Rating action

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

Rating rationale

The assignment of Agder’s AAA rating 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 strong individual credit profile. The County of Agder demonstrates prudent fiscal management, low debt levels relative to peers, and a resilient budget performance, underpinned by a robust fiscal base and reserve funds. Strong liquidity supports the county’s debt profile, limiting reliance on external borrowing. Additionally, the county maintains well-managed exposure to contingent liabilities, and benefits from robust population growth and a dynamic economic environment. Challenges are related to limited flexibility in revenue generation and expenditure adjustments, constraining fiscal adaptability.

Key rating drivers

Strong intergovernmental integration with the Norwegian sovereign. Scope’s evaluation of the institutional framework places Norwegian counties, including the County of Agder, 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 the ongoing 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 face reduced transfers, 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 limited for most counties.

Norway's sub-sovereign support framework is highly predictable, characterised 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 national 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. Institutions like KS (Norwegian Association of Local and Regional Authorities) ensure cooperation between local authorities and the central government.

Agder’s strong individual credit profile is supported by its resilient budgetary performance, ample liquidity, relatively low debt levels, and well-managed contingent liabilities. Limited flexibility in revenue and expenditure present challenges.

Resilient budgetary performance. Agder's revenue base is stable, with over 70% derived from framework grants and taxes, complemented by hydropower-related income (approximately 6% of total operating income), and other diversified sources. Agder’s budget performance remains robust, with an operating margin of 12.2% in 2023 and 5.7% in 2024, indicating a solid level of operating efficiency. Despite a shift to a -4.3% budget balance before debt movements in 2024 (from 4.1% in 2023), results compare favourably to peers and reflect planned investments rather than structural weaknesses.

Operating revenues demonstrated robust growth, averaging a 7.6% increase between 2021 and 2023, followed by a more moderate 2.2% increase in 2024. Operating income growth in 2024 was driven primarily by a 2.9% YoY increase in tax revenue, a 7.6% increase in framework grants, and additional grants and project funds received during the year. Agder was negatively affected by the changes in the revenue system introduced last year, although the impact remains limited, with revenue losses at less than 1% of total operating revenue. Concessionary power revenues have shown significant volatility in recent years. However, the price-hedge strategy of the new management company Concession Power IKS (KIKS) will stabilise revenues from hydropower concessions. After the delivery agreement with Eramet Norway AS expired in July 2024, KIKS became responsible for the county's rights and obligations related to the withdrawal and sale of allocated power volume offering stable, predictable revenues to the county and other participating municipalities. Concessionary power revenues are estimated at NOK 385m annually over the 2025–28 period (5% of total operating revenue). These revenues play an important role in preserving the self-financing capacity of investments.

Despite robust revenue levels, Agder is facing rising operating expenditures, driven by higher financial expenses, increased costs for goods and services, rising salaries, and social expenses. Nonetheless, the county's maintenance of reserve funds allows it to manage potential shortfalls in operating income or finance unanticipated expenses. As of the end of 2024, the total funds amounted to NOK 1.7bn. The majority of these resources are allocated to the contingency fund (Disposisjonfond), amounting to NOK 948m at the end of 2024 (13.1% of operating revenue). Of the total NOK 948m, NOK 341m are unrestricted resources, representing a buffer account for the county. The remaining funds include the pension fund and other resources earmarked for specific purposes. Additional reserves are represented by restricted operating funds (NOK 688.6m) and investment funds (NOK 73.2m). To support the county's operating performance, the contingency fund has been reduced by NOK 146m in 2024, below the budgeted use of NOK 175m. To ensure budgetary stability in the future, the county has initiated a restructuring process to be implemented throughout the financial plan period from 2025 to 2028. In December 2024, the County Council approved a series of cost-saving measures with an estimated savings of NOK 46m in 2025, NOK 93 m in 2026, and NOK 144 m starting in 2027. The aim is to strengthen the county’s financial sustainability, prioritising the available resources and optimizing service management and funding.

