Rating action

Scope Ratings GmbH (Scope) has assigned long-term issuer and senior unsecured debt ratings of AA+/Stable to Vestland County Municipality (Vestland) in both local and foreign currencies. Additionally, Scope has assigned short-term issuer ratings of S-1+/Stable in both local and foreign currencies.

Rating rationale

The AA+ rating assigned to Vestland is based on:

• A strongly integrated institutional framework for Norwegian counties: The framework ensures financial stability through fiscal equalisation, central grants, and proactive government support, balancing autonomy with oversight to maintain fiscal discipline and address disparities. Counties generally have limited revenue flexibility and depend significantly on central transfers. Scope’s evaluation of the institutional framework places Norwegian counties within an indicative rating range spanning from AAA to AA. This assessment reflects their strong integration with the Norwegian sovereign (AAA/Stable).

• A robust individual credit profile. Vestland County Municipality demonstrates conservative financial planning and benefits from a strong liquidity position, adequate reserves, and additional income from power concessions and aquaculture funds. Its exposure to contingent liabilities is well-controlled. A high debt burden and a rising debt trajectory, driven by significant capital expenditure, are challenges.

Key rating drivers

Strong intergovernmental integration with the Norwegian sovereign. Scope’s evaluation of the institutional framework places Norwegian counties, including the County of Vestland, within an indicative rating range of AAA to AA, reflecting their strong integration with the Norwegian sovereign (AAA/Stable). This robust framework underpins their financial and operational resilience, effective governance, and proactive central government support. However, Norwegian counties face challenges such as limited revenue flexibility, dependence on central transfers, and adaptation to recent equalisation reforms.

A comprehensive fiscal equalisation system mitigates disparities among Norwegian counties by redistributing tax revenues and accounting for demographic and regional cost factors. In parallel to the county division process that took effect on 1 January 2024, the General-Purpose Grant Scheme for the county authorities was reviewed and underwent some changes. While some counties benefit and others lose, the main purpose of the scheme remains the equalisation of the county authorities’ finances via the expenditure and income equalisation. Grants typically constitute the majority of operating revenue for all counties (on average almost 60% for 2021–23). The second largest income is from tax revenue, while revenues from alternative sources, such as service fees and energy concessions, remain very limited for most counties.

Norway's sub-sovereign support framework is highly predictable, characterized by proactive interventions from the central government, including supervisory oversight and crisis-response mechanisms such as grants and cost compensation. Fiscal discipline is enforced through the Local Government Act, which mandates an operational budget balance and deficit correction within two years. Counties facing imbalances are monitored through the ROBEK registry. In times of crisis, the government has consistently reinforced stability through grants and cost compensation mechanisms, reflecting a credible history of support.

Norwegian counties maintain substantial autonomy in sourcing funds through banks, bonds, and the state-owned Kommunalbanken (KBN), which offers favourable financing aligned with government policy. This underpins the financial resilience of Norwegian counties.

Finally, Norwegian sub-sovereigns play a significant role in national policymaking through effective coordination with the central government and inter-regional cooperation. Mechanisms like KS (Norwegian Association of Local and Regional Authorities) ensure balanced decision-making and stable governance.

Vestland’s robust individual credit profile is supported by conservative financial planning, a strong liquidity position and solid reserves, as well as additional income from power concessions and aquaculture funds. Credit challenges for Vestland relate to a high debt burden and a rising debt trajectory driven by significant capital expenditure.

Conservative financial planning and strong debt affordability. Despite high and rising debt levels, Vestland benefits from strong debt affordability, significantly mitigating risks. At end-2024, the average interest rate on its debt portfolio stood at 3.87%, a moderate increase from 3.66% a year earlier, yet still below money market rates and the key policy rate. However, as Vestland refinances existing debt - currently under favourable conditions - its average interest rate will rise in the coming years, aligning with broader market trends. Interest and instalment payments are expected to average 9.3% of operating revenues over 2025-2028, significantly above the national average of around 5%.

