Rating action

Scope Ratings GmbH (Scope) has assigned long-term issuer and senior unsecured debt ratings of AAA/Stable to the City of Stavanger (Stavanger) 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 assignment of Stavanger’s AAA rating is based on:

• 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 Norwegian sovereign (AAA/Stable) and a coherent sub-sovereign structure.
   
• A strong individual credit profile. The City of Stavanger maintains relatively low debt levels compared to peers, a strong liquidity position and robust reserves. Additionally, low risks from contingent liabilities and a wealthy and diversified economy support the rating. Budgetary pressures coupled with limited revenue flexibility are challenges.

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 Norwegian sovereign (AAA/Stable) 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 grants. Income equalisation was further strengthened in the latest reform and symmetrically compensates 62% of discrepancies in tax revenues in 2025, further increasing to 64% in 2026. Additionally, top-ups are added for entities below 90% of the national average. Involuntary cost differences are fully equalised based on demographic and social criteria. Discretionary and regional policy grants further complement the system to address special conditions and support specific policy goals. 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. In the revised budget for 2025, the national government has increased the transfers to municipalities to compensate for increased pension expenditures due to the new public contractual pension scheme. However, Norwegian municipalities continue to face challenges in the face of rising operating expenditures and high investment needs given limited revenue flexibility.

Municipalities enjoy considerable financial autonomy, with access to diversified funding sources including banks, bonds, and the state-owned Kommunalbanken (KBN), which finances about half of municipal debt. 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.

Stavanger’s strong individual credit profile is driven by relatively low debt levels compared to peers, a strong liquidity position and robust reserves. Low risks from contingent liabilities and a wealthy and diversified economy further support the rating. Budgetary pressures coupled with limited revenue flexibility present rating challenges.

Relatively low debt levels and strong debt affordability. Stavanger maintains comparatively low debt levels relative to other large cities in Norway, supporting its strong debt affordability. The city’s gross debt stood at 87% of operating revenue at end-2024. Over 25% of this debt comprises on-lending in the form of start-up loans. These loans are characterised by a low-risk profile, underpinned by historically minimal losses and risk-sharing arrangements with the Norwegian State Housing Bank.

Excluding start-up loans, financial debt amounted to 64% of operating revenue at end-2024, a slight increase of 2ppts from 2023, yet 4ppts below the original budgeted level. While the debt ratio exceeded the city’s self-imposed ceiling of 60% in 2023, it remains moderate by national standards. Scope expects that continued investment activity will drive the debt ratio to around 80% by 2028.

Rollover risk remains limited given low debt levels, sound affordability metrics, and broad access to favourable financing. Stavanger benefits from a robust financial framework and adheres to conservative and forward-looking financial planning. At end-2024, around 54% of the city’s long-term debt carried fixed interest rates (including swaps). The average interest rate was 4.29% for investment-loans and 4.4% for on-lending loans. In 2025, the city will need to refinance around NOK 1.5bn, or 11% of its outstanding financial debt (including start-up loans). The average maturity of investment-related loans was 5.25 years at YE 2024, in line with peers, while on-lending loans have a significantly longer average maturity of 19.9 years.

Strong liquidity position and robust reserves. Stavanger’s rating is further supported by a strong liquidity position. The coverage ratio of cash to interest payments was 2.9x at end-2024, while cash holdings covered 72% of short-term liabilities. The city maintains high funding flexibility, supported by established access to capital markets and lending facilities from Kommunalbanken (KBN), ensuring reliable access to liquidity and mitigating short-term funding risk.

Additionally, robust reserves support the rating and provide a buffer against budgetary pressures. The contingency fund stood at 11.3% of operating income at end-2024. Although drawdowns are expected over the coming years to help balance the budget, reserve levels are projected to remain above the city’s internal target of 6%. Stavanger’s reserve position is broadly in line with that of other large ASSS cities, whose general reserve funds average 12.5% of operating income (excluding Oslo and Stavanger), and above the national average of 10.5% (unaudited 2024 figures).

Low risk from contingent liabilities. Stavanger’s exposure to contingent liabilities remains low and well managed. Stavanger holds strategic ownership in over 50 enterprises, with most loan-related exposures concentrated in IVAR IKS (NOK 2.2bn at end-2024), the regional water and waste utility. Outstanding guarantees amounted to NOK 2.04bn at end-2024 of which NOK 1.86bn are linked to Ferde AS, the local toll road operator, and its subsidiaries. Despite the significant guarantee volumes, the low-risk nature of Ferde AS’s business model significantly limits the probability of materialisation. Additionally, municipal pension obligations are almost fully covered by pension funds given the city’s collective pension schemes in Kommunal Landspensjonskasse (KLP) and Statens pensjonskasse (SPK), supporting long-term fiscal sustainability.

Wealthy and diversified economy. Stavanger is located within Rogaland County and Norway’s fourth largest city by population. While historically known as the country’s oil capital, the city has successfully positioned itself as Norway’s broader energy hub and continues to diversify across technology, industry, aquaculture, agriculture, and tourism.