Despite expenditure pressures, Scope expects Agder’s budgetary performance to remain robust over the medium term, underpinned by prudent budget management, a stable fiscal base, and solid access to discretionary funds. This positive outlook is further supported by more stable concessionary power revenues, which enhance the county’s financial flexibility. Scope projects an average operating balance of 6% for 2025–2028, while deficits after investment are expected to remain moderate at 2–3% of total revenue, reflecting disciplined capital spending and sustainable budgetary practices.

Solid liquidity position supports the county’s debt profile. Agder benefits from substantial cash holdings, which stood at NOK 2.1bn at the end of 2024, including bank deposits, equity and fixed income funds. Total liquidity accounted for 29% of operating revenue and covered 2.4 times short-term liabilities as well as almost 47% of total debt. When considering total current assets, they were sufficient to cover 3.1 times total current liabilities in 2024. This solid liquidity position enables the county to balance financial expenses and effectively manage refinancing risks.

The refinancing risk is mitigated by the portfolio diversification in terms of financing sources, terms, amounts and maturities. Agder’s average interest rate on total borrowing – mostly consisting of around 67% bonds and 27% long-term loans with Kommunalbanken – was relatively high at 4.1% as of March 2025, but below the market interest rate estimated at around 5%. The weighted average debt maturity is low at 3.08 years, but in line with the self-imposed financial requirement of keeping the maturity above 3 years. Furthermore, short-term certificates account for a mere NOK 352m (7.8% of total debt as of March 2025). As of March 2025, the proportion of long-term financial debt with fixed interest rates was moderate at 29.7%. Nevertheless, the effect of a potential increase in interest rates remains minimal. According to stress tests performed by the county, a 1% rise would result in NOK 31.6m in interest expenses, accounting for only 0.4% of total operating income.

Low debt relative to peers and available unrestricted funds containing the need for external borrowing. Agder’s debt-to-operating revenue ratio stood at 61.9% of operating revenue in 2024, declining marginally from 63.1% in 2023. In nominal terms, of the NOK 4.5bn total financial debt, NOK 261.1m relates to on-lending activities and financing schemes with municipalities. However, planned investments in 2025-28 of NOK 879m annually on average, will drive an increase in financial debt, with the total debt-to-operating revenue ratio expected to reach almost 70% by 2028, a level that remains modest compared to peers.

The total amount of planned investments over the next four years amounts to NOK 3.5bn. The majority of these investments will be directed toward county roads, transportation, and real estate. Despite the rising debt trajectory, the availability of multiple reserve funds will help mitigate the need for external borrowing. These resources include transfers from the operating budget, transfers and grants, the use of the investment fund (at NOK 73.2m at end-2024) and VAT compensations. Furthermore, the reliable revenue stream from power concessions will provide additional support for investment financing. Consequently, the debt-to-operating income ratio will remain low compared to peers. Furthermore, interest payments are expected to increase in relation to previous levels. However, they are projected to remain stable at approximately 3% of operating expenditures for the 2025–2028 period.

Agder’s exposure to contingent liabilities remains well-managed. The majority of outstanding guarantees are linked to Ferde AS, the local toll operator, and its subsidiaries. Although guarantee volumes are significant, the low-risk nature of Ferde’s business model minimises the likelihood of guarantee activation. Similarly, pension-related liabilities are well covered, with pension funds accounting for 93% of obligations at the end of 2024, reducing financial strain.

Solid economic prospects amid continued, albeit slowing, population growth. Agder has a population of 322,188 inhabitants and is the seventh largest county in Norway. It is located in one of the fastest-growing regions in the country, a trend that has persisted for over two decades. This is primarily attributable to significant immigration, notably of refugees from Ukraine over the past three years, along with a consistent birth surplus. Consequently, the total population grew by nearly 6% between 2019 and 2025, which exceeded the national growth rate of 4%. Notably, the working-age population exhibited stronger growth, averaging 1.1% from 2023 to 2025, compared to a peer average of 0.6% during the same period. According to Statistics Norway's forecasts, the population of Agder is expected to grow steadily, although at a slower pace, with a projected cumulative increase of 4.1% between 2025 and 2034. The number of individuals aged 16 to 18, and the related service expenditure, is expected to increase significantly in the near term until a peak in 2027, before slowing down from 2030 onwards. Agder's economic prospects are supported by a robust and diversified industrial structure, with main industries being health and social services, trade, construction, and education. Furthermore, the county is distinguished by its clean and reliable energy supply, as well as a substantial surplus of electricity. Agder is also one of the largest exporting counties of industrial goods in Norway, resulting in a well-established economic competitiveness and international trade networks. The business sector's dynamism is evident in the low unemployment rate of 2.1% in November 2024, which is well below the annual national average of 4%.

