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    Saxony-Anhalt, Land of Saxony-Anhalt, Land of Document Transcript

    • www.moodys.com Moody’s Credit Analysis International Public Finance - August 2009 Table of Contents: Saxony-Anhalt, Land of Germany Summary Rating Rationale 1 National and International Peer Comparisons 2 Rating Outlook 2 Key Rating Considerations 2 Financial Position and Performance 2 Key Indicators 2 Summary Rating Rationale Debt Profile 5 The Land of Saxony-Anhalt’s Aa1 issuer and long-term bond ratings and its P-1 Governance and Management Factors 6 short-term rating, with stable outlook, reflect several elements, including improving Economic Fundamentals 6 financial performance and budget discipline, in the context of a still modest revenue Operating Environment 8 base. A recent history of consistently meeting targets provides Moody’s with Institutional Framework 8 Annual Statistics 9 comfort that the goals of the current fiscal period will be achieved. The Land Moody’s Related Research 16 succeeded in balancing its accounts in 2007 and 2008, thanks to growing tax proceeds and major consolidation efforts started a few years ago. The debt burden remains very high, as is true for most German Länder. Medium-term growth prospects are enhanced by restructuring and continued transformation of the Analyst Contacts: economic base, albeit against a background of a sharp economic recession in Germany in 2009 and possible economic stagnation in 2010. Frankfurt 49.69.7073.0700 7 Andrea Wehmeier The rating also reflects Moody’s assessment of a very high likelihood that the Vice President - Senior Analyst Federal Republic of Germany (Aaa, stable) would act to prevent a default by Saxony-Anhalt. The very high likelihood of support reflects Moody’s opinion of London 44.20.7772.5454 (i) the elevated reputation risk for Germany as a whole in case of default by a Land, 16 Sarah Kieling and (ii) the Bundestreuekonzept, according to which all German Länder must Associate Analyst express mutual solidarity in the event that one of them or the Federal Republic 0 Yves Lemay faces a severe budgetary crisis. Also, the debt volumes and structure of German Team Managing Director Länder are extremely complex and an event of non-payment would be considered to have a corresponding impact on Germany as a whole. In Moody’s opinion, the principle of solidarity is firmly entrenched in the Grundgesetz (Basic Law), thereby providing reassurance that, if required, financial support for a member in distress would be forthcoming. This Credit Analysis provides an in-depth discussion of credit rating(s) for Saxony- Anhalt, Land of, and should be read in conjunction with Moody’s most recent Credit Opinion and rating information available on Moody’s website. Click here to link.
    • Credit Analysis Moody’s International Public Finance Saxony-Anhalt, Land of National and International Peer Comparisons Saxony-Anhalt is rated in line with other Länder in Germany, whose ratings span from Aaa to Aa1. Saxony- Anhalt’s position relative to national peers reflects debt levels in line with the median of Aa1-rated German Länder as well as historically comparatively lower economic performance and slightly better financial performance. On an international basis, Saxony-Anhalt’s debt and debt service levels remain high compared to the medians of Aa-rated regional governments in other western European countries. These higher levels of debt at an equivalent level of credit risk are supported by the strong equalisation system in Germany, the Land’s very good access to liquidity and the very high likelihood of support by the German government. Rating Outlook The outlook for Saxony-Anhalt’s Aa1 issuer and long-term bond ratings and its P-1 short-term rating are stable. Key Rating Considerations Financial Position and Performance Key Indicators Figure 1 Saxony-Anhalt, Land of 2003 2004 2005 2006 2007 2008 GDP per capita (EUR) 18,255 18,909 19,138 20,141 21,255 22,430 Intergovernmental revenues as a % of Operating Revenues 42.81 42.56 44.71 43.65 42.33 40.40 Interest payments as a % of Operating Revenues 11.15 10.54 10.74 10.49 9.99 10.56 Gross Operating Balance as a % of Operating Revenues -5.58 -1.58 -0.23 3.39 10.23 10.32 Financing surplus(deficit) as % of Total Revenues -16.33 -10.81 -11.56 -5.68 1.17 0.53 Net Direct and Guaranteed Debt as a % of Operating Revenues 237.02 245.05 257.76 243.66 238.64 233.38 Capital expenses as a % of Total expenses 20.98 18.66 19.72 16.95 16.80 15.75 Improving financial results until 2008 – the outlook appears less favourable Saxony-Anhalt’s budgetary results stabilised in 2008 compared to 2007. For the second year in a row, the Land recorded an operating surplus in the area of 10% of operating revenues. This result – remarkably high when compared to 3.4% in 2006 and -0.2% in 2005 – was mainly driven by tight cost controls associated with still growing operating revenues. This positive development is reflected on the pre-funding side, whereby the Land was able to achieve a small surplus in 2008. Namely, slightly higher operating revenues and a reduction of capital spending enabled the Land to generate a pre-funding surplus totalling 0.6% of total revenues in 2008 versus 1.2% in 2007. This compares positively to a 5.7% deficit in 2006 and an average deficit of 14.6% for the 2003-05 period. Expectations for 2009 should enable the Land to preserve its financial equilibrium; however, there are risks linked to revenue development in H2 2009, as the deep economic recession should start to have a rising impact on tax revenue development. For 2010, a deficit appears inevitable, although Saxony-Anhalt should 2 August 2009 Credit Analysis Moody’s International Public Finance – Saxony-Anhalt, Land of
    • Credit Analysis Moody’s International Public Finance Saxony-Anhalt, Land of continue to try and control expenditures (primary spending such as personnel, goods and services). Moody’s will carefully monitor the budgetary planning process for 2010, which appears more challenging than in the past, given the current recession, the expected stagnation of the German economy in 2010 and a generally higher level of uncertainty regarding future economic environment. Operating revenue development depends on the uncertain economic environment In terms of revenue, similar to the rest of the Länder, Saxony-Anhalt experienced a benign period of growing fiscal revenues between 2004 and 2008. These positive results were driven by a tax reform and an economic rebound, both at the national and regional levels, which translated into higher tax revenues and higher transfers for the Land. After a strong 2008, Moody’s expects a reverse trend on the revenue side for 2009. Based on the latest tax forecast (May 2009), Saxony-Anhalt expects limited tax revenue shortfalls of €195 million for 2009. However, the major impact will be felt from 2010 onwards, when the state expects shortfalls to slightly exceed €1 billion. For Germany as a whole, a sharp economic recession with real GDP growth of -5% to -6% in 2009 is expected, but Saxony-Anhalt might be able to perform slightly better, as its exposure to the strongly hit export sector is significantly lower than that of other German Länder. Compared to the western Länder, the decline in revenues should be comparatively limited, as Saxony-Anhalt receives ongoing transfers as part of the Solidarity Pact II (according to which western Länder grant additional transfers to eastern Länder to bolster post-unification effects), thereby stabilising revenue development. The replenishment of the reserve against tax shortfall that was introduced last year will now have to be postponed. The initial target of bringing the reserve to €500 million by the end of 2017 does not seem feasible given the recent developments. Saxony-Anhalt is currently reviewing its medium-term financial plan. The 2008 plan includes an average yearly tax growth rate of 3.5% for 2008 to 2012, which appears outdated based on the current economic development. On the capital side, revenues are generally on a declining trend, reflecting the declining Solidarity Pact II transfers intended to bolster post-unification effects. These transfers will be phased out in 2020 and will provide a reliable revenue source until then. In the shorter term, the economic stimulus package installed by the Federal government will temporarily increase capital revenues for 2009 and 2010. The administration plans to pass the bulk of these revenues on to the municipal level, mainly for investments in infrastructure and schools. Expenditure – stabilisation is key Operating expenditures have been kept structurally flat in the past five years and therefore negative in real terms. In 2006, the growth rate exceeded 2% for the first time since 2002, mainly due to larger transfers to the municipal level – a direct result of higher tax revenues, as these transfers are linked accordingly. This growth was immediately offset by a 2.2% decrease in 2007 as a result of continuous consolidation efforts. In 2008, operating expenditure grew by 1.4%. Cost containment was achieved by continued personnel reductions and a cost savings programme, and through reforms at the municipal level. The former led to a sizeable reduction in the share of personnel costs to 26.7% of operating expenses in 2008, from 34.8% in 2001. On the municipal level, the Land finalised a reform in June 2009, which included reducing the number of municipalities and administrative districts to prepare for and adapt to demographic developments, as well as to enhance efficiency. For 2011, a new financial equalisation system for municipalities is planned, which will base transfers on actual financial needs. Currently, the transfers and equalisation payments are primarily linked to the Land’s tax revenue development. With these measures, the Land aims to keep the nominal operating expenditure nearly constant until 2012, which will be challenging. The government’s initial plan to ease the pressure arising from rising interest costs (+6% until 2011) through a reduction in outstanding debt will be seriously distorted by the financial crisis and its economic impact. For 2009, a balanced budget still appears possible; however, the original plans to redeem debt in rising 3 August 2009 Credit Analysis Moody’s International Public Finance – Saxony-Anhalt, Land of
