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Research: Rating Action: Moody’s assigns issuer rating Aa1 to Saxony-Anhalt, stable outlook

By on September 30, 2022 0

Frankfurt am Main, September 30, 2022 — Moody’s Investors Service (“Moody’s”) today assigned – in domestic and foreign currency – the long-term issuer rating of Aa1 to the Land of Saxony-Anhalt. The Basic Credit Assessment (BCA) has been affirmed at aa3. The outlook for Saxony-Anhalt remains stable.

Saxony-Anhalt’s senior unsecured debt Aa1 ratings and senior unsecured MTN program rating (P)Aa1, as well as other short-term commercial paper ratings (P)P-1 and P-1 of the Land, are not affected by this rating action.

RATINGS RATIONALE

The rating of issuers in the Land of Saxony-Anhalt reflects the favorable federal equalization system, but also the Land’s strong governance and management practices and its excellent market access, including the use of a commercial paper program. The rating also takes into account the very high level of indebtedness, which is expected to peak at NDID above 200% of operating revenue in 2022. In 2021, the Land recorded a significant deficit due to the inclusion of a fund special to fund the pandemic. Cost. With this non-recurring fund, for 2022 and the following two years, Moody’s expects the Land to be able to achieve balanced financial results, despite little flexibility to adjust revenues or expenditures. The headwinds of a new economic downturn combined with high rates of inflation present a challenge for the region.

The Land of Saxony-Anhalt’s Aa1 ratings reflect the combination of its base credit assessment (BCA: aa3) and Moody’s assumption of a very high probability of extraordinary support from the German government.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody’s expectation that Saxony-Anhalt will be able to return to balanced budgets and a lower debt burden. In the event of an economic shock that is deeper and longer than currently expected, strong institutions and governance at the Länder (region) and national level are likely to foster resilience and contribute to the rapid restoration of sound financial positions.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

The Land of Saxony-Anhalt’s ESG credit impact score is neutral to low (CIS-2), reflecting neutral to low exposure to moderately negative environmental and social risk, as well as very strong governance and policies that reduce the region’s vulnerability to these risks.

The issuer environmental profile score is neutral to low (E-2), reflecting neutral to low risks for all environmental factors. Despite its traditional high exposure to heavy industry, the Land has carbon emissions levels slightly above the German average per capita, with Saxony-Anhalt promoting carbon transition programs.

The issuer profile’s positive governance rating (G-1) reflects the country’s very strong institutional and governance framework. The institutional structure is solid and characterized by very effective “consensual” interactions between the regions. Any changes to the institutional structure occur at a measured pace and are relatively predictable due to lengthy negotiations. The powers and responsibilities of the regions are well determined within the national legislative framework. A very strong equalization system largely attenuates budgetary disparities, mainly on the revenue side, but limits the financial flexibility of the states. Strict fiscal rules (eg debt brake, enshrined in the German constitution) are in place and continuously monitored. Fiscal policy is overall prudent and well coordinated between the different levels of government. Budgeting is done according to the budget rule, is transparent and generally prudent, so that budget plans are generally adhered to. Planning parameters are mostly coordinated at the national level and facilitate realistic budget projections. External control of budget plans and budget execution is ensured by a specific stability board (Stabilitätsrat). The Land of Saxony-Anhalt produces timely, accurate and transparent financial statements and a legal requirement to have multi-annual financial planning of at least 5 years.

The first assignment of an issuer rating required the publication of this rating action on a date different from the publication date previously scheduled in the calendar of sovereign publications, published on https://ratings.moodys.com.

Specific economic indicators, as required by European regulations, are not available for this entity. The following national economic indicators are relevant to sovereign rating, which was used as input for this credit rating action.

Sovereign Issuer: Germany, Government of

GDP per capita (PPP basis, US$): 58,378 (2021) (also known as income per capita)

Real GDP growth (% change): 2.6% (2021) (also called GDP growth)

Inflation rate (CPI, % change December/December): 5.7% (2021)

General government fiscal balance/GDP: -3.7% (2021) (also known as fiscal balance)

Current account balance/GDP: 7.4% (2021) (also called external balance)

External debt/GDP: 163% (2021)

Economic resilience: aa1

Default history: No event of default (on bonds or loans) has been recorded since 1983.

SUMMARY OF RATING COMMITTEE MINUTES

On September 27, 2022, a rating committee was convened to discuss the rating of Saxony-Anhalt, Land of. The main points raised during the discussion were as follows: The issuer’s economic fundamentals, including its economic strength, have not materially changed. The issuer’s institutions and governance strength have not changed significantly. The issuer’s governance and/or management have not materially changed. The issuer’s fiscal or financial strength, including its leverage profile, has not changed significantly. The systemic risk in which the issuer operates has not changed significantly.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

A substantial reduction in the Land’s debt burden, combined with an improvement in its financial performance, could lead to a rating upgrade.

Downward pressure on ratings could occur if fiscal performance and the debt burden deviate materially and sustainably from our current projections. This could happen if economic growth deteriorates sharply and the Land is unable to contain the medium-term implications for its budget balances and debt burden. In addition, a downgrade in sovereign rating, or any sign of waning government support, would likely lead to a downgrade.

The main methodology used in these ratings is that of regional and local governments published in January 2018 and available on https://ratings.moodys.com/api/rmc-documents/66129. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating metric, if applicable.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Harald Sperlein
Vice President – Senior Analyst
Sub-sovereign group
Moody’s Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Mauro Crisafulli
MD – Sub-Sovereigns
Sub-sovereign group
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Release Office:
Moody’s Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454