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Fixed Income Research
Issuer Guide
German Bundesländer 2015
We would like you to pay attention to the special references on the last page of this study.
Issuer Guide German Bundesländer 2015
NORD/LB Fixed Income Research
Issuer Guide German Bundesländer 2015
Content
Page
1. Introduction
5
1.1 Constitutional framework
6
Principle of federal loyalty
6
Federal financial equalisation system
8
1.2 Challenges for Bundesländer finances
15
Debt brake & monitoring by the Stability Council
15
Municipal budget situation as a strain on Bundesländer finances
19
Pension obligations as challenge for Bundesländer finances
23
1.3 Regulatory framework
25
Basel III and the implications for the German Bundesländer
25
Risk weighting of German Bundesländer
25
Implications of the Liquidity Coverage Ratio
26
The impact of the Net Stable Funding Ratio (NSFR)
30
The classification of Bundesländer under Solvency II
35
ECB repo collateral rules and their implications for German Bundesländer
37
1.4 The funding programmes of the German Bundesländer
40
Overview of funding strategies
40
Trend in funding volumes and strategies
41
Credit authorisations in 2015
42
1.5 Performance and Relative Value
43
Benchmark indices for German Bundesländer
43
Total return and spread performance of the German Bundesländer
45
Comparison of Länder bonds
46
2. Overview of German Bundesländer
NORD/LB Fixed Income Research
48
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Issuer Guide German Bundesländer 2015
Content
Page
3. Issuer profiles
56
Baden-Württemberg
56
Bavaria
60
Berlin
64
Brandenburg
68
Bremen
72
Hamburg
76
Hesse
80
Mecklenburg-Western Pomerania
84
Lower Saxony
88
North Rhine-Westphalia
92
Rhineland-Palatinate
96
Saarland
100
Saxony
104
Saxony-Anhalt
108
Schleswig-Holstein
112
Thuringia
116
Gemeinschaft deutscher Länder
120
Bund-Länder-Bond
123
4. Appendix
126
Overview of debt levels, Schuldscheindarlehen and bonds
126
Ratings overview
126
Key figures 2014
127
Bundesländer budgets 2014
128
Overview by key economic indicators
129
Overview by budget indicators
131
Age structure of population in German Bundesländer
137
Election calendar
137
Data and definitions used
138
Contacts
139
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Introduction
Analyst:
Fabian Gerlich
Foreword
The German Bundesländer segment is the biggest sub-sovereign market in
Europe. No other sub-national level has a similarly high volume outstanding or annual issuance volume as the Bundesländer segment. Traditionally characterised by
a high degree of stability in terms of funding volume, low spread volatility and relatively high pick-ups, it has always represented an attractive alternative to Bunds. At
the same time, it is one of the most complex markets in the European segments for
sub-sovereigns, supranationals and agencies (SSA).
The principle of federal loyalty and the federal financial equalisation system result in
a clear convergence of the credit profiles of the individual Bundesländer, both with
respect to each other and to the federal government. The introduction of the debt
brake and the monitoring of Bundesländer finances by the Stability Council are
additional factors that heighten this effect. At the same time, the introduction of the
debt brake as of 2020, in particular, poses a major challenge for the Bundesländer
finances. Growing municipal debt and high implicit pension liabilities are just two
factors that will make managing budgets significantly more difficult in the years to
come. Moreover, the federal financial equalisation system in its present form is
coming to an end, which means there is a need for reform with regard to the financial relationships. These big challenges are countered by major progress in the
requisite budget consolidation. However, substantial differences between the individual Bundesländer still remain, and in our opinion necessitate a relative analysis.
On the investor side, regulatory framework conditions such as the risk weighting in
accordance with Basel III or the Liquidity Coverage Ratio (LCR) will once again be
significant factors in the next few years, and are also likely to lead to relatively stable demand for bonds issued by the German federal states. The final classification
as part of the LCR, in particular, is likely to determine the relative attractiveness of
the Bundesländer segment on a sustained basis. The ECB’s purchase program
further increases demand since in our view investors are currently being pushed
into German federal states as alternative products. However, we currently expect
German federal states to be added to the ECB’s public sector purchase program
(PSPP) towards the end of the year.
The aim of our German Bundesländer Issuer Guide 2015 is to facilitate the relative
comparison of German Bundesländer against the backdrop of constitutional and
regulatory framework conditions. In particular, we highlight the differences relating
to spreads and fundamental volumes in light of the fundamental development of
finances and the economy in the Bundesländer.
NORD/LB Fixed Income Research
Page 5 of 142
Issuer Guide German Bundesländer 2015
Constitutional
framework
Principle of federal loyalty
Federal loyalty as
unwritten constitutional law
Art. 20 of the Basic Law (Grundgesetz; GG) defines the Federal Republic of Germany as a federal state. A structure of this type is classified under constitutional law
on the basis that the national government (Bund) and federal states (Bundesländer), as members of the federal state, must work together in their mutual relationship. In his essay entitled "Unwritten Constitutional Law in a Monarchic Federal
State" (Ungeschriebenes Verfassungsrecht im monarchischen Bundesstaat) published in 1916, Rudolf Smend shaped our understanding of the German principle of
a federal state. There is, he wrote, a relationship of cooperation instead of one of
pure subordination between the national government and Länder as unwritten constitutional law. In its decision of 21 May 1952, the German Federal Constitutional
Court (Bundesverfassungsgericht) referred to Smend's interpretation and came to
the view that the principle of federalism includes "a legal obligation on the federation
(Bund) and all its members to 'conduct themselves in a way that is favourable towards the federation'" (Federal Constitutional Court Decision [BVerfGE] 1, 299).
This gave rise to our present-day understanding of the principle of 'federal loyalty',
as it is also known.
Implementation and
definition of the principle of
federal loyalty:
Bremen and Saarland 1992
In 1992 an "extreme" budgetary crisis was identified for the federal states of
Bremen and Saarland. The Federal Constitutional Court confirmed this for both
Länder. The Court also defined the principle of federal loyalty: "If a member of the
German federal community, whether it be the federal government or one of the
federal states, is in the grip of an extreme budgetary crisis, the federal principle is
defined by the duty of all the other members of the German federal community to
render assistance to the affected member. The objective shall be to stabilise the
budget based on concerted measures" (BVerfGE 86, 148). As a consequence, both
Bremen and Saarland received payments to restructure their budgets in the wake of
the extreme budgetary crisis.
Extreme budgetary crisis as The decision by the Federal Constitutional Court created a prerequisite for federal
a prerequisite for federal
loyalty to apply or for assistance to be provided by the national government and the
loyalty to apply
Bundesländer: the extreme budgetary crisis. The Federal Constitutional Court used
a total of three indicators to assess the Bundesländer budgets and to determine
whether an extreme budget crisis existed. The credit financing ratio, as the ratio of
net borrowing to the budgetary revenue and expenditure; the interest-tax ratio, as
the ratio of payable interest to taxes received; and the primary balance, as the difference between the primary or core expenditure and the primary revenue, in which
the net borrowing and other items are excluded. In the case of both
Bremen and Saarland, the budgetary crisis was assessed as extreme on the basis
of these indicators in comparison with the other Bundesländer.
The case of Berlin in 2002
In 2002 the Bundesland Berlin tested federal loyalty. Berlin's Senate identified an
extreme budget crisis in which it assessed federal restructuring aid to be unavoidable as a contribution towards consolidating the Bundesland's budget. The budgetary
situation was regarded by the Berlin Senate as fulfilling the requirements for entitlement to restructuring aid under constitutional law. Berlin's application for a judicial
review submitted to the Federal Constitutional Court was, however, rejected. The
Court regarded restructuring obligations on the part of the federal government and
claims by a Bundesland in distress "as alien to the federal financial equalisation
system, based on the purpose and spirit of Art. 107 (2) Sentence 3 of the Basic Law
(Grundgesetz; GG). They are in conflict with the principle implying that autonomous
budgetary policy must be dealt with by the Bundesländer independently and on their
own responsibility" (press release issued by the Federal Constitutional Court, No.
96/2006 of 19 October 2006).
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Issuer Guide German Bundesländer 2015
Although the Federal Constitutional Court considered the existence of a budgetary
crisis to be a consequence of insufficient funding, the Court viewed it as indicating
the need for reform of the financial equalisation system, instead of a need for more
supplementary federal grants. The Federal Constitutional Court nevertheless emphasised that federal aid provided through restructuring funding was allowed as a
last resort.
Federal aid only in extreme
budget crisis
The Court added that this was only permitted and necessary if a budgetary crisis
was considered extreme in relation to the budgets of the other Bundesländer. This
was not the case in Berlin, it concluded. The Court saw the potential for further
consolidation measures. As an example, it expressly pointed to the significantly
higher expenditure by Berlin in comparison with Hamburg, e.g. in “cultural affairs”.
Comment
The principle of federal loyalty as unwritten constitutional law is a basic element of
the German principle of a federal state. The most recent judgment of the
Federal Constitutional Court increased the pressure on the national government
and Bundesländer to reform the financial equalisation system, if budgetary crises
were to loom more and more or actually occur. We nonetheless believe that the
likelihood of support from national government and Bundesländer in extreme emergency has not decreased as a result of the most recent judgment. On the contrary,
we regard the increased pressure on the national government and Bundesländer as
an opportunity to conduct an informed debate on reform of the system. However,
this makes it all the more discouraging that this opportunity has now remained unused for almost eight years due to a very low level of political motivation.
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Constitutional
framework
The federal financial
equalisation system has the
goal of creating and
maintaining equivalent
living conditions
Federal financial equalisation system
Within the state structure of the Federal Republic of Germany, the Bundesländer
constitute an independent level including their own rights and duties. The
responsibilities of the Bundesländer are assigned to them by the Basic Law
(Grundgesetz; GG). In order to discharge these duties they must have sufficient
funding on a free and independent basis at their disposal. The aim is to harmonise
revenues among the Bundesländer to create and maintain equivalent living
conditions for all citizens within Germany. The funding of the national government,
Länder and municipalities (which are regarded as part of the Bundesländer in the
context of the constitutional rules governing public finances) is governed by the
Basic Law and supplementary legislation. The federal financial equalisation system,
which covers funding allocation and consequently governs the funding of the national government, Bundesländer and municipalities to a large extent, is divided into
four levels:
1.
Vertical distribution of tax revenue
2.
Horizontal distribution of tax revenue (VAT equalisation)
3.
Financial equalisation between the Bundesländer
4.
Supplementary federal grants
1. Vertical distribution of tax The national government, Bundesländer and municipalities receive most of their
revenue:
revenue from taxes. As a general rule, the tax revenue from different tax bases is
distributed on the basis of two systems in accordance with Art. 106 of the Basic
separation and allocation
Law: the separation system and the allocation system, which includes the joint taxsystem for distributing
es. The revenue subject to the separation system is divided into federal taxes (e.g.
tax revenue
consumption taxes [excluding beer tax]), Länder taxes (e.g. inheritance tax) and
municipality taxes (e.g. real estate tax). Such taxes accrue directly to each of the
administration bodies. In contrast, the revenue from the allocation system, which
includes income tax and value-added tax (VAT; Umsatzsteuer) in particular, is distributed across national government, Länder and municipalities based on specific
distribution keys. The distribution of taxes from the separation system and allocation
system constitutes the first stage of the federal financial equalisation system. While
in vertical tax distribution each of the administration bodies obtains the tax revenue
directly from the separation system, distribution in the allocation system uses specific distribution keys. For example, the national government and Bundesländer
each receive 42.5% of income tax, while the remaining 15% of total revenue accrues to municipalities. The national government and Bundesländer each receive
44% of the withholding tax on interest income and capital gains, while municipalities
receive 12%. The distribution of VAT revenue is slightly more dynamic, such that
the exact proportions accruing to national government, Bundesländer and municipalities change marginally from year to year.
Constant change in tax
distribution
In 2014 the national government received around 53.4% of VAT revenue, while
about 44.6% accrued to the Bundesländer and approximately 2% to the municipalities. As part of additional relief measures, municipalities will receive an annual
amount of EUR 500m through a reduction in the relative weighting of the national
government in favour of the municipalities in the years 2015 to 2017. However, in
view of the overall volume (2014: EUR 203.1bn), this is likely to result in only marginal changes to the percentage distribution. Corporation tax is shared equally by
the national government and the Bundesländer. Tax distribution is subject to constant change. When the tax system was first introduced in 1949, the Bundesländer
received all the revenue from income and corporation tax, while the national government received all the VAT and the municipalities all the local business tax.
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Issuer Guide German Bundesländer 2015
2. Horizontal distribution of
tax revenue
(Umsatzsteueraussgleich;
VAT equalisation)
The second level of financial equalisation involves distribution of the tax revenue to
which all the Bundesländer are entitled. In general, the Bundesländer are entitled to
the tax revenue that was levied on their territory (principle of local tax
receipts). Income tax and corporation tax are split up for these purposes. As a result, a Bundesland receives the income tax revenue that was paid on the income of
its inhabitants within and outside its territory. The corporation tax is distributed such
that each Bundesland in which a company maintains a permanent business operation receives a share. A different method is used for distributing VAT. In this case
the principle of local tax receipts does not apply. Art. 107 (1) of the Basic Law in
conjunction with Paragraph 2 of the Financial Equalisation Act (Finanzausgleichsgesetz, FAG) governs the exact distribution of VAT. Up to 25% of the
Bundesländer share of VAT is distributed as supplementary portions to the
Bundesländer. These equalisation payments are made to Bundesländer whose
revenue from income and corporation tax, the local business tax allocation and
federal state taxes per inhabitant is below that of the Bundesländer as a whole. The
remaining portion of VAT – at least 75% of the total VAT – is distributed across all
the Bundesländer on the basis of number of inhabitants. Partial harmonisation of
the Bundesländer tax revenue is thus achieved through the distribution of VAT
(Umsatzsteuerausgleich; UStA). As a result, this stage of financial equalisation is
also referred to as VAT equalisation.
VAT equalisation 2014 (EURm)
VAT equalisation 2014 (EUR per capita)
SN, 2,375
ST, 619
TH, 609
SN, 587
MV, 565
ST, 1,390
TH, 1,317
BB, 973
MV, 902
NI, 549
SL, 197
SH, 131
BB, 397
SL, 199
NI, 70
SH, 47
HB, -4
BE, -209
HH, -276
RP, -431
HE, -959
HB, -6
BE, -61
RP, -108
NW, -129
HH, -158
BY, -159
HE, -159
BW, -159
BW, -1,687
BY, -1,998
NW, -2,269
-3,000
-2,000
-1,000
0
EURm
1,000
2,000
3,000
-400
-200
0
200
400
EUR per inhabitant
600
800
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland, SN =
Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia. Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
NRW, Bavaria and
Baden-Württemberg have
been biggest payers for
years
In 2014 the volume of VAT equalisation rose to EUR 7.8bn, which is around EUR
0.5bn higher than in 2013. While the absolute payments again present a relatively
heterogeneous picture, the payments per capita are more homogeneous, especially
on the net payer side. Basically, a distinction can be made between three groups of
Bundesländer. While Länder in the east received most equalisation payments per
inhabitant and the large contributor Bundesländer made comparable contributions
per capita, Saarland, Lower Saxony and Schleswig-Holstein were ranked with lower
per capita revenue on the recipient side. After Bremen became a recipient in the
VAT equalisation system in 2013 for the first time since at least 1995, the city state
was once again a contributor on this equalisation level in 2014. Berlin was once
again on the net payer side. The federal capital had always been a recipient on this
level between 2005 and 2012.
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Issuer Guide German Bundesländer 2015
3. Financial equalisation
among the Bundesländer
The third stage of the federal financial equalisation system involves financial equalisation among the Bundesländer (Länderfinanzausgleich; LFA) in a more narrow
sense. On this level, Bundesländer revenue is equalised through direct distribution
among the Länder in accordance with Art. 107 (2) of the Basic Law. Under this
system, financially weak Bundesländer receive equalisation grants from financially
strong Länder. The financial strength of a federal state is defined by the sum of 64%
of its revenue plus 36% of the revenue of its municipalities in relation to the number
of inhabitants. All revenue is generally taken into account. As a result, tax revenue
does indeed dominate when considering the financial strength. In the context of the
Financial Equalisation Act, an equal financial requirement per inhabitant is assumed
in all Länder. The city states of Berlin, Bremen and Hamburg are exceptions in this
respect. Their number of citizens is increased notionally by 35% since a higher
financial need is assumed. It is a similar picture for the sparsely populated Bundesländer of Brandenburg, Mecklenburg-Western Pomerania and Saxony-Anhalt. In
these cases the tax revenue accruing to the municipalities is modified by a small
notional increase in the number of inhabitants (by 2% to 5%) before being included
in the assessment of financial strength. The amount of the equalisation payments
that a federal state receives or must pay is then calculated on the basis of the extent to which the financial strength per (notional) inhabitant diverges from the average financial strength per inhabitant. The rules are structured such that the order of
the Bundesländer with regard to their financial strength per inhabitant is not altered
through this stage of financial equalisation. For example, a recipient Bundesland
cannot achieve greater financial strength than a contributor federal state.
Federal financial equalisation system 2014 (EURm)
Federal financial equalisation system 2014 (EUR per capita)
BE, 3,357
HB, 1009
BE, 981
SN, 1,097
NW, 905
HB, 663
ST, 585
TH, 559
BB, 515
MV, 464
RP, 275
SH, 178
SL, 146
NI, 238
MV, 291
SN, 271
ST, 260
TH, 259
BB, 210
SL, 147
RP, 69
SH, 63
NW, 51
NI, 31
HH, -18
HH, -31
BW, -228
HE, -289
BY, -383
HE, -1,747
BW, -2,426
BY, -4,823
-6,000
-4,000
-2,000
0
2,000
4,000
-600
-400
EURm
-200
0
200
400
600
EUR per inhabitant
800
1,000
1,200
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland, SN =
Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia. Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Bavaria again the biggest
contributor, Berlin the biggest recipient
Bavaria's payments of EUR 4.8bn (2013: EUR 4.3bn) position it at the top of the
contributor side in the LFA in 2014. However, Bavaria has only distanced itself from
the two other large contributions of Hesse and Baden-Württemberg since 2007.
Prior to 2008, Bavaria, Hesse and Baden-Württemberg were still on similar levels.
Bavaria was even a recipient up until 1986. It has received grants totalling the
equivalent of about EUR 3.4bn while its contributions so far amount to EUR 51.2bn.
With a total input of almost EUR 56.0bn, Baden-Württemberg is the biggest contributor since the LFA was set up. While Hesse paid the highest amounts per inhabitant
almost without exception in the past 25 years, the payments made by the Bundesland were overtaken by Baden-Württemberg and Bavaria in 2012. However, in
2014, the charges per inhabitant were only higher in Bavaria. Hamburg shifted once
again to the contributor side in the LFA in 2014, having always been a net payer
apart from 1993, 1994 and 2013. Berlin is the frontrunner as a recipient in the LFA
system, as has been the case since 1995 (the start of payments to the new Bundesländer). The Bundesland tops the list of total receipts in the LFA system (EUR
55.3bn since 1995).
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Bremen biggest recipient
for the first time, relative to
number of inhabitants
For the first time, however, Berlin did not receive the highest revenue per inhabitant
in the LFA: at EUR 1,009 per inhabitant, Bremen received a higher inflow of funds
from the LFA relative to number of inhabitants than any other Bundesland. The
biggest recipients are therefore the city states. This is essentially due to the city
state privilege (Section 9 (2) of the Financial Equalisation Act (FAG)), under which it
is assumed that city states have higher financial requirements.
NRW the biggest contributor until the late 1970s,
Lower Saxony the biggest
recipient until 1995
The trends in NRW and Lower Saxony are also interesting. Although NRW has
been a recipient Bundesland since 2010, it had been a net payer for the most part
in the decades before then. Until the late 1970s, NRW had mostly been the
biggest contributor. Lower Saxony, on the other hand, had always been a recipient.
Although Lower Saxony now receives the lowest payments per inhabitant and the
lowest absolute payments of all the non-city states, it had always been the biggest
recipient until 1995. The total annual amount of the LFA system has risen from EUR
5.7bn to EUR 8.5bn since 1995 – the highest figure since the LFA system was set
up.
4. Federal supplementary
grants (BEZ)
The fourth stage of the federal financial equalisation system is also based on Art.
107 (2) of the Basic Law. Accordingly, the national government may provide for
"grants to be made to financially weak Länder from its own funds to assist them in
meeting their general financial needs" – federal supplementary grants (Bundesergänzungszuweisungen; BEZ). The general BEZ (allgemeine BEZ) are intended to
reduce the remaining gap between financially weaker states and the average
financial strength. These grants are uncommitted and are used to cover the
general financial needs of a Bundesland. There are also special-need BEZ (SoBEZ)
which are used to compensate for the special charges of structurally weaker
states. The amount is fixed by the Financial Equalisation Act. Although special
charges are the reason for granting the payments, there is no legal
commitment for use of the funding. Within the scope of the Solidarity Pact II
(Solidarpakt II), the eastern German federal states and Berlin receive special-need
BEZ (SoBEZ neue Länder) until 2019 “to cover any special charges resulting from
the division and relating to the significant need to catch up in infrastructural terms
and compensate for disproportionately low municipal financial strength” (Paragraph
11 (3) FAG). The eastern German states receive additional funds under Paragraph
11 (3a) FAG to compensate for special charges caused by structural unemployment
(SoBEZ strukturelle Arbeitslosigkeit). In accordance with Paragraph 11 (4) FAG, ten
federal states also receive special-need BEZ due to the disproportionately high
costs of political leadership (SoBEZ Kosten pol. Führung). Apart from the lastmentioned grant, special-need BEZ decrease each year, whereby SoBEZ neue
Länder will be discontinued from 2020.
Federal supplementary grants 2014 (EURm)
2,500
EURm
2,000
1,500
1,000
500
0
SN
BE
ST
Allgemeine BEZ
425 1,105 239
SoBEZ Kosten pol. Führung
26
43
53
SoBEZ strukturelle Arbeitslosigkeit 248
0
145
SoBEZ neue Länder
1,507 1,099 909
BB
221
55
148
828
TH
227
56
137
827
MV
184
61
99
609
NW
472
0
0
0
HB
195
60
0
0
RP
157
46
0
0
SH
93
53
0
0
SL
69
63
0
0
NI
126
0
0
0
BE = Berlin, BB = Brandenburg, HB = Bremen, MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia,
RP = Rhineland-Palatinate, SL = Saarland, SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, Financial Equalisation Act (FAG), NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
New Bundesländer biggest
recipients of BEZ
In 2014, Saxony received the highest BEZ grants totalling around EUR 2.2bn. Of
this amount, SoBEZ neue Länder accounted for the largest portion, with EUR
1.5bn. In the case of the other eastern German Bundesländer, SoBEZ neue Länder
also represents the biggest proportion of the revenue that the Bundesländer receive
from the national government. In contrast, the federal capital Berlin is the biggest
recipient of general BEZ grants. In 2014 alone, the Bundesland Berlin received
EUR 1.1bn in this type of funding.
Falling revenue from SoBEZ The eastern German Bundesländer received significantly higher grants from the
for eastern German Bunnational government from 2002 onwards. This is attributable to the adoption of Solidesländer since 2009
darity Pact II in 2005. Beforehand, funding connected with the Solidarity Pact was
pooled. A total of almost EUR 3.4bn that the Bundesländer previously received
under the Investment Subsidy Act for Reconstruction East (Investitionsförderungsgesetz Aufbau Ost, IfG) was transferred to SoBEZ neue Länder. A further distinction between East and West was made in 2005, when Solidarity Pact II actually
came into force. The grants payable to West German Bundesländer have been
almost constant since 2006, while the payments to eastern German Bundesländer
have been falling since 2009 in line with the degressive course of the SoBEZ grants
as mandated.
Financial equalisation
The current system of federal financial equalisation will be discontinued on 31 Desystem scheduled to end on cember 2019. Both the Financial Equalisation Act (FAG) and the Standards Act
31 Dec. 2019
(Maßstäbegesetz, MaßstG), which define the key aspects of the federal financial
equalisation system, will lapse on 31 December 2019. The provisions relating to the
current system of horizontal tax distribution (VAT equalisation; UStA), financial
equalisation among the Bundesländer (LFA) and the rules on distributing BEZ
grants shall thus completely cease to apply. The legislature is consequently under a
duty to implement reform of the federal financial equalisation system by this date.
The reform must comply with the requirements of Art. 107 of the Basic Law.
Consolidation aid
(Konsolidierungshilfe)
Apart from the above-mentioned equalisation mechanisms, there is the instrument
of consolidation aid (Konsolidierungshilfe). Through this, the Bundesländer of Berlin, Bremen, Saarland, Saxony-Anhalt and Schleswig-Holstein receive additional
funds from the federal budget to enable them to comply with the stipulations of Art.
109 (3) of the Basic Law ("debt brake" or "zero-borrowing rule"; Schuldenbremse)
from 2020 onwards. In total, Bremen receives EUR 300m annually, while Saarland
is entitled to EUR 260m per year. Berlin, Saxony-Anhalt and Schleswig-Holstein
each receive EUR 80m per annum. Two thirds of the total volume of EUR 800m is
transferred in July of the current year by the Federal Ministry of Finance, while the
remaining third is transferred in July of the following year. If the criteria for the consolidation aid are not met, the remaining third is withheld, and the two thirds already
received have to be paid back in this case. The Stability Council is responsible for
monitoring compliance with consolidation obligations, which includes the complete
removal of the structural financing deficit by 2020. If an extreme budget crisis is
identified resulting in an additional award of federal restructuring aid, the consolidation aid for the Bundesland in question would cease to apply.
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Issuer Guide German Bundesländer 2015
Overview of federal financial equalisation payments and consolidation aid (EURm)
Baden-Württemberg
Bavaria
Berlin
Brandenburg
Bremen
Hamburg
Hesse
Mecklenburg-Western Pomerania
Lower Saxony
North Rhine-Westphalia
Rhineland-Palatinate
Saarland
2004
-3,382
-3,722
5,172
3,467
724
-775
-2,218
2,612
1,174
-2,259
152
542
2005
-3,705
-3,940
5,281
3,727
456
-621
-2,441
2,802
1,047
-2,964
50
271
2006
-3,609
-3,897
5,625
3,818
518
-875
-3,296
2,938
755
-2,739
271
321
2007
-3,973
-4,239
6,031
3,885
583
-639
-3,821
3,051
875
-2,815
329
319
2008
-4,182
-4,883
6,444
3,719
625
-648
-3,420
3,033
1,065
-2,759
182
327
2009
-2,917
-5,015
6,177
3,144
548
-281
-2,707
2,655
635
-2,437
19
243
2010
-3,036
-5,056
5,576
2,939
605
-286
-2,501
2,496
764
-2,085
64
323
2011
-3,264
-5,313
5,807
2,961
983
-333
-2,617
2,506
913
-2,153
45
612
2012
-4,242
-5,521
6,069
3,023
1,034
-271
-2,137
2,460
354
-1,841
-99
630
2013
-3,937
-6,106
5,691
2,830
1,164
-119
-2,568
2,410
2014
-4,113
-6,821
5,475
2,740
1,215
-307
-2,706
2,319
425
-1,336
49
701
913
-892
47
735
6,197
3,800
31
3,532
6,696
4,151
92
3,725
6,908
4,029
-12
3,925
7,026
4,045
181
3,986
6,935
4,079
371
3,895
6,260
3,679
95
3,436
5,853
3,516
69
3,286
5,900
3,556
5
3,310
5,870
3,453
269
3,246
5,720
3,386
243
3,162
5,677
3,400
535
3,123
Saxony
Saxony-Anhalt
Schleswig-Holstein
Thuringia
Source: Federal Ministry of Finance, Financial Equalisation Act (FAG), Consolidation Aid Act, NORD/LB Fixed Income Research
Overall, Bavaria has been
biggest contributor for
some years, while Saxony
is biggest recipient
Eleven Bundesländer receive payments through VAT equalisation (UStA), financial
equalisation among the Bundesländer (LFA), BEZ grants and consolidation aid. The
eastern German Bundesländer and Berlin receive by far the biggest share of the
funding that is distributed. The list of recipients is headed by Saxony, which receives most of its revenue through UStA and BEZ. However, on a per capita basis,
total payments are highest in Bremen and Berlin. When viewed across all levels of
equalisation, Bavaria has been the biggest contributor for a number of years. Contributions in Bavaria are also highest in relation to number of inhabitants. Although
Rhineland-Palatinate was briefly a net contributor in 2012, it returned to the recipient side in 2013 due to a decline of payments in the VAT equalisation system.
Total equalisation payments 2014 (EURm)
Total equalisation payments 2014 (EUR per capita)
SN, 5,677
BE, 5,475
HB, 1,848
BE, 1,600
ST, 1,515
MV, 1,453
TH, 1,445
SN, 1,403
BB, 1,119
ST, 3,400
TH, 3,123
BB, 2,740
MV, 2,319
HB, 1,215
NI, 913
SL, 735
SH, 535
RP, 47
SL, 742
SH, 190
NI, 117
RP, 12
NW, -51
HH, -176
BW, -387
HE, -448
BY, -541
HH, -307
NW, -892
HE, -2,706
BW, -4,113
BY, -6,821
-8,000
-6,000
-4,000
-2,000
0
EURm
2,000
4,000
6,000
8,000
-1,000
-500
0
500
1,000
EUR per inhabitant
1,500
2,000
2,500
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland, SN =
Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia. Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 13 of 142
Issuer Guide German Bundesländer 2015
Financial strength of the Bundesländer before and after federal financial equalisation 2014 in EUR per capita
180
Financial strength in % of Länder average
Pre UStA
Pre LFA
Post allgemeine BEZ
160
140
120
100
80
60
40
20
0
HH
BY
HE
BW
NW
RP
BE
HB
SH
NI
SL
BB
MV
SN
TH
ST
Note: excluding SoBEZ and consolidation aid. BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen,
HH = Hamburg, HE = Hesse, MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia,
RP = Rhineland-Palatinate, SL = Saarland, SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Financial equalisation
system brings about
significant convergence of
financial strength
The three main levels of federal financial equalisation (VAT equalisation [UStA],
financial equalisation among the Bundesländer [LFA] and general BEZ grants) result in a significant convergence of the financial strength for the Bundesländer. The
eastern German Bundesländer in particular benefit from the equalisation
systems, while the financial strength of the Bundesländer Berlin and Bremen is only
raised through general BEZ grants. In the case of Hamburg there is a substantial
relative drop in financial strength due to the charges arising from VAT equalisation.
All in all, only Bavaria, Hesse and Baden-Württemberg have above-average financial strength after the three main levels of federal financial equalisation have been
applied.
Comment
The result achieved by federal financial equalisation is debatable, since the actual
objective of converging the financial strength of the Bundesländer has obviously not
been reached for some years. Steadily rising volumes can be observed on the
payment equalisation levels while only a very few Bundesländer are required to
contribute, in some cases increasingly. Against this background, the criticism put
forward by Bavaria and Hesse with regard to the existing system does appear to be
a logical consequence. The need for reform has long been known, however, not
least due to discontinuation of financial equalisation at the end of 2019. The impact
of any re-alignment would be questionable. The eastern German Bundesländer in
particular obtain substantial portions of their revenue from federal financial equalisation. In view of the "debt brake" applicable from 2020 onwards, these Bundesländer
thus have much less financial leeway. This could also be highly significant in downstream negotiations on reform of federal financial equalisation.
NORD/LB Fixed Income Research
Page 14 of 142
Issuer Guide German Bundesländer 2015
Challenges for
Bundesländer finances
Compliance with the debt
brake from 2020 onwards
Debt brake & monitoring by the Stability Council
Starting from 2020, none of the Bundesländer will be allowed to finance expenditure
through borrowing ("debt brake"). Art. 109 (3) of the Basic Law (GG) stipulates:
"The budgets of the Federation and the Länder shall in principle be balanced without revenue from credits. The Federation and Länder may introduce rules intended
to take into account, symmetrically in times of upswing and downswing, the effects
of market developments that deviate from normal conditions, as well as exceptions
for natural disasters or unusual emergency situations beyond governmental control
which are substantially harmful to the state’s financial capacity. For such exceptional regimes, a corresponding amortisation plan must be adopted."
Major challenge for the
Bundesländer
As a result, all Bundesländer must de facto balance their budgets starting from
2020. Net borrowing will only be possible due to economic downturns or natural
disasters, for example. We believe that this poses an enormous challenge for the
Bundesländer. Deficits have been incurred all too often, with net borrowing becoming unavoidable in order to finance them. This has resulted in a steady rise in debt,
leading in turn to higher interest expenses and consequently less funding for the
actual responsibilities and functions of the Bundesländer.
