OREANDA-NEWS. Fitch Ratings has affirmed the Italian region of Marche's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB+' and the Short-term foreign currency IDR at 'F2'. The Outlook is Stable. The rating action affects Marche's senior unsecured debt, including two bonds of nominal EUR557m at issue, outstanding for EUR540m at end-2014.

The affirmation reflects Marche's stable, yet weak operating margin by international standards, as well as modest debt hovering around 30% of the budget.

KEY RATING DRIVERS
Debt: Marche's debt accounted for EUR1.09bn in 2014, when including EUR67m subsidised by the state and outstanding EUR540m bullet bonds. Marche did not borrow in 2014 and Fitch expects the stock of bonds and loans to remain below its projections of EUR1.2bn over the medium term. Marche's debt sustainability is robust, with a debt-to-current balance of about 10 years in 2014-2015 matching the average life of debt.

Fiscal performance: Marche's budgetary performance remained stable in 2014 according to Fitch's estimates with an operating surplus of around EUR170m, or 5% of revenue, leading to debt-servicing coverage close to 1.5x. Capital spending continues to be sized to non-debt resources of about EUR250m translating into another year of a balanced budget. Fitch expect borrowing in 2015 will not represent a sizeable source of funding for investment

Management: Marche's per-capita health care costs below the national average facilitate a revenue and spending match, which Fitch considers a supportive rating factor given that the sector absorbs three-quarters of the regional budget. Fitch factors in continuity in management policy over the medium term, including fund balance surplus, which according to Fitch's calculation, turned positive in 2013 overcoming the deficit of 8% posted in 2008.

Institutional framework: Marche's standalone profile is constrained by Italy's IDR given that ordinary statute regions lack substantive financial autonomy, as the allocation of funding is subject to national budget laws and remain exposed to the national policy to reduce deficit and debt. However, it is the national government that usually bears the costs of unpredictable events leading Fitch to consider Italian inter-governmental relations as neutral for Marche.

Economy: Marche's economy remained subdued in 2014 with almost flat GDP according to Fitch's preliminary estimates, and GDP per capita at about 95% of Italy's. Against a backdrop of weak internal demand, prospects of GDP increase remain pinned on growth in exports, particularly mechanics (up 1.5% at end-2014), absorbing a likely decline in furnishing and shoes due to contracting exports to Russia. Fitch expects a slight increase in economic growth in 2015 conducive to keeping regional revenues trending up, prolonging the 1% average annual growth in 2008-2014.

RATING SENSITIVITIES
Given the sovereign cap, Marche's rating would be downgraded in parallel with Italy's rating if the sovereign is downgraded. A prolonged recession with deterioration on the labour market eventually leading to a current balance half of Fitch's expectations could be rating negative. The deterioration in the unreserved fund balance back towards deficit close to 10% of the budget could also be negative.

Conversely a revision of Italy's Outlook to Positive could lead to a similar rating action on Marche, provided the region continues to perform in line with Fitch's projections.