OREANDA-NEWS. Fitch Ratings has affirmed Trentino Trasporti S.p.A.'s (TT) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'A-' with a Stable Outlook. Fitch has also affirmed TT's Short-term foreign currency IDR at 'F2'.

KEY RATING DRIVERS
The affirmation reflects the unchanged links between TT and its 73% 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 by PAT. TT's Long-term IDR is notched down once from that of PAT's IDR due to the lack of an explicit guarantee for all of TT's liabilities, in line with Fitch's top-down rating approach as part of its criteria applied to public-sector entities outside the U.S.

TT plays a strategic role as the asset manager of the public transportation of PAT. As mandated by provincial law, TT leases out rolling stock, bus fleets and cable cars for public service to a service operator Trentino Trasporti Esercizio (TTE), a fully owned company of the province, based on a service agreement that expires in 2017.

TT's and TTE's boards share the same members, strengthening the oversight of the public transportation sector and facilitating strategy execution. Given the public service mission of the company, it is financially dependent on revenue from the public sector, in the form of rental income from TTE as well as PAT subsidies. Revenues stem from rental income, complemented by PAT subsidies, accounted for about 70% of TT's total revenues in 2014, sufficiently covering operating costs and yearly debt service requirements.

TT and TTE have succeeded in increasing passenger numbers in the provincial area, although fares cover just 18% of TT's operating costs, highlighting the company's strong reliance on the province for financial support.

TT submits regular budget and liquidity reports to the province as part of an effort to align its operations and strategy with those of the province. TT plans to invest about EUR125m over 2015-2017, mainly on upgrading its railway network, trains and bus depot system and on the purchase of trains and buses. Hence Fitch expects TT's debt to double to EUR100m by 2017 from end-2014 levels. However, TT's investments policy is strictly dependent on the province's capital subsidies and subsidised borrowing.

At end-2014 TT's financial debt stood a EUR54m, mostly made up of a EUR50m loan agreement with the European Investment Bank (EIB; AAA/Stable), backed by a provincial guarantee. The province currently services almost 99% of TT's financial liabilities through multi-annual subsidies, and Fitch envisages that any new borrowing - at about EUR120m over 2015-2017 - will be fully indirectly funded by PAT.

As investment gathers pace TT's cash reserves (at EUR25m in 2014) may fall over the medium term by around EUR7m-EUR10m. However, this will be mitigated by PAT's centralised liquidity system, which pools together cash for all subsidiaries. Furthermore, TT has access to EUR25m in credit lines from PAT's treasury bank (Unicredit, BBB+/Stable) and the province can advance subsidies to TT, in case of a temporary liquidity shortfall.

RATING SENSITIVITIES
As the IDR is credit-linked to the province's rating, it 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 TT'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 of TT's rating notch differential from PAT to two.