    • Credit Analysis Moody’s International Public Finance Saxony-Anhalt, Land of instalments will have to be replaced by new debt. For 2010, net new borrowings of EUR750 million are under discussion, although an even larger amount appears possible if the recessionary environment persists. Administration committed to budgetary consolidation measures, but sharp economic recession will lead to rising indebtedness in 2010 and 2011 After the Land’s 2006 election, the then-elected administration published the motto “consolidation, investment and precaution” as a guideline for its fiscal policy. Under its 2008-12 medium-term financing plan, the commitment to fiscal consolidation translated into a maintenance of zero net new borrowings for 2008, and the reduction of outstanding direct debt from 2009 onwards. However, the financial crisis and the sharp recession in Germany in 2009 will inevitably increase budgetary pressure on all German Länder, including Saxony- Anhalt. Therefore, the initially planned debt reduction will be replaced with a balanced budget for 2009, while both the state and Moody’s expect increasing absolute and relative indebtedness for 2010 and 2011. Faced with the challenging economic environment, the Land has initiated a package of measures: The Land remains committed to its efforts to rationalise and curb expenditure growth both at the Land and municipal levels. Saxony-Anhalt has implemented substantial cuts in personnel since 1991 (employment reduction to 60,000 from 110,000), and it plans a further reduction in personnel to around 40,000 in 2025; however, the overall level of public sector employment remains comparably high. All German Länder agreed on a debt brake mechanism in summer 2009. While the zero net new borrowing limit will only be implemented in 2020 on the Länder level, Saxony-Anhalt belongs to the group of Länder that will receive special subsidies to support a budgetary consolidation process from 2011 to 2019, which will be linked to progress in deficit reduction. The Land plans to use theses subsidies (EUR720 million in total) to ease its municipalities debt burdens and support a budgetary consolidation on the municipal level while reducing its own deficits. The Land plans to link any new debt to a compulsory redemption schedule; this mechanism may be implemented in the 2010 budget. Moody’s will closely monitor any developments, as a binding amortisation would be a radical step for German Länder and would be viewed as a partially mitigating factor for higher transitory indebtedness. The Land’s Minister of Finance issued a very ambitious strategy paper, forming the basis for discussion regarding the medium-term budgetary challenges and possible solutions. While we do not expect the Land to implement radical measures, the paper underlines the commitment by the state government to enhance the budgetary situation in the medium term. However, Saxon-Anhalt will continue to face further budgetary challenges in the medium and long term. In this regard, significant risk factors include: the still modest – albeit improving – tax base, in combination with gradually declining Federal contributions (that will be phased out in 2020) to promote economic development of former East German Länder in accordance with the national Solidarity Pact II; demographic development given the expected continuous decline in and ageing of the population rising interest rates; and unfunded pension liabilities, though the level is lower compared to its national peers. The Land has very limited accumulated reserves to use with respect to these challenges and possible swings in economic development. 4 August 2009 Credit Analysis Moody’s International Public Finance – Saxony-Anhalt, Land of
