpected widening of healthcare deficits and/or higher recourse to debt than projected resulting in lower debt service coverage, especially should the economy deteriorate further. In addition, an exacerbation of the region's liquidity strains due to increased delays in state transfers could also apply downward rating pressure. Conversely, a rating upgrade, in combination with a sovereign upgrade, could stem from a stronger-than-expected operating performance and a smoother and structurally stronger cash position, all else being equal.
The region has fully covered all past outstanding healthcare deficits; this, together with the full consolidation of healthcare from 2008 into the regional budget, should help limit the revenue/expenditure mismatches of the past on an accrual basis, leading to more predictable regional operating spending and performance.
Piemonte's operating margin, on an accrual basis of accounting, should average about 3.5% of operating revenue in 2008-2010, as it will benefit from the gradual reduction of the healthcare deficits due to the cost rationalisation measures envisaged in Piemonte's Healthcare Plan for 2007-2010. The operating balance should cover by 1.1x debt service requirements. In light of the region's proven ability to offset delays in state transfers by matching cash inflows and outflows, the cash basis operating performance should continue to be stronger than accruals, covering 1.2x debt service. However, the operating performance could be challenged by a further deterioration of the local and national economic environment, especially if prolonged over the medium term.
The regional financial debt of EUR3.7bn at end 2007, which is almost fully exposed to variable interest rates, is relatively high at 30 years of the current balance and in light of significant budgetary rigidity, with the healthcare sector absorbing about 80% of the regional operating budget. Fitch expects the region to limit new borrowings to EUR500m per year over 2008-2010, leading to debt of EUR4.8bn by 2010 (22 years of current balance). Debt service should stabilise at about EUR350m during 2008-2010, equivalent to 3.5% of current revenue.
Piemonte's fund balance deficit shrank to EUR1.7bn in 2007 from EUR2.0bn in 2006 (due to the better cash basis budgetary performance reported in 2007), and should decline further to around EUR1bn by 2010, partly funded by planned new borrowings. Fitch expects further absorption of the fund balance deficit to either follow an improvement of the regional cash position or the reduction of planned investments, without requiring additional borrowing compared to projections. In addition, the rigidity of the instalments payable on the EUR715m non-recourse deal of 2006 to cover past healthcare deficits is partly offset by the EUR500m liquidity held by FinPiemonte, the regional financial arm.
Delayed state transfers, after having been contained in 2007, are again forcing the region and its healthcare entities to resort to cash advances. Fitch believes that the expected gradual unfreezing of state funds (EUR3.7bn), including about EUR0.4bn by end 2008, should help the region to enjoy a smoother cash profile over the medium term.
Piemonte with about 4.4 millions inhabitants accounts for 7.5% of Italy's population and is one of its main economic powerhouses. GDP per capita is 18% above the EU27 average and the region's unemployment rate was a low 4% in 2007.
A full report on the Region of Piemonte will soon be available on the agency's subscription website, www.fitchresearch.com.
Contact: Romolo Isaia, Milan, Tel: +39 02 879087 216.
Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
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(END) Dow Jones Newswires
November 28, 2008 06:59 ET (11:59 GMT)

Publié le 28 novembre 2008 Copyright © 2008 Dowjones