The city benefits from a favourable business environment, with strong labour market conditions reflected in a low unemployment rate of 1.9% in December 2024, compared to 2% on a national level. Given Norway’s strong income equalisation system, national economic trends also influence Stavanger’s fiscal outlook.

Credit challenges relate to budgetary pressures coupled with limited revenue flexibility.

Stavanger is facing increasing budgetary pressures, a challenge many municipalities have encountered since the pandemic, as expenditure growth continues to outpace revenue growth. Between 2022 and 2024, Stavanger’s operating expenses grew by 8.8% YoY on average, while operating revenues increased by only 6.1% (consolidated accounts). Revenue flexibility is limited, as unrestricted revenues (i.e. framework grants and income and wealth taxes) account for the majority of operating revenues (68% in 2024).

The city’s 2024 budgetary performance represented its weakest result since the oil market downturn in 2014. While the discrepancy between operating revenue and expenditure growth somewhat moderated compared to 2023, a gap remains, and the city recorded a deficit of NOK 572m in gross operating profit in 2024. The shortfall was financed by higher financial income, higher-than budgeted use of the contingency loan fund, and lower transfers from operating to investment accounts compared to previous years. Additionally, extraordinary revenues of NOK 127m related to the takeover of the Østre havn area supported operating profit in 2024. The city is proactively advancing restructuring measures to support long-term budgetary stability, enhance self-financing capacity for investments, and maintain a prudent approach to debt management. Further restructuring is planned with respect to Stavanger Development KF to improve funding access and reduce the burden on municipal finances.

Municipalities in Norway have key responsibilities in the areas of education, health, and infrastructure and utilities, resulting in high investment needs. Given the budgetary pressures, investment prioritisation will be required going forward. In 2024, Stavanger’s investments amounted to 16% of operating revenue, exceeding budgeted levels by 2ppts. Stavanger ended the year with a deficit of NOK 94m in capital accounts, which will need to be balanced in the coming years to comply with financial regulations. In light of budgetary pressures and following a comprehensive assessment of investment needs, the city targets to limit investment spending to a maximum of 11-12% of operating revenues. Scope expects investments to be gradually scaled back to targeted levels over the 2025-2028 financial planning period. Reserve funds provide an adequate buffer to manage budgetary challenges and support the implementation of necessary restructuring measures.

In 2024, a central adjustment was made to the investment level to ensure realistic budgeting in line with the Local Government Act. This adjustment, unlike restructuring measures, does not imply any postponements or cancellations of projects but reflects the rigorous financial planning practices of the local authorities.

Rating-change drivers

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 if (individually or collectively):

• The Kingdom of Norway’s ratings/Outlooks were downgraded.
   
• The institutional framework materially weakened resulting in lower municipal integration in institutional arrangements.
   
• Stavanger’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 municipalities 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 municipality.

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 Stavanger of 90 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 Stavanger.

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 Stavanger’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 Stavanger’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 factors are a fundamental strength of Stavanger’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, Stavanger 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. Stavanger’s individual governance is assessed as ‘stronger’, reflecting transparent decision-making and tracking of self-imposed targets, effective financial management, and prudent long-term fiscal planning which has enabled the accumulation of reserves during years of higher budget surpluses.

Social factors are incorporated into Scope’s assessment of Stavanger’s ‘economic sustainability’. Stavanger benefits from comparatively favourable demographics with a lower old-age dependency ratio (people over 64 compared to those aged 20-64) of 26% in 2024 versus 32% at a national level. Additionally, demographic factors are considered within the equalisation system. The level of services has been high for many years in Stavanger. While some services might be reduced or cancelled due to the needed restructuring measures, we expect services to remain strong. The city benefits from its status as one of Norway’s largest metropolitan areas, supporting strong labour market dynamics and sustained demand for public services.

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 Stavanger, ‘environmental factors and resilience’ are assessed as ‘stronger’ while no additional adjustments to the individual credit profile apply for ‘social risks & resilience’ beyond what is already addressed under other risk pillars.

Scope notes that Stavanger’s transition from oil capital to energy capital supports both its economy and environmental resilience. The city’s carbon emission intensity (2.7 tCO2e/capita in 2023) is well below the national average (12.2 tCO2e/capita), though minimally higher than for peers like Bergen and Trondheim. Stavanger aims to reduce emissions by 80% by 2030 compared to 2015 and be fossil-free before 2040. While the city lags behind its target, Scope acknowledges the ambitious targets and the signing of the Mission Cities climate contract in September 2024, which demonstrate a proactive stance on sustainability.

Rating committee
The main points discussed by the rating committee were: i) institutional framework for Norwegian municipalities, ii) Stavanger’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   NO
With access to internal documents                                NO
With access to management                                         NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain 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, Executive Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 30 May 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.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on Stavanger 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 28 April 2025 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.

Conditions of use / exclusion of liability
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