Development of financial deficits/surpluses and
debt since 2002
600
20
500
10
400
0
300
-10
200
-20
Proportions held by Bundesländer in overall
debt 2014 (EURbn)
100
-30
Cumulated deficit/surplus in EURbn
Total debt in EURbn
RP, 33.3
HE, 41.4
SH, 27.1
BY, 26.1
HH, 23.2
ST, 20.5
BW, 47.3
HB, 19.7
BB, 16.7
TH, 15.7
NI, 57.8
SL, 14.0
MV, 9.4
SN, 6.9
BE, 60.6
0
-40
NW, 140.1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total debt (lhs)
Aggregated balance (rhs)
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland,
SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Steady increase in
debt level
Apart from 2008, the trend in Bundesländer debt has been steadily upwards. NRW
in particular has stood out for years with the highest level of debt in absolute terms.
However, in relation to the number of inhabitants, NRW as the state with the largest
population is actually in the middle ground. Bremen, Berlin, Saarland and Hamburg
have the highest debt levels per capita, in that order. Despite the increase in overall
debt, some Bundesländer have reduced their debt: in comparison with 2010, debt
levels fell in Bavaria (EUR -4.5bn), Saxony (EUR -2.0bn), Brandenburg (EUR 1.0bn and Berlin (EUR -0.8bn). In comparison with 2013 alone, debt levels fell by
EUR 1.4bn in Bavaria and by EUR 1.0bn in Saxony. In the last budget year, outstanding liabilities were also reduced by Berlin (EUR -0.7bn), Brandenburg (EUR 0.5bn), Thuringia (EUR -0.2bn), Rhineland-Palatinate (EUR -0.1bn), MecklenburgWestern Pomerania (EUR -0.1bn) and Bremen (EUR -0.1bn). Sharply rising tax
revenues in conjunction with falling interest expenses provided support for budgetary performance and are likely to continue having a positive impact in 2015. As a
result, we again expect an aggregated surplus, which could be accompanied by a
net repayment of Bundesländer debt of EUR 1.5-2bn for the first time since 2008.
NORD/LB Fixed Income Research
Page 15 of 142
Issuer Guide German Bundesländer 2015
The Stability Council –
monitoring body for the
national government and
the federal states
The Stability Council was created in 2010 to meet the challenge of complying with
the debt brake and to prevent budgetary crises, as had occurred in Bremen and
Saarland in 1992. The Stability Council is a joint body operated by the national government and the federal states. Its foundation goes back to Federalism Reform II
(Foederalismusreform II), since which its existence has been governed by Art. 109a
of the Basic Law (GG). The purpose of the Council is to regularly monitor the budgets of the national government and the federal states, with the aim of identifying
and/or preventing any pending budgetary crises ahead of time. As a result the Stability Council is an important body for examining the budgets of the national government and Bundesländer, particularly with respect to their sustainability in relation
to compliance with debt limits. The body is managed by the federal government. Its
members are the Federal Minister of Finance, the finance ministers of the federal
states and the Federal Minister of Economics and Technology. The Stability Council
meets twice a year. The first session was held on 28 April 2010.
Restructuring programmes
If a critical budgetary situation is identified in the case of the national government or
a federal state, the Stability Council agrees restructuring programmes with the administrative unit affected. In general, they extend over five years and contain guidelines to eliminate the new annual debt as well as other consolidation measures. If
the national government or a federal state neither sticks to the guidelines nor presents satisfactory suggestions for restructuring concepts, a request is made for
increased budgetary consolidation. If a pending budgetary crisis is still identified
even after complete implementation of the restructuring measures, an agreement is
reached on a further consolidation programme. Pending budgetary crises were
identified for the federal states Berlin, Bremen, Saarland and Schleswig-Holstein at
the second meeting held on 15 October 2010. Restructuring programmes were
agreed as a consequence. Compliance with these programmes and their progress
is reviewed at each meeting of the Stability Council. The supervisory body also
monitors the obligations which the federal states Berlin, Bremen, Saarland, SaxonyAnhalt and Schleswig-Holstein have to meet to receive consolidation aid until 2019.
Monitoring of four key
budget indicators over two
assessment periods
The Stability Council uses four key indicators to assess whether a budgetary crisis
is pending. The development of these indicators is observed in the current budgetary situation and financial planning. The current situation includes the actual figures
for the last two budget years as well as the target figure for the current year. In the
second assessment period the key financial indicators in the budgetary and financial planning for subsequent years are analysed.
Structural financial deficit
per inhabitant
The structural financial deficit is defined by the Stability Council as the financial
deficit, which is adjusted to allow for financial transactions and economic influences.
It is calculated in euros per inhabitant. If the threshold value is not reached, this is
seen as not complying with the regulations. For the term of the current budgetary
situation of the federal states, the Bundesländer average less EUR 200 per inhabitant is regarded as the critical value, whereas for financial planning the Bundesländer average for the current budgetary year less EUR 300 per inhabitant is used as
the tolerance threshold.
Credit financing ratio
The Stability Council also examines the credit financing ratio, which essentially
reflects the relation of new debt to adjusted expenditure. For the current budgetary
situation the body defines a threshold value comprising the Bundesländer average
plus three percentage points. In the financial planning an unacceptable deviation
from the critical value is identified if the threshold value for the current budgetary
year is exceeded by 4%.
NORD/LB Fixed Income Research
Page 16 of 142
Issuer Guide German Bundesländer 2015
Interest-tax ratio
As a third key indicator, the Stability Council analyses the interest-tax ratio,
defined as the ratio of interest expenditure to tax revenue. In the case of tax revenues an adjustment is made for payment flows related to the financial equalisation
among the Bundesländer, general BEZ, promotional levies and vehicle tax compensation. The limit for this key indicator during the period of the current budgetary
situation is also based on a relative comparison of the Bundesländer. The critical
value for non-city states is defined as 140% (for city states 150%) of the Bundesländer average. For the duration of the financial planning the tolerance value of
the current budgetary year plus one percentage point applies as the limit.
Debt per capita
The last key indicator reflects the debt level on the credit market as of 31 December
of each year in relation to the number of citizens. For the current budgetary situation, it is deemed a limit violation if the key indicator exceeds 130% of the Bundesländer average for non-city states (220% in the case of city states). For the duration of the financial planning a limit amounting to the threshold value for the current budgetary year plus EUR 200 per citizen and year is used as a basis. A key
indicator is generally regarded as non-compliant for a specific period if at least two
critical values have been exceeded. By contrast, a time period is regarded as noncompliant if at least three out of four key indicators exceed their specified limits. If a
time period is identified as non-compliant, an evaluation of the administrative unit in
question is carried out by the Stability Council.
Monitoring system of the Stability Council
Actual
Target
Financial planning
2012
2013
2014
Limit
violations
2015
2016
2017
2018
Limit
violations
Threshold value
-231
-192
-286
Yes / No
-386
-386
-386
-386
Yes / No
Bundesländer average
-31
8
-86
Threshold value
2.3
1.7
2.6
Yes / No
8.4
8.4
8.4
8.4
Yes / No
Bundesländer average
4.7
4.0
4.4
Threshold value (non-city states)
11.4
10.4
10.6
11.6
11.6
11.6
11.6
Threshold value (city states)
12.3
11.1
11.3
12.3
12.3
12.3
12.3
Bundesländer average
9.0
8.2
8.4
Financial balance in EUR per capita
Credit financing ratio in %
Interest-tax ratio in %
Yes / No
Yes / No
Total debt in EUR per capita
Threshold value (non-city states)
8,875
8,929
9,051
Threshold value (city states)
Bundesländer average
15,019
15,111
15,316
6,827
6,869
6,962
Yes / No
Violations in the period
Yes / No
9,251
9,451
9,651
9,851
15,516
15,716
15,916
16,116
Yes / No
Yes / No
Source: Stability Council, NORD/LB Fixed Income Research
Stability Council offers
many advantages…
The transparent method of working and presentation of the results enables the
situation in each Bundesland budget to be easily assessed. The credit financing
ratio and interest-tax ratio provide two additional indicators for the Stability Council.
They were also used by the Federal Constitutional Court when assessing the budgetary situation for the federal states of Bremen and Saarland in 1992 and Berlin in
2002. The mechanistic definition of critical values avoids any political interpretation
of the respective budgetary situation, providing a clear advantage. The agreement
of recovery plans and the transparent monitoring of compliance with them should
also be interpreted as positive aspects, since this applies constant pressure to
those federal states that are obliged to follow a restructuring programme. Aligning
the threshold values to the Bundesländer average also allows special circumstances such as economic downturns to be taken into account dynamically. The review
of financial planning enables negative tendencies or even budgetary crises to be
identified at an early stage.
NORD/LB Fixed Income Research
Page 17 of 142
Issuer Guide German Bundesländer 2015
…and some disadvantages
It should nevertheless be noted that the financial planning of a Bundesland does not
constitute any definitive or specific plans and consequently it does not have to be
compiled with binding effect. The information value of the figures for financial planning is accordingly low. Aligning the threshold value to the Bundesländer average
entails the risk that negative tendencies or potential budgetary crises are not identified, if a majority of the federal states generate poorer budget figures and the Bundesländer average goes in a negative direction as a result. We also consider the
choice of indicators to be worthy of discussion. Although the four indicators provide
an insight into Bundesländer budgets, major structural budgetary problems such as
significantly above-average personnel costs are not covered. The definition of the
critical values and the calculation of key indicators are also subject to (adjustment)
methods that are not very transparent. In our view, however, the biggest disadvantage of the Stability Council in its current legal framework is the absence of a
mechanism for imposing sanctions. If a federal state does not comply with the recovery plans, for example, it is only requested to comply with them and, in an extreme case, a new restructuring programme is defined. However, no effective
means are in place, such as cutting BEZ grants.
Comment
Despite all these disadvantages, we believe that the Stability Council is a worthwhile tool for monitoring the budgets of the national government and federal states.
Due in particular to the introduction of the debt brake, which we see as a major
challenge especially for financially weaker Bundesländer, we rate the supervisory
body as a suitable option for monitoring the budgets of the national
government and federal states. From an investor viewpoint, too, we regard the Stability Council and especially its semi-annual reports to be important, since they provide information on the budgetary situation of each state that is always up-to-date
and transparent. Although we believe it to be a significant disadvantage that the
Council currently does not possess serious mechanisms for imposing sanctions,
this is of subordinate significance in view of the positive budget performance, at
least at present.
NORD/LB Fixed Income Research
Page 18 of 142
Issuer Guide German Bundesländer 2015
Challenges for
Bundesländer finances
Municipal budget situation as a strain on
Bundesländer finances
Municipalities again
generate surplus in 2013
Following the surplus of EUR 2.5bn generated at cumulative level by German municipalities in 2012 for the first time since 2008, another surplus of EUR 1.7bn was
posted in 2013. However, as with the Bundesländer, there are still pronounced
differences in this regard as well: at the end of 2013, municipalities showed a cumulative surplus in 8 out of the 13 non-city Bundesländer. This had only been the case
in three non-city Bundesländer for a short time in 2010. While the municipal budgets
in Bavaria and Lower Saxony closed the year with surpluses of EUR 1.4bn and
EUR 0.7bn, respectively, municipalities in Hesse posted a cumulative deficit of EUR
0.8bn. Overall municipal debt was up again by EUR 1.5bn to EUR 172.8bn as at the
end of 2013. However, as this is equivalent to 0.9%, it indicates stabilisation.
Development of municipal debt in non-public
sector since 2004
Comparison of municipal Kassenkredite 2004
and 2013
140
30
120
25
EURbn
EURbn
100
80
60
20
15
40
10
20
5
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Investment loan
Short-term borrowing (Kassenkredite)
0
BB
2004
HE
NI
NW
RP
2013
SL
ST
BB = Brandenburg, HE = Hesse, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland,
ST = Saxony-Anhalt. Source: Federal Office for Statistics, NORD/LB Fixed Income Research
Considerable rise in
Kassenkredite…
There was a considerable increase in Kassenkredite (short-term loans for strengthening cash resources) in the past few years. The Kassenkredite were originally
intended to cover short-term cash flow problems arising from a timing mismatch in
revenue and expenditure. For instance, if higher personnel costs are incurred at the
start of a calendar year, while regular tax revenue has not yet been received, Kassenkredite could be used to bridge this time gap. However, 27.4% of overall municipal liabilities were actually attributable to Kassenkredite at the end of 2013 (2002:
8.1%). A large amount of short-term liabilities harbours an increased interest rate
risk, which is why we see a high level of short-term debt as correspondingly negative. While overall debt has risen in recent years, capital investment loans fell by
4.4% compared with 2004. Unlike Kassenkredite, these are backed by direct assets, whereby the interest expenses can be covered by the return on investments.
There are also considerable differences between the individual Bundesländer with
regard to this debt classification.
…although stabilisation is
apparent
Stabilisation of (Kassenkredit) debt was nevertheless apparent in 2013. We believe
that this is likely to continue. For the first time in years, for example, the proportion
of Kassenkredite relative to the municipalities' overall liabilities fell marginally from
27.7% in 2012 to 27.4% in 2013, while overall liabilities rose only 0.9%, the lowest
figure since 2008, when debt decreased by 5.4%. Sharply rising tax revenue accompanied by falling interest costs also result in a structural improvement in the
outlook for budget performance within the municipality sector. In view of the annual
relief of EUR 1bn provided to municipality finances by federal funds, it is probable
that this performance will be supported in future as well.
NORD/LB Fixed Income Research
Page 19 of 142
Issuer Guide German Bundesländer 2015
Municipal Kassenkredite in eastern and western
Germany since 2004
Municipal Kassenkredite per capita in eastern
and western Germany since 2004
50
3,000
2,500
2,000
30
EUR
EURbn
40
1,500
20
1,000
10
500
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Western Länder
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Western Länder
Eastern Länder
Eastern Länder
Source: Federal Office for Statistics, NORD/LB Fixed Income Research
Significant differences
between the Bundesländer
in respect of the level and
development of
Kassenkredite
In comparison with 2004, the portfolio of Kassenkredite increased by an average of
136.8% between 2004 and 2013, with North Rhine-Westphalia and Hesse recording
a disproportionately large rise. The volume of Kassenkredite in North RhineWestphalia increased from EUR 8.5bn in 2004 to EUR 25.2bn in 2014. This means
that 53.3% of the Kassenkredite of German municipalities is attributable to municipalities in North Rhine-Westphalia. The municipalities in Hesse (EUR 6.6bn;
+207.4% vs. 2003) and Rhineland-Palatinate (EUR 6.0bn; +156.7%) also have high
Kassenkredite. In contrast, the debt level per capita is highest in Saarland, where
Kassenkredite stand at EUR 1,959 per inhabitant. At the other end of the scale, the
volume of per capita Kassenkredite is lowest in Baden-Württemberg at EUR 15.
Growing challenges,
growing debt?
Furthermore, municipal budgets face a multitude of challenges: if interest rates rise,
for example, credit financing expenses will also rise and consequently put a strain
on budgets. Especially, an increase in money market rates could put pressure on
municipalities with high short-term liabilities. In addition, regulatory changes are
expected to have a significant impact on municipal financing. As a result of the introduction of the Leverage Ratio under Basel III, municipal financing is likely to become increasingly unattractive for private banks. The key indicator specifies a minimum ratio of regulatory equity to the exposure of a bank, whereby the risk of the
exposure is irrelevant. Segments with weak margins, such as municipal financing,
are therefore likely to see the supply of credit from private banks shrink. The banking crisis also already resulted in a shift within the market for municipal financing:
the regional promotional banks, in particular, have recorded substantial growth in
this area for years. The municipal loan business of NRW.Bank, North RhineWestphalia's regional promotional bank, posted strong growth such that the municipal loan portfolio totalled EUR 36.2bn at the end of 2014. Within the Bundesland the
development bank was therefore the market leader for municipality financing. Other
regional promotional banks, such as BayernLabo, are also registering growth in
municipal loan business. In contrast, KfW is already restricting its municipal lending
to a maximum of EUR 750 per inhabitant. The focus is consequently turning more
and more to alternative funding options such as borrower's note loans
(Schuldscheindarlehen; SSD) or bonds, some of which are issued in a joint format
together with other municipalities.
NORD/LB Fixed Income Research
Page 20 of 142
Issuer Guide German Bundesländer 2015
Bundesländer support
municipalities with rescue
packages
To support the municipalities, several Bundesländer have already set up consolidation assistance or bail-out funds in recent years. With reference to the municipalities' autonomy, these programmes are mostly voluntary and vary widely in design.
In general, they were a response to the difficult municipal budget situation: in 2014,
a survey of 300 municipalities by EY revealed that 31% do not regard themselves
as being able to service its debt on its own. This points de facto to insolvency, but
under Section 12 of the Insolvency Regulation, no insolvency proceedings can be
instituted against municipalities. The fact that the Bundesländer are nonetheless
supporting the municipalities with various programmes can be justified, amongst
other factors, by the fact that whether or not the respective Bundesland had followed the principle of connectivity would have to be clarified in the event of insolvency. This would necessitate an examination of whether or not the Bundesland
had made the required funding available to the municipalities for the tasks transferred. The Bundesländer constitutions also include articles that impose a mandatory maintenance obligation on the respective Bundesland, which means it has an
obligation to financially assure task fulfilment (e.g. Article 58 of the Constitution of
Lower Saxony).
Rescue packages vary
considerably
This situation is remedied by the consolidation assistance and bail-outs provided,
which to some extent vary significantly from state to state. The majority define the
repayment of loans or direct deficit coverage as the focus, whereby the corresponding inflows are often linked to municipal financial equalisation. Rhineland-Palatinate,
for instance, set up a municipal bail-out fund in 2012, in which 700 municipal authorities are currently participating. The aim of the fund is to repay two thirds of the
Kassenkredite taken out before 2009. In addition the interest burden is to be reduced. Over a period of 15 years, EUR 255m is available for this per annum. Mecklenburg-Western Pomerania adopts a different approach. Here a consolidation fund
was set up, which provides financial assistance for unavoidable deficits. Furthermore, the Bundesland is granting special aid of EUR 40m each year from 2014 to
2017. One thing all programmes have in common is that consolidation plans and, in
part, the amalgamation of existing municipalities were agreed in order to stabilise
budgets on a sustainable basis.
Clear differences in
programme ratios
There are differences regarding the scope of the programmes in relation to the
overall debt of the municipalities. In Rhineland-Palatinate, the absolute volume
available until 2026 amounts to 26.9% of the municipal debt. Saxony-Anhalt
(14.3%), Schleswig-Holstein (13.5%), Lower Saxony (13.4%) and Hesse (13.0%)
also have above-average programme ratios. The situation in Saarland and in North
Rhine-Westphalia differs: although the level of municipal debt per capita in Saarland
is the second-highest in a comparison of Bundesländer, ahead of RhinelandPalatinate and below Hesse, North Rhine-Westphalia has the fourth-highest level of
municipal debt per capita. However, the programme volume in Saarland only
amounts to 3.2% of municipal debt while it is 9.7% in North Rhine-Westphalia. The
average of all programmes is 10.8%. In Bavaria (0.3%), Brandenburg (8.0%), Mecklenburg-Western Pomerania (5.5% before factoring in special aid, and 9.6% afterwards), the absolute programme volume is below-average, although this is also true
of municipal debt per capita.
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Integration of municipalities A few Bundesländer, such as Lower Saxony and North Rhine-Westphalia, do not
into rescue packages
exclusively provide funding for municipality rescue packages from Bundesland resources. Lower Saxony set up a bail-out fund, half of whose annual income of up to
EUR 70m is comprised of Bundesland resources and half from a contribution financed by municipalities. As a result, this model does not allocate financial burdens
arising from the provision of support to financially weak municipalities exclusively to
the Bundesland, but also to all the municipalities located within it. The group of
North Rhine-Westphalian municipalities that are called up to make a solidarity contribution within the scope of the Stabilisation Pact (Stärkungspakt) is limited to those
municipalities whose financial strength (as measured by tax revenue) exceeds its
financial requirements (approximated through the number of inhabitants, among
other methods). The proportion of North Rhine-Westphalian municipalities that are
involved in the financing side of the Stabilisation Pact stands at 13%, i.e. substantially below the proportion of Lower Saxon municipalities (50%) participating in the
bail-out fund.
Overview of municipal bail-out packages
Repayment of
KassenCredit market
kredite
debt
Reduction in
interest payments
Term
Volume
(in EUR m)
BY
2007-2012
10
Annual
x
BB
2013 -
45
Annual; from 2016 EUR 40m p.a.
x
HE
2012-2047
3,200
Overall
MV
2012-2015
15*
Annual plus one-off EUR 100m
NI
2012-2041
70**
Annual
NW
2011-2020
5,750**
Overall
RP
2012-2026
255
Annual
x
SL
2013-2019
17
Annual
x
ST
2011-2025
510
Overall
SH
2012-2018
95
Annual
Comment
x
x
Cover deficit
x
x
x
x
x
x
x
x
x
x
x
* Excluding special aid for budget consolidation and debt reduction of EUR 40m p.a. in the period 2014–2017 outside the Financial Equalisation Act
Mecklenburg-Western Pomerania (Finanzausgleichgesetz Mecklenburg-Vorpommern; FAG-MV). ** Figures include participation of municipalities.
BY = Bavaria, BB = Brandenburg, HE = Hesse, MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia,
RP = Rhineland-Palatinate, SL = Saarland, ST = Saxony-Anhalt, SH = Schleswig-Holstein.
Source: Relevant legislation, NORD/LB Fixed Income Research
Comment
We see the trend in municipal finances as one of the key challenges for
Bundesländer finances. In our opinion, a difficult budgetary situation for the
municipalities has a direct impact on the budget situation of the respective
Bundesland. We view the fact that a large number of Bundesländer are countering
this with defined programmes as unreservedly positive. Nonetheless, the constellation of the communal programmes of some Bundesländer is negative in our opinion.
Whereas we believe the scope of the programme in relation to municipal debt is
appropriate in Rhineland-Palatinate, we view the situation in Saarland as more
critical. Here, the programme volume in relation to the debt of the municipalities is
significantly lower than in the other Bundesländer. However, the positive trend on
the revenue side in combination with declining interest expenses is likely to contribute to financial stabilisation in this respect.
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Pension obligations as challenge for
Bundesländer finances
Challenges for
Bundesländer finances
Pension obligations
represent a growing
challenge for
Bundesländer finances
In view of demographic change and increasing life expectancy, pension expenses
are increasingly playing a role in the budgets of the Bundesländer. Unlike the
pay-as-you-go pension system that applies to salaried employees, the pension
benefits paid to civil servants form part of personnel expenditure and are often paid
out of the current budget. The federal government and Bundesländer did not start to
create pension reserves in accordance with Paragraph 14a (1) of the
Federal Civil Servants’ Remuneration Act (BBesG) until 1999 and these are set to
be released again as of 2018 due to the highest anticipated burden. However, there
are differences in the type of investment and reserve policy. Some Bundesländer
suspended payments to a pension reserve as early as 2003, and others are using
their pension funds concurrently as lender for their own budgets. While we consider
these to be examples of a lack of pension provision, or provision that is only sustainable to a limited extent, other Bundesländer rely on the additional creation of
reserves through the federal state's own pension or retirement funds, extending
above and beyond the reserves required by law. In our opinion the differing methods for creating reserves pose major challenges, and in some cases such provisions are totally absent. These challenges are particularly relevant with regard to
the debt brake from 2020 onwards.
Pension payments are
significant expenditure
items in many
Bundesländer
Just in comparison with 2010, spending on pensions and benefits by the Bundesländer grew by 18.0%, with a rise of 5.8% in the past budget year. Expenditure
for this item amounted to EUR 34.5bn, corresponding to 10.6% of total expenditure.
Consequently, the payments accounted for a larger share of Länder budgets than
either investments (9.7%) or interest (4.9%). This burden is likely to continue rising
in the future: it will be a few years yet before the majority of the baby boomer generation born between 1955 and 1969 will be entitled to draw their pensions.
Development of pension expenditure of all
Bundesländer since 2010
Pension expenditure by Bundesland in 2014
35
9
30
8
7
EURbn
EURbn
25
20
6
5
4
15
3
10
2
5
1
0
0
2010
2011
2012
2013
2014
BW BY BE BB HB HH HE MV NI NW RP SL SN ST SH TH
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland, SN =
Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia. Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Pension obligations of low
significance for non-city
eastern German states
As in the preceding years, North Rhine-Westphalia recorded the highest absolute
expenditure in 2014 (EUR 8.2bn), while Mecklenburg-Western Pomerania had the
lowest pension and benefits expenditure (EUR 0.1bn). The other Bundesländer in
eastern Germany also recorded a relatively low burden for pension and benefits
payments. Only 3.1% of the payments in 2014 were attributable to Bundesländer in
eastern Germany. Overall, the burden of pension obligations is therefore significantly lower for the new Bundesländer. This is due to the fact that after reunification,
civil servants in the new Bundesländer were not included in the pension scheme but
treated on the basis of pension law under the Pension Transition Act (RentenÜberleitungsgesetz).
NORD/LB Fixed Income Research
Page 23 of 142
Issuer Guide German Bundesländer 2015
Pension expenditure as % of total expenditure in 2014
900
16%
800
14%
700
12%
% of total expenses
EUR per inhabitant
Pension expenditures per capita by Bundesland in 2014
600
500
400
300
10%
8%
6%
200
4%
100
2%
0
BW BY BE BB HB HH HE MV NI NW RP SL SN ST SH TH
0%
BW BY BE BB HB HH HE MV NI NW RP SL SN ST SH TH
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland,
SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Saarland stands out in
particular
Saarland stands out in particular when it comes to pension expenditure. Although
the amounts are relatively low in absolute terms, in relation to the number of inhabitants or total expenditure it is clear how much the pension obligation strains the
budget. Expenditure on pension and benefits accounted for 15.2% of the budget in
the smallest non-city Bundesland, considerably more than interest expenditure
(12.1%) or capital expenditure (8.8%). However, the two city states Bremen and
Hamburg record the highest expenditures per capita. With 185.4% Bremen has the
highest expenditure per capita in comparison to the national average (Hamburg:
185.0%). The relatively high expenditures are caused by the status and the structure as a city state: Bremen, for example, has four universities – more than any
other Bundesland per capita.
Pension obligations as
implicit debt?
It is only possible to determine the implied liabilities resulting from pension
obligations to a limited extent. Rating agency S&P calculated for Bavaria, for example, that pension obligations are likely to amount to 400% of net revenue in 2014
and thus to a total of around EUR 200bn. Saxony estimated the net present value of
future payments at EUR 11.1bn in mid-2013.
Comment
The pension liabilities of the Bundesländer have been a substantial expenditure
item for many years. In Western German states in particular, they lead to significantly reduced budget flexibility. And the burden is likely to continue to increase in
the future. In our opinion, the Bundesländer in eastern Germany are at a clear advantage, as the resultant challenges are lower here. We expect payments to continue to rise over the next few years, which means that revenue will have to grow so
that the financial deficit/surplus at least does not worsen.
NORD/LB Fixed Income Research
Page 24 of 142
Issuer Guide German Bundesländer 2015
Regulatory
framework
Risk weighting of German Bundesländer
Relevant regulatory framework:
Regulation (EU) No 75/2013
(CRR)
On the basis of the risk weightings that were defined by Basel II, the EU initially
specified the provisions in Directive 2006/48/EC. In mid-2013, CRR (Regulation
(EU) No 575/2013) then replaced the definitions for the risk weighting.
Risk weighting of EU states
using standard approach:
0%
The risk weighting for exposure to central governments or central banks is derived
from Art. 114 of the CRR. In accordance with Paras. 3 and 4, this means a risk
weighting of 0% for risk positions held against EU Member States or the ECB. If the
exposure is denominated in the domestic currency of the respective country, this
shall apply without any time limit.
Risk weighting of regional
and local authorities
The risk weighting of regional and local authorities is equated with that of the relevant state, subject to two provisos: rights to levy taxes must be in place and, based
on the existence of specific institutional precautions for reducing the risk of default,
there is no risk-related difference with risk positions held against the central government of the state in question (Art. 115 (2) CRR).
EBA maintains database of
risk weighting of regional
and local authorities
Since this definition allows scope for interpretation, the EBA maintains a publicly
available database. The database includes all regional governments and local authorities within the EU which relevant competent authorities treat as exposures to
their central governments. Accordingly, outstanding claims against the following
levels are assigned a risk weighting of 0% in Germany:
Bundesländer with 0%
risk weighting
-
Bundesländer
-
Legally independent funds held by the Bundesländer
(rechtlich selbständige Sondervermögen der Länder)
-
Municipalities
-
Municipal associations
Consequently, exposure to Bundesländer may be assigned a risk weighting of 0%,
i.e. they can benefit from the same regulatory advantages as Bunds, for example.
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Regulatory
framework
Implications of the Liquidity Coverage Ratio
Implementation of the LCR
with major implications for
SSAs and in particular
agencies
During the financial crisis, the liquidity situation of credit institutions increasingly
became the focus of attention. Consequently, in December 2010 the Basel Committee on Banking Supervision (BCBS) announced a Liquidity Coverage Ratio (LCR)
and a Net Stable Funding Ratio (NSFR), to be introduced in 2015 and 2018, respectively. In the EU, the corresponding regulations were defined in European law
in Regulation (EU) No 575/2013 and Directive 2013/36/EU (CRD IV). The definition
of the means used to calculate the LCR presents major implications for SSAs.
Objective of the LCR:
reduction in liquidity risks
for credit institutions
The objective of the LCR is to control the liquidity risk of a credit institution in such a
way that sufficient high-quality liquid assets (HQLA) are available at all times to
survive a significant stress scenario lasting 30 days. It comprises the minimum liquidity buffer, which is required in order to bridge liquidity mismatches of one month
in crisis situations. Specifically, the LCR is calculated from the ratio of HQLA to the
net payment outflows in the 30-day stress scenario. In the future, this proportion
must be at least 100%. Institutions must therefore establish relevant HQLA portfolios in order to meet the LCR requirements in full by 2018.
10 October 2014:
After there had been a lack of clarity for a long time about the precise definition of
European Commission pub- HQLA, as well as the EBA recommendation published at the end of 2013 only leadlished LCR Regulation
ing to further uncertainty, the Liquidity Coverage Requirement Delegated Act was
finally published on 10 October 2014. In particular, this LCR Act has now more
closely defined which assets will be eligible as high-quality liquid assets (HQLA) in
future. In addition, the date of application was postponed from 1 January 2015 to 1
October 2015.
Gradual introduction of the LCR
1 October 2015
1 January 2016
1 January 2017
1 January 2018
60%
70%
80%
100%
Minimum level required
Source: LCR, NORD/LB Fixed Income Research
Categorisation in different
liquidity levels
As suggested by the BCBS, the Act categorises the HQLA into different liquidity
levels as part of the HQLA definition. Depending on the assigned level, there are
minimum and maximum criteria for each level as well as for the application of possible haircuts. On the following two pages we provide a brief overview of asset classification and allocation, before analysing the implications for the Länder.
