Fitch Rates Thuringia's EUR500m Bond 'AAA(EXP)'
The final rating is contingent upon the receipt of final documents conforming to information already received.
KEY RATING DRIVERS
The rating reflects the strong support mechanisms that apply to all members of the German Federation, including the State of Thuringia, and the extensive liquidity facilities they benefit from, which ensure timely debt and debt service payment.
The support mechanism applies uniformly to all members of the German Federation: the Federal Republic of Germany (AAA/Stable) represented by the federal government (Bund) and the 16 federated states, which include the State of Thuringia undertaking this issue. All Laender are equally entitled to financial support in the event of financial distress irrespective of differences in economic and financial performances.
The new EUR500m issue's liquidity is underpinned by the safe cash management system the Laender operate in, which allows overnight cash exchanges between Laender and the Bund when necessary, and recourse to appropriate short-term credit lines. The issue is zero risk-weighted and European Central Bank repo-eligible.
Thuringia is located in eastern Germany and had a population of 2,155,337 at end-September 2014. Its capital is the City of Erfurt. Its GDP of EUR51bn accounted for 1.9% of national GDP in 2013. Its GDP per capita of EUR23,168 is around 30% below Germany's average of EUR33,355. The unemployment rate was 8% in March 2015, above that of Germany (6.8%) but well below that of eastern Germany (9.9%).
A downgrade of the sovereign ratings could lead to a downgrade of the Laender and consequently the bond's rating. An adverse change to an important institutional feature (solidarity principle, equalisation system, liquidity exchange mechanism) would result in a review of the German Laender ratings.