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-'.

KEY RATING DRIVERS
The affirmation reflects the unchanged links between PDT and its sole shareholder, the Autonomous Province of Trento (PAT; see 'Fitch Affirms Trento's IDR at 'A', Stable Outlook, dated 10 July 2015 at www.fitchratings.com) over the last 12 months, with extensive control by and financial support from PAT. PDT's Long-term IDR is one notch below PAT's IDR due to the absence of an explicit guarantee backing all PDT's liabilities, in line with Fitch's top-down rating approach, as part of its criteria applied for public sector entities outside the U.S..

Fitch expects PDT's financial debt to total EUR200m at end-2015 after the upcoming issue of a EUR33.3m amortising bond in September, for which the province should provide specifically an unconditional, irrevocable and on-first demand guarantee. While this will increase the debt-to-equity ratio to 55% at end-2015 from 30% in 2010, PDT's debt obligations are agreed with PAT, which holds the ultimate responsibility for them. This is achieved by providing PDT multi-annual subsidies and guarantees.

PDT's 2015-2017 business plan envisages EUR150m investments, mainly to upgrade a trade fair centre in Riva del Garda and a new conference facility in Trento. Fitch expects the new capital spending plan will be equally funded by PAT's subsidised bonds and loans from the European Investment Bank. This will take PDT's debt to EUR270m by 2017, from EUR174.6m in 2014.

PDT is of strategic importance to PAT, as evident in the province's plan to merge PDT and Trentino Sviluppo's spun-off real estate operations by end-2015. The transaction will realise cost savings and help strengthen PDT's role as the province's real estate arm. In addition, PDT has set up a risk management division to keep operational and market risks under control.

Fitch expects PDT to continue posting small net income over the medium term, in line with its not-for profit mission, reporting a return on equity (ROE) of 1% or EUR2m-EUR3m profit. Given the large extent of investments Fitch expects PDT's balance sheet to expand to EUR650m by 2017, from EUR445m in 2015, with rental income forecast to rise to EUR8m by 2017, from EUR2.5m in 2010.

PDT's liquidity is volatile but the company benefits from a centralised liquidity system the province has set up for all subsidiaries: PDT has access to credit lines from the sponsor's treasury bank (law 4/1975 art. 5) and the province can advance subsidies to PDT (law 7/1979 art. 9 bis), mitigating liquidity risk.

RATING SENSITIVITIES
As PDT's IDR is credit-linked to PAT's, its rating is sensitive to rating actions 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 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 notch differential from the province to two.