Moody's affirms Land Baden-Wuerttemberg's Aaa rating after downgrade of Landesbank Baden-W?rttemberg

Stocks and Financial Services Press Releases Tuesday June 12, 2012 09:23
Frankfurt am Main--12 Jun--Moody's

Frankfurt am Main, June 11, 2012 -- Moody's investors Service has today affirmed the Aaa long-term ratings of the German Land of Baden-Wuerttemberg. However, the rating agency lowered the Baseline Credit Assessment (BCA) of the Land to 3 from 2.

RATINGS RATIONALE

The affirmation of Land Baden-Wuerttemberg's Aaa ratings follows Moody's decision to downgrade the ratings of Landesbank Baden-Württemberg (LBBW) to A3/P-2 with stable outlook, from A2/P-1 on 06 June 2012, thereby concluding the rating agency's review for downgrade of the Landesbank's ratings. The decision to maintain the Aaa ratings of the Land of Baden-Wuerttemberg reflects Moody's assessment that the downgrade of LBBW has only a limited impact on the Land, despite the latter's exposure to the bank via high contingent liabilities, comprising direct guarantees for a risk-shield and a deficiency guarantee, in addition to the Land's responsibilities as a co-owner of LBBW (the Land's share is 40.5%, thereof 19.6% direct ownership). For more details regarding the key drivers for the downgrade of LBBW's ratings, please refer to (http://www.moodys.com/research/Moodys-takes-multiple-actions-on-German-banks-ratings-most-outlooks--PR_247330).

"In Moody's view, the Land's exposure to the bank and related risks still appear manageable given its stable credit metrics and improving budgetary situation," says Moody's Analyst Andrea Wehmeier. "However, the adjustment of Land Baden-Wuerttemberg's BCA to 3 from 2 was prompted by the downgrade of LBBW's standalone credit rating (or BCA) to ba1 from baa3, combined with the impact of the contingent liabilities arising from the related Landeskreditbank Baden-Wuerttemberg Förderbank (L-Bank, rated Aaa, stable) and planned capital support measures for Energie Baden-Wuerttemberg AG (A3, negative)," adds Ms. Wehmeier.

Land Baden-Wuerttemberg is one of the strongest economic regions in Germany, but is exposed to global economic developments given its position as a major exporter. With 11 million inhabitants and a GDP of EUR 362 billion, the Land is one of the largest of the 16 German Laender (or regions). Baden-Wuerttemberg has a strong and diversified regional economy, based on a mixture of medium-sized companies and several large corporations, making it one of the wealthiest regions in Europe.

WHAT COULD CHANGE THE RATING UP / DOWN

Although unlikely, a deterioration in Land Baden-Wuerttemberg's credit metrics and rising indebtedness could pressure the rating. Additional pressure may come in the event that the Land's bank-related risk exposure, both to the Landesbank LBBW and L-Bank, materialise. Moody's considers that Germany's general legal framework and federal support mechanisms are key factors supporting the rating. Alterations in the fundamental supportive structure of the sector or a change in the sovereign rating could lead to a negative rating action.

METHODOLOGY

The methodologies used in this rating were The Application of Joint-Default Analysis to Regional and Local Governments published in December 2008, and Regional and Local Governments Outside the US published in May 2008. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

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