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.

The affirmation reflects ICAF's unchanged strong links with the sponsor, the government of Cantabria (BBB/Stable/F2). The Stable Outlook reflects that of Cantabria.

KEY RATING DRIVERS
The ratings are based on ICAF's strong links to the Autonomous Community of Cantabria 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 investments in several public sector entities (PSEs).

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 credit-linked entity classification. 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-2015 of EUR121.7m 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 EUR183.5m. The public sector exposure continued to represent 65.9% of total risk (loans and debt guarantees). Since 2013, ICAF has made available for small and medium enterprises (SMEs) located in the region of Cantabria a programme of loans totalling EUR100m that could be used to fund investments by or to improve the liquidity of SMEs.

In December 2015, Fitch affirmed the ratings of Cantabria on expectations that its operating performance will continue to slightly improve in 2015 and 2016. Under Fitch's base case scenario, we assume fiscal performance will gradually improve in medium term and direct debt will continue rising modestly. Cantabria is a small region located in the North of Spain whose economy is dominated by tertiary activities but also with strong manufacturing roots.

RATING SENSITIVITIES
Any rating action on Cantabria would be mirrored on ICAF.

A downgrade could result from a negative change in Fitch's assessment of state extraordinary support for ICAF.