Credit challenges for Agder relate to limited flexibility in adjusting revenue and expenditure.

Agder's revenue flexibility is constrained by its substantial reliance on government transfers, which accounted for approximately 69% of operating revenue in 2024. While this proportion is slightly higher compared to national peers, all Norwegian counties operate under limited revenue flexibility. This dependency restricts the county's capacity to adapt its revenue sources in response to economic or financial pressures.

Agder’s expenditure flexibility is constrained with personnel costs account for almost 34% of total expenditures, in line with the average across counties. Additionally, counties face increasing operating expenditures and elevated investment needs amid key responsibilities, including education and transport. Agder has overall lower capital expenditure pressures compared to other counties, particularly in terms of expenditures related to boats, ferries, and county roads. However, main investment needs arise for upper secondary education, administration, regional planning, and research and development projects exceed the counties’ average. Capital expenditures amounted to 11.6% of total expenditure in 2024 (compared to an average of 15% across all counties) and is expected to average 11% over 2025-2028. To ensure budgetary sustainability, Agder will implement a process of resource prioritisation and optimisation over the next four years. Additionally, concessionary power revenues and unrestricted reserve funds provides some financial buffer against fiscal rigidity.

Rating-change drivers

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

Downside scenarios for the ratings and Outlooks are (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. Agder’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 Agder of 75 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 Agder.

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 Agder’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 Agder’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 Agder’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 prudent budgetary 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 Agder is assessed as ‘stronger’, reflecting the county’s: i) build-up of budgetary funds and reserves, substantial liquidity resources, as well as tracking of self-imposed fiscal targets; and ii) a stable and predictable political environment which favours the clear definition of policy objectives and forward-looking financial planning.

Social considerations are included in Scope’s assessment of Agder’s ‘economic sustainability’, highlighting favourable demographics, a dynamic labour market and a diversified business sector.

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 Agder, no additional adjustments to the individual credit profile apply for social and environmental factors & resilience beyond what is already captured under other risk pillars.

Agder's per capita CO2 emissions are below the national average, and its total greenhouse gas (GHG) emissions are in line with the national average. Compared to the whole country, Agder shows a larger footprint and lower share of protected areas. According to the Norwegian Environmental Agency’s most recent data, the county's greenhouse gas (GHG) emissions are primarily attributable to four sectors: road traffic (28% of total emissions in 2024), industry (27%), agriculture (12.8%), and shipping (12%). Scope acknowledges ambitious climate goals: Agder's strategic objective is to reduce direct greenhouse gas (GHG) emissions by a minimum of 55% by the year 2030 at regional level, compared to the 2017 baseline. Considering the organization of the county municipality, the goal is to reduce GHG emissions by 65% by 2030. The county also targets to reach 100% zero-emission vehicles by 2030 and to become a low-emission society by 2050, when gas emissions will have been reduced by over 90% compared to 2017. GHG emissions have been so far reduced by 7.7% between 2017 and 2023, and by 7% from 2023 to 2024. The current reduction rates are somewhat behind the target set out in the Regional Plan for 2030, which aims for an annual reduction of 9.75% in greenhouse gas emissions. Therefore, the climate budget for 2025 has been strengthened with the addition of 17 measures, for a total of 56, to reach the target of 730,000 tons of CO2e emissions by 2030.
 
Rating committee
The main points discussed by the rating committee were: i) institutional framework assessment, ii) Agder’s individual credit profile assessments, ICP quantitative and qualitative analysis, 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                                             YES
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/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: Alessandra Poli, Analyst
Person responsible for approval of the Credit Ratings: Jakob Suwalski, Senior Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 25 April 2025.

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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