OREANDA-NEWS. Fitch Ratings has affirmed Patrimonio del Trentino S. p.A.'s (PDT) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'A-' with a Stable Outlook. Fitch has also affirmed PDT's Short-Term Foreign Currency IDR at 'F2'. Its bond issues (IT0004661523, IT0004300965) have been affirmed at 'A-'.

The affirmation reflects the unchanged strategic importance that PDT holds for its sole shareholder, the Province of Trento (PAT, A/Stable) in the implementation of the latter's real estate strategy for the province. The ratings also reflect the links between PDT and PAT through funding support by the province for PDT's debt servicing, while exercising extensive control and oversight over the company.

The notching difference with the sponsor reflects the absence of an explicit guarantee from PAT on all of PDT's financial liabilities. The Stable Outlook reflects Fitch's expectations that the framework in which PDT operates will remain unchanged and that the company will continue to play a major role in PAT's strategy.

KEY RATING DRIVERS

PDT is responsible for implementing PAT's real estate investments for public service entities (PSEs) across multiple sectors such as transportation, finance, and technology, among others. PDT's real estate portfolio focuses on prime and secondary properties, as well as rationalisation of assets as mandated by the province. Debt servicing is regularly subsidised by PAT, underlining strong financial support from the province.

The province has recently laid out a plan to streamline the number of PSEs to increase efficiencies and reduce costs, which will result in the merger of PDT with Trento Fiere - a small trade fair exhibition vehicle of the province that manages EUR8m of assets - expected in 2017. In Fitch's view, PDT remains instrumental to the province's real estate strategy given the growing number of quality projects for public service.

Despite a tepid recovery of the real estate market in the province, PDT maintains a sound quality portfolio with minimal impairments of assets centred on fairs, sport facilities, hospitals and libraries, which are less exposed to price volatility.

Over a three-year horizon, Fitch expects PDT to be supported by a recurring stream of revenues from rents of EUR7m-EUR8m, albeit mostly below market rates, and asset sales of EUR10m.

The company's real estate portfolio under management will expand to nearly EUR1bn by 2018, following projected EUR130m new investments approved by the province over the next three years. Funding will be provided by a combination of transfers from the province and new debt in the form of bonds or loans, which will reach EUR230m over the next three years.

PDT's financial profile is conservative with healthy cash generation and liquidity relying on cash balances (EUR35m at end-2015) that are sufficient to pay a regular EUR1m dividend to the sponsor.

RATING SENSITIVITIES

As PDT's IDR is credit-linked to PAT it is sensitive to a rating action on the province.

More formalised support from the province, such as an explicit guarantee on all financial liabilities, could trigger a positive action on PDT's ratings, leading to a rating equalisation with PAT. Conversely a dilution of provincial support as evidenced by material unsubsidised borrowing or income losses not compensated by support from PAT may lead to a downgrade, thereby widening PDT's rating differential from the sponsor to two notches.