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Rating action

Scope Ratings GmbH (Scope) has today affirmed the City of Trondheim’s local- and foreign-currency long-term issuer and senior unsecured debt ratings at AAA. Scope has also affirmed the local- and foreign currency short-term issuer ratings at S-1+. All Outlooks are Stable.

The affirmation of Trondheim’s AAA rating reflects:

• A well-integrated institutional framework, providing Norwegian municipalities strong fiscal equalisation, reliable funding, and coordinated policy implementation. The framework enables effective crisis response and supports an indicative municipal rating range of AAA to AA-, reflecting tight integration with the sovereign and a coherent sub-sovereign structure.
   
• A strong individual credit profile, supported by ample liquidity, resilient budgetary performance with solid operating margins, and a wealthy, diversified economy. Trondheim benefits from strong governance and a favourable debt profile, although debt levels remain elevated relative to domestic peers. Low environmental risk exposure and ambitious climate policies reinforce the city’s long-term sustainability. Revenue and expenditure flexibility is comparable to the national average, though reliance on transfers limits the scope for adjusting own-source revenues.

Key rating drivers

Strong intergovernmental integration with the Norwegian State. All Norwegian municipalities benefit from a well-integrated and highly supportive institutional framework, which underpins their strong credit quality. Scope’s evaluation of this framework leads to an indicative sector-wide rating range of AAA to AA-, reflecting municipalities’ close integration with the sovereign and the coherence of Norway’s sub-sovereign governance system.

The framework includes a comprehensive and predictable fiscal equalisation system, offsetting disparities in municipal revenues and costs through tax redistribution and demographic-based grants. This supports a stable operating environment and equitable service delivery. Extraordinary support mechanisms are credible and well-structured. Municipal insolvency is not permitted, and the central government intervenes proactively through formal oversight to ensure obligations are met, as demonstrated during the Covid-19 and energy crises.

Municipalities enjoy considerable financial autonomy, with access to diversified funding sources including banks, bonds, and Kommunalbanken (KBN), which finances about half of municipal debt at favourable rates. Fiscal discipline is supported by strict legal oversight, requiring balanced budgets and timely deficit correction, with the ROBEK system enabling early intervention in cases of financial imbalance.

While operating under a shared tax framework, municipalities retain limited discretion over local income tax rates, fees, and charges, providing moderate fiscal flexibility. Norway’s multi-level governance is fully integrated, enabled by strong institutional coordination via the Norwegian Association of Local and Regional Authorities (KS) and decentralised administration, fostering effective policymaking and long-term stability.

Trondheim’s strong individual credit profile reflects ample liquidity, solid operating margins, a wealthy, diversified economy, and sound governance. While debt levels are high relative to peers, low environmental risk and ambitious climate policies support long-term sustainability. Revenue and spending flexibility align with national norms, though reliance on transfers limits own-source revenue adjustment.

Ample liquidity. Trondheim maintains a strong liquidity position, with average total liquidity stable at around NOK 2.5bn in 2024 and expected to remain at this level in 2025. As of February 2025, the city held NOK 2bn in bank deposits, supported by access to its investment fund and a NOK 500m withdrawal facility, ensuring coverage of at least 60 days of operating expenses without new borrowing. Debt affordability is further supported by earmarked revenue sources such as user fees, central government funding, and on-lending schemes. While gross interest payments rose to 4.8% of operating revenue in 2024, net interest costs are projected to decline to 1.3% in 2025, reflecting returns from the city’s investment fund (TKK) and strong liquidity. Moreover, funding access is broad and diversified, including Oslo-listed bonds, short-term notes, and favourable borrowing from Kommunalbanken. As of April 2025, Trondheim had drawn NOK 1.4bn of a planned NOK 2.2bn in investment-related debt, with remaining needs well within funding capacity.

Resilient budget performance with solid operating margins. Trondheim has a strong track record of sound budgetary management. Between 2021 and 2023, the city maintained an average operating margin of around 9%, despite pandemic-related and cost-of-living pressures. In 2024, performance exceeded expectations, with the operating margin rising to 8.8%, driven by revenue growth outpacing expenditure. Cost growth slowed significantly from 8.1% in 2023 to 3.7% in 2024, reflecting effective expenditure control. Delays in project execution led to underutilisation of investment funds by NOK 561m.

The budgetary outlook remains stable, with projected operating margins of 7.5% in 2025 and an average of 7.4% through 2028. Positive drivers include strong tax revenues, government grant flexibility, and solid investment fund returns. Nonetheless, spending pressures in key service areas such as healthcare and housing persist. The city’s medium-term financial strategy focuses on disciplined spending and structural adjustments to maintain fiscal space. Moderate pre-debt deficits averaging 2.4% of revenue are expected, financed through additional borrowing to support strategic investments in elderly care, health, and education.