Liquidity levels – an overview
Level 1 Assets (Art. 10 LCR)
-
Minimum of 60% of liquidity buffer
-
No haircut
Level 1B Assets (Art. 10 (1)(f) LCR; certain covered bonds)
-
Maximum of 70% of liquidity buffer
-
Minimum haircut of 7%
Level 2A Assets (Art. 11 LCR)
-
Maximum of 40% of liquidity buffer
-
Minimum haircut of 15%
Level 2B Assets (Art. 11 LCR)
-
Maximum of 15% of liquidity buffer
-
Minimum haircut of 25-50%
Source: LCR, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 26 of 142
Issuer Guide German Bundesländer 2015
Classification overview
Minimum haircut (for shares
or units in CIUs)
Level 1 assets (minimum of 60% of liquidity buffer; min. 30% excluding covered bonds)
(a)
Coins and bank notes
- (-)
(b)
Following exposures to central banks:
- (-)
(i)
Assets representing claims on or guaranteed by the ECB or an EEA member state’s central bank
(ii)
Assets representing claims on or guaranteed by central banks of third countries, minimum rating of AAReserves held by the credit institution in a central bank referred to in (i) and (ii) provided that the credit
(iii)
institution is permitted to withdraw such reserves at any time during stress periods and the conditions for
such withdrawal have been specified in an agreement between the relevant competent authority and the
ECB or the central bank
(c)
Assets representing claims on or guaranteed by the following central or regional governments, local authorities
- (5%)
or public sector entities (PSEs):
(i)
Central government of an EEA member state
(ii)
Central government of a third country; minimum rating of AA-
(iii)
Regional governments or local authorities in an EEA member state, provided that they are treated as
exposures to the central government of the EEA member state (i.e., risk weighting of 0%)
Regional governments or local authorities in a third country of the type referred to in (ii), provided that they
(iv)
are treated as exposures to the central government of the third country (i.e., same risk weighting as central
government [0%])
(v)
(d)
(e)
PSEs provided that they are treated as exposures to the central government of an EEA member state or to
one of the regional governments or local authorities referred to in (iii) (i.e., same risk weighting of 0%)
Assets representing claims on or guaranteed by the central government or the central bank of a third country
- (5%)
with a lower rating than AA- under certain conditions
Assets issued by credit institutions which meet at least one of the following requirements:
- (5%)
Incorporated or established by the central government of an EEA member state or the regional gover nment or local authority in an EEA member state, the government or local authority is under the legal oblig a(i)
tion to protect the economic basis of the credit institution and maintain its financial viability throughout its
lifetime and any exposure to that regional government or local authority, if applicable, is treated as an
exposure to the central government of the EEA member state (i.e., risk weighting of 0%)
(ii)
(f)
(g)
The credit institution is a promotional lender as defined in the next paragraph (see following pages)
Qualifying EEA Covered Bonds; min. EUR 500m, CB-Rating: min. AA- (maximum of 70% of liquidity buffer)
7% (12%)
Assets representing claims on or guaranteed by the multilateral development banks and the international organisations referred to in Art. 117 (2) and 118, respectively, of Regulation (EU) No. 575/2013
- (5%)
Source: LCR, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Classification overview (continued)
Minimum haircut (for shares
or units in CIUs)
Level 2A assets (maximum of 40% of liquidity buffer)
(a)
Assets representing claims on or guaranteed by regional governments, local authorities or PSEs in an EEA
15% (20%)
member state, where exposures to them are assigned a risk weighting of 20%
Assets representing claims on or guaranteed by the central government or the central bank of a third country or
(b)
by a regional government, local authority or PSE in a third country, where exposures to them are assigned a risk
15% (20%)
weighting of 20%
(c)
Qualifying EEA covered bonds (not reaching Level 1B)
15% (20%)
(d)
Qualifying covered bonds issued by credit institutions in third countries
15% (20%)
(e)
Corporate debt securities which meet all of the following requirements:
15% (20%)
(i)
Minimum rating of at least AA- or equivalent in event of a short term credit assessment
(ii)
Issue size of at least EUR 250m or equivalent in domestic currency
(iii)
Maximum time to maturity of the securities at the time of issuance is 10 years
Minimum haircut (for shares
or units in CIUs)
Level 2B assets (maximum of 15% of liquidity buffer)
(a)
25-35%
Exposures in the form of ABS under certain conditions
(30-40%)
(b)
(c)
(d)
Corporate debt securities which meet all of the following requirements:
(i)
minimum rating of at least BBB- or equivalent in event of a short term credit assessment
(ii)
issue size of at least EUR 250m or equivalent in domestic currency
(iii)
maximum time to maturity of the securities at the time of issuance is 10 years
50% (55%)
Shares, provided that they meet certain conditions
50% (55%)
Restricted-use committed liquidity facilities provided by the ECB, the central bank of an EEA member state or a
third country, under certain conditions
-
(e)
Qualifying EEA covered bonds (no rating restriction)
30% (35%)
(f)
Only for religiously observant credit institutions: certain non-interest bearing assets
50% (55%)
Source: LCR, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 28 of 142
Issuer Guide German Bundesländer 2015
The classification of PSEs and sub-sovereigns (regional governments and local
authorities) is almost identical. In line with the original draft of the BCBS, classification is carried out primarily on the basis of the issuer’s risk weighting. If, in regulatory
terms, PSE and sub-sovereign bonds may be treated as exposures to the respective
central government and a risk weighting of 0% can be applied, these issuers can be
classified as Level 1. Where a risk weighting of 20% can be applied, sub-sovereigns
or PSEs are classified as Level 2 issuers. Bonds of other PSEs and sub-sovereigns
whose risk weighting is higher than 20% under the standardised approach cannot
be classified as liquid assets.
Classification of
sub-sovereigns
LCR classification of assets representing claims on or guaranteed by PSEs or sub-sovereigns
Yes
0% RW
Level 1
No haircut
20% RW
Level 2A
Apply
15% haircut
Higher RW
EEA member
state?
Not eligible
PSE
0% RW
No
Sub-Sovereign
20% RW
Higher RW
Explicitly guaranteed
by central government
or central bank?
Not eligible
Level 1
No haircut
Level 2A
Apply
15% haircut
Yes
No
Exception (d)
Not eligible
NB: RW = risk weighting. Source: NORD/LB Fixed Income Research
0% risk weighting enables
Level 1 classification for
Bundesländer bonds
Since exposure to Bundesländer can be assigned a risk weighting of 0% under the
standard approach of CRR (see previous chapter), this results in a Level 1 classification for bonds issued by Bundesländer. In the case of LCR, too, this gives rise to
an equating of exposure to, for example, the German federal government and German Bundesländer, from a regulatory viewpoint. For a more detailed analysis of the
LCR classification, in particular the classification of agencies and supranationals,
we refer at this point to our Issuer Guide Supranationals & Agencies 2015.
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Regulatory
framework
The impact of the Net Stable Funding Ratio (NSFR)
Introduction of the NSFR
with aim to reduce funding
risk
In December 2010, the Basel Committee on Banking Supervision (BCBS) announced the introduction of a net stable funding ratio (NSFR) which, similar to the
LCR, is aimed at increasing the stability of financial institutions. The aim of the LCR
is to prevent liquidity bottlenecks in a 30-day stress scenario, whereas the NSFR
focuses on reducing the funding risk over a one-year time horizon. The objective is
to reduce the likelihood that disruptions to a bank’s regular sources of funding will
erode its liquidity position in a way that would potentially lead to broader systemic
stress. In particular, the NSFR is designed to limit overreliance on short-term funding. In October 2014, the BCBS published a Draft definition of the NSFR. In the
following, we first examine this definition before addressing the implementation
process in the EU.
Definition of the NSFR
The NSFR is defined as the available amount of stable funding (ASF) relative to the
required amount of stable funding (RSF). This ratio should be equal to at least
100% on an ongoing basis.
Determining stable funding
The BCBS’s definition of ASF represents the portion of capital and liabilities expected to be reliable over the time horizon extending to one year. Conversely, the
RSF is a function of the liquidity characteristics and residual maturities of the various assets held by a specific financial institution. Longer term liabilities are therefore
classified as more stable than short-term liabilities. In addition, the short-term deposits of retail customers and small companies (maturing in less than one year) are
rated as more stable than wholesale funding of the same maturity from other counterparties. In order to determine the appropriate amounts of stable funding, the
BCBS draft also includes:
-
Resilient credit creation: minimum requirement for stable funding for some
proportion of lending to the real economy.
-
Bank behaviour: the inclination to roll over customer loans is factored in.
-
Asset term: the NSFR assumes that some short-dated assets (maturing in
less than one year) require a smaller proportion of stable funding because
banks would be able to allow some proportion of those assets to mature instead of rolling them over.
-
Asset quality and liquidity: the NSFR assumes that unencumbered, highquality assets that can be securitised or traded, and can therefore also be
readily used as collateral to secure additional funding, do not need to be
wholly financed with stable funding.
Calculation of the ASF is
based on the liability categories which apply to the
liabilities of the relevant
financial institution
The amount of ASF is calculated by assigning the carrying value of an institution’s
capital and liabilities to one of several categories. These categories are linked to
ASF factors, by which the carrying values of the funding assigned to each category
are multiplied. The ASF is the total of these weighted amounts. This means that the
higher the ASF factor, the greater the stability of the funding. The following table
provides an overview of the categories.
Calculation of the RSF is
based on the asset categories which apply to the assets of the relevant financial institution
To calculate the RSF, a similar assignment to various categories is carried out for
the carrying values of an institution’s assets. An RSF factor is assigned to each
category. The carrying values of the assets are then multiplied by the relevant RSF
factors and added up to obtain the RSF. Accordingly, the following applies: the lower the RSF factor, the lower the required stable funding for the associated asset.
The assignment of assets to categories is partly based on the existing definitions for
the LCR.
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Assignment of equity and debt capital to ASF factors (BCBS draft)
Level
ASF factor
1
100%
-
Total regulatory capital (excluding Tier 2 instruments with residual maturity of less than one year)
Other capital instruments and liabilities with effective residual maturity of one year or more
2
95%
-
3
90%
-
Less stable demand deposits and term deposits with residual maturity of less than one year provided by retail
and SME customers
4
50%
-
Funding with residual maturity of less than one year provided by non-financial corporate customers
Operational deposits
Funding with residual maturity of less than one year from sovereigns, public sector entities (PSEs) and multilateral and national development banks
-
Other funding with residual maturity between six months and less than one year (including funding provided
by central banks and financial institutions)
-
All other liabilities and equity that cannot be allocated to the above categories, including liabilities without a
stated maturity (with specific treatment for deferred tax liabilities and minority interests)
NSFR derivative liabilities net of NSFR derivative assets if NSFR derivative liabilities are greater than NSFR
derivative assets
5
0%
Components
-
-
Stable demand deposits and term deposits with residual maturity of less than one year provided by retail and
SME customers
“Trade date” payables arising from purchases of financial instruments, foreign currencies and commodities
Assignment of assets to RSF factors (BCBS draft)
Level
RSF factor
1
0%
Components
-
Coins and bank notes
Central bank reserves
Claims on central banks with residual maturities of less than six months
“Trade date” receivables arising from sales of financial instruments, foreign currencies and commodities
2
5%
3
10%
-
4
15%
-
Other unencumbered loans to financial institutions with residual maturities of less than six months not inclu ded in 3 above
-
Unencumbered Level 2A assets
5
50%
-
Unencumbered Level 2B assets
HQLA encumbered for a period of six months to one year
Loans to financial institutions and central banks with residual maturities between six months and one year
Deposits held at other financial institutions for operational purposes
-
Other assets not included in the above categories with residual maturity of less than one year, including loans
to non-financial corporate clients, loans to retail and SME customers, sovereigns and PSEs
-
Unencumbered residential mortgages with a residual maturity of one year or more and with a maximum risk
weighting of 35% under the standardised approach
-
Other unencumbered loans not included in the above categories, excluding loans to financial institutions, with
a residual maturity of one year or more and with a maximum risk weighting of 35%
-
Cash, securities or other assets posted as initial margin for derivative contracts, and cash
Other unencumbered performing loans with a risk weighting greater than 35% and residual maturities of one
year or more, excluding loans to financial institutions
Unencumbered securities that are not in default and do not qualify as HQLA with a residual maturity of one
year or more and exchange-traded equities
6
7
65%
85%
-
-
Unencumbered Level 1 assets, excluding coins, banknotes and central bank reserves
Unencumbered loans to financial institutions with residual maturities of less than six months, where the loan
is secured with Level 1 assets as defined in the LCR and where the bank has the ability to rehypothecate the
received collateral for the life of the loan
Physical traded commodities, including gold
Source: BCBS, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 31 of 142
Issuer Guide German Bundesländer 2015
Assignment of assets to RSF factors (BCBS draft) (continued)
Level
RSF factor
8
100%
Components
-
-
All assets that are encumbered for a minimum period of one year
NSFR derivative assets net of NSFR derivative liabilities if NSFR derivative assets are greater than NSFR
derivative liabilities
20% of derivative liabilities as calculated according to Paragraph 19 of the BCBS draft
All other assets not included in the above categories, including non-performing loans (NPL), loans to financial
institutions with a residual maturity of one year or more, non-exchange-traded equities, fixed assets, items
deducted from regulatory capital, retained interest, insurance assets, subsidiary interests and defaulted securities
Source: BCBS, NORD/LB Fixed Income Research
Implementation in the EU:
CRR provides the relevant
framework and makes it
probable that LCR and
NSFR will be linked
Articles 427 and 428 of the CRR already provide the framework for implementation
of the NSFR in the EU. The regulation lists various asset (Article 428) and liability
(Article 427) groups, which suggests that similar categories will be used even
though the CRR makes no specific recommendation in this respect. However, to us,
the express mention of liquid assets in accordance with Article 416 of the CRR
(LCR liquid assets) within the list of assets seems to suggest that a link between the
LCR and NSFR is to be established, as specified in the BCBS draft. Accordingly,
LCR asset classification would be considered for the NSFR.
Division of liabilities side of financial institutions in accordance with Art. 427 of the CRR
Art. 427(1) a)
The following capital items, where applicable, after the relevant deductions:
i.
ii.
iii.
Art. 427(1) b)
Other preferred shares that exceed the amount of tier 2 instruments permitted and capital instruments with an
effective maturity of at least one year
The following liabilities not included under (a) above:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.
Art. 427(2)
Tier 1 instruments
Tier 2 instruments
Deposits from retail customers which may be treated in accordance with Art. 421 (1) of the CRR
Deposits from retail customers which may be treated in accordance with Art. 421 (2) of the CRR
Deposits which may be treated in accordance with Art. 422 (3) and (4) of the CRR
Deposits specified under iii. above which are covered by a deposit compensation scheme in accordance with
Directive 94/19/EC or a similar deposit compensation scheme in a third country, as specified in Art. 421 (2)
Deposits specified under iii. above which fall under Art. 422 (3) (b)
Deposits specified under iii. above which fall under Art. 422 (3) (d)
Deposit amounts not mentioned under i., ii. or iii. above where the deposit is not from a financial company
All financial resources received from financial clients
Separately for amounts included in vii. and/or viii. above, financial resources from collateralised loans extended
and capital market transactions in accordance with Art. 192 (3) of the CRR, which
a. are collateralised with assets that would be accepted as liquid assets under Art. 416 of the CRR
b. are collateralised with other assets
Liabilities arising from securities issued which may be considered for treatment under Art. 129 (4) or (5) of the
CRR, or those in accordance with Art. 52 (4) of Directive 2009/65/EC
Other liabilities arising from securities issued which are not included under (a) above:
a. Liabilities arising from securities issued with a minimum time to maturity of one year
b. Liabilities arising from securities issued with a time to maturity of less than one year
Other liabilities
Where applicable, all items are assigned to one of the following five time frames according to the earliest maturity and
earliest possible contractual termination date:
a) Within three months
b) Between three and six months
c) Between six and nine months
d) Between nine and twelve months
e)
After 12 months
Source: CRR, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 32 of 142
Issuer Guide German Bundesländer 2015
Division of the assets side of financial institutions in accordance with Article 428 of the CRR
Art. 428 (1)
Unless deducted from capital, the following items must be reported separately to the competent authorities in order to
facilitate an assessment of the required stable funding:
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
Art. 428 (2)
Assets which qualify as liquid assets in accordance with Art. 416 CRR, giving a breakdown by type of asset (link
to the LCR)
The following securities and money market instruments not included in a) above:
i.
Assets which may be assigned to Level 1 in accordance with Art. 122 CRR
ii.
Assets which may be assigned to Level 2 in accordance with Art. 122 CRR
iii.
Other assets
Shares of non-financial companies included in one of the major indices on a recognised stock exchange
Other equities
Gold
Other precious metals
Loans and claims that cannot be extended and loans and claims that cannot separately be extended to/are due
to or (due) from the following debtors:
i.
Natural persons who are not sole traders or partnerships
ii.
SMEs which may be assigned to the claims category of retail business under the standard or IRB approach, or companies to which treatment in accordance with Art. 153 (4) may be applied if the aggregated deposit by the customer or group of related customers amounts to less than EUR 1m
iii.
Sovereigns, central banks and other public sector entities (PSEs)
iv.
Customers not included in i. and ii. above whose activities are not based in the financial sector
v.
Customers not mentioned in i., ii. and iii. above with activities in the financial sector and, separately, f inancial institutions and other financial clients
Loans and claims that cannot be extended in accordance with g) above and, separately, claims which
i.
are collateralised with commercial property
ii.
are collateralised with residential property
iii.
are financed in the same amount by bonds to which treatment in accordance with Art. 129(4) or (5) of
the CRR may be applied, or by bonds in accordance with Art. 52(4) of Directive 2009/65/EC (passthrough financing)
Derivative receivables
Other assets
Undrawn portions of committed credit facilities which have a medium or medium to low risk weighting in accordance with Appendix 1 of the CRR
Where applicable, all items are assigned to the five time frames described in Art. 427 (2) of the CRR
Source: CRR, NORD/LB Fixed Income Research
EBA instructed to analyse
the impact of the NSFR
Similar to the procedure for developing the LCR Act, Article 510 of the CRR stipulates that the EBA is instructed with working out the NSFR details. By 31 December
2015, the EBA is tasked with preparing an analysis of whether and how it is or
would be appropriate to ensure that financial institutions use stable funding. The
EBA’s analysis is to include the impact on the business models and risk profiles of
banks in the EU.
EBA recommendation expected at the end of the
year
In addition, the EBA is obliged to prepare a provisional NSFR methodology by 31
December 2015 in accordance with Article 510 of the CRR. In particular, the EBA is
tasked with developing standardised methods and definitions for determining the
ASF and RSF. As part of this, the following are to be taken into account:
-
Categories and weighting of the stable funding sources listed in Article 417
(1) of the CRR
-
The categories and weights used to determine the required stable funding
indicated in Article 428 (1) of the CRR
-
Methods which provide positive and, if applicable, negative incentives to
promote more stable long-term funding of the assets, business activities,
investments and capital resources of institutions
-
The need to develop different methods for different types of institutions
NORD/LB Fixed Income Research
Page 33 of 142
Issuer Guide German Bundesländer 2015
The European Commission
has a (provisional) deadline
of 31 December 2016;
NSFR to apply from 2018
Article 510 (3) of the CRR also stipulates that the European Commission is to submit a proposal for NSFR legislation to the Parliament and Council, if applicable, by
31 December 2016. The wording regarding the deadline is relatively provisional, but
in our opinion indicates the intended timeline. Furthermore, the relevant paragraph
explicitly points out that the proposal to be submitted must take into account the two
EBA reports and the heterogeneity of the European banking sector. In parallel with
the BCBS draft, the aim is to implement the NSFR on the basis of EU-wide legislation on 1 January 2018. However, Article 413 (3) of the CRR grants member states
the right to introduce their own standards at an earlier date.
Applying the BCBS draft:
preferential status for
Bundesländer
Application of the BCBS draft to the NSFR classification of assets produces preferential status for German Bundesländer based on the LCR Level 1 classification of
Bundesländer (see previous chapter). According to the BCBS draft, exposures
would only need to be backed by 5% stable funding. From a regulatory viewpoint,
this corresponds to equating these exposures with those to which the German federal government, the KfW or the EIB, for example, are exposed.
Impact on SSAs:
LCR implications are
amplified
Even though the introduction of the LCR had already increased the attractiveness of
Bundesländer bonds, we consider it highly likely that the introduction of the NSFR
will amplify this effect. This is at least what we believe could be derived from the
BCBS draft: since LCR Level 1 assets only need to be backed by less stable funding, because of their low RSF factor, they are given preferential treatment. For Level
1 assets, in particular, short-term funding of securities with long maturities would still
be possible, provided that 5% of the carrying value is funded with liabilities which
have an effective residual term of more than one year. With an RSF factor of 50%,
Level 2B assets are at a significant distance from Level 1 and Level 2A assets
(15%). This should further increase the relative attractiveness of Level 1 and Level
2A assets within LCR portfolios. Relative attractiveness is also boosted compared
with government bonds, because the BCBS draft once more recommends that
Bundesländer and sovereigns be put on an equal footing. The fact that the NSFR is
linked to the LCR within the framework of the CRR also suggests that such equal
treatment can be expected. We refer to our Issuer Guide Supranationals & Agencies 2015 for a more detailed analysis of the impact of the NSFR on SSAs.
NORD/LB Fixed Income Research
Page 34 of 142
Issuer Guide German Bundesländer 2015
Regulatory
framework
The classification of Bundesländer under
Solvency II
Solvency II with major implications for SSAs and
Bundesländer in particular
On 10 October 2014, the European Commission published the delegated regulation
implementing Solvency II. To calculate the solvency capital requirements for insurance companies, the regulation calls for a variety of risk modules to be taken into
account, with the market risk module harbouring significant implications. In addition
to the risk relating to interest rates, equity, property and currencies as well as market risk concentrations, this module illustrates how the spread risk is to be determined. As with risk weighting in the regulation governing banks, there are exemptions which substantially enhance the relative attractiveness of selected issuer
groups.
Preferred status derives
from Art. 180(2)
The criteria for the preferred regulatory treatment of exposure arise, in particular,
from Art. 180(2) Solvency II. Exposures that meet certain criteria (see below) may
be allocated a stress factor of 0%, whereby no capital backing is required for these
items to support spread risk. According to Art. 180(9), a stress factor of 0% also
applies in the case of credit derivatives where the underlying financial instrument is
a bond or a loan to any exposure listed in Art. 180(2). Furthermore, according to Art.
199(8), a probability of default of 0% can be assumed for exposures to counterparties referred to in points (a) to (d) of Article 180(2), while, in addition, according to
Art. 187(3), a risk factor of 0% is assigned for market risk concentration. Overall,
very positive implications therefore arise from this preferred treatment, which, in our
opinion, applies to a large number of SSAs.
Criteria for preferred status within the scope of Solvency II
Art. 180(2): Specific exposures
Exposures in the form of bonds and loans to the following shall be assigned a risk factor stressi of 0%:
a)
The European Central Bank
b)
Member States' central government and central banks denominated and funded in the domestic currency of that
central government and the central bank
c)
Multilateral development banks referred to in paragraph 2 of Article 117 of Regulation (EU) No 575/2013 (CRR)
d)
International organisations referred to in Article 118 of Regulation (EU) No 575/2013
Exposures in the form of bonds and loans that are fully, unconditionally and irrevocably guaranteed by one of the
counterparties mentioned in points (a) to (d), where the guarantee meets the requirements set out in Article 215, shall
also be assigned a risk factor stressi of 0%.
Art. 215:
Guarantees
In the calculation of the Basic Solvency Capital Requirement, guarantees shall only be recognised where explicitly referred
to in this Chapter, and where in addition to the qualitative criteria in Articles 209 and 210, all of the following criteria are met:
a)
The credit protection provided by the guarantee is direct
b)
The extent of the credit protection is clearly defined and incontrovertible
c)
The guarantee does not contain any clause, the fulfilment of which is outside the direct control of the lender, that
i)
would allow the protection provider to cancel the protection unilaterally
ii)
would increase the effective cost of protection as a result of a deterioration in the credit quality of the
protected exposure
iii)
could prevent the protection provider from being obliged to pay out in a timely manner in the event that the
original obligor fails to make any payments due
iv)
could allow the maturity of the credit protection to be reduced by the protection provider
d)
On the default, insolvency or bankruptcy or other credit event of the counterparty, the insurance or reinsurance under
taking has the right to pursue, in a timely manner, the guarantor for any monies due under the claim in respect of
which the protection is provided and the payment by the guarantor shall not be subject to the insurance or
reinsurance undertaking first having to pursue the obligor
e)
The guarantee is an explicitly documented obligation assumed by the guarantor
f)
The guarantee fully covers all types of regular payments the obligor is expected to make in respect of the claim
Source: Solvency II, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 35 of 142
Issuer Guide German Bundesländer 2015
Equal treatment of central
government exposure and
exposure with an explicit
state-guarantee
From a regulatory perspective, the effect of Art. 180(2) is therefore an equal treatment of central government exposure and exposures which benefit from an explicit
central government guarantee. However, unlike the rules under CRD IV for banks,
in conjunction with Art. 215 this Article defines minimum requirements for guarantees, which we understand are met by most explicit guarantees.
No reference to regions…
The absence of any reference to exposures to regional and local authorities under
Art. 180 Solvency II is certainly striking. However, in the rationale described in 4.1
(Legal Elements of the Delegated Act), the regulation indicates that the requirements to be met in order for exposures to regional and local authorities to be treated
as exposures to the respective central government are listed in chapters V-VI (Solvency Capital Requirement). This reference in the rationale is in fact important since
Art. 85 Solvency II lays down preconditions for a categorisation of regional and local
authorities. However, it does not mention that fulfilment of these requirements
means that exposures to these issuers may be treated as exposures to the respective central government.
…but same treatment as
respective central
government possible
Bundesländer benefit from
0% stress factor
The European Insurance and Occupational Pensions Authority (EIOPA) had already
published a consultation paper on this at the end of November 2014 with a list of
regional and local governments that meet the requirements of Art. 85 and can thus
be assigned a stress factor of 0%. The most important issuers to benefit from a 0%
stress factor here are the German Länder. As with the risk weighting under Basel III,
under Solvency II, the Spanish regions are, for example, given preferential treatment as per the EIOPA list, while the absence of French and Italian regions for
instance implies that no 0% stress factor is to be assigned here. The table on the
next page summarises the regional and local authorities that can be assigned a
stress factor of 0%.
Regional and local authorities that can be assigned a stress factor of 0%
Country
Regional and local governments
Austria
Länder & municipalities
Belgium
Municipalities (Communauté/Gemeenschappen), regions (Régions/Gewesten), towns (Communes, Gemeenten) &
provinces (Provinces, Provincies)
Denmark
Regions (Regioner) & municipalities (Kommuner)
Finland
Municipalities (kunta/kommun), towns (kaupunki/stad), province of Åland
Germany
Bundesländer, municipalities & municipal associations
Liechtenstein
Municipalities
Luxembourg
Municipalities (communes) & municipal associations (syndicats de communes)
Lithuania
Municipalities (Savivaldybės)
Netherlands
Provinces (Provincies), municipalities (Gemeenten) & water associations (Waterschappen)
Poland
Districts (Powiat), municipalities (Gmina), regions (Województwo), district and municipal associations (związki
międzygminne i związki powiatów) & the capital Warsaw
Portugal
Autonomous regions the Azores and Madeira
Spain
Autonomous regions (Comunidades autónomas) and local government (Gobierno local)
Sweden
Municipalities (Kommuner), councils (Landsting) & regions (Regioner)
UK
Scottish Parliament, National Assembly of Wales & Northern Ireland Assembly
Source: EIOPA, NORD/LB Fixed Income Research
Uncertainty surrounding
certain issuers
While we believe the classification to be clear, at least in the case of Bundesländer,
there is significant uncertainty surrounding some agencies. We have examined this
uncertainty in our Issuer Guide Supranationals & Agencies 2015. We refer to the
Issuer Guide Supranationals & Agencies 2015 for a more detailed analysis of the
impact of Solvency II.
NORD/LB Fixed Income Research
Page 36 of 142
Issuer Guide German Bundesländer 2015
Regulatory
framework
ECB repo collateral rules and their implications for
German Bundesländer
General framework and
Temporary framework define collateral rules
Within the scope of its statutes, access to ECB liquidity is only possible on a collateralised basis. The ECB defines the assets that are eligible as collateral in its General framework and Temporary framework. This also has major implications for
German Bundesländer.
Overview of collateral regulations (in accordance with General framework)
Acceptance criteria
Marketable collateral
Non-marketable collateral
Type of collateral
ECB bonds
Other marketable debt securities
Credit claims
Retail mortgage-debt
instruments (RMBDs)
Creditworthiness requirements
The collateral must satisfy the high
creditworthiness requirements. The
high creditworthiness requirements
are assessed on the basis of the
ECAF rules (Eurosystem credit
assessment framework) for marketable collateral.
The debtor/guarantor must satisfy the
high creditworthiness requirements.
Creditworthiness is assessed on the
basis of the ECAF rules for credit
claims.
The collateral must
satisfy the high creditworthiness requirements. The high creditworthiness requirements are assessed on
the basis of the ECAF
rules for RMBDs.
Place of issue
European Economic Area (EEA)
Settlement/processing procedure
Place of settlement: eurozone. The
collateral must be deposited centrally in a collective safe custodycompliant form with national central
banks (NCBs) or a securities settlement system that meets ECB
minimum standards.
Eurosystem procedure
Eurosystem procedure
Type of issuer/debtor/guarantor
NCBs, public sector, private sector,
international and supranational
organisations
Public sector, non-financial companies,
international and supranational organisations
Credit institutions
Domicile of issuer, debtor or
guarantor
Issuer: EEA or G-10 countries
outside the EEA; Debtors: EEA;
guarantor: EEA
Eurozone
Eurozone
Admissible markets
Regulated markets, unregulated
markets admitted by the ECB
-
-
-
Euro
Euro
Euro
-
Minimum amount at the time of submitting the credit claim
— Domestic use: set by NCB;
— Cross-border use: uniform minimum
amount of EUR 0.5m.
As soon as practicable in the course of
2013: introduction of a uniform minimum amount of EUR 0.5m throughout
the eurozone
-
Law applicable to the credit claim
contract and its use as collateral: law of
a member state. All in all, the number
of jurisdictions applicable to
In the case of ABS, acquisition of
the underlying assets must be
a) the business partner,
subject to the law of an EU memb) the creditor,
ber state. The law to which the
c) the debtor,
underlying credit claims are subject
must be the law of an EEA member d) the guarantor (if applicable),
e) the credit claim contract,
state.
f) the agreement on the use of the
credit claims as collateral
may not exceed two.
-
Currency
Minimum amount
Legal basis
-
Cross-border use
Yes
Yes
Yes
Source: ECB, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 37 of 142
Issuer Guide German Bundesländer 2015
Precise definition of possible collateral
In accordance with Chapter 6 of the “General framework”, the ECB accepts bonds
with fixed, unconditional nominal volume (in contrast to convertible bonds, for example) as collateral. The bonds must carry a coupon that could not result in negative cash flows. In addition, only bonds without a coupon payment (zero coupons),
with fixed or variable interest payment based on a reference interest rate, are eligible. Bonds designed so that the coupon payment changes in line with a rating upgrade or downgrade, or inflation-linked bonds, are also eligible for use as collateral.
Special rules apply to ABS with regard to the first condition (fixed, unconditional
nominal volume). The ECB generally divides collateral into two groups: marketable
and non-marketable assets, which differ primarily in terms of their relevant criteria of
acceptance.
Temporary framework extends collateral rules
Apart from assets that meet these acceptance criteria, the “Temporary framework”
extends the criteria to some extent. Under certain conditions, particular bonds that
are denominated in GBP, JPY or USD may be accepted for collateral purposes.
Valuation discount (haircut)
for collateral is derived
from allocation to a liquidity
category
ECB-compliant marketable collateral is divided into five liquidity categories, which
differ with regard to issuer classification and the type of collateral. The liquidity category is the key factor in determining haircuts to which certain debt securities are
subject. The haircuts also differ on the basis of residual term to maturity and coupon
structure. Haircuts for bonds with variable coupons correspond to those of fixedinterest bonds.
Overview of liquidity categories
Category I
Category II
Debt securities issued by
central governments
Debt securities issued by
regional and local
authorities
Traditional covered
bonds
Category III
(Unsecured) debt
ABS
securities issued by credit
institutions
Category IV
Category V
Debt securities issued by
national central banks
Jumbo covered bonds
Debt securities issued by
non-financials and other
issuers
(Unsecured) debt
securities issued by
financial firms that are not
credit institutions
Debt securities issued by
agencies that were
classified as such by the
ECB
Other covered bank
bonds
Debt securities issued by
supranational institutions
Overview of haircuts by liquidity category and rating
Credit
quality
AAA to
A-
BBB+ to
BBB-
Residual
term to
maturity
(in years)
Liquidity category
Fixed
Zero
Fixed
Zero
Fixed
Zero
Fixed
Zero
0-1
0.5
0.5
1.0
1.0
1.5
1.5
6.5
6.5
1-3
1.5
1.5
2.5
2.5
3.0
3.0
8.5
9.0
3-5
2.5
3.0
3.5
4.0
5.0
5.5
11.0
11.5
5-7
3.0
3.5
4.5
5.0
6.5
7.5
12.5
13.5
7-10
4.0
4.5
5.5
6.5
8.5
9.5
14.0
15.5
10+
5.5
8.5
7.5
12.0
11.0
16.5
17.0
22.5
0-1
5.5
5.5
6.0
6.0
8.0
8.0
15.0
15.0
1-3
6.5
6.5
10.5
11.5
18.0
19.5
27.5
29.5
3-5
7.5
8.0
15.5
17.0
25.5
28.0
36.5
39.5
5-7
8.0
8.5
18.0
20.5
28.0
31.5
38.5
43.0
I
II
III
IV
V
7-10
9.0
9.5
19.5
22.5
29.0
33.5
39.0
44.5
10+
10.5
13.5
20.0
29.0
29.5
38.0
39.5
46.0
16
Not
permissible
Source: ECB, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 38 of 142
Issuer Guide German Bundesländer 2015
ECB assigns Bundesländer
bonds to second-highest
liquidity category
The listing of liquidity categories indicates that German Bundesländer as regional
administration bodies are assigned to the same level as, for example, agencies
recognised by the ECB, such as the KfW. This means that Bundesländer bonds
receive the second-best treatment under the repo rules, after instruments issued by
central governments and central banks. The ECB's definitions of collateral therefore
provide for further preferential treatment of Bundesländer from a regulatory viewpoint. We refer to our Issuer Guide Supranationals & Agencies 2015 for an analysis
of the classifications of other quasi-government issuers.