    • Credit Analysis Moody’s International Public Finance Saxony-Anhalt, Land of Debt Profile High debt burden to persist Direct debt (excluding companies’ debt) remained very high, at EUR19.8 billion in 2008, or 215% of the Land’s operating revenues. This is down from 221% in 2007 and 237% in 2005, but significantly above the 169% of 2000. Although the ratio continues to be very high in an international context, it is in line with the German average of 210% in 2008, but remains above the level of the other eastern Länder. If other indirect debt – i.e. debt of non-self supporting majority-owned companies – and guarantee obligations are included, the ratio rises to 233% of operating revenues. Figure 2 Net direct and indirect debt as a % of operating revenues 300.0 257.8 245.0 243.7 238.7 250.0 237.0 233.4 220.3 202.4 200.0 185.6 150.0 100.0 50.0 0.0 2000* 2001* 2002* 2003 2004 2005 2006 2007 2008 * Does not include deb t of majority-owned companies. Source: Saxony-Anhalt and Federal Statistical Office, series 14, issue 2. Moody’s calculation. For 2009, the Land still plans to achieve a balanced budget, hence no net new borrowings are envisaged. However, the implementation depends on the revenue development in the H2 2009. As the Land has very limited reserves, recourse to net new borrowings appears inevitable – at least for 2010 and 2011. The Land currently plans to incur new debt of around €0.75 billion in 2010, which will take the relative debt to 2006 levels. Moody’s will closely monitor the developments in this area, especially as there is a high degree of uncertainty surrounding medium-term debt forecasts following the impact of the financial crisis. Active debt management and sound liquidity ease substantial debt service requirements In the Land’s debt portfolio, foreign currency risks are fully hedged, and outstanding debt has an average maturity of over seven years, of which 80% is at fixed rates with the remainder at variable or semi-variable rates. While this results in some interest rate risk and the Land has some further open exposure in its derivatives portfolio, we believe the overall risk exposure is moderate. The share of short-term indebtedness is comparatively high, owing to the existence of a CP programme, a unique feature among the German Länder. Consequently, the debt service ratios are extraordinary high, with a level of 71% of operating revenues in 2008. Interest expenses accounted for 10.6% of operating revenues, in line with other German Länder. The overall amortisation profile is relatively flat and the access to capital markets is good, based on a broad set of instruments and a sophisticated state treasury. 5 August 2009 Credit Analysis Moody’s International Public Finance – Saxony-Anhalt, Land of
    • Credit Analysis Moody’s International Public Finance Saxony-Anhalt, Land of Access to liquidity is underpinned by the confidence of market participants in the “solidarity system” inherent among the Länder and at the Federal level. To bridge short-term needs, Saxony-Anhalt has access to the inter-Länder credit pool (whereby individual Länder offer their surplus cash to each other), as well as its CP programme and credit facilities. Saxony-Anhalt has financial relationships with more than 40 financial institutions. Contingent liabilities appear moderate Saxony-Anhalt has moderate contingent liabilities, mainly in the form of guarantees – totalling EUR1.86 billion at December 2008, in line with levels of past years – particularly for housing projects and support for small and medium-sized businesses. Guarantees called in 2008 were small in proportion to the total volume of outstanding guarantees. In addition, the Land retains its joint and several liability of the grandfathered obligations for Norddeutsche Landesbank Girozentrale (NordLB, rated Aa2/P-1; BFSR: C-), in which Saxony-Anhalt owns an 8.25% share and Lower Saxony owns a 41.75% share. Both Länder have provided NordLB with a guarantee of up to EUR20 billion for an EMTN programme, easing capital market access for the bank; Saxony-Anhalt’s share is capped at EUR3.3 billion. Until now, the bank has only issued tranches guaranteed by Lower Saxony. Moody’s does not expect these guarantee mechanisms will be needed in the near future given the bank's well established regional franchise mainly among medium-sized and large corporates, its modest earning power and its asset quality as reflected in the bank’s rating. Saxony-Anhalt owns (or has shares in) several separate companies, the majority of which are public limited companies (GmbH); some of these receive funds from the Land. The majority have been invested in or established with a view to improving the local infrastructure, economy and environment, as well as providing transportation services or performing social functions. Debt related to these companies is very limited, as is any possible impact on the Land’s budgetary situation. Saxony-Anhalt’s pension obligations are still largely unfunded, as is the case for most German Länder, which could negatively affect creditworthiness in the future, although the Land established a pension fund for newly employed civil servants in 2007. Moody’s regards this as a first step towards