Wealthy and diversified local economy. Trondheim benefits from high wealth levels, strong economic resilience, and steady population growth, supported by a dynamic labour market and favourable socio-economic conditions. Its diversified economy—spanning manufacturing, food processing, and a strong research and innovation sector—provides a stable revenue base and enhances long-term adaptability. As a key transport and trade hub between southern and northern Norway, Trondheim holds strategic economic significance nationally.

Despite these strengths, Trondheim faces two key challenges:

Elevated debt burden relative to peers. Trondheim’s debt level rose slightly to 114% of operating revenue in 2024, up from 112.1% in 2023 but below the 2020 peak of 116.7%. While high relative to peers, the debt burden remains manageable due to the city’s strong revenue base and substantial financial assets. The ratio is expected to rise to around 120% by 2028, driven by continued investment, but risks are mitigated by robust liquidity and asset buffers.

Limited revenue and expenditure flexibility. Trondheim’s revenue flexibility is limited by its reliance on central government transfers (around 40% of revenue) and capped local tax rates. While some grants are unearmarked and user fees have increased, scope for increasing own revenues remains modest. A 2025 equalisation reform is expected to bring minor gains. Expenditure flexibility is moderate, constrained by high fixed costs and spending on core welfare services. While difficult to adjust in the short term, Trondheim has shown prudent cost control and maintains capital spending in line with peers.

Outlook and rating sensitivities

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

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

1. Norway’s sovereign ratings/Outlooks were downgraded.
    
2. Reforms to the institutional framework materially weakened the city’s integration in institutional arrangements.
    
3. Trondheim’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 sub-sovereigns operate to display ‘full’ integration for: i) ordinary budgetary support and fiscal equalisation. The institutional framework displays ‘strong’ integration for: i) extraordinary support and bailout practices; ii) funding practices; iii) fiscal rules and oversight; iv) revenue and spending powers; and v) political coherence and multilevel governance. Consequently, Scope’s assessment results in an indicative downward rating distance of up to three notches between Norway’s sovereign rating (AAA/Stable) and the rating of an individual sub-sovereign.

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 Trondheim of 80 out of 100.

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

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 Trondheim’s indicative rating.

As such, the final rating corresponds to the indicative rating of AAA.

Environment, social and governance (ESG) factors

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

Governance factors are a fundamental strength of Trondheim’s credit profile, reflected in both the institutional framework and the city’s individual governance characteristics. Operating within Norway’s highly institutionalised and rules-based local government system, Trondheim benefits from a well-defined fiscal framework, central oversight mechanisms, and strong local autonomy. The institutional framework is assessed as ‘strong integration’, supported by balanced budget requirements, debt controls, and central government supervision. Trondheim’s individual governance is assessed as ‘stronger’, reflecting transparent decision-making, effective financial management, and prudent long-term fiscal planning. The city maintains consistent alignment between policy goals and financial execution, underpinned by stable administration and solid internal controls. Moderate and targeted capital investment further supports institutional resilience and infrastructure sustainability.

Social factors are captured under Scope’s assessment of Trondheim’s ‘economic sustainability’ and ‘social factors and resilience’. Trondheim benefits from favourable demographic trends, including a lower old-age dependency ratio (25% in 2024) compared to the national average (32%), and slower projected population ageing. Income inequality is low (Gini coefficient of 0.24), and access to public services such as healthcare and education is robust. While per capita spending in primary and secondary education and health services is below national and peer averages, strong outcomes reflect the city’s efficient use of resources and economies of scale. Continued investment will be important to safeguard service quality as demographic pressures evolve. Overall, Trondheim’s strong social infrastructure and equitable service provision contribute to a resilient and inclusive socioeconomic environment.

Environmental factors are incorporated into Scope’s assessment of Trondheim’s ‘environmental factors and resilience’, which is rated as ‘stronger’. Trondheim demonstrates solid environmental resilience, including one of the lowest per capita carbon intensities among Norwegian municipalities. The city’s environmental policy is proactive, with clear commitments to sustainability, climate adaptation, and emissions reduction. Investment in public transport, green infrastructure, and energy efficiency reinforce its transition preparedness. Trondheim’s progress on environmental goals supports its long-term credit profile by reducing exposure to physical and transition risks.

Rating committee
The main points discussed by the rating committee were: i) institutional framework; ii) debt burden, liquidity profile and contingent liabilities; iii) debt management strategy; iv) budgetary performance and flexibility; v) regional socio-economic and demographic developments; vi) peer comparison; and vii) environmental and social factors.

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 Rated Entity and/or its Related Third Parties participated in the Credit Rating Process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
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/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Jakob Suwalski, Senior Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 22 September 2023. The Credit Ratings/Outlooks were last updated on 28 June 2024.

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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