Vestland’s access to favourable financing mitigates refinancing risk. Vestland remains an active bond issuer, with NOK 8.64bn outstanding in bonds as of February 24 (up from NOK 8.2bn at end-2024, almost half of total debt), the highest among the Norwegian counties, outside Oslo. Its debt management strategy aims to maintain debt affordability, with oversight of the mix between fixed and variable rate debt. The share of fixed-rate debt is targeted to remain between 40-60%, with 53.21% of the portfolio fixed as of December 2024. Additionally, Kommunalbanken (KBN) lending facilities provide a continuous borrowing alternative, further safeguarding against liquidity risks. KBN financing makes up around half of Vestland’s debt portfolio.

Strong liquidity position and adequate reserve funds. Vestland’s ample cash reserves help limit refinancing risks. As of end-2023, cash holdings stood at NOK 5.4bn (32% of operating revenue). While the current ratio of 1.8x in 2023 was below the county average of 2.2x, coverage remains robust.

Vestland also maintains adequate reserve funds, benefiting from strategic reserve accumulation in years of higher net operating results. At end-2023, disposition funds amounted to 12.8% of operating revenue. To reduce budgetary pressure and maintain self-financing capacity for investments, these reserves will be gradually drawn down, reaching 8.2% by 2025 and 6.0% by 2028. Although reserves as a share of operating income are below the county average (2023), Vestland’s strong cash position and financial buffers ensure continued fiscal resilience through 2025-2028, demonstrating conservative financial planning.

Predictable income from free revenues. Vestland, like all Norwegian counties, benefits from a stable and predictable revenue structure, primarily composed of framework grants and tax revenues. While net operating profit is expected to average at NOK 300m over 2025-2027, significantly lower than the NOK 1.2bn average from 2020-2023, this still reflects a resilient budgetary framework capable of absorbing temporary fluctuations. Operating results are expected to gradually improve towards the end of the current planning horizon.

Vestland is a net beneficiary of the recent equalisation system revision, with additional framework grants helping to ease budgetary pressure. However, in relative terms, the net increase in free revenues accounts for less than 1% of operating revenues. In 2025, free revenues for Vestland County are estimated to grow by 7.2% compared to 2024, exceeding the national average of 6.5%. Key compensations in the expenditure equalisation system include higher-than-average maintenance costs for county roads and ferry operations. Vestland’s total expenditure needs in 2025 (as per the expenditure equalisation) are 16% higher than for the national average, partially mitigated by higher per capita framework grants. In 2023, Vestland’s free income per inhabitant was 13% above the national average.

Additional revenue sources support the operating budget. Norwegian counties generally have limited revenue flexibility. While Vestland aligns with its peers in terms of central transfer dependency, with grants accounting for 59% of operating revenue, the county’s additional income sources from licensed power and the aquaculture fund support long-term budget stability.

In 2024, revenue from aquaculture funds, concession power, additional framework grants, and higher-than-budgeted interest income helped offset above-budget spending. Going forward, non-tax, non-grant revenue sources are expected to contribute around 12% of operating revenue.

Vestland’s exposure to contingent liabilities remains low-risk and well-controlled. Most outstanding guarantees are tied to Ferde AS, the regional toll road operator. Despite significant guarantee volumes, Ferde AS’s low-risk business model ensures a minimal probability of guarantee activation. Additionally, pension-related liabilities are well-covered, with pension funds accounting for 86% of obligations at end-2023, reducing long-term financial strain. This strong coverage ratio reinforces Vestland’s ability to manage its long-term obligations without compromising financial stability.

Credit challenges for Vestland relate to a high debt burden and a rising debt trajectory driven by significant capital expenditure.