smoothing the effects of the unfunded pensions on the budget. Governance and Management Factors Significant government budgetary strains persist for Saxony-Anhalt, although budget discipline has improved with greater control of growth in spending. Budgets are accurate, timely and transparent. The Land shows a competent investment- and debt-management approach and, more broadly, strong institutional capacity in common with other German Länder. Economic Fundamentals Background With around 2.4 million inhabitants (2.9% of Germany’s total population), Saxony-Anhalt belongs to the smaller of the 16 federal states (Länder) in Germany. Saxony-Anhalt’s economy: recession will affect 2009 restructuring progress Although the economy is still in a period of transition, early signs are emerging that the Land’s restructuring efforts are starting to bear fruit: real economic output expanded by 1.8% in 2008, above the average of other eastern Länder (excluding Berlin) of 1.1% and the German average of 1.3%. The key drivers are to be found in a continued expansion of the industry and trade sectors, while the broader service sector played less of a role in 2008. Positive rates of growth were recorded by all sectors. However, for 2009, economic forecasts are in the area of a contraction of 5-6%, a sharp recession. While Saxony-Anhalt’s economy is less exposed to the sharply hit export sector than some of its peers in south-western Germany, the contraction may be still in the area of 4%. 6 August 2009 Credit Analysis Moody’s International Public Finance – Saxony-Anhalt, Land of
    • Credit Analysis Moody’s International Public Finance Saxony-Anhalt, Land of Figure 3 Real GDP growth Saxony-Anhalt and Germany 3.5 3 2.5 2 1.5 1 0.5 0 -0.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 -1 Source: Federal Statistical Office Saxony-Anhalt Germany Key macroeconomic ratios all exhibited growth in 2008: the regional Gross Value Added (GVA) grew significantly by 4.3% in 2008 versus 2007, clearly above the 2.9% level for Germany as a whole. GDP per capita is now at around 74% of the German average, up from 69% in 2003. The growing momentum of Saxony-Anhalt’s economy started to positively affect the traditionally very high unemployment levels. In 2008, Saxony-Anhalt’s unemployment rates dropped to 14% n 2008 from 16% in 2007 and 19.9% in 2006. This is still slightly above the 13.1% of eastern Länder and 7.8% for Germany as a whole. As of July 2009, the unemployment rate was 13.7%. As mentioned above, the main driver of the slightly more positive employment situation was the secondary and the trade sector. The producing sector, accounting for 31% of local GVA in 2008, was one of the Land’s main growth contributors in 2008. Following major restructuring since reunification, several modern and high-tech companies have emerged in Saxony-Anhalt. A stronger and increasingly dynamic medium-sized corporate sector has begun to develop, which bodes well for the Land’s prospects in the medium term. Medium-term growth prospects are being enhanced by restructuring and the continuing transformation of the economic base. The manufacturing sector, in particular, has contributed to this positive development, with a growth rate of 6.3% in 2008. The biggest players include TOTAL (refinery), The Dow Chemical Company, EDEKA (supermarket), Deutsche Bahn (German National Railway), and postal and telecoms companies. Even the construction sector, which had seen a restricted pace of growth after the reunification boom, grew by an impressive 12.2% and represented a 6% share in local GVA in 2008, still above the national average. Labour force participation stood at 79.1% of the working-age population (53.1% of all inhabitants, slightly above the German average of 52.9%), and overall employment levels grew by 0.7% in 2008. The service sector grew by 2.9% and accounted for 66.7% of regional GVA in 2008. The restructuring of the economy has left its traces in the population development. In 2008, the Land had a population of 2.4 million, down from 2.6 million in 2000. The pace of outward migration has slowed recently; however, it still remains potentially negative for the economy and for the budgetary situation, as both the original tax base as well as transfer payments (partly factored on population) depend on population development. Demographic projections see this trend continuing for the foreseeable future, which represents a challenge, especially for a sustainable budgetary development in the longer run. 7 August 2009 Credit Analysis Moody’s International Public Finance – Saxony-Anhalt, Land of