NORD/LB Fixed Income Research
Page 39 of 142
Issuer Guide German Bundesländer 2015
Funding programmes of
the German Bundesländer
Funding programmes and
volumes reveal large
differences
Funding programmes of
the German Bundesländer
The funding programmes of the
German Bundesländer
There are some significant differences between the Bundesländer in relation to
funding programmes and volumes. For example, the Länder differ in their annual
funding requirements, the use of benchmarks and foreign currencies.
Overview of funding strategies
Differences in refinancing
The individual Bundesländer have some significant differences in their refinancing.
While North Rhine-Westphalia almost always issues bonds in benchmark format
(issue volume of at least EUR 0.5bn), Bavaria uses private placements for refinancing in practically every case. Saxony does not use public issues, either. Both of
these Bundesländer usually focus strongly on borrower’s note loans (Schuldscheindarlehen; SSD). There are also some significant differences in the use of this funding instrument. The Bundesländer also differ in their use of the Gemeinschaft
deutscher Länder, a vehicle that facilitates the pooling of small issuing amounts to
issue joint Länder bonds. In this respect, Saxony-Anhalt, Hesse and North RhineWestphalia only participated in the inaugural issue of a Länder jumbo in 1996. They
subsequently did not participate in the joint issuing body. For years now, Berlin (a
regular participant up to 2002) no longer accesses the Gemeinschaft deutscher
Länder for its funding needs.
NRW issues inaugural SRI
bond
At the start of 2015, North Rhine-Westphalia was the first German Bundesland to
issue an SRI bond (sustainability related investment [SRI]). On that basis, we consider it quite likely that this instrument could also become established as a niche
product in the German Länder segment. In the run-up to federal state elections, the
corresponding marketing could also be used by an incumbent federal state government.
Refinancing at a glance
Benchmarks
SRI bonds
Gemeinschaft
deutscher Länder
Percentage foreign
currency*
Percentage SSD
Baden-Württemberg
X
-
-
0.4%
59.3%
Bavaria
-
-
-
0.0%
68.6%
Berlin
X
-
-
0.6%
34.8%
Brandenburg
X
-
X
0.0%
30.5%
Bremen
X
-
X
0.0%
29.6%
Hamburg
X
-
X
0.0%
45.9%
Hesse
X
-
-
2.0%
25.0%
Mecklenburg-Western Pomerania
X
-
X
0.0%
49.2%
Lower Saxony
X
-
-
0.0%
36.3%
North Rhine-Westphalia
X
X
-
5.7%
30.7%
Rhineland-Palatinate
X
-
X
0.5%
31.0%
Saarland
-
-
X
0.0%
55.6%
Saxony
-
-
-
0.0%
93.9%
Saxony-Anhalt
X
-
-
2.2%
45.3%
Schleswig-Holstein
X
-
X
0.8%
44.4%
Thuringia
-
-
X
0.0%
67.3%
Bundesland
NB: benchmarks are defined as bonds with a minimum volume of EUR 0.5bn. * Proportion of outstanding bonds denominated in foreign currencies
to total bond volume. Foreign currencies are converted into EUR at rates as at 5 May 2015.
Source: Issuers, Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 40 of 142
Issuer Guide German Bundesländer 2015
Funding programmes
of the Bundesländer
Trend in funding volumes and strategies
Reduction of issuance volume…
Having reached a high of almost EUR 102.5bn in 2010, the funding volume of the
Bundesländer has subsequently seen an almost constant decline in the following
years. In 2014 it fell to EUR 84.6bn, the lowest level since 2008. This has also
meant that EUR 5.9bn less was raised than would have been theoretically possible
through the gross credit authorisations. Gross credit authorisations of EUR 92.1bn
are in place for 2015 (2014: EUR 90.5bn). In view of the positive trend in Bundesländer finances, which is dominated by sharply rising tax revenue in conjunction
with falling interest expenses, we expect that it will once again not be necessary to
use up these authorisations. We predict a funding volume of EUR 85bn, which
would correspond approximately to the previous year's level.
…with rise in bond issues
Despite the reduction in funding volumes, the volume of bond issues has followed a
rising trend for some years. At 82.0%, the contribution of bonds to funding has never been so high in our statistics. This is due to a change in funding: the use of borrower’s note loans (Schuldscheindarlehen; SSD) has been in decline for years. In
2009 as much as 39.1% of funding volumes was attributable to SSD; in 2014 the
figure was only 13.0%. For 2015 we expect a further fall to 12.0%. In the case of
EUR benchmark issues, we forecast a volume of EUR 30bn for 2015, with the floater share likely to fall to 15%.
Development of funding volumes since 2008
Development of EUR benchmark volumes since 2008*
40
120
35
100
30
25
EURbn
EURbn
80
60
20
15
40
10
20
5
0
0
2008
2009
2010
Bonds
2011
SSD
2012
2013
2014
2015e
2008
2009
Other
2010
2011
Fixed
2012
2013
2014
2015e
Floating
* EUR bonds with a minimum volume of EUR 0.5bn. Source: Issuers, Bloomberg, NORD/LB Fixed Income Research
Comparison of funding volumes
25
2013
2014
2015e
20
EURbn
15
10
5
0
NW
BW
HB
NI
RP
BE
HE
SH
HH
BB
ST
BY
TH
SN
SL
MV
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland,
SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 41 of 142
Issuer Guide German Bundesländer 2015
Funding programmes
of the Bundesländer
Credit authorisations in 2015
2013
Actual gross volume (EURbn)
2014
Actual gross volume (EURbn)
Baden-Württemberg
9.3
10.3
0.77
13.1
Bavaria
1.6
1.7
-0.93
2.5
Berlin
6.9
7.6
-0.23
7.6
Brandenburg
2.7
1.7
0.00
2.9
Bremen
9.8
4.9
0.26
7.9
Hamburg
4.1
3.2
0.23
3.6
Hesse
5.2
6.4
0.73
5.8
Mecklenburg-Western Pomerania
1.2
1.0
0.00
1.1
Lower Saxony
7.6
8.5
0.60
7.8
23.6
21.2
2.40
20.9
Rhineland-Palatinate
8.5
7.2
1.03
7.7
Saarland
1.8
1.8
0.37
1.3
Saxony
1.1
0.7
-0.08
1.4
Saxony-Anhalt
2.0
2.6
-0.08
2.6
Schleswig-Holstein
2.7
4.2
0.26
4.0
Thuringia
1.3
1.7
-0.07
1.9
89.2
84.6
5.26
92.1
North Rhine-Westphalia
Sum
2015e
Net (EURbn) Gross (EURbn)
Source: Bloomberg, issuers, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 42 of 142
Issuer Guide German Bundesländer 2015
Performance and
Relative Value
iBoxx € Regions as
benchmark for German
Bundesländer?
Benchmark indices for German Bundesländer
When looking for a benchmark index for bonds issued by the Bundesländer, the
iBoxx € Regions from data provider Markit always stands out. With 106 bonds, the
sub-index of the iBoxx € Sub-Sovereigns replicates the universe of EUR bonds
issued by regional authorities. With a weight of 79.2%, bonds issued by Bundesländer dominate the index. However, for various reasons we do not consider this index
the optimum benchmark for bonds issued by German Bundesländer.
Sub-indexes of iBoxx € Sub-Sovereigns
by amount outstanding
3.8%
Country weighting within the iBoxx € Regions
8.4%
6.8%
2.4% 0.9%
iBoxx € Supranationals
Germany
6.1%
iBoxx € Agencies
37.0%
12.8%
11.2%
Canada
iBoxx € Regions
Spain
iBoxx € Other Sub-Sovereigns
iBoxx € Public Banks
33.5%
iBoxx € Other Sovereigns
Italy
77.1%
Belgium
Criteria for bond selection for iBoxx € Sub-Sovereigns sub-indices
Bond type
Only those bonds where the cash flows can always be determined in advance are taken into consideration
in the Markit iBoxx € indices. T-bills and other money market instruments are not included, the only
currency permitted is the euro. The origin of the issuer is irrelevant.
Rating
All bonds in the Markit iBoxx € indices have to have an investment grade Markit iBoxx rating. The rating
approach used by the Markit iBoxx indices is based on the average of the ratings awarded by the three
rating agencies Fitch, Moody’s and S&P.
Residual term to maturity
Each bond included in an iBoxx € Index must have a minimum residual term to maturity of one year on the
day the composition of the Index is specified.
Volume outstanding
Minimum volume outstanding EUR 1.0bn
Source: Markit, NORD/LB Fixed Income Research
Risk premiums vary due to
issuers from the periphery
In our opinion, taking Canadian provinces, Belgian, Spanish and Italian cities and
regions into account does not produce an ideal replication of the Bundesländer
segment. To some extent, there are significant differences with regard to ASW
spreads, which is particularly due to the issuers from peripheral countries. Quotations for Bundesländer bonds for instance are relatively close to one another, while
there is a clear difference between bonds from issuers in the periphery that are
included in the iBoxx € Regions and the bonds issued by the Bundesländer.
NORD/LB Fixed Income Research
Page 43 of 142
Issuer Guide German Bundesländer 2015
ASW spreads of iBoxx € Regions*
iBoxx € Regions by issuer
NRW
LANDER
BERGER
HESSEN
NIESA
BADWUR
SACHAN
BRABUR
RHIPAL
BULABO
BAYERN
Canada
Spain
Italy
Belgium
120
ASW spread in bp
90
5.0% 3.6% 2.2%
2.2%
2.1%
0.9%
8.8%
60
9.6%
11.2%
30
22.9%
9.3%
8.4%
0
2.4%
0.9%
12.0%
-30
0
1
2
3
4
5
6
7
8
Years to maturity
iBoxx € Regions
iBoxx € Regions
9
10
21.4%
* Residual term to maturity > 1 year and < 10 years. Source: Bloomberg, Markit, NORD/LB Fixed Income Research
Weighting of Bundesländer
does not reflect the actual
Länder bond market
Moreover, the weighting of the Bundesländer in the iBoxx € Regions does not replicate the actual Länder market, which is primarily due to the criteria used by Markit
to select bonds for the iBoxx € Sub-Sovereign Index. The criteria, in particular the
specification of a minimum issuance volume of EUR 1.0bn and fixed-coupon bonds,
lead to a distorted weighting between the Bundesländer. There is a large supply of
lower volume bonds, while Saarland, for example, is unrated and Bremen exclusively issued floaters in recent years. In general, there is no measure for the performance and risk premiums of Länder floaters in the specification for iBoxx € Regions. Nevertheless, after excluding the periphery issuers, iBoxx € Regions almost
exactly replicates the ASW spread levels of bonds issued by the Bundesländer.
ASW spreads of German Bundesländer* vs.
iBoxx € Regions (excluding periphery issuers)
Discount Margins of German Bundesländer *
6
0
4
-5
2
0
Basis points
Basis points
-10
-15
-20
-2
-4
-6
-8
-10
-25
-12
-14
-30
0
1
2
Bundesländer
3
4
5
6
Years to maturity
7
8
9
10
0
1
iBoxx € Regions (ex Periphery)
2
3
4
5
6
7
8
9
10
Years to maturity
Bundesländer
Bundesländer
* NB: Minimum issue volume of EUR 500m; residual term to maturity > 1 year and < 10 years.
Source: Bloomberg, Markit, NORD/LB Fixed Income Research
Comment
Due to the weaknesses of the iBoxx € Regions index, in the following analyses we
use all of the available Länder bonds to produce a relative assessment of the individual Bundesländer. We therefore analyse fixed-coupon bonds in relation to all
Bundesländer bonds with a minimum outstanding volume of EUR 500m. Similarly,
we look at the floaters issued by a Bundesland in relation to all Bundesländer floaters with a minimum outstanding volume of EUR 500m if no fixed income bonds are
available for analysis.
NORD/LB Fixed Income Research
Page 44 of 142
Issuer Guide German Bundesländer 2015
Total return and spread performance of the
German Bundesländer
Performance and
Relative Value
LCR and dwindling liquidity
as performance drivers
In 2014, the spread performance of SSAs was especially affected by the LCR classification and a general decline in liquidity. The fact that there was clarity about the
LCR treatment of a number of issuers relatively early on already led to heightened
demand at the beginning of the year. The spreads were supported moreover by a
generally declining liquidity in the SSA segment, which further increased the rarity
value of a number of issuers and bonds. There were correspondingly high total
returns in conjunction with the general interest rate trend, with performance differences between individual indices being determined to a large extent by differences
in mean duration.
ASW spread performance
Total return performance
60
120
50
115
02.01.2014 = 100
Basis points
40
30
20
10
0
-10
110
105
100
-20
-30
iBoxx € Sub-Sovereigns
iBoxx € Public Banks
95
iBoxx € Agencies
iBoxx € Supranationals
iBoxx € Regions
Source: Markit, NORD/LB Fixed Income Research
iBoxx € Regions with
relative ASW spread
underperformance
iBoxx € Sub-Sovereigns
iBoxx € Agencies
iBoxx € Public Banks
iBoxx € Regions
iBoxx € Supranationals
Source: Markit, NORD/LB Fixed Income Research
However, in this environment, the iBoxx € Regions returned relative underperformance for ASW spread performance, especially in comparison with the iBoxx
€ Sub-Sovereigns heavyweights, iBoxx € Supranationals and iBoxx € Agencies.
While spreads for the relatively large indices have been in negative territory since
the start of the year, the ASW spreads of the iBoxx € Regions moved sideways on a
relatively stable basis. However, due to the differing duration of the indices, the total
returns produced a different picture: only the iBoxx € Supranationals posted better
performance than iBoxx € Regions since the start of 2014. The recent rise in interest rates, however, had a sharp effect on total returns, while a change in the index
composition of the iBoxx € Regions lead to an apparent significant ASW spread
tightening.
NORD/LB Fixed Income Research
Page 45 of 142
Issuer Guide German Bundesländer 2015
Performance and
Relative Value
Comparison of Länder bonds
Attractiveness remains
relatively high
Traditionally, in the German SSA segment, bonds issued by German Bundesländer
enjoy a relatively high level of attractiveness versus Bunds. Even though the PSPP
has already had an indirect impact on the Bundesländer segment, attractive premiums still exist in our view. Another aspect that remains interesting is the relative
stability of ASW spreads in comparison with G spreads, which have much higher
volatility due to the fluctuations of the respective Bunds.
Comparison of trend in ASW spreads
0
20
-5
10
-10
0
Basis points
Basis points
Comparison of ASW spreads
-15
-20
-25
-10
-20
-30
-30
-40
-35
-50
Jan-14
-40
0
1
2
3
4
5
6
7
8
9
10
Years to maturity
Bundesländer
National German agencies
Regional German agencies
Bunds
Apr-14
Jul-14
BERGER 1 5/8 06/03/24
HESSEN 1 3/8 06/10/24
NRW 1 7/8 03/15/24
Comparison of G spreads
Oct-14
Jan-15
Apr-15
LANDER 1 3/4 05/14/24
KFW 1 1/2 06/11/24
DBR 1 3/4 02/15/24
Comparison of trend in G spreads
40
35
35
30
30
Basis points
Basis points
25
20
15
25
20
15
10
5
10
0
5
-5
Jan-14
0
0
1
Bundesländer
2
3
4
5
6
Years to maturity
National German agencies
7
8
9
10
Regional German agencies
Apr-14
Jul-14
BERGER 1 5/8 06/03/24
HESSEN 1 3/8 06/10/24
NRW 1 7/8 03/15/24
Oct-14
Jan-15
Apr-15
LANDER 1 3/4 05/14/24
KFW 1 1/2 06/11/24
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMSWER, RENTEN.
Regional agencies: NRWBK, ERSTAA, LBANK, BAYLAN, IBB, BYLABO, WIBANK. Source: Bloomberg, NORD/LB Fixed Income Research
Spread compression
Another interesting aspect is the spread compression, which has been seen for
some months: while differences in spreads had been apparent in ten-year bonds
issued by BERGER, LANDER, HESSEN and NRW, e.g. in the past year, spread
differences are now hardly seen at all.
NORD/LB Fixed Income Research
Page 46 of 142
Issuer Guide German Bundesländer 2015
Comparison of ASW spreads
0
-5
Basis points
-10
-15
-20
-25
-30
-35
-40
0
1
2
3
4
5
6
7
8
9
10
Years to maturity
Bundesländer
NRW
BERGER
BAYERN
BADWUR
LANDER
Bunds
Comparison of G spreads
30
25
Basis points
20
15
10
5
0
0
1
2
3
4
5
6
7
8
9
10
Years to maturity
Bundesländer
NRW
BERGER
BAYERN
BADWUR
LANDER
Residual term to maturity > 1 year and < 10 years, minimum volume outstanding EUR 500m.
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 47 of 142
Issuer Guide German Bundesländer 2015
Overview of German
Bundesländer
Overview of German Bundesländer
Länder characterised by
high degree of
heterogeneity
German Bundesländer are characterised by a high degree of heterogeneity. Differences exist not only in terms of area, number of inhabitants and economic strength.
The Bundesländer also differ widely with regard to factors such as dependence on
federal financial equalisation, debt situation, significance of exports and demographic trends. In addition, the liquidity of their bonds and their ratings result in differences, although these are at most reflected marginally due to the very small
differences in spreads. However, in the discussion below, we will look firstly at the
overall development of German Bundesländer, before focussing on the differences.
Broad range of products
German Bundesländer offer a broad range of bonds and borrower’s note loans. An
outstanding volume of EUR 333.5bn is spread across 1,242 bonds at present, for
example. EUR 323.2bn of that amount alone is denominated in EUR, illustrating the
relatively minor importance of foreign currencies for funding the Bundesländer so
far. Fixed-coupon bonds (outstanding volume: EUR 225.5bn) and floaters (EUR
92.6bn) dominate funding. A total of 127 EUR bonds have benchmark volumes.
Borrower’s note loans (Schuldscheindarlehen; SSD) account for EUR 224.1bn. Due
to the intransparency of the borrower’s note loan market, only estimates of the relevant data can be provided in this report.
Amt. outstanding
Outstanding bonds issued by the German Bundesländer (EURm)
Total debt
60,000
EUR 559.8bn
Of which bonds*
50,000
EUR 333.5bn
EUR 224.1bn
* As at 5 May 2015. Other figures as at 31
December 2014.
EURm
Of which borrower’s note loans
40,000
30,000
20,000
10,000
0
Länder bonds
2015
27.2
2016
53.6
2017
46.0
2018
34.0
2019
30.1
2020
31.9
2021
26.1
2022
19.9
2023
17.6
2024
20.9
2025
16.5
>2025
9.4
Foreign currencies are converted into EUR at rates as at 5 May 2015.
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
The rating agencies Fitch, Moody’s and S&P link their ratings for each of the Bundesländer with the rating of the German federal government. Fitch regards the system of financial equalization among the federal states and the federal loyalty principle generally as the dominant factor in equating the ratings directly. Moody’s also
views this system as a significant factor, although the agency does take other aspects into consideration, with the result that equating of the ratings does not necessarily apply. The federal state of NRW is currently rated Aa1, for example. This is
one notch below the Aaa rating held by the German federal government. S&P
makes a wider distinction. Although the rating agency factors the system of financial
equalization among the federal states and the federal loyalty principle into its rating
decision, it diverges more from the AAA rating held by the German federal government. As a result, S&P currently gives the federal state of NRW an AA- rating.
NORD/LB Fixed Income Research
Page 48 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. agencies
0
0
-5
-5
-10
-10
-15
Basis points
Basis points
ASW spreads vs. Bunds
-20
-25
-15
-20
-25
-30
-30
-35
-35
-40
0
0
1
2
3
4
5
6
7
8
9
1
2
3
10
Years to maturity
Bundesländer
4
5
6
7
8
9
10
Years to maturity
Bundesländer
Bunds
National German agencies
Regional German agencies
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KFW, FMSWER, RENTEN.
Regional agencies: NRWBK, ERSTAA, LBANK, BAYLAN, IBB, BYLABO, WIBANK. Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of benchmark issues 2015*
Weighting in iBoxx € Regions
10
Asset swap spread / discount margin at issue
79.2%
No. of bonds in iBoxx € Regions
Pick-up compared to swaps*
-26 to -4bp
0
Basis points
84
-5
-10
-15
Pick-up compared to Bunds*
5 to 27bp
-20
BADWUR 0 3/4
12/23/24 (Fixed)
BADWUR 0 5/8
01/16/25 (Fixed)
NIESA 0 5/8
01/20/25 (Fixed)
HESSEN 0 3/8
03/10/22 (Fixed)
BRABUR 0 5/8
01/27/25 (Fixed)
NIESA 0 08/02/16
(Fixed)
HESSEN 0 3/8
03/10/23 (Fixed)
LANDER 0 1/2
02/05/25 (Fixed)
BADWUR 0 5/8
02/09/27 (Fixed)
BERGER 0 1/2
02/10/25 (Fixed)
HESSEN 0 1/2
02/17/25 (Fixed)
BREMEN 0 1/2
03/03/25 (Fixed)
NRW 0 1/2
03/11/25 (Fixed)
HAMBRG 0 3/8
04/01/25 (Fixed)
BERGER 0 1/4
04/22/25 (Fixed)
HESSEN 0 1/4
06/10/25 (Fixed)
NRW 0.2 04/17/23
(Fixed)
SCHHOL 0
01/20/23 (Floating)
BREMEN 0
01/22/25 (Floating)
NIESA 0 04/28/25
(Floating)
-25
*Vs. interpolated figures; minimum term 1 year;
minimum volume EUR 0.5bn.
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next twelve months
120
8,000
7,000
100
6,000
80
EURm
EURbn
Asset swap spread / discount margin as of 05 May
5
60
40
5,000
4,000
3,000
2,000
20
1,000
0
2009
2010
2011 2012 2013 2014
Bonds SSD Other
Q1
2013
Q1
2014
Q1
2015
0
May Jun
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
Source: Bundesländer, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmark, private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 92.1bn (EUR 84.6bn)
Funding Q1 2015
EUR 23.0bn
Länder issue volumes have been at a high level for years (see p. 41 on the trend in
funding volumes and strategies). The most important refinancing instruments are
bonds and borrower’s note loans (Schuldscheindarlehen; SSD). Bonds in benchmark format are used just as much as large-volume private placements. As a result,
there is relatively broad supply for large-volume bonds. The funding volume will
remain at a high level this year, too: EUR 92.1bn is budgeted as gross credit authorisations and thus as overall funding target. Net supply is therefore likely to
amount to EUR 5.26bn. In Q1 2015, the German federal states have already raised
EUR 23.0bn.
NORD/LB Fixed Income Research
Page 49 of 142
Issuer Guide German Bundesländer 2015
Development of expenditure in EUR per capita
Development of revenue in EUR per capita
4,500
5,000
4,000
3,500
EUR per inhabitant
EUR per inhabitant
4,000
3,000
2,000
3,000
2,500
2,000
1,500
1,000
1,000
500
0
0
-1,000
Operating revenue
Tax revenue
Deficit/surplus
2010
3,340
2,305
-255
2011
3,654
2,519
-128
2012
3,755
2,670
-71
2013
3,894
2,776
-6
2014
4,057
2,900
9
Operating expense
Staff expenditure
Grants to municipals
Capital expenditure
Interest expense
2010
3,595
1,249
641
437
241
2011
3,782
1,302
688
447
242
2012
3,826
1,333
736
385
232
2013
3,900
1,365
789
381
217
2014
4,049
1,413
842
392
199
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013)
EUR 702m (EUR +1,188m)
Saldo / BIP (2013)
0.02% (-0.02%)
Balance per capita (2013)
EUR 9 (EUR -6)
Tax revenue (vs. 2013)
EUR 234.2bn (EUR +10.0bn)
Taxes per capita (2013)
EUR 2,900 (EUR 2,776)
Taxes/interest paid (2013)
14.6x (12.8x)
Total revenue/interest paid (2013)
20.4x (18.0x)
Total debt (vs. 2013)
EUR 559.8bn (EUR +2.3bn)
Schulden / BIP (2013)
19.3% (19.8%)
Debt/revenue (2013)
1.7x (1.8x)
The recovery in Länder finances continued in the last calendar year. In 2014 an
aggregated cash surplus of EUR 702.2m was obtained for the first time since
2007 – an improvement of EUR 1.2bn compared to 2013. A considerable improvement in Länder finances has been apparent over the past five years, especially in
comparison with 2009, when an aggregated deficit of EUR -27.1bn was incurred.
The positive development was largely driven by higher tax revenues. They rose
from EUR 2,303 per capita in 2009 to EUR 2,900 per capita in 2014 (2013: EUR
2,776). In the last five years alone, total revenue increased by 18.2% to the most
recent figure of EUR 327.7bn (EUR +13.1bn vs. 2013). In contrast, total expenditure
in the same period increased relatively moderately (10.7%) to just under EUR
327.0bn (EUR +12.0bn vs. 2013). While grants to municipals saw disproportionate
growth of more than 25% (2014: EUR 68.0bn), personnel expenditure rose by a
relatively average extent of 11.2% (2014: EUR 114.1bn). Meanwhile, the general
trend in yields continued to have a positive impact on interest expenses: they fell by
more than 20% in the past five years, to the recent level of EUR 16.1bn. The positive trend in tax revenue combined with falling interest expenses led to a new high
for the ratio of taxes to interest paid and the ratio of revenues to interest expenses
(2014: 14.6x and 20.4x, respectively). In contrast, the decline in capital expenditure
stands out as a negative trend on the expenditure side. Although the recent amount
of EUR 31.7bn indicated marginal growth (EUR +0.9bn vs. 2013), it was still more
than 10% lower in comparison with 2010. The positive budget performance brought
about a further improvement in various key credit metrics for the Bundesländer. In
addition to the record figures for the ratio of taxes and total revenues to interest, the
debt sustainability of German Bundesländer also improved: The ratio of debt to total
revenues fell recently to 1.7x, the lowest and therefore best figure since 2002. It
was a similar picture for the ratio of debt to GDP: at 19.3% it was the lowest figure
since 2002.
NORD/LB Fixed Income Research
Page 50 of 142
Issuer Guide German Bundesländer 2015
Overview of Länder debt and economic output
3,000
2,500
EURbn
2,000
1,500
1,000
500
0
2002
2003
2004
2005
2006
2007
2008
Total debt
2009
2010
2011
2012
2013
2014
Total GDP
Source: Federal Ministry of Finance, national accounts produced by the federal states, NORD/LB Fixed Income Research
Stabilisation of Länder debt
While recent years have seen an almost constant rise in the overall debt of the
Bundesländer, stabilisation of the debt level is now becoming apparent. In 2014 the
outstanding liabilities rose by 0.4% year-on-year. This was the lowest growth since
2008, the last time that debt was brought down by 0.3%. We expect that the positive
budget performance in 2015 will result in the Bundesländer reducing debt by a total
of EUR 1.5-2bn on an aggregated level.
20
6
10
4
0
2
-10
0
-20
-2
-30
-4
-40
In %
EURbn
Overview of Länder balances and real GDP growth
-6
2002
2003
2004
2005
2006
2007
Deficit/surplus (lhs)
2008
2009
2010
2011
2012
2013
2014
Real GDP growth (rhs)
Source: Federal Ministry of Finance, national accounts produced by the federal states, NORD/LB Fixed Income Research
Positive trend in Länder
balances
The aggregated budget balances of the Bundesländer have followed a significantly
positive trend since 2009. Although a deficit of EUR 27.1bn was posted in 2009, the
deficits subsequently fell quite steadily until 2014, when a surplus was obtained for
the first time since 2007.
NORD/LB Fixed Income Research
Page 51 of 142
Issuer Guide German Bundesländer 2015
Overview of Bundesländer 2014
Operating
revenue
(EURbn)
Operating
expeneses
(EURbn)
Balance
(EURbn)
Debt
(EURbn)
GDP
(EURbn)
Debt / GDP
(in %)
Balance / GDP
(in %)
BW
43.0
42.3
0.70
47.3
438.3
10.8%
0.2%
BY
39.7
50.2
1.61
26.1
521.9
5.0%
0.3%
BE
23.8
23.0
0.84
60.6
117.3
51.6%
0.7%
BB
10.5
10.2
0.33
16.7
61.9
27.0%
0.5%
HB
4.7
5.1
-0.44
19.7
30.2
65.3%
-1.5%
HH
12.3
11.9
0.42
23.2
103.1
22.8%
0.4%
HE
23.0
23.7
-0.67
41.4
250.5
16.5%
-0.3%
MV
7.4
7.1
0.26
9.4
38.5
24.4%
0.7%
NI
27.1
27.3
-0.21
57.8
253.6
22.5%
-0.1%
NW
59.9
61.8
-1.90
140.1
624.7
22.4%
-0.3%
RP
14.6
15.2
-0.61
33.3
127.6
26.1%
-0.5%
SL
3.6
3.9
-0.30
14.0
33.5
41.7%
-0.9%
SN
17.3
16.7
0.66
6.9
108.7
6.3%
0.6%
ST
10.0
9.9
70.1
20.5
55.6
36.9%
0.1%
SH
9.6
9.9
-244.1
27.1
84.0
32.3%
-0.3%
TH
9.1
9.0
185.9
15.7
54.3
28.9%
0.3%
Total
327.7
327.0
0.7
559.8
2,903.8
19.3%
0.0%
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland,
SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, national accounts produced by the federal states, NORD/LB Fixed Income Research
Balance in EUR per capita, as a comparison
between Bundesländer
Change in balance in EUR per capita, as a
comparison between Bundesländer
HB
HB, -669
SL
SL, -304
RP
RP, -154
HE, -110
NW, -108
SH, -87
NI, -26
HE
NW
SH
NI
ST
ST, 31
BW, 66
TH, 86
BY, 128
BB, 133
SN, 164
MV, 164
HH, 243
BE, 245
-800
-600
-400
-200
0
EUR per inhabitant
200
400
BW
TH
BY
BB
SN
MV
Vs. 2010
HH
BE
-200
0
200
400
600
800
EUR per inhabitant
Vs. 2013
1,000
1,200
1,400
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland,
SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Bremen continues to have
most significant deficit,
although also most
significant improvement
Bremen and Saarland again had the biggest deficit per capita in 2014. Both states
have made major progress in reducing their deficits, especially in comparison with
2010. For example, Bremen has recorded the most significant improvement in its
balance out of all the Bundesländer since 2010. As another example, Berlin also
succeeded in substantially improving its result over this period. When compared
with 2013, Hamburg, Saarland, Berlin and Baden-Württemberg are especially noteworthy on the positive side. In contrast, cash statistics indicate that performance
was negative especially in Brandenburg and Schleswig-Holstein.
NORD/LB Fixed Income Research
Page 52 of 142
Issuer Guide German Bundesländer 2015
Balance/GDP, as a comparison between
Bundesländer
Change in balance/GDP, as a comparison
between Bundesländer
HB
HB, -1.5%
SL
SL, -0.9%
RP
RP, -0.5%
NW, -0.3%
SH, -0.3%
HE, -0.3%
NI, -0.1%
NW
SH
HE
NI
ST
ST, 0.1%
BW, 0.2%
BY, 0.3%
TH, 0.3%
HH, 0.4%
BB, 0.5%
SN, 0.6%
MV, 0.7%
BE, 0.7%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
Taxes in EUR per capita, as a comparison
between Bundesländer
6,000
BW
BY
TH
HH
BB
SN
MV
BE
-1%
0%
1%
2%
3%
4%
Change in taxes in EUR per capita, as a
comparison between Bundesländer
1,200
Länder average
Vs. 2010
Vs. 2013
1,000
EUR per inhabitant
5,000
EUR per inhabitant
Vs. 2010
Vs. 2013
4,000
3,000
2,000
800
600
400
200
1,000
0
-200
0
HH HB BE BY HE BW SL RP NW MV NI TH SH ST SN BB
HH HB BE BY HE BW SL RP NW MV NI TH SH ST SN BB
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland,
SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
City states with highest tax
revenue per capita
In terms of tax revenues, the city states of Hamburg, Bremen and Berlin traditionally
stand out. All three obtain above-average tax revenues in relation to the number of
inhabitants. In comparison with 2010, too, these Länder have seen very positive
changes. In comparison with the last calendar year, cash statistics indicate the lowest tax revenue growth in Schleswig-Holstein and Brandenburg, where tax inflows
relative to the number of inhabitants were down.