Vestland has one of the highest debt burdens among the Norwegian counties. At end-2023, net debt stood at 94.7% of operating income. While this ratio remained broadly stable in 2024, ending at 92.5%, largely due to favourable revenue developments, it remains significantly above the 75% threshold recommended by the Office of the Auditor General (Riksrevisjonen). For investment planning, Vestland has defined a self-imposed debt limit of 115% relative to income several years ago. According to the county’s financial plan, the debt-to-income ratio is projected to rise to 112% by 2028 due to high investment needs. While this remains within the county’s internal debt policy framework, Vestland’s debt burden remains markedly higher than the county average (74.4% at end-2023, excluding Oslo).

Vestland faces growing budgetary constraints, driven by limited expenditure flexibility due to essential service commitments, high operating costs in the transport sector, continuously elevated capital expenditure requirements in infrastructure and transport, including environmental projects, and rising interest expenses, further limiting fiscal flexibility.

Between 2020-2023, operating expenditures increased across all Norwegian counties, driven by rising service demands, high inflation, and post-pandemic economic adjustments. Vestland, in particular, allocated significantly higher spending to transport infrastructure compared to the national average in 2023. In 2024, the transport sector showed a negative budget deviation of NOK 126m. Going forward, we expect elevated operating and investment expenses on transport to remain a key challenge. Although Vestland’s personnel costs as a share of operating expenditure (26% in 2023) were below the county average (31%), overall expenditure flexibility remains constrained, as is typical for Norwegian counties.

Norwegian counties, including Vestland, generally aim for a net operating profit of at least 4% of operating revenue to support self-financing of investments. In 2024, this profit rate stood at 2.6%, 0.8pps above budgeted levels but still 1.4pps below the 4% target. Given budgetary pressures, Vestland is expected to fall short of this target throughout the current planning period, with particularly tight budgetary conditions in 2025, when operating profit is forecasted at only 1.1% of operating revenue. This ratio is expected to gradually recover to 2.9% by 2028.

To ease budgetary pressures, Vestland will draw down discretionary funds, allowing for a transfer of 3.4-3.5% of operating revenue from operating to investment spending. A significant portion of these funds will be allocated to county road upgrades, as transport and education remain key priority areas. High investment needs also arise from ambitious emission-reducing restructuring efforts, including the electrification of ferry connections.

Vestland faces the challenge of balancing its investment programme with the need to manage its already high debt levels prudently. Historically, Vestland has maintained a high capital expenditure share relative to total expenditure. While the county acknowledges the need to curb investments, major infrastructure projects remain a priority. In 2024, total investments were reduced to NOK 3.9bn from NOK 5.1bn in 2023 and they are expected to average NOK 4.5bn annually over 2025-2028 according to the county’s financial plan.

Rating-change drivers

The Stable Outlooks reflect Scope’s view that risks to the ratings are balanced over the coming 12 to 18 months.

Upside scenarios for the ratings and Outlooks are if (individually or collectively):

1. Reforms to the institutional framework materially strengthened regions’ integration in institutional arrangements.
    
2. Vestland’s individual credit profile strengthened significantly, especially via the reduction of the debt burden.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. The Kingdom of Norway’s ratings/Outlooks were downgraded.
    
2. Reforms to the institutional framework materially weakened regions’ integration in institutional arrangements.
    
3. Vestland’s individual credit profile weakened significantly.

Qualitative Scorecards (QS1, QS2)

Scope’s institutional framework assessment determines the intergovernmental integration between sub-sovereigns and their rating anchor, which is the sovereign or a higher-tier government. To perform this assessment, Scope applies the Institutional Framework scorecard (QS1), centred on six analytical components: i) extraordinary support and bailout practices; ii) ordinary budgetary support and fiscal equalisation; iii) funding practices; iv) fiscal rules and oversight; v) revenue and spending powers; and vi) political coherence and multilevel governance.

Scope considers the institutional framework under which the Norwegian counties operate to display ‘strong’ integration for extraordinary support and bailout practices, funding practices, fiscal rules and oversight, and political coherence and multilevel governance. The system displays ‘full’ integration for ordinary budgetary support and fiscal equalisation, and revenue and spending powers. Consequently, Scope's assessment of the institutional framework establishes an indicative minimum rating of ‘aa’ for Norwegian counties.