    • Credit Analysis Moody’s International Public Finance Saxony-Anhalt, Land of Operating Environment Typical of advanced industrial economies, the operating environment for German regional and local governments (RLGs) is reflected in the relatively high GDP per capita, low GDP volatility and high ranking on the World Bank government effectiveness index. These characteristics represent a minimal level of systemic risk, as reflected in the Aaa rating assigned to the Federal Republic of Germany. As such, conditions that historically precede national crises that are associated with RLG defaults are not present in this context. Institutional Framework The institutional framework, which encompasses the arrangements determining intergovernmental relations at all levels and jurisdictional powers and responsibilities, is mature and highly developed, with minor changes occurring at a measured pace and in a clear/transparent way. Germany has one of the strongest equalisation systems worldwide, which combines revenue equalisation – both horizontal and vertical – and investment support from the federal government. This scheme protects all Länder against above-average revenue shortfalls, yet limits their revenue flexibility. More than 90% of revenues stem from shared taxes and transfers, and German states do not have tax rate-setting rights. A regional tax base that grows above the national average would have only a limited effect on the Land’s budgetary performance. Above-average tax revenue growth coincides with decreasing transfer income from the equalisation pool. Debt levels are among the highest in terms of international comparison and some jurisdictions continue to add to their respective stocks of debt. 8 August 2009 Credit Analysis Moody’s International Public Finance – Saxony-Anhalt, Land of
    • Credit Analysis Moody's Error! Reference source not found. Saxony-Anhalt, Land of Annual Statistics Saxony-Anhalt, Land of 2004 2005 2006 2007 2008 Financial Indicators (€ million) realised % realised % realised % realised % realised % Total revenues [1] 9,114 9,131 9,514 9,933 9,880 Total expenses [2] 10,099 10,187 10,054 9,817 9,828 OPERATING REVENUES Taxes 4,387 54.2 4,249 52.1 4,652 53.8 5,045 55.4 5,217 56.5 Intergovernmental revenues 3,442 42.6 3,648 44.7 3,773 43.7 3,852 42.3 3,730 40.4 of which Subsidies -- -- -- -- -- -- 3,544 38.9 3,507 38.0 Transfers 3,442 42.6 3,648 44.7 3,773 43.7 308 3.4 223 2.4 Other 258 3.2 262 3.2 218 2.5 202 2.2 286 3.1 of which Fees -- -- -- -- -- -- -- -- 0 0.0 Interest Income 19 0.2 18 0.2 28 0.3 20 0.2 64 0.7 Total operating revenues 8,087 100.0 8,159 100.0 8,643 100.0 9,099 100.0 9,233 100.0 OPERATING EXPENSES Administration and personnel 2,829 34.4 2,320 28.4 2,311 27.7 2,215 27.1 2,212 26.7 Administrative -- -- -- -- -- -- -- -- 0 0.0 Personnel 2,829 34.4 2,320 28.4 2,311 27.7 2,215 27.1 2,212 26.7 Transfers 4,075 49.6 4,520 55.3 4,678 56.0 4,197 51.4 4,199 50.7 Interest expenses 852 10.4 876 10.7 907 10.9 909 11.1 975 11.8 Other 459 5.6 461 5.6 454 5.4 847 10.4 894 10.8 Total operating expenses 8,215 100.0 8,178 100.0 8,350 100.0 8,168 100.0 8,280 100.0 Primary Operating Balance 724 858 1,200 1,840 1,928 Gross Operating Balance -128 -19 293 931 953 Net Operating Balance -3,788 -5,344 -6,902 -3,496 -4,650 Gross Operating Balance -128 -19 293 931 953 9 August 2009 Credit Analysis Moody’s International Public Finance - Saxony-Anhalt, Land of
    • Credit Analysis Moody's Error! Reference source not found. Saxony-Anhalt, Land of Saxony-Anhalt, Land of 2004 2005 2006 2007 2008 Financial Indicators (€ million) realised % realised % realised % realised % realised % CAPITAL REVENUES Intergovernmental revenues 965 94.0 910 93.6 829 95.2 786 94.2 598 92.4 Other 62 6.0 62 6.4 42 4.8 48 5.8 49 7.6 of which Assets sales 27 2.6 27 2.8 8 0.9 10 1.2 4 0.6 Repayments from public sector 35 3.4 35 3.6 34 3.9 38 4.6 45 7.0 Total capital revenues 1,027 100.0 972 100.0 871 100.0 834 100.0 647 100.0 CAPITAL EXPENSES Capital Investments 236 12.5 159 7.9 153 9.0 259 15.7 268 17.3 Loans 41 2.2 62 3.1 12 0.7 22 1.3 91 5.9 Assets purchases 17 0.9 193 9.6 54 3.2 40 2.4 43 2.8 Transfers 1,590 84.4 1,595 79.4 1,485 87.1 1,328 80.5 1,146 74.0 Other 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Total capital expenses 1,884 100.0 2,009 100.0 1,704 100.0 1,649 100.0 1,548 100.0 FINANCING DEFICIT/SURPLUS -985 -1,056 -540 116 52 [1] Excludes new borrowings. [2] Excludes debt repayment. 10 August 2009 Credit Analysis Moody’s International Public Finance - Saxony-Anhalt, Land of
