Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Land of Baden-Württemberg (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AAA/Stable; short-term local- and foreign-currency issuer rating: S-1+/Stable) on 5 December 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with 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 Land of Baden-Württemberg’s wealthy and resilient economy, sound budgetary management, a declining debt burden relative to operating revenues, strong liquidity profile and excellent access to capital markets. In addition, the rating is underpinned by the highly integrated institutional framework under which the Land operates, 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 pandemic and the Russia-Ukraine war, enabling the Land to better counteract the resulting economic and financial shocks. Challenges relate to limited revenue flexibility and a high pension burden weighing on long-term expenditure flexibility, although risks stemming from the pension liability burden are mitigated to some extent by regular contributions to the state’s pension funds.

The Stable Outlook represents Scope’s view that risks to the ratings over the next 12 to 18 months are balanced. The ratings could be downgraded if: i) the German sovereign rating were to be downgraded; ii) changes to the institutional framework were to result in a notably weaker support; and/or iii) the individual credit profile deteriorated significantly and structurally.

For the associated Review Annex, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sub-sovereigns Rating Methodology, 11 October 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Eiko Sievert, Director

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