Furthermore, Scope assesses the individual credit profile based on quantitative and qualitative analysis of four risk categories: i) debt and liquidity; ii) budget; iii) economy; and iv) governance. These are further complemented by additional adjustments for environmental and social factors & resilience.

The outcome of these assessments, as reflected in the application of the Individual Credit Profile scorecard (QS2), is an individual credit profile score for Vestland of 60 out of 100.

The mapping of this score to the range defined by the Institutional Framework assessment results in an indicative rating of ‘aa+’ for Vestland.

The review of potential exceptional circumstances that cannot be captured by the Institutional Framework and Individual Credit Profile scorecards did not lead to further adjustments to Vestland’s indicative rating.

As such, the final rating corresponds to the indicative rating of AA+.

Environment, social and governance (ESG) factors

ESG factors material to Vestland’s credit quality are captured by Scope’s rating approach through several analytical areas.

Scope’s assessment of Norway’s sovereign credit quality includes an appraisal of ESG risks as detailed in Scope’s Sovereign Rating Methodology.

Governance considerations are material to Vestland’s rating and are included in Scope’s institutional framework assessment and its assessment of the county’s individual credit profile. These assessments highlight the robust quality of governance alongside the administration’s practices of sound liquidity and conservative financial planning.

The institutional framework assessment captures governance factors under fiscal rules and oversight, assessed as ‘strong integration’ for the Norwegian counties reflecting the financial rules mandated by the Local Government Act and close monitoring of finances. Additionally, governance factors are captured by political coherence and multilevel governance assessed as ‘strong’ integration for the Norwegian counties. This reflects extensive inter-regional cooperation that fosters policy coordination and a balanced, stable government structure.

The individual credit profile captures governance factors under the quality of governance and financial management, where Vestland is assessed as ‘stronger’ reflecting transparent policymaking, a stable and predictable political environment, and forward-looking financial planning and management that allowed the build-up of reserves in years with higher profit and tracks self-imposed fiscal targets.

Social considerations are included in Scope’s assessment of Vestland’s ‘economic sustainability’. Demographics, a main source of risk across many regions in Europe, are comparatively less of a concern for Norwegian counties as population trends and age structure are considered within the equalisation system.

Additional environmental and social factors can be material for sub-sovereign creditworthiness beyond what is already captured in other sections of the methodology. In the case of Vestland, no additional adjustments to the individual credit profile apply for social and environmental factors & resilience beyond what is already captured under other risk pillars.

Vestland is the county with the highest greenhouse gas emissions, but Scope acknowledges ambitious climate goals. Vestland has developed the Regional Climate Plan 2022-2035 with the target to eliminate direct greenhouse gas emissions by 2030 and reduce the climate footprint, i.e. direct and indirect emissions. Similar to Rogaland, the electrification of ferries will contribute a large part to the reduction of emissions from the transport sector. While manufacturing, oil and gas amounts for about half of total emissions and the high importance of these sectors entails transition risk, Vestland is also a leader in renewable energy sources, especially hydropower and wind.
 
Rating committee
The main points discussed by the rating committee were: i) institutional framework for Norwegian counties, ii) Vestland’s individual credit profile including debt, budget, economy and ESG components; and iii) peer comparison.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sub-Sovereigns Rating Methodology, 11 October 2024), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation     YES
With access to internal documents                                   YES
With access to management                                             NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Elena Klare, Analyst
Person responsible for approval of the Credit Ratings: Jakob Suwalski, Senior Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 28 February 2025.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on Vestland are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see "Publication Calendar 2025 Sovereign, Sub-Sovereign and Supranational Ratings" published on 13 December 2024 on www.scoperatings.com). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case the deviation from Scope’s published calendar was due to the first-time publication of the ratings.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
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