Expenditure in EUR per capita, as a comparison
between Bundesländer
8,000
Change in expenditure in EUR per capita, as a
comparison between Bundesländer
900
Länder average
Vs. 2013
700
6,000
EUR per inhabitant
EUR per inhabitant
Vs. 2010
800
7,000
5,000
4,000
3,000
2,000
600
500
400
300
200
100
1,000
0
0
-100
HB HH BE MV ST BB TH SN BY BW SL HE RP NW NI SH
HB HH BE MV ST BB TH SN BY BW SL HE RP NW NI SH
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland,
SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Schleswig-Holstein with
lowest expenditure per
capita
The city states traditionally have the biggest outflows in terms of expenditure in
relation to number of inhabitants, while Schleswig-Holstein had the lowest expenditure per inhabitant in 2014. In this respect, East German states have disproportionately high expenditure in comparison with West German non-city states. Expenditure growth in comparison with West German states has been lower in recent years,
though.
NORD/LB Fixed Income Research
Page 53 of 142
Issuer Guide German Bundesländer 2015
Debt in EUR per capita, as a comparison
between Bundesländer
35,000
Change in debt in EUR per capita, as a
comparison between Bundesländer
3,500
Länder average
Vs. 2010
Vs. 2013
3,000
30,000
EUR per inhabitant
EUR per inhabitant
2,500
25,000
20,000
15,000
10,000
2,000
1,500
1,000
500
0
5,000
-500
0
-1,000
HB BE SL HH SH ST RP NW NI TH HE BB MV BW BY SN
HB BE SL HH SH ST RP NW NI TH HE BB MV BW BY SN
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland,
SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
City states and Saarland
with highest
debt per inhabitant
For years now, the city states and Saarland have had the highest level of debt in
relation to the number of inhabitants. This situation has deteriorated further in recent
years, above all in Bremen and Saarland. In this respect, Bremen at least managed
a slight improvement last year. Debt has been reduced recently, especially in East
German Länder.
Debt/GDP, as a comparison between
Bundesländer
70%
Change in debt/GDP, as a comparison between
Bundesländer
6%
Länder average
Vs. 2010
2%
Debt in % of GDP
Debt in % of GDP
50%
40%
30%
20%
10%
0%
-2%
-4%
-6%
-8%
-10%
0%
HB BE SL ST SH TH BB RP MV NI HH NW HE BW SN BY
HB BE SL ST SH TH BB RP MV NI HH NW HE BW SN BY
Debt/revenue, as a comparison between
Bundesländer
Change in debt/revenue, as a comparison
between Bundesländer
20%
450%
Länder average
Vs. 2010
400%
Vs. 2013
0%
Debt in % of total revenue
350%
Debt in % of total revenue
Vs. 2013
4%
60%
300%
250%
200%
150%
100%
-20%
-40%
-60%
-80%
-100%
50%
0%
-120%
HB SL SH BE NW RP NI ST HH HE TH BB MV BW BY SN
HB SL SH BE NW RP NI ST HH HE TH BB MV BW BY SN
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland,
SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, VGRdL, NORD/LB Fixed Income Research
Bremen with most
significant improvement in
debt-revenue ratio
The debt/revenue ratio also reveals major differences between the Länder. Bremen
in particular stands out, where the most significant improvement could be seen in
one-year and five-year views. The ratio was relatively constant year-on-year in Thuringia and Brandenburg, where the levels remained almost unchanged. A slight
deterioration in the ratio was apparent in Schleswig-Holstein and Saxony-Anhalt.
NORD/LB Fixed Income Research
Page 54 of 142
Issuer Guide German Bundesländer 2015
Positive development of
tax-interest ratio in every
case
The tax-interest ratio improved in all the Bundesländer both in one-year and fiveyear views. By far the highest metrics are still delivered by Bavaria and Saxony.
However, at the other end of the scale, there are the states for which the Stability
Council declared an impending budgetary emergency in 2010 (Berlin, Bremen,
Saarland and Schleswig-Holstein).
Tax-interest coverage, as a comparison between
Bundesländer
18
50
Länder average
Vs. 2010
45
16
40
14
Tax revenue / interest expense
Tax revenue / interest expense
Change in tax-interest coverage, as a
comparison between Bundesländer
35
30
25
20
15
10
5
0
Vs. 2013
12
10
8
6
4
2
0
BY SN BW HE HH BB MV NI NW RP TH ST SH BE SL HB
BY SN BW HE HH BB MV NI NW RP TH ST SH BE SL HB
BW = Baden-Württemberg, BY = Bavaria, BE = Berlin, BB = Brandenburg, HB = Bremen, HH = Hamburg, HE = Hesse,
MV = Mecklenburg-Western Pomerania, NI = Lower Saxony, NW = North Rhine-Westphalia, RP = Rhineland-Palatinate, SL = Saarland,
SN = Saxony, ST = Saxony-Anhalt, SH = Schleswig-Holstein, TH = Thuringia.
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Comment
The German Bundesländer segment remains one of the most important quasigovernment sub-markets in Europe. A steady flow of new issues provides a relatively wide variety, while Länder finances have also maintained their positive development over the past year. For example, key credit metrics have improved, although
heterogeneity does remain high. Balances, tax revenue, debt and a number of key
credit metrics reveal differences between the Länder, in some cases quite large.
Despite the huge progress that has been made, the Länder of Bremen and Saarland in particular are under pressure due to their high levels of debt. However, an
overall improvement in the creditworthiness of the Länder can be reported, while the
current market environment conceals fundamental differences. If positive economic
growth is maintained, we expect tax revenues to continue rising strongly. In 2015
they are again likely to result in a surplus at overall Länder level. On that basis, we
expect debt to be repaid in the amount of around EUR 1.5-2bn.
NORD/LB Fixed Income Research
Page 55 of 142
Issuer Guide German Bundesländer 2015
Baden-Württemberg
Basic information
Link to the Ministry of Finance
http://mfw.baden-wuerttemberg.de
Number of inhabitants (2013)
10,631,278
State capital
Stuttgart
Minister-President
Winfried Kretschmann
Governing coalition
Greens/SPD
Next election
13 March 2016
Amt. outstanding
Covering an area of 35,732 sq km and with around 10.6 million inhabitants, BadenWürttemberg is the third largest Land in terms of size and population. On 25 April
1952, the Länder Württemberg-Baden, Württemberg-Hohenzollern and Baden were
merged, after these three states had been set up by the Allies after the Second
World War. Baden-Württemberg has always enjoyed the image of being the home
of inventors and entrepreneurs. Only Bavaria registered more patents than BadenWürttemberg in 2013. Around one third of Baden-Württemberg’s economic output is
generated by the manufacturing industry – more than in any other Bundesland.
Mechanical engineering and the automotive industry, in particular, make major contributions to economic output. With EUR 101.9bn of foreign direct investment, Baden-Württemberg had the fourth highest investment in Germany in 2012. This
southern Bundesland therefore accounted for 12.8% of the total foreign direct investment in Germany. In 2014, the state’s economy generated a GDP of EUR
438.3bn, representing 15.1% of total German economic output. When compared
with 2013, real GDP growth was at 2.4% Y/Y (Germany: 1.6% Y/Y), representing
the largest increase among all Bundesländer after a low real growth rate of 0.3%
Y/Y in the previous year (Germany: 0.1% Y/Y). For the first time since 2008, BadenWürttemberg generated a surplus of EUR 697m in 2014, following a deficit of EUR
210m in the previous year. Alongside the Länder of Bavaria, Hamburg and Hesse,
Baden-Württemberg also contributed to the financial equalisation between the Länder (Länderfinanzausgleich; LFA) last year. Like Hesse, Baden-Württemberg has
been a contributor to the LFA system from the start. No other Bundesland has paid
more into the LFA system since its formation.
Outstanding bonds issued by Baden-Württemberg (EURm)
Debt level
3,000
EUR 47.3bn
2,500
Of which bonds*
EUR 19.2bn
2,000
EURm
Of which borrower’s note loans
EUR 28.1bn
Bloomberg ticker
BADWUR
1,500
1,000
* As at 5 May 2015. Other amounts as at 31
December 2014.
500
0
Foreign currencies
EUR other
EUR floating
EUR fixed
2015
0
0
750
0
2016 2017 2018 2019 2020 2021
22
0
0
0
0
0
0
0
500
0
0
0
1,500 1,000 690
680 1,250
0
1,350
0
1,600 1,250 200
0
2022 2023 2024
0
0
0
0
0
0
100
200
0
1,670 2,125 883
2025 >2025
0
179
0
281
0
0
1,600 1,362
NB: foreign currencies are converted into EUR at rates as at 5 May 2015.
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
-
-
Moody’s
Aaa
stab
S&P
AAA
stab
Fitch
Rating agencies Moody’s and S&P each assess the creditworthiness BadenWürttemberg with their best ratings of Aaa and AAA, respectively. Both rating agencies refer to the existing framework comprising federal financial equalisation, principle of federal loyalty and debt brake. In addition, Moody’s takes a positive view of
the Bundesland’s past budget performance and its strong, diversified economy.
However, the rating agency notes that negative aspects include the level of debt.
S&P regards the progress made in the budget consolidation and strengthening of
this budget policy as positive. Conversely, the rating agency considers weaknesses
to be the high level of debt in conjunction with high implicit pension commitments,
which S&P estimates as 220% of total revenues (around EUR 95bn). S&P also
views as negative the contingent liabilities resulting from Landesbank BadenWürttemberg (LBBW).
NORD/LB Fixed Income Research
Page 56 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-35
-20
-25
-30
-35
-40
-40
-45
0
0
1
2
3
4
5
6
7
Years to maturity
BADWUR
BADWUR
8
9
Bundesländer
Bundesländer
10
11
12
Bunds
Bunds
1
2
3
4
5
6
7
8
9
10
11
Years to maturity
BADWUR
National German agencies
Regional German agencies
Bunds
BADWUR
National German agencies
Regional German agencies
Bunds
12
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS -WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of benchmark issues 2014/2015*
Weighting in iBoxx € Regions
10
Asset swap spread / discount margin at issue
5
No. of bonds in iBoxx € Regions
5
Pick-up to swaps*
Basis points
5.0%
-5
-10
-15
-22 to-15bp
-20
Pick-up to Bunds*
-25
8 to 20bp
BADWUR 0 5/8 02/09/27 (Fixed;
2015)
* Vs. interpolated figures; minimum term 1
year; minimum volume EUR 0.5bn.
BADWUR 0 5/8 01/16/25 (Fixed;
2015)
Bond amounts maturing in the next 12 months
1,400
10,000
1,200
8,000
1,000
EURm
12,000
EURm
BADWUR 0 3/4 12/23/24 (Fixed; BADWUR 1 07/18/22 (Fixed; 2014)
2015)
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
6,000
800
4,000
600
2,000
400
Other
SSD
Bonds
Asset swap spread / discount margin as of 05 Mai
0
2009
2010
2011
2012
2013
2014
1,964
3,232
1,141
3,140
3,578
584
3,996
2,212
928
4,287
2,778
873
5,500
1,100
2,700
6,901
412
2,987
Q1
2015
67
3,150
200
0
May
Jun
Jul
Aug
Sep
EUR fixed
Oct
Nov
Dec
Jan
Feb
Mar
Apr
EUR floating
Source: Land Baden-Württemberg, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 13.1bn (EUR 10.3bn)
Funding Q1 2015
EUR 3.2bn
In recent years, the issue volume of Baden-Württemberg grew on an almost constant basis. Last year, a total of EUR 13.1bn was issued, which exactly equaled the
Land’s gross credit authorisation. Especially bonds, which are also partly issued in
benchmark format, and other instruments (money market) were used more intensely in previous years. Accordingly, the funding volume of borrower’s note loans
(Schuldscheindarlehen; SSD) decreased to 4.0% in 2014, after 51.0% in 2009. In
2015, there is a gross credit authorisation of EUR 13.1bn, which would indicate a
continuation of the rising primary market activities for 2015. In Q1 2015, the Land
already refinanced EUR 3.2bn, which equates to 24.6% of the overall gross credit
authorisation. The amount of new debt is expected to be EUR 0.8bn if the gross
credit authorisation is fully utilised.
NORD/LB Fixed Income Research
Page 57 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
4,500
4,000
4,000
3,500
3,500
EUR per inhabitant
4,500
EUR per inhabitant
3,000
2,500
2,000
1,500
3,000
2,500
2,000
1,500
1,000
1,000
500
500
0
0
-500
Operating revenue
Tax revenue
Deficit/surplus
Ø of operating revenues
(non-city states)
2010
3,240
2,306
-79
2011
3,559
2,596
-39
2012
3,688
2,806
-7
2013
3,807
2,829
-20
2014
4,040
2,994
66
3,155
3,452
3,537
3,686
3,829
Operating expense
Staff expenditure
Grants to municipals
Equalisation mechanism (net)
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
3,319
1,304
709
282
366
171
2011
3,598
1,384
774
311
392
175
2012
3,694
1,404
844
401
323
159
2013
3,827
1,427
900
370
327
162
2014
3,975
1,470
964
387
402
149
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR 697.4m (EUR +907.5m; 3rd)
Balance/GDP (2013; ranking*)
0.16% (-0.05%; 8th)
Balance per capita (2013; ranking*)
EUR 66 (EUR -20; 4th)
Tax revenue (vs. 2013)
EUR 31.8bn (EUR +1.8bn)
Taxes per capita (2013; ranking*)
EUR 2,994 (EUR 2,829; 8th)
Taxes/interest paid (2013; ranking*)
20.1x (17.4x; 3rd)
Total revenue/interest paid
(2013; ranking*)
27.2x (23.4x; 3rd)
Total debt (vs. 2013; ranking*)
EUR 47.3bn (EUR +1.2bn; 13th)
Debt/GDP (2013; ranking*)
10.8% (11.0%; 3rd)
Debt/revenue (2013; ranking*)
1.1x (1.1x; 3rd)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
For the first time since 2008, the state of Baden-Württemberg achieved a surplus of
EUR 697m, following a deficit of EUR -210m in the previous year. Only Bavaria and
Berlin achieved a higher surplus. The reasons for this development were increased
tax revenues, in particular, which accounted for 74% of total revenues. The Land
received EUR 1.8bn more in taxes than in 2013 (+5.9% vs. 2013), with only Mecklenberg-Western Pomerania showing a stronger percentage tax growth. At EUR
2,994 per capita, tax revenues relative to the population are only higher in Bavaria
among the non-city states. The significant growth in revenues of 6.1% vs. 2013 was
offset by expenditure of EUR 42.3bn, which therefore posted a lower rise (+3.8%
vs. 2013). Charges incurred from the financial equalization remained relatively stable at 10% of total expenditure, while personnel expenditure posted a slightly lower
share of total expenses (37.0%; 2013: 37.3%) despite an increase by EUR 0.4bn.
Grants to municipalities again rose to make up more than 24% of expenditure for
the first time, totalling EUR 10.3bn in 2014 (7.1% vs. 2013). By contrast, the most
marked rise in expenditure was reported for investments: after a significant slowdown in 2012 and 2013, capital expenditures recently rose by 22.9% to EUR 4.3bn
(10.1% of total expenditure). Total growth in expenditure was dampened by interest
expenses. They fell back by 8.5% to EUR 1.6bn, which only equated to 3.7% of the
total budget in 2014. The strong growth in (tax) revenues combined with the fall in
interest expenditure brought about a significant improvement in interest coverage.
Only Bavaria and Saxony were able to demonstrate better values in 2014 for the
corresponding key metrics. The ratio of debt to revenues remained at 1.1x, which is
also the best value after Bavaria and Saxony.
Indicators of the Stability Council
2012
Actual
2013
Target
2014
Threshold value
Credit financing ratio in %
49
-231
-1.2
64
-192
1.9
-77
-286
1.4
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
4.7
5.9
11.4
4.0
6.0
10.4
4.4
5.9
10.6
Total debt in EUR per capita
Threshold value (non-city states)
4,002
8,875
4,174
8,929
4,290
9,051
Financial balance in EUR per capita
Violations in the period
Violations
no
no
no
no
2015
Financial planning
2016
2017
-10
-386
0.8
21
-386
0.0
35
-386
-0.3
8.4
6.0
11.6
8.4
5.9
11.6
8.4
5.9
11.6
11.6
4,391
9,251
4,470
9,451
4,544
9,651
9,851
no
2018
-386
8.4
Violations
no
no
no
no
no
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 58 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
4.6% 0.5%
Development of GDP and total debt since 2010
45,000
Manufacturing (excl.
construction)
34.2%
Financial & business
services, real estate
Public services, education,
health care & private
households
Trade, transport. &
storage, accomodation,
inform. and comm.
Construction
19.0%
40,000
35,000
EUR per inhabitant
16.6%
30,000
25,000
20,000
15,000
10,000
5,000
0
Agriculture, forestry &
fishing
25.1%
2010
GDP
2011
Debt
2012
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed Income Re search
Economy 2014
GDP (vs. 2013; ranking*)
EUR 438.3bn (EUR +17.4bn; 3rd)
GDP per capita (vs. 2013; ranking*)
EUR 41,224 (EUR +1,641; 5th)
Real GDP growth (2013; ranking*)
2.4% (0.3%; 1st)
Export ratio (2013; ranking*)
41.4% (41.2%; 3rd)
Import ratio (2013; ranking*)
34.4% (33.2%; 4th)
Unemployment rate
(2013; ranking*)
4.0% (4.1%; 2nd)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
Following the significant slump in economic output in 2009, Baden-Württemberg’s
economy invariably posted above-average growth rates in real terms over the subsequent years. At 2.4%, Baden-Württemberg posted the highest real GDP growth
among all federal states in 2014. Only in Saarland was there greater volatility in the
growth rates in real terms over the past ten years, however. Economic output per
capita has always been above Länder average. Likewise, unemployment rates in
Baden-Württemberg and Bavaria have for a long time been the lowest in a comparison across all Bundesländer. The unemployment rate of 4.0% in 2014 is almost
equivalent to full employment. The economy is dominated by manufacturing. At
34.2% in 2013, it had the biggest proportion of gross value added among all Bundesländer. Mechanical engineering, the automotive industry as well as metal and
plastic processing are major sectors of the economy. The Land’s economy is also
one of the most innovative in Germany. In 2013, only Bavaria registered more patents than Baden-Württemberg. External trade is traditionally of major importance:
relative to GDP, the export ratio was 41.4% in 2014, the third-highest figure in a
comparison across the Bundesländer. In 2014, Baden-Württemberg achieved a
foreign trade surplus amounting to EUR 30.7bn (previous year: EUR 33.9bn), which
is the highest surplus among the Länder. Vehicles and related parts as well as machinery were the main exports, accounting for around 45.8% of overall exports. Key
export partners were the US, China and France. Overall, 50.3% of exports went to
EU countries (lowest figure after Berlin and Saxony). The demographic trend is
likely to impact on Baden-Württemberg less than on other Bundesländer. No other
Bundesland has a higher proportion of under-15s relative to the total population
than Baden-Württemberg (13.8%). The proportion of over-45s is lower only in Berlin
and Hamburg.
Overall, we regard the Baden-Württemberg as a core investment in any Bundesländer portfolio. We consider the above-average key credit metrics, the strong economy and the low unemployment rate to be the Land’s core strengths. The fact that a
surplus was generated in 2014 for the first time since 2008 is also something we
view positively. As negative aspects we note the relatively high volatility of economic growth and the continued weakness in its debt development.
Strengths
Weaknesses
+ High degree of debt sustainability and interest
–
–
coverage
+ Strong and innovative economy
+ High level of external trade
+ Low unemployment rate
Weak development of indebtedness
Volatile economic growth
NORD/LB Fixed Income Research
Page 59 of 142
Issuer Guide German Bundesländer 2015
Bavaria
Basic information
Link to the Ministry of Finance
www.stmf.bayern.de
Number of inhabitants (2013)
12,604,244
State capital
Munich
Minister-President
Horst Seehofer
Governing party
CSU
Next election
Autumn 2018
Amt. outstanding
With 70,550 sq km, the Free State of Bavaria is the largest Bundesland by area. It
has 12.6 million inhabitants, with only NRW having a higher population. The Free
State has existed in its present form since 1 September 1955, when Lindau was reintegrated into the Bundesland. Only a few Länder have a similarly broad industrial
base. Besides the focus on industry (mechanical and electrical engineering, information and communication technology), the automotive industry is of particular
importance. Bavaria registered more patents in 2013 than any other German Bundesland, underlining the innovative capacity of its economy. However, agriculture is
also a major sector of the economy. No other Bundesland has a greater area of
agricultural land. Bavaria has been making a substantial contribution to German
economic output for a very long time. In 2014, Bavarian GDP was EUR 521.9bn,
corresponding to 18.0% of overall German economic output. In comparison with
2013, GDP increased by 1.8% Y/Y on a price-adjusted basis (Germany: 1.6% Y/Y)
after a real GDP growth of 0.8% Y/Y the year before (Germany: 0.1% Y/Y). The
Bavarian budget is also exhibiting a positive development. For the fourth consecutive time, a surplus was generated at year-end, which most recently amounted to
EUR 1.6bn. Furthermore, it was the third time in succession that Bavaria recorded
the highest surplus of all Bundesländer. For many years, the Free State has been
the most important contributor to the federal financial equalisation between the
Länder (Länderfinanzausgleich; LFA), after being a receiver on this equalisation
level in the 1980s and start of the 1990s.
Outstanding bonds issued by Bavaria (EURm)
Debt level
1,400
EUR 26.1bn
1,200
Of which bonds*
EUR 6.2bn
1,000
EURm
Of which borrower’s note loans
EUR 17.9bn
Bloomberg ticker
BAYERN
800
600
* As at 5 May 2015. Other amounts as at 31
December 2014.
400
200
0
EUR floating
EUR fixed
2015
0
75
2016
110
1,000
2017
0
1,250
2018
0
1,325
2019
0
550
2020
0
1,250
2021
0
100
2022
0
50
2023
0
100
2024
0
250
2025
0
0
>2025
0
128
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
-
-
Moody’s
Aaa
stab
S&P
AAA
stab
Fitch
Both Moody’s and S&P rate the creditworthiness of Bavaria at the highest level of
Aaa and AAA, respectively, thereby ranking the Land on the same level as the federal government. Both rating agencies refer to the existing framework comprising
federal financial equalisation, principle of federal loyalty and debt brake. Moody’s
also highlights the prudent budget management, comparatively low debt and strong
economy, in particular. S&P rates the budget performance very highly and views
the Free State’s liquidity position as very positive. The rating agency also sees a
strength in the economy of the Bundesland. Pension commitments are noted as a
negative aspect, however: S&P estimates them to be more than 400% of 2014
revenue, which would be equivalent to more than EUR 200bn. Bavaria expects that
it will have to cover EUR 11bn per year directly through the budget for pension
payments from 2050 (2014: EUR 4.5bn), which is likely to have a negative impact
on expenditure flexibility.
NORD/LB Fixed Income Research
Page 60 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-20
-25
-30
-30
-35
-35
-40
0
-40
0
1
2
3
4
5
6
Years to maturity
BAYERN
BAYERN
7
Bundesländer
Bundesländer
8
9
10
Bunds
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
BAYERN
National German agencies
Regional German agencies
Bunds
BAYERN
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS -WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of benchmark issues 2014/2015*
Weighting in iBoxx € Regions
10
Asset swap spread / discount margin at issue
0.9%
Asset swap spread / discount margin as of 05 Mai
5
Basis points
No. of bonds in iBoxx € Regions
1
Pick-up to swaps*
0
-5
-10
-23 to -21bp
Pick-up to Bunds*
-15
7 to 16bp
-20
BAYERN 1 5/8 04/15/24 (Fixed; 2014)
* Vs. interpolated figures; minimum term 1
year; minimum volume EUR 0.5bn.
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
9,000
1,200
8,000
1,000
7,000
800
EURm
EURm
6,000
5,000
4,000
600
3,000
400
2,000
1,000
200
SSD
Bonds
2009
2010
2011
2012
2013
2014
5,597
2,477
3,265
1,800
1,719
1,025
1,930
900
1,456
100
1,431
250
Q1
2015
1,020
-
0
May
Jun
Jul
Aug
Sep
EUR fixed
Oct
Nov
Dec
Jan
Feb
Mar
Apr
EUR floating
Estimate for Q1 2015. Source: Federal Ministry of Finance, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 2.5bn (EUR 1.7bn)
Funding Q1 2015
EUR 1.0bn
Bavaria’s activities on the primary market have been characterised by a significant
decrease in issue volume in recent years. Due to the financial problems of
BayernLB, which is majority-owned by the Bundesland, a plan was made in 2008 to
strengthen the bank’s equity capital. In 2009 Bavaria made EUR 7.0bn available as
equity capital to the Landesbank, as a result of which the issue volume rose substantially. Borrower’s note loans (Schuldscheindarlehen; SSD) constitute the most
important refinancing instrument. This instrument was used for 85.1% of the refinancing volume in 2014. Conversely, bonds have a declining contribution to funding. Following a gross credit authorisation of EUR 2.5bn in 2014, Bavaria raised
EUR 1.7bn in the past year. A gross credit authorisation of EUR 2.5bn was granted
for the current year, which corresponds to a planned net repayment of EUR 0.9bn.
We estimate Q1 funding to total EUR 1.0bn (40.3% of the gross credit authorisation).
NORD/LB Fixed Income Research
Page 61 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
4,500
4,500
4,000
4,000
EUR per inhabitant
EUR per inhabitant
3,500
3,000
2,500
2,000
3,500
3,000
2,500
2,000
1,500
1,500
1,000
1,000
500
0
500
0
-500
Operating revenue
Tax revenue
Deficit/surplus
Ø of operating revenues
(non-city states)
2010
3,237
2,476
-103
2011
3,587
2,702
23
2012
3,614
2,815
109
2013
3,877
2,981
167
2014
4,109
3,146
128
3,155
3,452
3,537
3,686
3,829
Operating expense
Staff expenditure
Grants to municipals
Equalisation mechanism (net)
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
3,340
1,364
570
403
423
83
2011
3,564
1,402
602
427
440
86
2012
3,505
1,444
641
441
396
83
2013
3,710
1,510
708
484
417
75
2014
3,981
1,571
756
541
422
70
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR 1,607.9m (EUR -501.9m; 1st)
Balance/GDP (2013; ranking*)
0.31% (0.42%; 7th)
Balance per capita (2013; ranking*)
EUR 128 (EUR 167; 6th)
Tax revenue (vs. 2013)
EUR 39.7bn (EUR +2.1bn)
Taxes per capita (2013; ranking*)
EUR 3,146 (EUR 2,981; 4th)
Taxes/interest paid (2013; ranking*)
44.8x (39.6x; 1st)
Total revenue/interest paid
(2013; ranking*)
58.5x (51.5x; 2nd)
Total debt (vs. 2013; ranking*)
EUR 26.1bn (EUR -1.4bn; 9th)
Debt/GDP (2013; ranking*)
5.0% (5.5%; 1st)
Debt/revenue (2013; ranking*)
0.5x (0.6x; 2nd)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
In 2014, the Bavaria posted a surplus at year-end for the fourth consecutive time.
Overall, the surplus amounted to EUR 1.6bn, which does mean a decline of EUR
0.5bn when compared with 2013. The Free State continues to be the frontrunner in
the comparison of Bundesländer according to this criterion. Tax revenues rose by
EUR 2.1bn to EUR 39.7bn (76.6% of total revenues), with only the three city states
posting higher tax revenues per capita. By contrast, no other Bundesland posted
higher growth in expenditure in 2014. Outflows were up 7.1% on the figure for 2013
to total EUR 50.2bn. Charges resulting from the federal financial equalisation rose
by 11.7% to EUR 6.8bn alone, which accounted for 13.6% of the budget – based on
our data, the highest value since the existence of financial equalisation. Personnel
expenses rose slightly above average by 4.0% to EUR 19.8bn (39.5% of the
budget – highest value in the comparison between Bundesländer), while even
grants to municipalities reported a plus of 6.8% to EUR 9.5bn. Over the past five
years this item posted growth of around 33.5%, so that expenses for local authorities accounted for almost 20% of total expenditure. Capital expenditure only rose
marginally by 1.2% to EUR 5.3bn (10.6% of expenditure), while interest expenses
fell again to EUR 0.9bn (1.8%). The strong tax growth and the falling interest expenses resulted in a further improvement in the otherwise very strong key credit
metrics. Measured both in terms of the total revenues and tax revenues, the values
for interest coverage represent the best values in the comparison of Bundesländer
together with the figures of Saxony. A similar picture has been emerging for years
with debt sustainability, which further improved in 2014. Once again, the values of
the Free State together with those of the state of Saxony represented the best metrics in the comparison of Bundesländer. The Bavarian government is also planning
to roll back debt over the coming years.
Indicators of the Stability Council
Actual
Target
Threshold value
2012
99
-231
2013
113
-192
2014
-58
-286
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
-2.3
4.7
3.1
-1.7
4.0
2.7
-1.4
4.4
2.5
11.4
2,530
8,875
10.4
2,436
8,929
10.6
2,393
9,051
Financial balance in EUR per capita
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
Violations
no
no
no
no
Financial planning
2015
3
-386
2016
49
-386
2017
76
-386
2018
77
-386
-1.3
8.4
2.3
-1.4
8.4
2.2
-1.7
8.4
2.0
-1.7
8.4
1.9
11.6
2,318
9,251
11.6
2,240
9,451
11.6
2,181
9,651
11.6
2,097
9,851
no
Violations
no
no
no
no
no
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 62 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
0.8%
45,000
Manufacturing (excl.
construction)
28.3%
17.7%
40,000
35,000
Financial & business
services, real estate
EUR per inhabitant
5.1%
Development of GDP and total debt since 2010
Public services, education,
health care & private
households
Trade, transport. &
storage, accomodation,
inform. and comm.
Construction
20.0%
25,000
20,000
15,000
10,000
5,000
0
Agriculture, forestry &
fishing
28.1%
30,000
2010
GDP
2011
Debt
2012
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed I ncome Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 521.9 bn (EUR +17.7bn, 2nd)
GDP per capita (vs. 2013; ranking*)
EUR 41,409 (EUR +1,400; 4th)
Real GDP growth (2013; ranking*)
1.8% (0.8%; 4th)
Export ratio (2013; ranking*)
32.4% (33.3%; 7th)
Import ratio (2013; ranking*)
28.8% (29.0%; 10th)
Unemployment rate
(2013; ranking*)
3.8% (3.8%; 1st)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
For years, Bavaria has been making the second-biggest contribution to federal
German GDP. Growth rates in real terms have always been aligned with the federal
average, against a background of above-average GDP per capita. In parallel with
the positive economic performance overall in recent years, the already low unemployment rate in Bavaria also dropped further. Bavaria’s unemployment rate has
been the lowest among the Bundesländer since 2009. The rate in 2014, 3.8%, represented almost full employment. The Land’s economy is dominated by manufacturing. In 2013 the proportion of gross value added by this sector was only exceeded
in three other Bundesländer. Only in a few other Länder is the industry similarly
diversified. Mechanical and electrical engineering, information and communication
technology together with the automotive industry are the important sectors of the
Bavarian economy, which is also one of the most innovative in a comparison between the Bundesländer. In absolute terms, the highest number of patents in Germany was registered in Bavaria. Relative to the number of inhabitants, only BadenWürttemberg saw more patents registered. Agriculture is traditionally still a highly
important sector as well. No other Bundesland has a greater area of agricultural
land. In 2014, Bavaria achieved a foreign trade surplus of EUR 18.7bn (previous
year: EUR 21.8bn), second only to Baden-Württemberg. The export ratio amounted
to 32.4%. Machinery, vehicles and related parts were the mainstays of external
trade, accounting for an export share of 46.0%. Key trading partners were Austria,
China and the USA, with just over half of exports destined for EU member states.
The demographic trend should have less of a negative impact in Bavaria compared
with the other Länder over the coming years, as only two other Länder have a higher proportion of under-15s relative to the total population. The proportion of over45s is only lower in three other Länder.
