OREANDA-NEWS. July 13, 2015 Fitch Ratings has affirmed Gestione Commissariale del Comune di Roma (GC)'s Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB+' with a Stable Outlook. Fitch has also affirmed the Long-term rating on GC's two bonds (ISINs: XS0181673798 and XS0097805211) at 'BBB+'.

The affirmation reflects the ongoing obligation of the national government to make available EUR500m per year in perpetuity to allow GC to service the City of Rome's debt and commercial obligations under its management.

As a state entity established by decree Law 78/2008 GC is strategically important to the national government (or sponsor under Fitch's Rating of Public Sector Entities Rating Criteria) insofar it is mandated to hold all the assets and liabilities of the City of Rome incurred before 28 April 2008, including bonds and loans (75% of which carry fixed rate) except real estate assets and stakes in municipal companies. Decree Law 16/2014 transferred to GC additional EUR0.6bn liabilities from the City of Rome's. Once receivables are collected or written off and non-financial liabilities are paid or transacted, GC will cease to exist as per decree law 225/2010 and Fitch understands that it may evolve into a debt-amortising structure.

KEY RATING DRIVERS
The Italian government makes available EUR500m each year, till need be, and EUR37m each year from 2013 for 30 years, to service debt incurred by the City of Rome before April 2008 as well as to pay Rome's commercial liabilities passed on to GC. Of the EUR500m, the national government contributes EUR300m, while the city is mandated to provide EUR200m from personal income tax surcharge and a fee on passengers at its airports, which the national government could withhold from annual subsidies/revenue apportioned to Rome if the city fails to provide its part.

The EUR500m is used by the national government to service directly loans at or bonds issued by GC to fund outstanding liabilities. However, as only EUR205m has been committed to servicing GC's currently outstanding EUR3.5bn loans, it will receive EUR320m in 2015-2016.

GC's assets declined by EUR200m to EUR2.5bn, due to collection of receivables and receivables write-downs, while liabilities contracted EUR0.5bn to EUR9.3bn due to payment of debt instalments and payables, and transaction of liabilities. According to Fitch estimates, GC's liquidity as of June 2015 would cover debt instalments and other liabilities coming due till December 2015 when GC's asset-liability deficit is expected to narrow to near EUR6bn, from EUR7bn in 2013.

By 2016 GC will borrow nearly EUR5bn by up-streaming EUR295m (EUR500m minus EUR205m) available over 2017-2040. The remaining deficit of nearly EUR1bn, as well as net interest expenses, could be funded via the up-streaming of EUR500m contributions available from 2040 onwards. The latter would also fund the EUR1.4bn bullet bond due in 2048.

RATING SENSITIVITIES
GC's IDR mirrors that of Italy (BBB+/Stable) in light of its status as a state body. Rating equalisation factors in the government's obligation to service debt incurred by GC from 2011 onwards.

The IDR could be downgraded below that of Italy in case of adverse legal changes to GC's status as a public body. A downgrade could also stem from unforeseen liabilities that jeopardise GC's transformation into an amortising vehicle of bonds and loans still outstanding once Rome's payables are finally paid and receivables collected, or written off in 2016/2017.

KEY ASSUMPTIONS
Fitch assumes that reinvestment of funds collected during 2017-2040 from 2H15 to 2016 could partly offset interest costs over the same period. Conversely if the liquidity was deposited in non-interest bearing accounts at the national treasury the national government would make up for financing needs stemming from the interest rate differential.

Minor contingent asset and liabilities are likely to be taken over by the City of Rome or the state from 2017 when GC is supposed to end its operations.