    • Credit Analysis Moody's Error! Reference source not found. Saxony-Anhalt, Land of Saxony-Anhalt, Land of 2004 2005 2006 2007 2008 Financial Indicators (€ million) realised % realised % realised % realised % realised % DEBT INDICATORS DEBT MOVEMENTS Gross new borrowings 4,996 6,379 7,945 4,427 5,582 Debt repayment 3,660 5,325 7,195 4,427 5,603 Mandatory 3,660 5,325 7,195 4,427 5,603 Early 0 0 0 0 0 Change in debt 1,336 1,054 750 0 -21 TOTAL BUDGET BALANCE 351 -2 210 116 31 DEBT STOCK Direct debt 18,006 90.2 19,241 90.8 19,302 91.0 20,082 91.7 19,808 91.2 Short-term 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Long-term 18,006 90.2 19,241 90.8 19,302 91.0 20,082 91.7 19,808 91.2 Guaranteed debt 1,902 9.5 1,871 8.8 1,830 8.6 1,739 7.9 1,860 8.6 of which self-supporting (A) 118 0.6 124 0.6 124 0.6 123 0.6 122 0.6 Debt of government-owned entities 53 0.3 68 0.3 81 0.4 84 0.4 51 0.2 of which self-supporting (B) 26 0.1 26 0.1 30 0.1 68 0.3 49 0.2 Other (Debt like) 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Total direct and indirect debt (C) 19,961 100.0 21,180 100.0 21,213 100.0 21,905 100.0 21,719 100.0 Net direct and indirect debt (C - A - B) 19,817 21,030 21,059 21,714 21,548 11 August 2009 Credit Analysis Moody’s International Public Finance - Saxony-Anhalt, Land of
    • Credit Analysis Moody's Error! Reference source not found. Saxony-Anhalt, Land of Saxony-Anhalt, Land of 2004 2005 2006 2007 2008 Financial Indicators (€ million) realised % realised % realised % realised % realised % DEBT SERVICE Interest expenses 852 18.9 876 14.1 907 11.2 909 17.0 975 14.8 Debt repayment 3,660 81.1 5,325 85.9 7,195 88.8 4,427 83.0 5,603 85.2 Total debt service 4,512 100.0 6,201 100.0 8,102 100.0 5,336 100.0 6,578 100.0 [1] Internal borrowings. TOTAL ACCOUNTS Total revenue growth rate [1] (%) 1.36 0.19 4.19 4.40 -0.53 Total revenues per capita 3,654 3,697 3,896 4,090 4,120 Total tax revenue growth rate (%) 4.43 -3.15 9.48 8.45 3.41 Total tax revenues/ total revenues (%) 48.13 46.53 48.90 50.79 52.80 Total intergovernmental revenues growth rate (%) 2.46 3.43 0.97 0.78 -6.68 Total intergovernmental revenues/total revenues (%) 48.35 49.92 48.37 46.69 43.81 Total expense growth rate [2] (%) -3.45 0.87 -1.30 -2.36 0.11 Total expenses per capita 4,049 4,124 4,117 4,042 4,098 Total transfers/total expenses (%) 56 60 61 56 54 Financing deficit/surplus as % of total revenues (%) -10.81 -11.56 -5.68 1.17 0.53 Gross financing deficit [3]/surplus as % of total revenues (%) -50.97 -69.88 -81.30 -43.40 -56.18 12 August 2009 Credit Analysis Moody’s International Public Finance - Saxony-Anhalt, Land of
    • Credit Analysis Moody's Error! Reference source not found. Saxony-Anhalt, Land of Saxony-Anhalt, Land of 2004 2005 2006 2007 2008 Financial Indicators (€ million) realised % realised % realised % realised % realised % OPERATING ACCOUNTS Operating revenue growth rate (%) 3.31 0.89 5.93 5.28 1.47 Operating revenues per capita 3,243 3,303 3,539 3,747 3,850 Operating revenues/total revenues (%) 88.73 89.35 90.85 91.60 93.45 Tax revenues/operating revenues (%) 54.25 52.08 53.82 55.45 56.50 Intergovernmental revenues (operations related) /operating revenues (%) 42.56 44.71 43.65 42.33 40.40 Fees/operating revenues (%) -- -- -- -- 0.00 Operating expense growth rate (%) -0.60 -0.46 2.11 -2.18 1.37 Operating expenses per capita 3,294 3,311 3,419 3,363 3,453 Operating expenses/total expenses (%) 81.34 80.28 83.05 83.20 84.25 Transfers (op. related)/operating expenses (%) 49.60 55.27 56.02 51.38 50.71 Primary operating balance/operating revenues (%) 8.95 10.51 13.88 20.22 20.88 Gross operating balance/operating revenues (%) -1.58 -0.23 3.39 10.23 10.32 Net operating balance/operating revenues (%) -46.84 -65.50 -79.86 -38.42 -50.36 Financing (deficit/surplus)/operating revenues (%) -12.18 -12.94 -6.25 1.27 0.56 Gross financing (deficit/surplus)/operating revenues (%) -57.44 -78.20 -89.49 -47.38 -60.12 Tax revenues/operating expenses (%) 53.40 51.96 55.71 61.77 63.01 CAPITAL ACCOUNTS Capital revenue growth rate (%) -11.77 -5.34 -10.40 -4.25 -22.42 Capital revenues per capita 412 394 357 343 270 Capital revenues/total revenues (%) 11.27 10.65 9.15 8.40 6.55 Capital expense growth rate (%) -14.17 6.64 -15.18 -3.23 -6.12 Capital expenses per capita 755 813 698 679 646 Capital expenses/total expenses (%) 18.66 19.72 16.95 16.80 15.75 Intergovernmental revenues (capital related)/capital revenues (%) 93.96 93.61 95.18 94.24 92.43 Transfers (capital related)/capital expenses (%) 84.39 79.39 87.15 80.53 74.03 Net operating balance/capital expenses (%) -201.06 -265.98 -405.05 -212.01 -300.39 13 August 2009 Credit Analysis Moody’s International Public Finance - Saxony-Anhalt, Land of
