Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereign, sub-sovereign and supranational issuers. Monitoring reviews are unrelated to the calendar that outlines public finance rating actions.

Scope performs monitoring reviews to determine whether outstanding ratings remains proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology, latest developments, and the rated entity’s financial and operational aspects relative to similarly rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Free State of Bavaria (AAA/Stable; S-1+/Stable) on 11 October 2021. This monitoring note does not constitute a rating action nor indicates the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

The AAA/Stable rating reflects the Free State of Bavaria’s wealthy economy, strong budgetary performance, low debt burden, ample liquidity, and excellent capital market access. In addition, the rating is underpinned by a well-established and highly integrated institutional framework, characterised by a very strong revenue equalisation system together with the federal solidarity principle and the primary shock-absorbing role the federal government has assumed in the context of the Covid-19 crisis. These aspects also enable the Free State of Bavaria to counterbalance the Covid-19 economic shock. Credit challenges relate to limited revenue flexibility and high pension liabilities weighing on long-term expenditure flexibility, as well as sizeable, yet manageable, contingent liabilities.

The Stable Outlook reflects Scope’s assessment that the risks Bavaria faces remain balanced. The ratings could be downgraded if: i) the German sovereign rating is downgraded; or ii) changes were to affect the institutional framework, resulting in a notably weaker individual credit profile.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Rating Methodology: Sub-Sovereigns, 12 May 2021) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Jakob Suwalski, Director

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