Overall, we consider Bavaria to be one of the strongest Bundesländer. In terms of
debt sustainability and interest coverage, Bavaria’s metrics are among the best,
while we also regard the strong economy and the lowest unemployment rate in
Germany as positive aspects. We view the Land’s high level of implicit pension
commitments as a weakness (cf. relevant chapter) and believe that these liabilities
have an adverse effect on the flexibility of expenditure over the long term.
Strengths
Weaknesses
+ High degree of debt sustainability and
–
High level of pension commitments
interest coverage
+ Strong and innovative economy
+ High level of external trade
+ Low unemployment rate
NORD/LB Fixed Income Research
Page 63 of 142
Issuer Guide German Bundesländer 2015
Berlin
Basic information
Link to the Ministry of Finance
http://www.berlin.de/sen/finanzen
Number of inhabitants (2013)
3,421,829
State capital
Mayor
Michael Müller
Governing coalition
SPD/CDU
Next election
Autumn 2016
Amt. outstanding
The federal capital of Berlin is the most densely populated Bundesland in Germany,
with 3.4 million inhabitants on an area of roughly 892 sq km. It is also the secondbiggest city within the EU. Following reunification in 1990, Berlin again became the
capital of Germany. The most important institutions of the federal government were
then gradually relocated to Berlin, creating many new jobs. The proximity to universities and research institutes also promotes the influx of companies from sectors
including information and communication technology, multimedia, transportation
technology, environmental engineering, medical technology and biotechnology.
However, most of Berlin’s value added is derived from the service sector. Services
such as financing, leasing and public administration collectively make up around
60% of the gross value added that Berlin’s economy generates. With a GDP of EUR
117.3bn, the federal capital contributed around 4.0% of Germany’s economic output
in 2014. Berlin’s economy grew by 2.2% Y/Y on a price-adjusted basis (Germany:
1.6% Y/Y) with only Baden-Württemberg displaying a higher real GDP growth. Following years of high deficits, Berlin’s budget again achieved a cash surplus of
around EUR 838m in 2014 (previous year: EUR 480m), which is the second-highest
surplus of all Bundesländer. Berlin therefore the closed the budget year with a positive balance for the third consecutive year. In 2014, the federal capital was again
one of the biggest recipients in the federal financial equalisation system. In 2010,
the Stability Council identified an impending budget emergency for Berlin. Since
then, the Land has been following a restructuring program. The Stability Council
regularly reviews the compliance.
Outstanding bonds issued by Berlin (EURm)
Debt level
7,000
EUR 60.6bn
6,000
Of which bonds*
EUR 37.4bn
5,000
EURm
Of which borrower’s note loans
EUR 21.1bn
Bloomberg ticker
4,000
3,000
BERGER
* As at 5 May 2015. Other amounts as at 31
December 2014.
2,000
1,000
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 >2025
Foreign currencies
0
0
192
0
0
0
0
0
48
0
0
118
EUR other
0
0
0
0
0
0
0
0
0
0
0
51
EUR floating
400 1,802 2,120 2,450 2,042 900 1,120 225
100
405
490
50
EUR fixed
1,935 3,960 4,100 2,129 840 1,215 2,410 2,120 1,600 2,335 1,535 323
NB: foreign currencies are converted into EUR at rates as at 5 May 2015.
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
Fitch
AAA
stab
Moody’s
Aa1
stab
-
-
S&P
The two rating agencies Fitch and Moody’s rate the creditworthiness of the federal
capital as AAA and Aa1, respectively. Fitch’s reasoning refers to an AAA-rated risk
generally being inherent in the federal loyalty principle and the federal financial
equalisation system. Moody’s also regards this system as a positive factor in the
rating decision. In addition, the rating agency highlights the budget performance in
recent years, which has led to surpluses through consolidation efforts. However,
negative aspects include the limited flexibility in the budget and the high level of
debt.
NORD/LB Fixed Income Research
Page 64 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-20
-25
-30
-30
-35
-35
-40
0
-40
0
1
2
3
4
5
6
Years to maturity
BERGER
BERGER
7
Bundesländer
Bundesländer
8
9
10
Bunds
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
BERGER
National German agencies
Regional German agencies
Bunds
BERGER
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS -WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Performance of benchmark issues 2014/2015*
BERGER 0
1/4 04/22/25
(Fixed;
2015)
11 to 27bp
* Vs. interpolated figures; minimum term 1
year; minimum volume EUR 0.5bn.
Asset swap spread / discount margin as of 05 Mai
BERGER 1
1/2 01/21/21
(Fixed;
2014)
-20 to -4bp
Pick-up to Bunds*
Asset swap spread / discount margin at issue
BERGER 0
10/28/20
(Floating;
2014)
11
Pick-up to swaps*
20
15
10
5
0
-5
-10
-15
-20
BERGER 1
5/8 06/03/24
(Fixed;
2014)
No. of bonds in iBoxx € Regions
Basis points
9.3%
BERGER 0
3/4 11/11/22
(Fixed;
2014)
Weighting in iBoxx € Regions
BERGER 0
1/2 02/10/25
(Fixed;
2015)
Relative value
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
12,000
2,000
1,800
10,000
1,600
1,400
EURm
EURm
8,000
6,000
4,000
1,200
1,000
800
600
2,000
400
Other
SSD
Bonds
2009
2010
2011
2012
2013
2014
3,734
7,470
3,316
7,397
1,894
7,284
829
6,655
639
6,620
232
7,516
Q1
2015
150
30
1,620
200
0
May
Jun
Jul
Aug
Sep
EUR fixed
Oct
Nov
Dec
Jan
Feb
Mar
Apr
EUR floating
Source: Land Berlin, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 7.6bn (EUR 7.5bn)
Funding Q1 2015
EUR 1.8bn
The funding volumes stabilised in 2014 after years of falling issuance volumes. At
EUR 7.5bn the funding volume stood at below the gross credit authorisation of EUR
7.9bn. The funding contribution of borrower’s note loans (Schuldscheindarlehen;
SSD) was again in decline. The SSD share of the funding volume was 33.3% in
2009, but over the past year it fell to just 3.0%. For 2015, the Berlin budget has
gross credit authorisations of EUR 7.6bn. If fully utilised, this would equate to a net
repayment of EUR 0.2bn, which would mean that the Land would continue the debt
repayment of the past few years. The Land borrowed funds of EUR 1.8bn in Q1,
which meant that the 23.6% of the gross credit authorisation was already utilised.
NORD/LB Fixed Income Research
Page 65 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
8,000
8,000
7,000
7,000
EUR per inhabitant
EUR per inhabitant
6,000
5,000
4,000
3,000
2,000
4,000
3,000
1,000
0
-1,000
5,000
2,000
1,000
Operating revenue
Tax revenue
Equalisation mechanism (net)
Deficit/surplus
Ø of operating revenues
(city states)
6,000
0
2010
5,853
3,028
1,655
-409
2011
6,252
3,257
1,717
-336
2012
6,687
3,441
1,819
201
2013
6,647
3,484
1,702
140
2014
6,955
3,836
1,628
245
5,720
6,294
6,574
6,580
6,996
Operating expense
Staff expenditure
Capital expenditure
Interest expense
Ø of operating expenses
(city states)
2010
6,261
1,867
536
638
2011
6,587
1,986
483
669
2012
6,486
2,003
423
621
2013
6,507
2,028
370
559
2014
6,710
2,106
403
512
6,325
6,665
6,648
6,683
6,855
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR 837.5m (EUR +357.3m; 2nd)
Balance/GDP (2013; ranking*)
0.71% (0.43%; 1th)
Balance per capita (2013; ranking*)
EUR 245 (EUR 140; 1st)
Tax revenue (vs. 2013)
EUR 13.1bn (EUR +1.2bn)
Taxes per capita (2013; ranking*)
EUR 3,836 (EUR 3,484; 3rd)
Taxes/interest paid (2013; ranking*)
7.5x (6.2x; 14th)
Total revenue/interest paid
(2013; ranking*)
13.6x (11.9x; 13th)
Total debt (vs. 2013; ranking*)
EUR 60.6bn (EUR -0.7bn; 15th)
Debt/GDP (2013; ranking*)
51.6% (54.5%; 15th)
Debt/revenue (2013; ranking*)
2.6x (2.7x; 13th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Berlin’s budget again achieved a surplus at year-end for the third consecutive time,
which reached a high of EUR 837.5m and was only exceeded by Bavaria in the
comparison of Bundesländer in 2014. The reasons for the improvement were primarily the tax revenues, which were up 10.1% compared with 2013 and therefore
rose more sharply than in any other Bundesland. At the same time, net revenues
from the federal financial equalisation system (including consolidation aid) fell to
EUR 5.5bn (2013: EUR 5.7bn). Since 2013, Berlin has therefore no longer been the
largest per-capita recipient in the federal financial equalisation. This development
has been brought about by planned reductions in federal supplementary grants for
special needs and increased expenditure for the VAT equalisation, to which Berlin
has again been contributing since 2013 after years of being a recipient. The revenues from the equalisation system fell overall to 23.9%; in 2009, this system still
accounted for 32.9% of revenues. The growth in expenditure of 3.1% compared
with 2013 was slightly above the city state average (+2.6%). With a budget of
31.4% and a rise of 3.9% to EUR 7.2bn, personnel expenses were again the largest
item of expenditure. After a significant reduction in capital expenditure in 2012, in
2014 the volume rose again to EUR 1.4bn (6.0% of the budget), with only Lower
Saxony reporting a lower investment ratio. Interest expenses, which accounted for
7.6% of the budget, posted a fall. The Land reduced its debts for the third consecutive time, which resulted in a further improvement in the key credit metrics. The
Land is also planning a net debt repayment in the coming budgetary years. Despite
this, the key metrics for debt sustainability and interest coverage continue to be
significantly below average. Delays in the construction of Berlin-Brandenburg Airport, whose budgeted costs have risen from the original EUR 1.7bn (2004) to the
current level of at least EUR 5.4bn, led to additional costs of EUR 242.9m and continue to put a strain on the budget in 2015. There may be further pressure of around
EUR 0.4bn for future budgetary periods given a further capital injection of EUR
1.1bn.
Indicators of the Stability Council
Actual
Target
Threshold value
2012
174
-231
2013
165
-192
2014
66
-286
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
-0.4
4.7
12.9
-2.6
4.0
11.5
-0.3
4.4
12.3
12.3
18,237
15,019
11.1
17,804
15,111
11.3
17,778
15,316
Financial balance in EUR per capita
Threshold value (city states)
Total debt in EUR per capita
Threshold value (city states)
Violations in the period
Violations
no
no
yes
yes
Financial planning
2015
98
-386
2016
53
-386
2017
59
-386
2018
62
-386
-0.9
8.4
12.0
-0.4
8.4
9.3
-0.4
8.4
9.1
-0.5
8.4
9.3
12.3
17,711
15,516
12.3
17,680
15,716
12.3
17,649
15,916
12.3
17,613
16,116
no
Violations
no
no
no
yes
no
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 66 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
32.3%
20.1%
Financial & business
services, real estate
50,000
Public services, education,
health care & private
households
Trade, transport. &
storage, accomodation,
inform. and comm.
Manufacturing (excl.
construction)
40,000
45,000
EUR per inhabitant
3.8% 0.0%
12.5%
Development of GDP and total debt since 2010
35,000
30,000
25,000
20,000
15,000
10,000
Construction
5,000
0
31.3%
2010
Agriculture, forestry &
fishing
2011
GDP
2012
Debt
2013
2014
GDP (avg. of city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed I ncome Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 117.3 bn (EUR +4.9bn; 7th)
GDP per capita (vs. 2013; ranking*)
EUR 34,271 (EUR +1,442; 7th)
Real GDP growth (2013; ranking*)
2.2% (0.2%; 2nd)
Export ratio (2013; ranking*)
11.4% (11.4%; 16th)
Import ratio (2013; ranking*)
8.3% (8.7%; 16th)
Unemployment rate
(2013; ranking*)
11.1% (11.7%; 15th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
Berlin posted the biggest nominal GDP growth of all Bundesländer in the past ten
years: Berlin’s economic output has increased by around 34.9% since 2005. GDP
per capita is nevertheless still below the Länder average. In line with the positive
economic performance, the unemployment rate also fell from 19.0% in 2005 to
11.1% in 2014, which nevertheless still represents the highest rate alongside Mecklenburg-Western Pomerania. However, in comparison with 2013, the unemployment
rate dropped most sharply in Berlin relative to the other Bundesländer. The economy is dominated by the service sector. The share of gross value added by public
services is only higher in Mecklenburg-Western Pomerania, while the proportion
attributable to manufacturing in 2013 was the lowest in Berlin compared with all
other Länder. The export ratio was only 11.4% in 2014, which was the lowest value
among the Länder. In 2014, Berlin achieved a foreign trade surplus of EUR 3.6bn
(previous year: EUR 3.0bn). The proportion of data processing devices, electronic
and optical products as well as electrical equipment was disproportionately high,
accounting for 24.4% of exports. Key trading partners were Poland and the USA, in
particular. Of goods exports, 45.6% went to EU states, which is the second lowest
figure after Saxony in a comparison among the Bundesländer. However, 25% was
destined for Asian countries, with only Saxony generating a greater share of its
exports to these countries. The challenges resulting from the demographic development are likely to be less serious for Berlin in a comparison among the Bundesländer: the proportion of over-45s in the population is only lower in Hamburg
than in Berlin (46.8%; Germany: 51.0%).
In our opinion, Berlin is one of the core investments in a Bundesländer portfolio. We
rate the strong budget performance as a positive aspect. We particularly take a
positive view of the surpluses in recent years as they reflect the success of consolidation efforts. In our view, another strength is the solid economic performance of
the federal capital, which has led to disproportionately high tax revenue growth in
recent years. Conversely, we interpret as weaknesses the still below-average key
credit metrics for debt sustainability and interest coverage. A further negative aspect
is that Berlin has the second-lowest investment ratio. We also regard BerlinBrandenburg Airport as a critical matter, since it is unclear so far as to whether
additional liabilities will be incurred.
Strengths
Weaknesses
+ Strong budget performance
+ Strong economic growth
–
–
–
–
Key credit metrics still below average
Continued high dependence on financial
equalisation
Low investments
Berlin-Brandenburg Airport as a risk factor
NORD/LB Fixed Income Research
Page 67 of 142
Issuer Guide German Bundesländer 2015
Brandenburg
Basic information
Link to the Ministry of Finance
http://www.mdf.brandenburg.de
Number of inhabitants (2013)
2,449,193
State capital
Potsdam
Minister-President
Dietmar Woidke
Governing coalition
SPD/Linke (the Left Party)
Next election
Autumn 2019
Amt. outstanding
With an area totalling 29,484 sq km, Brandenburg is one of the biggest Länder in
Germany. However, with 2.4 million inhabitants, it also has the second-lowest population density, after Mecklenburg-Western Pomerania. Following the establishment
of Brandenburg in its present form on 3 October 1990, a large number of companies settled around the Bundesland’s capital, Potsdam, and the federal capital,
Berlin. Although a merger of the Länder Brandenburg and Berlin into a joint Bundesland failed in 1996, their close cooperation in the context of the “Berlin/Brandenburg Metropolitan Region" continues to sustain the close links between
the two Bundesländer. Despite the creation of jobs for qualified staff, demographic
trends remain a key issue for Brandenburg. No other Bundesland has a lower proportion of 15 to 25-year-olds in the overall population. Agriculture continues to be
considerably important relative to other Bundesländer. Only Saxony-Anhalt and
Mecklenburg-Western Pomerania have a higher share of gross value added attributable to agriculture than Brandenburg. Economic output of EUR 61.9bn was
generated in Brandenburg in 2014, which was equivalent to around 2.1% of Germany’s GDP. The Land’s economic output increased by 0.9% Y/Y in comparison
with 2013 on a price-adjusted basis (Germany: 1.6% Y/Y), having decreased by
0.2% Y/Y the year before (Germany: +0.1% Y/Y). Following a surplus of EUR 710m
at the close of the 2013 budget, a surplus was generated in 2014 for the fourth year
in succession, amounting to EUR 327m. Brandenburg has been a recipient in the
federal financial equalisation system since reunification of Germany.
Outstanding bonds issued by Brandenburg (EURm)
Debt level
2,000
EUR 16.7bn
1,800
Of which bonds*
1,600
EUR 11.3bn
1,400
EURm
Of which borrower’s note loans
EUR 5.1bn
Bloomberg ticker
1,200
1,000
800
BRABUR
* As at 5 May 2015. Other amounts as at 31
December 2014.
600
400
200
0
Foreign currencies
EUR other
EUR floating
EUR fixed
2015
0
27
660
10
2016 2017 2018
0
0
0
0
100
0
570 1,250 410
1,235 350
247
2019
0
0
410
510
2020 2021 2022
0
0
0
15
110
0
300
0
175
1,215 1,380 150
2023
0
0
0
60
2024
0
0
100
525
2025 >2025
0
4
0
20
0
0
760
0
NB: foreign currencies are converted into EUR at rates as at 5 May 2015.
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Fitch
Moody’s
S&P
Long-term
Outlook
-
-
Aa1
stab
-
-
The rating agency Moody’s assigns Brandenburg a rating of Aa1 with a stable outlook. In addition to the federal financial equalisation system and the federal loyalty
principle, the rating agency takes particular account of the generally prudent budget
management and the robust budget performance. However, as negative aspects,
Moody’s notes the limited flexibility of revenues and the budget restrictions. Fitch
stopped rating Brandenburg on 2 December 2012 (previously: AAA).
NORD/LB Fixed Income Research
Page 68 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-20
-25
-30
-35
-35
-40
0
-40
0
1
2
3
4
5
6
Years to maturity
BRABUR
BRABUR
7
Bundesländer
Bundesländer
8
9
10
Bunds
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
BRABUR
National German agencies
Regional German agencies
Bunds
BRABUR
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS -WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of benchmark issues 2014/2015*
Weighting in iBoxx € Regions
20
2.2%
No. of bonds in iBoxx € Regions
3
Pick-up to swaps*
-18 to -12bp
Basis points
15
Asset swap spread / discount margin at issue
Asset swap spread / discount margin as of 05 Mai
10
5
0
-5
Pick-up to Bunds*
-10
12 to 19bp
-15
-20
BRABUR 1 5/8 05/28/24 (Fixed; 2014)
* Vs. interpolated figures; minimum term 1
year; minimum volume EUR 0.5bn.
BRABUR 0 5/8 01/27/25 (Fixed; 2015)
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
4,000
350
3,500
300
250
2,500
EURm
EURm
3,000
2,000
1,500
200
150
1,000
100
500
50
SSD
Bonds
2009
2010
2011
2012
2013
2014
905
2,494
606
2,507
865
2,271
587
3,075
172
2,493
192
1,552
Q1
2015
850
0
May
Jun
Jul
Aug
EUR fixed
Sep
Oct
Nov
EUR floating
Dec
Jan
Feb
Mar
Apr
EUR other
Source: Land Brandenburg, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, joint Länder bonds
(Gemeinschaft deutscher Länder),
private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 2.9bn (EUR 1.7bn)
Funding Q1 2015
EUR 0.9bn
The Land’s issuance volume fell again in 2014. At EUR 1.7bn, the funding volume
was lower than the gross credit authorisation of EUR 2.2bn would have theoretically
allowed. The funding contribution from borrower’s note loans (Schuldscheindarlehen; SSD) continued to be low. While in 2011, this instrument accounted for
27.6% of the refinancing volume, the contribution for 2013 had fallen to 6.5% before
stabilising recently at 11.0%. A gross credit authorisation of up to EUR 2.9bn is in
place for 2015. In case of a full usage of the credit authorisation, the debt level
should be constant. A lower level of total funding would lead to a net repayment of
debt. Brandenburg has already raised EUR 0.9bn on the primary market in Q1
2015, which means 29.6% of the gross credit authorisation was utilised.
NORD/LB Fixed Income Research
Page 69 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
5,000
4,500
4,000
EUR per inhabitant
EUR per inhabitant
4,000
3,000
2,000
3,500
3,000
2,500
2,000
1,500
1,000
1,000
500
0
0
-1,000
Operating revenue
Tax revenue
Equalisation mechanism (net)
Deficit/surplus
Ø of operating revenues
(non-city states)
2010
3,760
2,047
1,227
-211
2011
4,099
2,247
1,229
50
2012
4,112
2,363
1,277
3
2013
4,421
2,532
1,199
290
2014
4,302
2,508
1,159
133
3,155
3,452
3,537
3,686
3,829
Operating expense
Staff expenditure
Grants to municipals
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
3,972
854
1,021
655
253
2011
4,049
893
1,096
637
247
2012
4,109
913
1,233
559
234
2013
4,131
933
1,253
552
190
2014
4,169
963
1,277
549
175
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR 326.9m (EUR -383.0m; 6th)
Balance/GDP (2013; ranking*)
0.53% (1.18%; 4th)
Balance per capita (2013; ranking*)
EUR 133 (EUR 290; 5th)
Tax revenue (vs. 2013)
EUR 6.1bn (EUR -0.6bn)
Taxes per capita (2013; ranking*)
EUR 2,508 (EUR 2,532; 16th)
Taxes/interest paid (2013; ranking*)
14.4x (13.3x; 6th)
Total revenue/interest paid
(2013; ranking*)
24.6x (23.3x; 4th)
Total debt (vs. 2013; ranking*)
EUR 16.7bn (EUR -0.1bn; 5th)
Debt/GDP (2013; ranking*)
27.0% (28.5%; 10th)
Debt/revenue (2013; ranking*)
1.6x (1.6x; 5th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Brandenburg’s budget for 2014 achieved a cash surplus for the fourth consecutive
time, but at EUR 0.3bn, this was virtually half of that the previous year. Alongside
Schleswig-Holstein, Brandenburg was the only Bundesland to report falling tax
revenues (-1.0% vs. 2013), so that Brandenburg posted the lowest value for taxes
per capita. However, no other Land reported such a sharp fall in revenues as Brandenburg (-2.7% vs. 2013), which was essentially caused by the fall in revenues
from the federal financial equalisation system (-3.2% vs. 2013). The equalisation
still made up more than a quarter of revenues in 2014, while almost a third had
been achieved via this item in 2010. Relative below-average growth of 0.9% was
reported on the expenditure side compared with 2013. At 3.1%, year-on-year
growth of personnel expenditures was in the midfield range, although no other Land
reported lower personnel expenditures relative to the population and budget volume. Conversely, the grants to municipalities (+1.9% vs. 2013) highlighted the
highest values in a comparison of Bundesländer. Capital expenditure remained
relatively stable at an above-average 13.2% (average: 9.7%), while interest expenses fell back by 7.9%. As this development was significantly more pronounced
than the fall in (tax) revenues, interest coverage continued to improve. Debt was
again reduced by EUR 0.1bn, while, according to the financial planning, the Land’s
government expects further net repayments in future. Debt sustainability may therefore also continue to improve. The additional costs for Berlin-Brandenburg airport
had a dampening effect in the previous periods. Increased costs have already had
an impact in the meantime over the past few years. There may be further financial
charges of around EUR 0.4bn for future budgetary periods given a further
commmited capital injection of EUR 1.1bn.
Indicators of the Stability Council
Actual
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
2012
44
-231
-0.9
2013
269
-192
-2.1
Target
2014
91
-286
-0.7
4.7
8.4
11.4
7,330
4.0
6.6
10.4
7,032
4.4
7.6
10.6
7,032
8,875
8,929
9,051
Violations
no
no
no
no
2015
48
-386
-1.0
Financial planning
2016
2017
66
-386
-386
-1.2
8.4
9.9
11.6
7,465
8.4
10.4
11.6
7,465
9,251
9,451
no
2018
-386
8.4
8.4
11.6
11.6
9,651
9,851
Violations
no
no
no
no
no
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 70 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
1.9%
28.3%
16.2%
40,000
Public services, education,
health care & private
households
Financial & business
services, real estate
35,000
EUR per inhabitant
6.8%
Development of GDP and total debt since 2010
Manufacturing (excl.
construction)
Trade, transport. &
storage, accomodation,
inform. and comm.
Construction
30,000
25,000
20,000
15,000
10,000
5,000
21.3%
0
25.5%
Agriculture, forestry &
fishing
2010
GDP
2011
Debt
2012
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed Income Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 61.9 bn (EUR +1.6bn; 11th)
GDP per capita (vs. 2013; ranking*)
EUR 25,272 (EUR +634; 13th)
Real GDP growth (2013; ranking*)
0.9% (-0.2%; 14th)
Export ratio (2013; ranking*)
21.3% (21.7%; 14th)
Importquote (2013; Rang*)
29.5% (30.9%; 8th)
Unemployment rate
(2013; ranking*)
9.4% (9.9%; 12th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
Despite the positive economic development in recent years, Brandenburg’s GDP
per capita is still one of the lowest in the whole of Germany. Although the unemployment rate has always been disproportionately high in Brandenburg, it did fall
from 18.8% in 2003 to 9.4% in 2014. The Land’s economy is dominated by the
service sector. With a proportion of gross value added amounting to 21.3% in 2013,
manufacturing has a less important role to play in Brandenburg than in other Bundesländer (Germany: 25.5%). When compared with 1991, the share of gross value
added by the financial, corporate services and housing sectors increased by 15.2%
to 25.5% and remains on an upward trend, which implies a significant economic
shift. The export ratio was 21.3% in 2014, while the economy generated a foreign
trade deficit of EUR 5.1bn (previous year: deficit of EUR 5.5bn). The vehicle sector
formed the largest external trade item at 22.1%, while pharmaceutical and similar
products accounted for around 17.1% of exports. Key trading partners were Poland
and the USA. Overall, 62% of exported goods were destined for EU countries. North
America accounted for 19.2% of exports, which is the highest figure in Germany.
Demographic trends are likely to impact on Brandenburg more strongly than in other
areas over the coming years. No other Land has a lower proportion of 15 to 25year-olds in the overall population. At 57.1%, the proportion of the population aged
over 45 is only higher in Saxony-Anhalt (Germany: 51.0%).
We regard Brandenburg as an interesting option for diversifying within a Bundesländer portfolio. We see the Land’s strength in its strong budget performance,
which recently led to quite a substantial surplus. Its robust economic growth is another positive aspect. As weaknesses, we note the great degree of dependence on
federal financial equalisation and the continued high unemployment in combination
with its below-average economic strength. We identify risk factors in the negative
demographic trend and Berlin-Brandenburg Airport, as it is unclear so far as to
whether additional liabilities will be incurred.
Strengths
Weaknesses
+ Strong budget performance
+ Solid economic growth
–
–
–
–
High degree of dependence on financial equalisation
Continuing high level of unemployment and
below-average economic strength
Demographic trend as a risk factor
Berlin-Brandenburg Airport as a risk factor
NORD/LB Fixed Income Research
Page 71 of 142
Issuer Guide German Bundesländer 2015
Bremen
Basic information
Link to the Ministry of Finance
http://www.finanzen.bremen.de
Number of inhabitants (2013)
657,391
State capital
Bremen
Mayor
Jens Böhrnsen
Governing coalition
SPD/Greens
Next election
10 May 2015
Amt. outstanding
With only about 657,000 inhabitants on an area of 419 sq km, the two cities of Bremen and Bremerhaven have the smallest population of all sixteen Länder. Although
Bremen has a long tradition of self-determination, ultimately it was due to the logistical interests of the USA that the actual allied power in this area (United Kingdom)
entrusted this part of the territory it occupied in North Germany to the USA. Today,
Bremen’s port remains the second most important in Germany in economic terms,
after Hamburg. Bremen’s special status paved the way to its recognition as an independent Bundesland in 1947. Trade, transport and the hospitality industry are the
mainstays of Bremen’s economy. The city-state Hamburg is the only Land in which
these economic sectors make up a bigger part of gross value added. The automotive industry as well as aircraft and space technology are also major employers in
the smallest of all Bundesländer. Bremen’s GDP amounted to EUR 30.2bn in 2014.
This represented 1.0% of Germany’s nationwide economic output, the smallest
contribution in a comparison between the Bundesländer. In 2014, real GDP growth
of 0.7% Y/Y was generated (Germany: 1.6% Y/Y). Previously, real GDP had decreased by 0.8% Y/Y (Germany: +0.1% Y/Y). An improvement in the budget situation was achieved, not least due to positive real growth rates. In 2014, the deficit
was EUR 440m, after a deficit of EUR 480m in the previous year. Bremen is one of
the four Bundesländer for which the Stability Council identified an impending budget
emergency in 2010. Since then, Bremen has been following a restructuring programme as agreed with the supervisory body, as part of which it is committed to
ongoing reporting.
Outstanding bonds issued by Bremen (EURm)
Debt level
2,000
EUR 19.7bn
1,800
Of which bonds*
1,600
EUR 13.1bn
1,400
EURm
Of which borrower’s note loans
EUR 5.8bn
Bloomberg ticker
1,200
1,000
BREMEN
* As at 5 May 2015. Other amounts as at 31
December 2014.
800
600
400
200
0
EUR floating
EUR fixed
2015
650
0
2016
1,500
250
2017
1,150
0
2018
1,250
10
2019
1,100
0
2020
750
0
2021
0
500
2022
0
0
2023
0
0
2024
0
1,000
2025
500
500
>2025
0
0
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
AAA*
-
Moody’s
-
-
S&P
-
-
Fitch
* Fitch only rates bonds issued after March
2014.
The city state of Bremen has not had an issuer rating since 2 December 2010. Before that date, Fitch had continuously assigned the smallest German Land a rating
of AAA since 1999. This equated Bremen’s creditworthiness with that of the German federal government. Any bonds issued after March 2014 have been rated by
Fitch. The rating agency justifies this based on an AAA-rated risk generally being
inherent in the federal financial equalisation system and the federal loyalty principle.
We believe that an issuer rating for Bremen could follow. In past years, Lower Saxony (2012) and Hamburg (2013) proceeded in a similar way in relation to Fitch ratings.
NORD/LB Fixed Income Research
Page 72 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-20
-25
-30
-35
-35
-40
-40
0
0
1
2
3
4
5
6
Years to maturity
BREMEN
BREMEN
7
Bundesländer
Bundesländer
8
9
10
Bunds
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
BREMEN
National German agencies
Regional German agencies
Bunds
BREMEN
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS-WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of benchmark issues 2014/2015*
Weighting in iBoxx € Regions
20
Asset swap spread / discount margin at issue
15
-
Asset swap spread / discount margin as of 11 Feb
No. of bonds in iBoxx € Regions
Pick-up to swaps*
-8 to -6bp
Basis points
10
5
0
-5
-10
* Vs. interpolated figures; minimum term 1
year; minimum volume EUR 0.5bn.
BREMEN 0
01/22/25
(Floating; 2015)
Bond amounts maturing in the next 12 months
800
10,000
700
8,000
600
6,000
500
EURm
12,000
EURm
BREMEN 0
02/20/19
(Floating; 2014)
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
4,000
400
300
2,000
200
-
Other
Repos
SSD
Bonds
BREMEN 0
07/14/17
(Floating; 2014)**
BREMEN 1 1/8
10/30/24 (Fixed;
2014)
16 to 17bp
BREMEN 1 7/8
03/18/24 (Fixed;
2014)
BREMEN 1 3/8
04/28/21 (Fixed;
2014)
-15
Pick-up to Bunds*
2009
2010
2011
2012
2013
2014
745
1,900
967
4,440
1,848
4,400
936
4,047
350
4,700
1,651
3,925
434
5,850
812
2,976
744
4,400
926
3,710
117
4,810
Q1
2015
1,263
100
0
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
EUR floating
Source: Land Bremen, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, joint Länder bonds
(Gemeinschaft deutscher Länder),
private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 7.9bn (EUR 4.9bn)
Funding Q1 2015
EUR 1.3bn
After Bremen almost exclusively issued floaters without a rating over the past few
years, the refinancing strategy was changed in 2014. Since then, Bremen has appeared quite regularly with fixed interest rate bonds in the benchmark format with
Fitch ratings. The Land issued a total of EUR 4.9bn in the form of borrower’s note
loans (Schuldscheindarlehen; SSD) and bonds in 2014, with the refinancing contribution of the SSD only having a marginal effect. There is a gross credit authorisation of EUR 7.9bn in place, which would equate to net borrowings of EUR 0.3bn if
fully utilised. Bremen already borrowed EUR 1.3bn on the capital market in Q1
2015, which equals 16.0% of the gross credit authorisation.
