OREANDA-NEWS. Fitch Ratings has affirmed Instituto de Finanzas de Cantabria's (ICAF) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB' and its Short-term foreign currency rating at 'F2'. Fitch has also affirmed ICAF's outstanding bonds at 'BBB'. The Outlook is Stable

KEY RATING DRIVERS
The ratings are based on ICAF's strong links to the Autonomous Community of Cantabria (BBB/Stable/F2), and on the explicit financial support from the regional government stated in its charter. The institute's objectives are to contribute to the region's sustainable economic and social development and to manage Cantabria's equity investment in several public sector entities (PSEs). The Stable Outlook reflects Cantabria's Outlook.

In December 2011 the Autonomous Community of Cantabria decided to explicitly guarantee the obligations and liabilities that ICAF has with any third parties and to provide the relevant economic resources to meet those obligations. Fitch also believes that in a financial distress scenario ICAF would not be liquidated unless all its liabilities have been repaid.

ICAF meets Fitch's criteria for classification as a credit-linked entity of Cantabria. Since November 2011, the national regulator has classified ICAF as an entity that belongs to the regional government's administrative sector. This means that all deficits and debt incurred by ICAF are included in Cantabria's fiscal targets, raising the regional administration's vigilance on ICAF's budget.

Preliminary data indicated that ICAF had financial debt at end-2014 of EUR135.6m with a moderate debt repayment profile over the medium term. Total credit exposure including loans and debt to third parties guaranteed by ICAF was fairly moderate at EUR203.2m. The public sector exposure continued to represent 67.3% of total risk.

In 2014, ICAF managed to balance its accounts after two years of major losses due to non-performing loans. In particular, ICAF in 2012 assumed a non-performing loan from the soccer club Racing Santander of EUR11.8m. In 2014 ICAF received financial compensation from the regional government through a capital injection of EUR10m. ICAF benefits from fairly high reserves, estimated at EUR24.8m at end-2014 or 12.2% of total exposure. The institute expects to improve this ratio to 13.2% by end-2015.

In December 2014, Fitch affirmed that ratings of Cantabria on expectations that operating performance will continue to slightly improve in 2015 and 2016. Under Fitch's base case scenario, we assume direct debt to continue rising modestly until 2016 before stabilising.

RATING SENSITIVITIES
A change in ICAF's legal status, which we deem unlikely, or a downgrade of Cantabria's ratings would automatically be reflected in a change in ICAF's ratings.

Conversely, an upgrade of Cantabria will be necessary but not sufficient for an upgrade of ICAF.