    • Credit Analysis Moody's Error! Reference source not found. Saxony-Anhalt, Land of Saxony-Anhalt, Land of 2004 2005 2006 2007 2008 Financial Indicators (€ million) realised % realised % realised % realised % realised % DEBT Total debt growth rate (%) 6.74 6.11 0.15 3.26 -0.85 Total debt per capita 8,004 8,575 8,687 9,020 9,057 Total debt/GDP (%) 42.33 44.81 43.13 42.44 40.38 Total debt /total revenues (%) 219.01 231.96 222.96 220.52 219.83 Total debt /operating revenues (%) 246.83 259.60 245.43 240.74 235.23 Total debt /tax revenues (%) 455.00 498.47 455.99 434.19 416.31 Total debt in yrs of gross operating balance (yrs) -155.94 -1131.59 72.40 23.53 22.79 Net debt [4] growth rate (%) 6.81 6.12 0.14 3.11 -0.76 Net debt per capita 7,946 8,514 8,624 8,941 8,986 Net debt/total revenues (%) 217.43 230.32 221.35 218.60 218.10 Net debt/GDP (%) 42.02 44.49 42.82 42.07 40.06 Net debt/operating revenues (%) 245.05 257.76 243.66 238.64 233.38 Net debt/tax revenues (%) 451.72 494.95 452.69 430.41 413.03 Net debt in yrs of gross operating balance (yrs) -154.82 -1123.59 71.87 23.32 22.61 Debt [5] growth rate (%) 8.04 6.92 0.38 3.61 -1.36 Debt per capita 7,241 7,817 7,937 8,269 8,260 Debt/total revenues (%) 198.14 211.47 203.73 202.17 200.49 Debt/GDP (%) 38.29 40.85 39.41 38.91 36.83 Debt/operating revenues (%) 223.31 236.66 224.26 220.70 214.53 Debt/tax revenues (%) 411.64 454.44 416.65 398.06 379.68 Debt in yrs of gross operating balance (yrs) -141.08 -1031.63 66.15 21.57 20.78 Short-term debt/debt (%) 0.00 0.00 0.00 0.00 0.00 Guaranteed debt growth rate (%) -4.18 -1.63 -2.19 -4.96 6.95 Guaranteed debt per capita 763 757 749 716 776 Guaranteed debt/total debt (%) 9.53 8.83 8.63 7.94 8.56 Indirect debt growth rate (%) 0.31 28.83 18.43 3.63 -38.97 Indirect debt per capita 21 28 33 34 21 Indirect debt/total debt (%) 0 0 0 0 0 14 August 2009 Credit Analysis Moody’s International Public Finance - Saxony-Anhalt, Land of
    • Credit Analysis Moody's Error! Reference source not found. Saxony-Anhalt, Land of Saxony-Anhalt, Land of 2004 2005 2006 2007 2008 Financial Indicators (€ million) realised % realised % realised % realised % realised % Indirect debt/debt (%) 0.29 0.35 0.42 0.42 0.26 Interest expense growth rate (%) -2.41 2.86 3.50 0.22 7.26 Interest expenses/total revenues (%) 9.35 9.60 9.53 9.15 9.87 Interest expenses/operating revenues (%) 10.54 10.74 10.49 9.99 10.56 Interest expenses/tax revenues (%) 19.42 20.63 19.50 18.02 18.69 Interest expenses/primary operating balance (%) 117.68 102.18 75.58 49.40 50.57 Debt service growth rate (%) 32.08 37.44 30.65 -34.14 23.28 Debt service/total revenues (%) 49.51 67.92 85.16 53.72 66.58 Debt service/operating revenues (%) 55.79 76.01 93.74 58.64 71.24 Debt service/tax revenues (%) 102.85 145.95 174.16 105.77 126.09 Gross new borrowings/total debt (%) 25.03 30.12 37.45 20.21 25.70 Gross new borrowings/net debt (%) 25.21 30.33 37.73 20.39 25.90 Gross new borrowings/debt (%) 27.67 33.04 40.99 22.04 28.18 Gross new borrowings/debt repayment (%) 136.50 119.79 110.42 100.00 99.63 Gross new borrowings/capital expenses (%) 265.18 317.51 466.26 268.47 360.59 Debt repayment/gross operating balance (%) -2859.38 -28449.93 2455.63 475.51 587.93 Gross foreign currency debt/total debt (%) 0.00 0.00 0.00 0.00 0.00 Net foreign currency debt/total debt (%) 0.00 0.00 0.00 0.00 0.00 Own source revenues/total revenues (%) 51.65 50.08 51.63 53.31 56.19 Financing (deficit/surplus)-CAPEX/total revenues (%) 9.86 10.44 12.23 17.77 16.19 [1] Excludes new borrowings. [2] Excludes debt repayment. [3] Gross financing deficit/surplus= financing deficit/surplus - debt repayment. [4] Excludes guaranteed debt or other debt to self-supporting enterprises. [5] Excludes total guaranteed debt. 15 August 2009 Credit Analysis Moody’s International Public Finance - Saxony-Anhalt, Land of
    • Moody’s Related Research Analysis: Germany, November 2008 (112374) Statistical Handbook: Non-U.S. Regional and Local Governments, June 2009 (117472) Special Comment: The Application of Joint Default Analysis to Regional and Local Governments, October 2006 (99025) Rating Methodologies: Regional and Local Governments Outside the US, Updated Rating Methodology, May 2008 (107844) Regionale und kommunale Gebietskörperschaften außerhalb der USA, Aktualisierte Ratingmethodik, Mai 2008 (109240) To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients. 16 August 2009 Credit Analysis Moody’s International Public Finance – Saxony-Anhalt, Land of
    • Report Number: 119504 Author Production Associate Andrea Wehmeier Sarah Warburton Sarah Kieling CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S (MIS) CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. © Copyright 2009, Moody’s Investors Service, Inc., and/or its licensors and affiliates (together, "MOODY'S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and MOODY’S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. MOODY’S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY’S have, prior to assignment of any rating, agreed to pay to MOODY’S for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,400,000. Moody’s Corporation (MCO) and its wholly-owned credit rating agency subsidiary, Moody’s Investors Service (MIS), also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody’s website at www.moodys.com under the heading “Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy.” 17 August 2009 Credit Analysis Moody’s International Public Finance – Saxony-Anhalt, Land of