NORD/LB Fixed Income Research
Page 73 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
8,000
9,000
7,000
8,000
EUR per inhabitant
EUR per inhabitant
6,000
5,000
4,000
3,000
2,000
1,000
0
7,000
6,000
5,000
4,000
3,000
2,000
-1,000
1,000
-2,000
-3,000
Operating revenue
Tax revenue
Equalisation mechanism (net)
Deficit/surplus
Ø of operating revenues
(city states)
0
2010
5,022
3,044
909
-1,899
2011
6,061
3,504
1,011
-921
2012
6,316
3,494
1,574
-824
2013
6,644
3,665
1,745
-736
2014
7,085
3,902
1,839
-669
5,720
6,294
6,574
6,580
6,996
Operating expense
Staff expenditure
Capital expenditure
Interest expense
Ø of operating expenses
(city states)
2010
6,921
2,076
833
1,045
2011
6,982
2,142
797
965
2012
7,140
2,175
767
993
2013
7,380
2,191
874
957
2014
7,754
2,280
1,097
853
6,325
6,665
6,648
6,683
6,855
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR -439.6m (EUR +44.2m; 13th)
Balance/GDP (2013; ranking*)
-1.45% (-1.64%; 16th)
Balance per capita (2013; ranking*)
EUR -669 (EUR -739; 16th)
Tax revenue (vs. 2013)
EUR 2.6bn (EUR +0.2bn)
Taxes per capita (2013; ranking*)
EUR 3,902 (EUR 3,679; 2nd)
Taxes/interest paid (2013; ranking*)
4.6x (3.8x; 16th)
Total revenue/interest paid
(2013; ranking*)
8.3x (6.9x; 15th)
Total debt (vs. 2013; ranking*)
EUR 19.7bn (EUR +0.1bn; 6th)
Debt/GDP (2013; ranking*)
65.3% (67.5%; 16th)
Debt/revenue (2013; ranking*)
4.2x (4.5x; 16th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
The Bremen budget achieved a reduction in the budget deficit for the fourth consecutive time. At EUR -0.4bn, this had fallen to the lowest level per capita since
2008, with no other Bundesland reporting such a large deficit relative to the number
of inhabitants. At 6.5% up from 2013, the growth in the tax revenues was only higher in four other Bundesländer, although this was lower than in the other city states
(+9.3%). The revenues from the federal financial equalisation system (including
consolidation aid) increased by 4.7%, so that it accounted for more than a quarter of
the budgetary volume. Whereas total revenues rose by 6.6% on the figure for 2013,
expenditure was up 5.1% and therefore only increased more in three other Bundesländer. This was due to a significant expansion of investment by 25.5% (highest
increase of all Länder). No other Bundesland reported similarly high investment
expenditure per capita as Bremen. Whereas personnel expenditure rose by 4.1%
and therefore accounted for 29.4% of the budget, the significant fall in interest
charges of 10.9% eased the burden on expenditures. However, interest still accounted for a greater share of the budget in 2014 only in Saarland. Together with
Saarland, Bremen represented the weakest credit metrics, although they improved
significantly during the last couple of years. In our opinion, interest coverage and
debt sustainability continue to represent the most serious problems of Bremen’s
budget. Close agreement with the Stability Council resulted in intensified consolidation efforts that are visible in the financial planning. It is therefore assumed that
Bremen will be able to maintain the permitted threshold values in the credit financing ratio from 2016, while the threshold value for the financial balance should not be
exceeded for the first time as from 2018. However, for the debt level, in particular, it
becomes clear that complete stabilisation of the budget may well continue to be a
long-term process.
Indicators of the Stability Council
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Actual
2012
2013
-1,254
-921
-231
-192
Target
2014
-999
-286
Violations
yes
2015
-868
Financial planning
2016
2017
-583
-414
2018
-214
-386
12.2
8.4
-386
8.3
8.4
-386
6.1
8.4
-386
3.9
8.4
Violations
yes
18.0
4.7
13.7
4.0
18.0
4.4
yes
Interest-tax ratio in %
Threshold value (city states)
20.0
12.3
19.2
11.1
19.0
11.3
yes
18.4
12.3
17.9
12.3
17.5
12.3
17.0
12.3
yes
Total debt in EUR per capita
Threshold value (city states)
Violations in the period
29,175
15,019
30,012
15,111
30,978
15,316
yes
31,467
15,516
31,696
15,716
31,761
15,916
31,666
16,116
yes
yes
no
yes
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 74 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
26.0%
20.8%
50,000
Trade, transport. &
storage, accomodation,
inform. and comm.
Financial & business
services, real estate
45,000
40,000
EUR per inhabitant
3.5% 0.0%
Development of GDP and total debt since 2010
Manufacturing (excl.
construction)
Public services, education,
health care & private
households
Construction
30,000
25,000
20,000
15,000
10,000
5,000
23.9%
25.8%
35,000
0
Agriculture, forestry &
fishing
2010
2011
GDP
2012
Debt
2013
2014
GDP (avg. of city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed Income Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 30.2bn (EUR +0.8bn; 16th)
GDP per capita (vs. 2013; ranking*)
EUR 45,994 (EUR +1,242; 2nd)
Real GDP growth (2013; ranking*)
0.7% (-0.8%; 15th)
Export ratio (2013; ranking*)
57.3% (50.0%; 1st)
Import ratio (2013; ranking*)
44.6% (46.3%; 2nd)
Unemployment rate
(2013; ranking*)
10.9% (11.1%; 14th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
Bremen’s GDP per capita has been above-average for years, with only Hamburg
once again recording higher figures in 2014. After a stagnation in real economic
activity in 2013 (-0.8% vs. 2012), price-adjusted GDP increased by 0.7% in 2014,
representing the second-lowest growth rate in a comparison between the Bundesländer. Once again Bremen’s economy thus displayed below-average growth
rates. Despite the economic growth in recent years, the unemployment rate is still
clearly above the federal average of 6.7% in 2014, although it has been reduced
substantially to 10.9% since 2005 (16.8%). The economy is broadly diversified. At
26%, Hamburg is the only Land with a higher proportion of gross value attributable
to the trade, hospitality and transport industries in 2013 (Germany: 18.4%). Foreign
trade has traditionally played a highly important role for the Bundesland. Relative to
GDP in 2014, the export ratio last year was 57.3%, which is the highest figure compared to the other Bundesländer. Overall, Bremen achieved a foreign trade surplus
of EUR 3.8bn (previous year: EUR 1.1bn). Major exported goods included cars,
vehicle parts and other vehicles. These accounted for around 64.1% of exports, the
highest figure among the Bundesländer. The most important trading partners were
France and the USA. Of all exported goods, 57.4% were attributable to EU countries. Around 15.2% of goods went to North America, which is the second-highest
proportion of all the Länder after Brandenburg. When compared with challenges
posed by the demographic trend in other Länder, Bremen is likely to face an average level. In fact, the proportion of over-45s is slightly below-average at 49.5%
(Germany: 51.0%). The same is true of the population aged under 15, however,
which account for 12.3%, while the proportion in Germany as a whole is 13.1%.
We consider Bremen to be an interesting option for diversification within a Bundesländer portfolio. Its strengths include the budget performance, which has seen
significant success with regard to consolidation, especially since it has been monitored by the Stability Council. Another positive aspect is Bremen’s economy with its
strong external trade. In this respect, we also include the significance of Bremen’s
port, the second-biggest of its type in Germany. However, in our view, the city
state’s key credit metrics remain a significant weakness. In terms of debt sustainability and interest coverage, Bremen has the lowest figures, which also has a longterm adverse effect on the flexibility of the budget. Another negative aspect is the
continuing high expenditure relative to the number of inhabitants.
Strengths
Weaknesses
+ Strong budget performance
+ High level of external trade
–
–
Relatively low debt sustainability and
interest coverage
Continued high expenditure relative to the
number of inhabitants
NORD/LB Fixed Income Research
Page 75 of 142
Issuer Guide German Bundesländer 2015
Hamburg
Basic information
Link to the Ministry of Finance
http://www.hamburg.de/fb
Number of inhabitants (2013)
1,746,342
State capital
Mayor
Olaf Scholz
Governing coalition
SPD/Greens
Next election
Spring 2020
Amt. outstanding
With 1.7 million inhabitants, the Free and Hanseatic City of Hamburg is the secondbiggest city in Germany, after Berlin. Hamburg has an area of 755 sq km with a
population density of 2,297 inhabitants per sq km, meaning that it is again second
only to Berlin in a comparison of this kind with other Bundesländer. Traditionally
concerned about its political independence, the city state owes its economic importance to its port, which is among the biggest of its kind. In 2013, only the port of
Rotterdam transshipped a greater volume of containers in Europe. The importance
of the economic sectors involving logistics, the port and maritime trade is accordingly high. About 133,000 jobs directly and indirectly depend on the port. As a commercial, transport and services centre, Hamburg is one of the leading conurbations
in Germany, with excellent transport links. No other Bundesland has a higher proportion aged between 25 and 45 in the overall population, while the proportion of
over-45s is the lowest in Germany. This gives rise to a comparatively positive outlook for Hamburg’s demographic trend. In 2014, Hamburg’s economy generated a
GDP of EUR 103.1bn, which equated to 3.6% of Germany’s economic output. For
years now, Hamburg has obtained the highest GDP per capita of all Bundesländer
(2014: EUR 59,063; Germany: EUR 35,952). GDP increased by 1.6% Y/Y on a
price-adjusted basis in 2014 (Germany: 1.6% Y/Y), with previous growth amounting
to 0.2% Y/Y (Germany: 0.1% Y/Y). For the first time since 2008, Hamburg generated a cash surplus of EUR 424m in 2014, following a deficit of EUR 596m in the
previous year. In 2013, the city state switched to the receiver side of the federal
financial equalisation system for the first time since 1994. However, in 2014, Hamburg was once again among the four contributors.
Outstanding bonds issued by Hamburg (EURm)
Debt level
2,000
EUR 23.2bn
1,800
Of which bonds*
1,600
EUR 12.8bn
1,400
EURm
Of which borrower’s note loans
EUR 10.7bn
Bloomberg ticker
HAMBRG
1,200
1,000
800
* As at 5 May 2015. Other amounts as at 31
December 2014.
600
400
200
0
EUR other
EUR floating
EUR fixed
2015
0
50
100
2016
0
750
50
2017
0
50
700
2018
51
550
1,290
2019
0
130
1,250
2020
0
350
500
2021
0
0
800
2022
0
0
1,400
2023
0
50
125
2024
0
0
550
2025
0
0
500
>2025
0
0
0
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
AAA
stab
Moody’s
-
-
S&P
-
-
Fitch
Since 2013, Hamburg is again rated by Fitch. The rating agency equates the city
state’s credit rating with that of the German federal government, which means
Hamburg is rated AAA with a stable outlook. Fitch’s reasoning refers to the federal
financial equalisation system and the federal loyalty principle. Due to this mechanism, the rating agency does not see any significant difference between the creditworthiness of the Bundesland and the federal government that could justify different
ratings. Hamburg had previously held an AAA rating from Fitch up to 15 December
2010.
NORD/LB Fixed Income Research
Page 76 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-20
-25
-30
-35
-35
-40
-40
0
1
2
3
4
5
6
Years to maturity
HAMBRG
HAMBRG
7
Bundesländer
Bundesländer
8
9
0
10
Bunds
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
HAMBRG
National German agencies
Regional German agencies
Bunds
HAMBRG
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS -WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of benchmark issues 2014/2015*
Weighting in iBoxx € Regions
25
-
Asset swap spread / discount margin at issue
20
Pick-up to swaps*
-21 to -14bp
15
Basis points
No. of bonds in iBoxx € Regions
Asset swap spread / discount margin as of 16 Feb
10
5
0
-5
Pick-up to Bunds*
-10
9 to 17bp
-15
HAMBRG 0 3/8 01/20/22 (Fixed; 2015)
* Vs. interpolated figures; minimum term 1
year; minimum volume EUR 0.5bn.
HAMBRG 1 06/18/21 (Fixed; 2014)
HAMBRG 1 7/8 02/27/24 (Fixed; 2014)
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid. Source: Bloomberg, NORD/LB
Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
4,500
120
4,000
3,500
100
80
2,500
EURm
EURm
3,000
2,000
60
1,500
1,000
40
500
-
Other
SSD
Bonds
2009
2010
2011
2012
2013
2014
100
1,606
1,550
1,172
317
2,787
453
623
2,270
150
15
3,075
4
1,305
2,793
150
115
2,906
Q1
2015
20
0
10
913
May
Jun
Jul
Aug Sep Oct Nov Dec
EUR fixed
EUR floating
Jan
Feb
Mar
Apr
Source: Land Hamburg, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, joint Länder bonds
(Gemeinschaft deutscher Länder),
private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 3.6bn (EUR 3.2bn)
Funding Q1 2015
EUR 0.9bn
Hamburg has been present on the capital market with a fluctuating need for funding
in recent years. The funding volume fell to 3.2bn in 2014, which meant the Bundesland did not fully utilise the EUR 3.4bn available in the gross credit authorisation. Securities in the form of own issues or Länder jumbos are also by far the most
important funding instruments, with borrower’s note loans (Schuldscheindarlehen;
SSD) only making a marginal contribution. There is a EUR 3.6bn gross credit authorisation for 2015. If this is entirely utilised, this would result in net borrowings of
EUR 0.2bn. Hamburg has already raised EUR 0.9bn on the capital markets in Q1
2015, which equates to 25.6% of the gross credit authorisation.
NORD/LB Fixed Income Research
Page 77 of 142
Issuer Guide German Bundesländer 2015
Development of expenditure in EUR per capita
8,000
8,000
7,000
7,000
6,000
6,000
EUR per inhabitant
EUR per inhabitant
Development of revenue in EUR per capita
5,000
4,000
3,000
5,000
4,000
3,000
2,000
2,000
1,000
1,000
0
0
-1,000
Operating revenue
Tax revenue
Deficit/surplus
Ø of operating revenues
(city states)
2010
5,721
4,581
-505
2011
6,463
5,057
-231
2012
6,451
5,137
-326
2013
6,424
5,190
-341
2014
7,042
5,663
243
5,720
6,294
6,574
6,580
6,996
Operating expense
Staff expenditure
Capital expenditure
Interest expense
Equalisation mechanism (net)
Ø of operating expenses
(city states)
2010
6,226
1,960
672
508
160
2011
6,694
2,057
684
512
194
2012
6,777
2,111
537
477
156
2013
6,765
2,161
494
437
92
2014
6,799
2,197
514
392
176
6,325
6,665
6,648
6,683
6,855
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR 424.2m (EUR +1.0bn; 5th)
Balance/GDP (2013; ranking*)
0.4% (-0.6%; 5th)
Balance per capita (2013; ranking*)
EUR 243 (EUR -343; 2nd)
Tax revenue (vs. 2013)
EUR 9.9bn (EUR +0.8bn)
Taxes per capita (2013; ranking*)
EUR 5,663 (EUR 5,226; 1st)
Taxes/interest paid (2013; ranking*)
14.4x (11.9x; 5th)
Total revenue/interest paid
(2013; ranking*)
17.9x (14.7x; 7th)
Total debt (vs. 2013; ranking*)
EUR 23.2bn (EUR +0.0bn; 8th)
Debt/GDP (2013; ranking*)
22.5% (23.3%; 6th)
Debt/revenue (2013; ranking*)
1.9x (2.1x; 8th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
For the first time since 2008, the Hamburg budget achieved a surplus of EUR
0.4bn, resulting in an improvement in the account balance of EUR 1.0bn compared
with 2013. This represented the second-best per capita value. No other Bundesland
had a stronger absolute improvement in the balance than Hamburg. Tax revenues
were up 9.1% on the figure for 2013, with only Berlin seeing stronger growth. The
tax revenues therefore continued to be the highest in the comparison of Bundesländer. Revenues grew overall by 9.6% since 2013, while growth of expenditure was
0.5% and therefore only lower in three other Länder. Personnel expenditure rose by
1.7% to take up almost a third of the total budget. Capital expenditure increased by
4.1% and was only lower in terms of the total budget in Berlin, Lower Saxony and
Schleswig-Holstein. After the city state briefly became a recipient in the financial
equalisation among the Länder (Länderfinanzausgleich; LFA) in 2013, Hamburg
was again among the net payers in 2014, although net expenditure of EUR 0.3bn
accounted for significantly less in the federal financial equalisation than among the
other three contributors in the LFA. Interest expenses fell by 10.3% compared with
2013, which resulted in a further improvement in interest coverage. Only in four
other Bundesländer was the ratio of taxes to interest paid in recent times higher
than in the Hanseatic City. Debt sustainability also improved after a brief deterioration for a short period in 2013. Debt was not reduced despite the surplus, even
though financial planning anticipates a net repayment for 2018 for the first time. Via
the HSH Finanzfonds, in which Hamburg and Schleswig-Holstein each hold half of
the shares, a guarantee is in place for HSH Nordbank. This is limited to EUR 10bn,
although it is only possible to call in the guarantee in the event of an overrun of the
first loss tranche of EUR 3.2bn to be borne by HSH Nordbank itself.
Indicators of the Stability Council
Actual
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (city states)
Total debt in EUR per capita
Threshold value (city states)
Violations in the period
-231
2.0
2013
178
-192
-4.3
Target
2014
-147
-286
2.0
4.7
8.8
12.3
14,346
4.0
8.1
11.1
14,308
4.4
9.8
11.3
14,480
15,019
15,111
15,316
2012
-269
Violations
no
no
no
no
2015
-106
Financial planning
2016
2017
-58
11
2018
101
-386
1.8
-386
1.0
-386
0.0
-386
-1.3
8.4
7.6
12.3
14,613
8.4
7.8
12.3
14,677
8.4
7.7
12.3
14,668
8.4
7.5
12.3
14,558
15,516
15,716
15,916
16,116
no
Violations
no
no
no
no
no
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 78 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
2.6% 0.1%
Development of GDP and total debt since 2010
70,000
Financial & business
services, real estate
13.9%
60,000
18.5%
EUR per inhabitant
35.6%
Trade, transport. &
storage, accomodation,
inform. and comm.
Public services, education,
health care & private
households
Manufacturing (excl.
construction)
Construction
50,000
40,000
30,000
20,000
10,000
0
29.3%
Agriculture, forestry &
fishing
2010
2011
GDP
2012
Debt
2013
2014
GDP (avg. of city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed Income Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 103.1 bn (EUR +3.7bn; 9th)
GDP per capita (vs. 2013; ranking*)
EUR 59,063 (EUR +2,105; 1st)
Real GDP growth (2013; ranking*)
1.6% (0.2%; 6th)
Export ratio (2013; ranking*)
49.6% (49.5%; 2nd.)
Import ratio (2013; ranking*)
68.6% (69.2%; 1st)
Unemployment rate
(2013; ranking*)
7.6% (7.4%; 8th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
For years, the city state of Hamburg has registered the highest GDP per capita.
With an increase of EUR 2,105 to EUR 59,063 (Germany: EUR 35,952; EUR +803)
Hamburg’s GDP per capita further distanced itself from the Länder average. The
unemployment rate has been above the national level since 2006, after years of
below-average rates. Having reached a rate of 11.3% in 2005, the labour market
improved in parallel with the situation within the whole of Germany, but the unemployment rate in Hamburg recently increased to 7.6% in 2014, up from 7.4% in
2013. Hamburg was therefore the only Bundesland where the unemployment rose
in 2014. The economy is largely dominated by the service sector and the biggest
German sea-port. There is also a strong focus on exports on account of the port,
whose container handling in 2013 was only exceeded by Rotterdam in Europe. The
ratio of exported goods relative to GDP was 49.6% in 2014, which is the secondhighest figure in a comparison between the Bundesländer. At 68.6%, the import
ratio was the highest in Germany. Overall, Hamburg recorded a foreign trade deficit
of EUR 19.6bn in 2014 (previous year: deficit of EUR 19.5bn). Vehicles were the
main exports: 55.7% of exports were accounted for by cars, vehicle parts and other
vehicles. Key trading partners were France and the UK. Around 58.5% of exports
went to EU countries. Demographic changes should pose less of a challenge for
Hamburg than for other Bundesländer. At 30.8%, no other Bundesland has a higher
proportion of 25 to 45-year-olds in the overall population (Germany: 25.1%), while
the proportion of over-45s is the lowest in the whole of Germany at 45.4% (Germany: 51.0%).
We consider Hamburg to be an interesting option for diversification within a Bundesländer portfolio. We see Hamburg’s strength in its high tax revenues and solid
economic output. Hamburg has by far the highest GDP per capita among the
Länder. We also regard the strong external trade as a positive aspect. In this respect, we also include the significance of Hamburg’s port, the second-biggest of its
type within the EU. Furthermore, we view the outlook for demographic trends as a
relative strength. Conversely, we identify the relatively high level of debt per capita
as a weakness. We also see as a weakness the contingent liabilities resulting from
HSH Nordbank.
Strengths
Weaknesses
+ Strong tax revenues and GDP per capita
+ High level of external trade
+ Expected to experience fewer adverse effects from
–
–
Comparatively high debt per capita
Contingent liabilities resulting from HSH Nordbank
demographic change than other Länder
NORD/LB Fixed Income Research
Page 79 of 142
Issuer Guide German Bundesländer 2015
Hesse
Basic information
Link to the Ministry of Finance
http://www.hmdf.hessen.de
Number of inhabitants (2013)
6,045,425
State capital
Wiesbaden
Minister-President
Volker Bouffier
Governing coalition
CDU/Greens
Next election
Autumn 2018
Amt. outstanding
With approximately 6 million inhabitants, the Hesse is one of the most populous
federal states in Germany. It has an area of 21,115 sq km, which means that
only three other non-city states have a higher density of population. Hesse’s
economy is heavily diversified. Manufacturing (excluding construction), trade,
hospitality and transport as well as public and private service providers each
generate a similar level of gross value added. The chemicals, metal processing
and automotive industries predominate in North Hesse. Trading companies, in
particular, benefit from Frankfurt Airport, as one of the most important air traffic
hubs in Europe, in conjunction with the highly developed transport infrastructure.
The economy is nevertheless dominated by finance, leasing and corporate services. In Hesse, this sector makes a greater contribution to total gross value added than any other non-city state. In 2014, Hesse’s economy produced a GDP of
EUR 250.5bn, which equated to 8.6% of Germany’s GDP. No other non-city
state generated a higher GDP per capita in 2014. Economic activity on a priceadjusted basis was up 1.4% Y/Y (Germany: 1.6% Y/Y) after real GDP had
grown by 0.7% Y/Y (Germany: 0.1% Y/Y) in the previous year. Despite the positive economic performance in previous years, the budget closed with a deficit of
EUR 0.7bn as at 31 December 2014 (previous year: EUR 0.5bn). Only North
Rhine-Westphalia had a greater deficit as at the reporting date. Hesse is one of
only two Bundesländer to have always been payers since the start of the federal financial equalisation system, with Baden-Württemberg being the other.
Outstanding bonds issued by Hesse (EURm)
Debt level
6,000
EUR 41.4bn
5,000
Of which bonds*
EUR 33.1bn
4,000
EURm
Of which borrower’s note loans
EUR 10.4bn
Bloomberg ticker
HESSEN
* As at 5 May 2015. Other amounts as at 31
December 2014.
3,000
2,000
1,000
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 >2025
Foreign currencies 192
144
144
0
0
0
113
0
0
0
0
215
EUR other
0
0
0
0
0
0
0
0
0
0
0
205
EUR floating
0
2,750 425 1,350 1,150
0
249
25
100
175
250
0
EUR fixed
2,600 2,500 2,890 1,475 250 3,650 3,360 1,650 2,952 2,550 1,730
50
NB: foreign currencies are converted into EUR at rates as at 5 May 2015.
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
Fitch
-
-
Moody’s
-
-
AA
stab
S&P
The rating agency S&P rates Hesse’s creditworthiness at AA with a stable outlook.
As positive aspects, S&P highlights the institutional framework within which the
Land operates, Hesse’s economy and the outlook for further budget management.
The rating agency also notes the positive budget trend. The negative points identified by S&P include the high level of indebtedness, although it expects a stabilisation in total debt relative to tax revenues from 2016 onwards. The rating agency
also sees moderate contingent liabilities due to Landesbank Hessen-Thüringen
(Helaba). Guarantor liabilities (Gewährträgerhaftung) still apply for some of
Helaba’s bonds expiring up to 2015. Furthermore, S&P views Hesse’s relatively
high level of implicit pension commitments as a weakness.
NORD/LB Fixed Income Research
Page 80 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-20
-25
-30
-30
-35
-35
-40
0
-40
0
1
2
3
4
5
6
Years to maturity
HESSEN
HESSEN
7
Bundesländer
Bundesländer
8
9
10
Bunds
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
HESSEN
National German agencies
Regional German agencies
Bunds
HESSEN
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS -WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of benchmark issues 2014/2015*
Weighting in iBoxx € Regions
20
Asset swap spread / discount margin at issue
No. of bonds in iBoxx € Regions
12
Pick-up to swaps*
Basis points
15
9.6%
5
0
-5
-10
-20 to -12bp
-15
Pick-up to Bunds*
-20
-25
10 to 21bp
HESSEN 0 1/4 HESSEN 0 1/2 HESSEN 0 3/8 HESSEN 0 3/8 HESSEN 0 7/8 HESSEN 1 3/8 HESSEN 1 1/8 HESSEN 0 1/2
06/10/25 (Fixed; 02/17/25 (Fixed; 03/10/23 (Fixed; 03/10/22 (Fixed; 12/10/24 (Fixed; 06/10/24 (Fixed; 12/10/21 (Fixed; 04/07/17 (Fixed;
2015)
2015)
2015)
2015)
2014)
2014)
2014)
2014)
* Vs. interpolated figures; minimum term 1
year; minimum volume EUR 0.5bn.
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
7,000
1,600
6,000
1,400
5,000
1,200
4,000
1,000
EURm
EURm
Asset swap spread / discount margin as of 05 Mai
10
3,000
800
600
2,000
400
1,000
200
-
SSD
Bonds
2009
2010
2011
2012
2013
2014
1,371
5,158
1,209
5,155
498
5,723
327
6,209
231
5,015
51
6,325
Q1
2015
60
2,980
0
May
Jun
Jul
Aug
Sep
EUR fixed
Oct
Nov
Dec
Jan
Feb
Mar
Apr
EUR floating
Source: Land Hesse, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 5.8bn (EUR 6.4bn)
Funding Q1 2015
EUR 3.0bn
Following a brief decline in the issuance volume below the level of EUR 6bn in
2013, the funding volume again rose to 6.4bn in 2014. Borrower’s note loans
(Schuldscheindarlehen; SSD) only made a marginal contribution after more than
fifth of funding was acquired using this instrument in 2009. There is a gross credit
authorisation of EUR 6.4bn for 2015 in place, the complete utilisation of which
would equate to net borrowings of EUR 0.7bn. In Q1 2015, Hesse already borrowed
EUR 3.0bn on the primary market which equates to 52.2% of the gross credit authorisation.
NORD/LB Fixed Income Research
Page 81 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
4,500
4,000
4,000
3,500
3,500
EUR per inhabitant
4,500
EUR per inhabitant
3,000
2,500
2,000
1,500
3,000
2,500
2,000
1,500
1,000
1,000
500
500
0
0
Operating expense
Staff expenditure
Grants to municipals
Equalisation mechanism (net)
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
-500
-1,000
Operating revenue
Tax revenue
Deficit/surplus
Ø of operating revenues
(non-city states)
2010
3,091
2,453
-319
2011
3,399
2,672
-224
2012
3,404
2,723
-293
2013
3,640
2,902
-84
2014
3,806
3,066
-110
3,155
3,452
3,537
3,686
3,829
2010
3,410
1,298
493
412
346
221
2011
3,623
1,336
557
437
414
226
2012
3,697
1,369
647
355
347
233
2013
3,724
1,383
717
425
323
210
2014
3,917
1,435
762
448
309
197
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR -666.6m (EUR -158.5m; 15th)
Balance/GDP (2013; ranking*)
-0.27% (-0.21%; 11th)
Balance per capita (2013; ranking*)
EUR -110 (EUR -84; 13th)
Tax revenue (vs. 2013)
EUR 18.5bn (EUR +1.0bn)
Taxes per capita (2013; ranking*)
EUR 3,066 (EUR 2,916; 5th)
Taxes/interest paid (2013; ranking*)
15.6x (13.8x; 5th)
Total revenue/interest paid
(2013; ranking*)
19.3x (17.4x; 6th)
Total debt (vs. 2013; ranking*)
EUR 41.4bn (EUR +1.2bn; 12th)
Debt/GDP (2013; ranking*)
16.5% (16.6%; 4th)
Debt/revenue (2013; ranking*)
1.8x (1.8x; 7th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Cash statistics indicate that Hesse’s budget again closed the year with a deficit of
EUR 0.7bn in 2014, which represents an improvement of around EUR 0.2bn when
compared with 2013. The Land therefore continued the trend of sustained budgetary deficits that has persisted now for 11 years. Only North Rhine-Westphalia
achieved a higher deficit in the past budgetary period. While growth in tax revenues
of 5.7% from 2013 resulted in an above-average 4.5% improvement on the revenue
side, expenditures at 5.2% only grew more strongly in two other Bundesländer than
in Hesse. Drivers of this development were particularly grants to municipalities,
which increased by 6.3% on 2013 and therefore rose faster since 2010 than in any
other non-city state (+54%). This item accounted for almost a fifth of expenditure in
2014. Charges from the federal financial equalisation system (+5.4%) also rose,
with more being paid in, particularly in the VAT equalisation. Overall, the financial
equalisation accounted for around 11.4% of expenditure. In the meantime personnel expenditure grew by 3.8% to represent 36.6% of total expenditure. By contrast,
capital expenditures also fell, which at 4.4% only fell more sharply in three other
Länder. The investment ratio was below-average at 7.9% (average for the Länder:
9.7%). Interest expenses also fell (-6.0% vs. 2013), which given the growth in revenues resulted in a disproportionate improvement in interest coverage. Only four
other Bundesländer achieved better values for the ratio of taxes to interest paid
than Hesse in 2014. Debt sustainability remained essentially constant, as the debt
level increased by EUR 1.1bn following a debt reduction in 2013. According to financial planning, a scheduled net reduction in Hesse’s debt should be achieved for
the first time in 2018.
Indicators of the Stability Council
Actual
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
2012
-183
-231
4.5
2013
-121
-192
5.0
Target
2014
-208
-286
3.5
4.7
8.9
11.4
6,728
4.0
7.7
10.4
6,617
4.4
7.6
10.6
6,776
8,875
8,929
9,051
Violations
no
no
no
no
2015
-108
-386
2.3
Financial planning
2016
2017
-46
-1
-386
-386
1.7
0.7
2018
33
-386
-0.3
8.4
7.0
11.6
6,897
8.4
6.9
11.6
6,997
8.4
6.9
11.6
7,055
8.4
6.4
11.6
7,072
9,251
9,451
9,651
9,851
no
Violations
no
no
no
no
no
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 82 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
3.7% 0.4%
Development of GDP and total debt since 2010
45,000
Financial & business
services, real estate
35.5%
Trade, transport. &
storage, accomodation,
inform. and comm.
Manufacturing (excl.
construction)
Public services, education,
health care & private
households
Construction
35,000
EUR per inhabitant
20.5%
40,000
30,000
25,000
20,000
15,000
10,000
5,000
20.1%
0
19.8%
Agriculture, forestry &
fishing
2010
GDP
2011
2012
Debt
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed Income Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 250.5bn (EUR +7.8bn; 5th)
GDP per capita (vs. 2013; ranking*)
EUR 41,435 (EUR +1,297; 3rd)
Real GDP growth (2013; ranking*)
1.4% (0.7%; 9th)
Export ratio (2013; ranking*)
23.3% (23.8%; 13th)
Import ratio (2013; ranking*)
32.2% (33.1%, 6th)
Unemployment rate
(2013; ranking*)
5.7% (5.8%; 4th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
Hesse’s GDP per capita has been disproportionately high for many years. Although
the Bundesland was particularly affected by the economic crash in 2009, the economy recovered with relatively average growth rates. After a short increase the unemployment rate did decline again. Having reached 9.7% in 2005, the rate was
5.7% in 2014, which is the fourth-lowest figure in a comparison among the Bundesländer. In recent years the rate was always below the federal average. Hesse’s
economy is largely dominated by finance, leasing and corporate services. In 2013,
the proportion of gross value added by these sectors was second only to Hamburg.
In manufacturing, the chemicals, metal processing and automotive industries are of
particularly high significance. The export ratio was 23.3% in 2014, with a foreign
trade deficit of EUR 22.2bn (previous year: deficit of EUR 22.6bn). Chemical, pharmaceutical and similar products were the main exported goods with a proportion of
32.8%. Data processing devices, electronic and optical products and electrical
equipment were also major items, with a share of 15.1%. Key trading partners were
France and the USA. Around 56.8% of exports went to EU member states. Demographic changes should pose slightly less of a challenge for Hesse than for other
Bundesländer. For example, the proportion of under-15s in the population is 13.4%
and therefore only slightly above the federal average of 13.1%, while the proportion
of over-45s is slightly below-average, at 50.0% (Germany: 51.0%).
Overall, we consider Hesse to be a core investment for any Bundesländer portfolio.
We see Hesse’s strength in its high tax revenues and solid economic strength,
which is especially apparent relative to the population. The low rate of unemployment is another relative strength, in our view. We nevertheless consider the fact that
Hesse has never closed its budget with a surplus in the past ten years to be a
weakness. Negative factors also include the continuing relatively high expenditure
per capita and the high level of pension commitments, even though we do not have
available any up-to-date estimates in this respect (cf. chapter Pension obligations
as challenge for Bundesländer finances).
Strengths
Weaknesses
+ High tax revenues and economic output per capita
+ Above-average debt sustainability and interest
–
–
Long history of budget deficits
Relatively high expenditure per capita
coverage
+ Low unemployment rate
NORD/LB Fixed Income Research
Page 83 of 142
Issuer Guide German Bundesländer 2015
Mecklenburg-Western Pomerania
Basic information
Link to the Ministry of Finance
http://www.regierung-mv.de
Number of inhabitants (2013)
1,596,505
State capital
Schwerin
Minister-President
Erwin Sellering
Governing coalition
SPD/CDU
Next election
Autumn 2016
Amt. outstanding
With 1.6 million inhabitants in an area of 23,194 sq km, Mecklenburg-Western
Pomerania is the most sparsely populated federal state. This Bundesland, which
has existed in its present size since reunification, is characterised by the large
number of islands (794) and the vast length of the Baltic, Bodden and inland coastline (1,470 km). Consequently, tourism plays a vital role. Tourism intensity (ratio of
nights spent in tourist accommodation relative to the number of permanent residents) in Mecklenburg-Western Pomerania is higher than in any other Bundesland.
In 2013, 17,595 nights spent per 1,000 inhabitants were registered, which was well
above the national average of 5,114. Agriculture is also important. Together with
forestry and fishing, it contributed 3.1% of the state’s gross value added in 2013 –
the highest figure of all the Bundesländer. Furthermore, shipping and the economic
sectors associated therewith are still significant. According to our analysts at
NORD/LB, several companies in these sectors rank among the 100 largest companies in the state. In 2014, the federal state’s economy generated a GDP of EUR
38.5bn (2013: EUR 37.3bn), which equated to 1.3% of total German economic output. On a price-adjusted basis, GDP increased by 1.6% Y/Y (Germany: 1.6% Y/Y),
after it had decreased for two consecutive years. For the fourth consecutive time,
the state budget generated a cash surplus of EUR 263m by year-end 2014. Relative to the number of inhabitants, only two federal states achieved a larger surplus.
Since its creation, Mecklenburg-Western Pomerania has always been a recipient in
the federal financial equalisation system.
Outstanding bonds issued by Mecklenburg-Western Pomerania (EURm)
Debt level
800
EUR 9.4bn
700
Of which bonds*
EUR 5.1bn
600
EURm
Of which borrower’s note loans
EUR 4.6bn
Bloomberg ticker
500
400
MECVOR
* As of 5 May 2015. Other figures as of 31
December 2014.
300
200
100
0
EUR fixed
2015
0
2016
0
2017
100
2018
0
2019
0
2020
25
2021
40
2022
50
2023
756
2024
600
2025
60
>2025
0
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
AAA*
-
Moody’s
-
-
S&P
-
-
Fitch
Bonds issued by Mecklenburg-Western Pomerania had not been rated since 2 December 2010. Previously, the rating agency Fitch rated the Land’s creditworthiness
as AAA. However, in 2014, the Land launched a fixed-income benchmark bond
issue that was rated AAA by Fitch. The rating agency based its rating on the principle of federal loyalty in conjunction with the federal financial equalisation system, in
respect of which Fitch generally assumes an AAA risk level.
* A bond rating is only available from Fitch for
MECVOR 1.625 06/18/24.
NORD/LB Fixed Income Research
Page 84 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. Bunds and Länder
ASW spreads vs. German agencies
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
0
-20
-25
-20
-25
-30
-30
-35
-35
-40
0
-40
0
1
2
MECVOR
3
4
5
6
Years to maturity
Bundesländer
Bunds
7
8
9
Bundesländer
10
Bunds
1
2
3
4
5
6
7
8
9
10
Years to maturity
MECVOR
National German agencies
Regional German agencies
Bunds
National German agencies
Regional German agencies
Bunds
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS -WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of benchmark issues in 2014/2015*
Weighting in iBoxx € Regions
10
5
No. of bonds in iBoxx € Regions
Basis points
Pick-up to swaps*
-17 to -17bp
Pick-up to Bunds*
12 to 15bp
0
-5
-10
-15
Asset swap spread / discount margin at issue
Asset swap spread / discount margin as of 05 Mai
-20
MECVOR 1 5/8 06/18/24 (Fixed; 2014)
*Vs. interpolated figures; minimum term 1 year;
minimum volume EUR 0.5bn
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
1,000
1,400
900
1,200
800
700
1,000
EURm
EURm
1,600
800
600
500
600
400
400
300
200
200
100
SSD
Bonds
2009
2010
2011
2012
2013
2014
993
520
704
553
332
655
185
755
212
943
382
618
Q1
2015
313
0
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
EUR fixed
Source: Land Mecklenburg-Western Pomerania, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, joint Länder bonds
(Gemeinschaft deutscher Länder),
private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 1.1bn (EUR 1.0bn)
Funding Q1 2015
EUR 0.3bn
Traditionally, Mecklenburg-Western Pomerania’s funding requirements are relatively modest. In 2014, the funding volume of EUR 1.0bn meant that the existing gross
credit authorisation of EUR 1.5bn once again was not fully utilised, with a decrease
in issues of bonds for the first time in years. Consequently, the share of funding
through borrower’s note loans (Schuldscheindarlehen, SSD) stabilised at 38.2%
(highest figure since 2010) after falling to a low of 18.3% in the previous year. Since
the start of 2015, the Land has already raised EUR 0.3bn in the capital market,
which equates to 27.7% of the gross credit authorisation of EUR 1.1bn. The federal
state is planning no new borrowing for 2015; a net repayment would be achieved by
not making full use of the gross credit authorisation.
NORD/LB Fixed Income Research
Page 85 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
5,000
5,000
4,500
4,000
EUR per inhabitant
EUR per inhabitant
4,000
3,000
2,000
3,500
3,000
2,500
2,000
1,500
1,000
1,000
0
500
0
-1,000
Operating revenue
Tax revenue
Equalisation mechanism (net)
Deficit/surplus
Ø of operating revenues
(non-city states)
2010
4,094
2,014
1,573
-72
2011
4,526
2,183
1,581
152
2012
4,551
2,378
1,603
100
2013
4,594
2,441
1,551
199
2014
4,631
2,637
1,498
164
3,155
3,452
3,537
3,686
3,829
Operating expense
Staff expenditure
Grants to municipals
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
4,165
1,009
1,057
725
232
2011
4,374
1,058
1,104
802
228
2012
4,452
1,095
1,101
797
229
2013
4,395
1,126
1,172
681
214
2014
4,467
1,163
1,205
681
198
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR 262.6m (EUR -55.4m; 7th)
Balance/GDP (2013; ranking*)
0.68% (0.85%; 2nd)
Balance per capita (2013; ranking*)
EUR 164 (EUR 199; 3rd)
Tax revenue (vs. 2013)
EUR 4.2bn (EUR +0.3bn)
Taxes per capita (2013; ranking*)
EUR 2,637 (EUR 2,441; 10th)
Taxes/interest paid (2013; ranking*)
13.3x (11.4x; 7th)
Total revenue/interest paid
(2013; ranking*)
23.4x (21.4x; 5th)
Total debt (vs. 2013; ranking*)
EUR 9.4bn (EUR -0.1bn; 2nd)
Debt/GDP (2013; ranking*)
24.4% (25.4%; 8th)
Debt/revenue (2013; ranking*)
1.3x (1.3x; 4th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
For the fourth time in a row, Mecklenburg-Western Pomerania achieved a cash
surplus by the end of the financial year 2014. This means that the Land reported a
cash surplus in eight of the last ten years (together with Saxony, the best figure in
the Bundesländer comparison). At EUR 263m, the surplus was lower than in 2013
(EUR -55m vs. 2013). Tax revenue was significantly up by 7.7% (third highest
growth) to EUR 4.2bn. As a result, taxes per capita climbed into tenth place in the
Bundesländer comparison after consistently being among the lowest. The fact, that
total revenue nevertheless rose by only 0.8% on 2013, was attributable to a reduction in income from the federal financial equalisation system. The figure for the Land
was almost EUR 0.1bn down following the scheduled reduction in specific federal
supplementary grants (SoBEZ). No other federal state achieved higher revenue per
capita than Mecklenburg-Western Pomerania. On the expenses side, an increase of
1.6% was recorded, which means that Mecklenburg-Western Pomerania once
again had the highest expenditure per capita of all the non-city states. In particular,
higher personnel expenses (+3.3% vs. 2013) and grants to municipalities (+2.8%)
pushed up total expenses. Personnel expenses accounted for a total of 26.0% of
the budget while grants to municipalities totalled 27.0%, making this the largest
item. Capital expenditure of EUR 1.1bn was at a steady level. MecklenburgWestern Pomerania’s investment ratio of 15.2% is the second highest of all the
federal states. Interest expenses continued to fall (4.4% of the budget) and resulted
in a further, considerable improvement in the interest coverage ratio. Total debt was
further reduced by EUR 0.1bn to EUR 9.4bn. Mecklenburg-Western Pomerania has
achieved a debt repayment in net terms every year since 2006.
Indicators of the Stability Council
Actual
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
Target
2012
168
-231
-1.2
2012
247
-192
-1.2
2014
10
-286
-0.6
4.7
8.0
4.0
7.2
4.4
7.2
11.4
5,976
8,875
10.4
5,937
8,929
10.6
5,937
9,051
Violations
No
No
No
No
Financial planning
2015
13
-386
-0.7
2016
-2
-386
-0.7
2017
11
-386
-0.8
2018
11
-386
-0.6
8.4
7.0
8.4
7.0
8.4
7.0
8.4
7.1
11.6
5,937
9,251
11.6
5,937
9,451
11.6
5,937
9,651
11.6
5,937
9,851
No
Violations
No
No
No
No
No
Source: Stability Council, NORD/LB Fixed Income Research
Demographic change
represents a challenge
The indicators produced by the Stability Council show that there have been no limit
violations of any kind and there is substantial headroom between the figures and
the permissible threshold values. However, the effect of demographic change constitutes a major challenge: despite planned net repayments, the debt level per capita is not likely to fall in the financial planning period.
NORD/LB Fixed Income Research
Page 86 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
3.1%
13.8%
34.2%
40,000
Public services, education,
health care & private
households
Financial & business
services, real estate
35,000
EUR per inhabitant
6.5%
Development of GDP and total debt since 2010
Trade, transport. &
storage, accomodation,
inform. and comm.
Manufacturing (excl.
construction)
Construction
18.4%
30,000
25,000
20,000
15,000
10,000
5,000
0
24.0%
Agriculture, forestry &
fishing
2010
GDP
2011
Debt
2012
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed Income Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 38.5bn (EUR +1.2bn; 14th)
GDP per capita (vs. 2013; ranking*)
EUR 24,101 (EUR +729; 16th)
Real GDP growth (2013; ranking*)
1.6% (-0.6%; 8th)
Export ratio (2013; ranking*)
18.8% (18.9%; 15th)
Import ratio (2013; ranking*)
13.6% (11.8%; 15th)
Unemployment rate
(2013; ranking*)
11.2% (11.7%; 16th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
GDP per capita still remains well below the Länder average. Similar to the last couple of years, economic output in relation to the number of inhabitants was the lowest
of all federal states. The trend in the unemployment rate is positive: having stood at
20.4% at times in 2004, it fell to 11.2% (2013: 11.7%), which still equates to the
highest figure compared with the other Bundesländer. Only Berlin has similarly high
levels of unemployment. The share of gross value added accounted for by public
and private sector service providers (e.g. public administration, education and
health) is higher in Mecklenburg-Western Pomerania than in any other Bundesland.
In 2013, it was 34.2%, which is one of the major factors behind the low volatility of
price-adjusted growth in GDP. Tourism is of vital significance for the state’s economy. The number of registered nights spent in relation to the number of inhabitants is
higher than in any other federal state. The highest number since 2009 was recorded
in 2013, with 17,595 nights spent per 1,000 inhabitants. By contrast, foreign trade is
relatively insignificant: the export ratio was only around 18.8%. The trade in goods
outside Germany is dominated by agricultural products as well as food and fodder
but also machinery. The most important trading partners were Poland and Iran. In
2013, 51.6% of goods were exported to EU member states, while 21.5% was destined for Asia. In 2014, the foreign trade surplus came to EUR 2.0bn compared with
EUR 2.3bn in the previous year. Demographic change is likely to have a greater
impact in Mecklenburg-Western Pomerania than in most Bundesländer in the next
few years: virtually a third of inhabitants are aged between 45 and 65 – this group of
the population only accounts for a larger percentage in Brandenburg.
We rate Mecklenburg-Western Pomerania as an interesting opportunity for diversification within the German Bundesländer segment. We consider the impressive
budgetary performance, in which a surplus was achieved in eight of the last ten
years, as a strength. We also view its strong debt sustainability and interest coverage positively. However, substantial expenditure per inhabitant and its heavy dependence on the federal financial equalisation system are weaknesses in our opinion. We also view its relative lack of economic strength negatively and its exposure
to demographic change, which is a risk factor in our opinion.
Strengths
Weaknesses
+ Strong budgetary track record
+ Strong debt sustainability and interest coverage
–
–
–
–
Substantial expenditure per inhabitant
Heavily dependent on the federal financial
equalisation system
Relatively low GDP per capita
Risk factor posed by demographic change
NORD/LB Fixed Income Research
Page 87 of 142
Issuer Guide German Bundesländer 2015
Lower Saxony
Basic information
Link to the Ministry of Finance
http://www.mf.niedersachsen.de
Number of inhabitants (2013)
7,790,559
State capital
Hanover
Minister-President
Stephan Weil
Governing coalition
SPD/Green Party
Next election
Winter 2018
Amt. outstanding
With an area of some 47,614 sq km, Lower Saxony, which emerged from the regions of Hanover, Oldenburg, Brunswick and Schaumburg-Lippe in 1946, is Germany’s second-largest Land. Its population of 7.8m is exceeded by only three Bundesländer. It has a larger proportion of six to fifteen-year-olds in the population than
any other federal state, which must be rated as a relative advantage given the general demographic trend in Germany as a whole. According to our analysts at
NORD/LB, the economy is dominated by the automotive industry including suppliers, which are spread across the region in Hanover, Brunswick, Wolfsburg, Salzgitter and Emden. More than a quarter of the state’s gross value added is attributable
to the manufacturing industry, meaning that this sector of the economy only plays a
more significant role in five other Bundesländer. Lower Saxony’s highly developed
infrastructure is a positive factor here: it has the longest rail network of all the Bundesländer. Traditionally, agriculture is another important sector of the Lower Saxon
economy, with only Bavaria generating more gross value added from agriculture,
forestry and fishing in absolute terms. The Land also ranks among the leading federal states in terms of its use of renewable energies. Only four other Länder generated a higher GDP in 2014. With a total GDP of EUR 253.6bn, Lower Saxony contributed 8.7% to Germany’s overall GDP. Real GDP growth was around 1.3% Y/Y
(Germany: 1.6% Y/Y) compared with 0.4% Y/Y in the previous year (Germany:
0.1% Y/Y). Lower Saxony achieved a deficit reduction for the third time in a row. At
year-end 2014, the cash shortfall amounted to EUR 205m after EUR 381m in the
previous year.
Outstanding bonds issued by Lower Saxony (EURm)
Debt level
6,000
EUR 57.8bn
Of which bonds*
5,000
EUR 35.3bn
EURm
Of which borrower’s note loans
EUR 21.0bn
Bloomberg ticker
4,000
3,000
NIESA
* As of 5 May 2015. Other figures as of 31
December 2014.
2,000
1,000
0
2015
EUR floating 975
EUR fixed
1,900
2016
3,435
2,100
2017
3,350
2,400
2018
1,050
2,785
2019
1,625
2,870
2020
2,150
1,200
2021
1,000
2,500
2022
300
1,000
2023
50
1,100
2024
625
1,550
2025
500
750
>2025
50
0
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
AAA
stab
Moody’s
-
-
S&P
-
-
Fitch
Bonds issued by the federal state of Lower Saxony have been rated AAA by Fitch
with a stable outlook since 30 August 2012. The rating agency justifies its rating on
the basis of the principle of federal loyalty in conjunction with the federal financial
equalisation system. Consequently, an AAA rating is inherent in this system according to Fitch, meaning that any reform of the system could lead to ratings being
amended. A downgrade of the Federal Republic of Germany would also result in
the rating for Lower Saxony being downgraded.
NORD/LB Fixed Income Research
Page 88 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-20
-25
-30
-35
-35
-40
-40
0
0
NIESA
1
2
3
Bundesländer
4
5
6
Years to maturity
Bunds
NIESA
7
8
Bundesländer
9
10
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
NIESA
National German agencies
Regional German agencies
Bunds
NIESA
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS-WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of benchmark issues in 2014/2015*
Weighting in iBoxx € Regions
30
8.8%
20
Basis points
No. of bonds in iBoxx € Regions
11
Pick-up to swaps*
-20 to -14bp
Asset swap spread / discount margin at issue
Asset swap spread / discount margin as of 05 Mai
10
0
-10
-20
Pick-up to Bunds*
-30
10 to 20bp
NIESA 0
NIESA 0
NIESA 0 5/8
NIESA 0
NIESA 0
NIESA 1
NIESA 2 1/8
04/28/25
08/02/16 (Fixed; 01/20/25 (Fixed;
10/21/24
03/10/17
08/18/22 (Fixed; 01/16/24 (Fixed;
(Floating; 2015)
2015)
2015)
(Floating; 2014) (Floating; 2014)
2014)
2014)
*Vs. interpolated figures; minimum term 1 year;
minimum volume EUR 0.5bn
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
10,000
2,000
9,000
1,800
8,000
1,600
1,400
6,000
EURm
EURm
7,000
5,000
4,000
1,200
1,000
3,000
800
2,000
600
1,000
400
Other
SSD
Bonds
2009
2010
2011
2012
2013
2014
1,676
5,785
200
1,904
7,115
837
7,170
414
4,820
562
7,050
1,377
7,075
Q1
2015
239
1,500
200
0
May
Jun
Jul
Aug
Sep
EUR fixed
Oct
Nov
Dec
Jan
Feb
Mar
Apr
EUR floating
Source: Land Lower Saxony, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 7.8bn (EUR 8.5bn)
Funding Q1 2015
EUR 1.7bn
In 2014, the federal state’s issue volume once again rose compared with the previous year. Lower Saxony utilised its gross credit authorisation of EUR 8.5bn in full.
After many years with a downward trend in funding percentages, the Land made
greater use of borrower’s note loans (Schuldscheindarlehen, SSD) in 2014. The
percentage of funding raised from this instrument stabilised at 16.3% most recently,
after 7.4% in the previous year. In contrast, the volume of bonds issued was virtually unchanged. A gross credit authorisation of EUR 7.8bn was granted for the 2015
financial year, which would equate to net new debt of EUR 0.6bn if fully utilised. In
Q1 2015, Lower Saxony already raised EUR 1.7bn, which equates to 22.4% of the
gross credit authorisation for 2015.
NORD/LB Fixed Income Research
Page 89 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
4,500
4,500
4,000
4,000
EUR per inhabitant
3,500
EUR per inhabitant
3,000
2,500
2,000
1,500
1,000
500
3,500
3,000
2,500
2,000
1,500
1,000
0
500
-500
-1,000
Operating revenue
Tax revenue
Equalisation mechanism (net)
Deficit/surplus
Ø of operating revenues
(non-city states)
0
2010
2,861
2,098
82
-237
2011
3,048
2,201
122
-301
2012
3,308
2,429
49
-106
2013
3,383
2,557
62
-49
2014
3,484
2,584
101
-26
3,155
3,452
3,537
3,686
3,829
Operating expense
Staff expenditure
Grants to municipals
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
3,098
1,188
686
274
236
2011
3,349
1,243
797
317
249
2012
3,413
1,276
840
284
242
2013
3,431
1,328
899
215
214
2014
3,510
1,367
922
214
195
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR -205.3m (EUR +176.0m; 10th)
Balance/GDP (2013; ranking*)
-0.08% (-0,15%; 10th)
Balance per capita (2013; ranking*)
EUR -26 (EUR -49; 10th)
Tax revenue (vs. 2013)
EUR 20.1bn (EUR +0.2bn)
Taxes per capita (2013; ranking*)
EUR 2,584 (EUR 2,557; 11th)
Taxes/interest paid (2013; ranking*)
13.2x (12.0x; 8th)
Total revenue/interest paid
(2013; ranking*)
17.8x (15.8x; 8th)
Total debt (vs. 2013; ranking*)
EUR 57.8bn (EUR +0.7bn; 3rd)
Debt/GDP (2013; ranking*)
22.8% (23.2%; 7th)
Debt/revenue (2013; ranking*)
2.1x (2.2x; 10th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
The budget deficit was reduced for the third consecutive time in 2014. At EUR
205m, the deficit was considerably lower than in the previous year (EUR 381m).
However, Lower Saxony is still one of the six Bundesländer which has not achieved
a surplus in the last ten years. The improved balance was mainly achieved as a
result of sharp growth in income (+3.0% vs. 2013), although there was only a relatively minor increase in tax revenue (+1.1% vs. 2013; third lowest growth in the
Bundesländer comparison). Growth in income was driven by income from the financial equalisation scheme, with EUR 0.5bn more going to Lower Saxony than in
2013 (3.4% of the budget). At the same time, total expenditure was up by 2.3%.
Schleswig-Holstein was the only federal state where per capita expenditure is lower
than in Lower Saxony. Personnel expenditure increased by 2.9% and accounted for
38.9% of the budget. Bavaria is the only Land where personnel expenses have
risen faster in the past five years than in Lower Saxony. Grants to muncipalities also
rose by 2.5%, meaning that in total they accounted for 26.3% of the budget. Conversely, capital expenditure fell to the lowest figure since 2006 (2014: EUR 1.7bn),
which means that only Berlin reported a lower investment ratio (6.1% of the budget)
in 2014. Interest expenses continued to decrease (-8.6% vs. 2013), as a result of
which interest coverage was further improved. Nevertheless, the ratio of taxes/interest paid was down from sixth place to eighth place in the Bundesländer
ranking, due to the fact that growth in tax revenue was below average. With an
increase of EUR 0.7bn, the Land recorded the fourth highest growth in debt. At
year-end 2014, outstanding debt amounted to EUR 57.8bn in total. Lower Saxony
does not expect a positive balance in its budget or positive levels of net debt repayments in the coming years.
Indicators of the Stability Council
Actual
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
2012
-96
-231
0.6
2013
-128
-192
3.8
Target
2014
-120
-286
2.7
4.7
9.1
11.4
4.0
7.9
10.4
4.4
8.5
10.6
7,108
8,875
7,248
8,929
7,340
9,051
Violations
No
No
No
No
2015
-91
-386
2.5
Financial planning
2016
2017
-64
-51
-386
-386
1.8
1.4
2018
-33
-386
0.9
8.4
8.1
11.6
8.4
8.1
11.6
8.4
7.9
11.6
8.4
7.7
11.6
7,417
9,251
7,479
9,451
7,525
9,651
7,556
9,851
No
Violations
No
No
No
No
No
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 90 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
1.6%
40,000
Manufacturing (excl.
construction)
25.8%
17.0%
35,000
Public services, education,
health care & private
households
Financial & business
services, real estate
EUR per inhabitant
5.5%
Development of GDP and total debt since 2010
Trade, transport. &
storage, accomodation,
inform. and comm.
Construction
25.9%
24.3%
30,000
25,000
20,000
15,000
10,000
5,000
0
Agriculture, forestry &
fishing
2010
GDP
2011
Debt
2012
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed Income Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 253.6bn (EUR +7.0bn; 4th)
GDP per capita (vs. 2013; ranking*)
EUR 32.555 (EUR +896; 9th)
Real GDP growth (2013; ranking*)
1.3% (0.4%; 12th)
Export ratio (2013; ranking*)
30.7% (31.5%; 8th)
Import ratio (2013; ranking*)
30.9% (33.3%; 7th)
Unemployment rate
(2013; ranking*)
6.5% (6.6%; 5th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
After a period of growth rates above the national average in price-adjusted terms,
the economy of Lower Saxony generated a real GDP growth of 1.3% in 2014, which
was slightly below the national average of 1.6%. Thus, economic output per capita
still remains below average. Overall, the Lower Saxon economy is well-diversified.
The manufacturing industry makes the largest contribution to gross value added,
with the automotive and supplier industries traditionally constituting important economic sectors. According to our analysts at NORD/LB, the financial services sector
also plays a significant role. Foreign trade is important to Lower Saxony’s economy:
Exports of goods amounted to 30.7% of GDP in 2014. The most important export
goods are motor vehicles and motor vehicle components, which represented almost
one third of goods exports in 2014. The leading export markets were the Netherlands and the UK. Almost two thirds of exports were destined for members of the
EU. The foreign trade deficit totalled EUR 0.6bn at the end of 2014 (previous year:
deficit of EUR 4.4bn). In recent years, Lower Saxony has also been following the
national trend of falling unemployment rates. Compared with 2005 (11.6%), the rate
of unemployment almost halved in 2014 to 6.5%. At the end of 2014, only four federal states were able to boast a lower unemployment rate. Demographic change is
likely to have less of an impact on Lower Saxony than on other Bundesländer. The
percentage of children aged under 15 in the total population is only higher in BadenWürttemberg than it is in Lower Saxony (13.5%).
In our opinion, Lower Saxony ranks as one of the core investments in a Bundesländer portfolio. We view its low expenditure in relation to the number of inhabitants
and its relatively low unemployment rate, which has improved significantly in recent
years, as strengths. By contrast, we view its long history of deficits, which is likely to
continue until 2018 at least according to its financial planning, negatively. The significant negative trend in capital expenditure should also be monitored from our perspective. In addition, we rate the relatively low income per capita negatively, while
the fact that its economic strength in relation to the number of inhabitants is below
average is another relative weakness.
Strengths
Weaknesses
+ Low expenditure per capita
+ Low unemployment rate
–
–
–
Long history of deficits
Low investments
Below average GDP per capita
NORD/LB Fixed Income Research
Page 91 of 142
Issuer Guide German Bundesländer 2015
North Rhine-Westphalia
Basic information
Link to the Ministry of Finance
http://www.fm.nrw.de/
Number of inhabitants (2013)
17,571,856
State capital
Düsseldorf
Minister-President
Hannelore Kraft
Governing coalition
SPD/Green Party
Next election
Spring 2017
Amt. outstanding
With 17.6m inhabitants, North Rhine-Westphalia (NRW) is the most populous Bundesland in Germany. Given its area of just under 34,098 sq km, it is the most
densely populated of all the non-city federal states. Approximately 755,000 companies from a vast range of sectors are based in NRW, ensuring that the state’s economy is broadly based. The federal state of NRW is also a very popular destination
for foreign direct investment, not least because of its strong economy and its welldeveloped transport infrastructure. In 2012, it benefited from more direct investments from abroad than any other state, accounting for more than a quarter of all
foreign direct investments in Germany. At the same time, the economy (in particular, in the Ruhr region) has been subject to considerable structural change for decades: the proportion of gross value added attributable to the manufacturing industry
has fallen more sharply in NRW, at -8.4%, than in any other Land since 1991. In
contrast, the services sector’s share of the state’s gross value added has increased.
NRW has always generated a large part of national economic output. With a GDP
of EUR 624.7bn in 2014, 21.5% of German economic output was generated in
NRW. In price-adjusted terms, GDP increased by 1.3% Y/Y (Germany: 1.6% Y/Y),
after the economy had decreased by 0.6% Y/Y (Germany: +0.1% Y/Y) in the previous year. In 2014, NRW once again succeeded in reducing its cash deficit significantly: having stood at EUR 5.7bn in 2009, it was reduced by EUR 0.5bn to EUR
1.9bn in 2014. However, this figure remains the highest deficit recorded in the Bundesländer. Having largely been a payer in the financial equalisation system between the federal states until 2009 (Länderfinanzausgleich, LFA), NRW has been a
consistent recipient since 2010. However, NRW still remains a net payer in the total
federal financial equalisation system.
Outstanding bonds issued by North Rhine-Westphalia (EURm)
Debt level
18,000
EUR 140.1bn
16,000
Of which bonds*
14,000
EUR 94.3bn
EUR 43.0bn
Bloomberg ticker
EURm
12,000
Of which borrower’s note loans
10,000
8,000
6,000
NRW
4,000
* As of 5 May 2015. Other figures as of 31
December 2014.
2,000
0
2015
Foreign currencies 192
EUR other
300
EUR floating
2,185
EUR fixed
6,390
2016
1,550
210
4,150
9,695
2017
1,965
110
2,285
9,847
2018
458
153
2,495
5,398
2019
845
56
1,505
5,470
2020
909
35
3,235
4,239
2021
789
0
929
4,430
2022
48
10
715
5,715
2023
26
80
50
2,745
2024
245
25
1,200
2,365
2025
451
150
325
4,057
>2025
549
1,181
772
3,185
NB: foreign currencies are converted into EUR at rates as at 5 May 2015.
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
Fitch
AAA
stab
Moody’s
Aa1
stab
S&P
AA-
stab
Bonds issued by NRW are rated AAA/Aa1/AA- by the three rating agencies Fitch,
Moody’s and S&P. Fitch justifies its rating on the basis of the principle of federal
loyalty and the federal financial equalisation system, which means it puts the rating
on the same level as that of the federal government. While Moody’s also views its
significance as the largest economic region and most populous Bundesland positively, it rates NRW’s substantial debt negatively. In addition, S&P highlights the
improvement in the budget situation but views the substantial debt in relation to tax
income, the limited budget flexibility and contingent liabilities resulting from windingup agency Erste Abwicklungsanstalt (EAA) negatively. The rating agency also
views the implicit pension liabilities as a weakness. S&P assumes that the federal
state will achieve a balanced budget by 2020, although no net debt repayments are
expected until then.
NORD/LB Fixed Income Research
Page 92 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-15
-20
-25
-15
-20
-25
-30
-30
-35
-35
-40
0
-40
0
NRW
1
2
3
Bundesländer
4
5
6
Years to maturity
Bunds
7
NRW
8
9
Bundesländer
10
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
NRW
National German agencies
Regional German agencies
Bunds
NRW
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: K fW, FMS-WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Performance of benchmark issues in 2014/2015*
*Vs. interpolated figures; minimum term 1 year;
minimum volume EUR 0.5bn
NRW 1 02/15/19
(Fixed; 2014)
NRW 1 1/2
01/16/18 (Fixed;
2014)
NRW 1 7/8
03/15/24 (Fixed;
2014)
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
30,000
3,000
25,000
2,500
20,000
2,000
EURm
EURm
NRW 1 3/8
05/16/22 (Fixed;
2014)
11 to 23bp
Asset swap spread / discount margin as of 05 Mai
NRW 1 1/4
03/14/25 (Fixed;
2014)
NRW 0.2 04/17/23
(Fixed; 2015)
-18 to -11bp
Pick-up to Bunds*
NRW 1 5/8
10/24/30 (Fixed;
2014)
19
Pick-up to swaps*
NRW 1 01/16/25
(Fixed; 2014)
Basis points
No. of bonds in iBoxx € Regions
Asset swap spread / discount margin at issue
NRW 0 7/8
12/16/19 (Fixed;
2014)
50
40
30
20
10
0
-10
-20
-30
21.4%
NRW 0 1/2
12/15/21 (Fixed;
2014)
Weighting in iBoxx € Regions
NRW 0 1/2
03/11/25 (Fixed;
2015)
Relative value
15,000
1,500
10,000
1,000
5,000
500
2009
SSD
9,101
Bonds 14,469
2010
2011
2012
2013
2014
5,671
18,597
3,220
21,786
1,426
23,209
3,493
20,107
2,777
18,423
Q1
2015
540
3,960
0
May
Jun
EUR fixed
Jul
Aug
Sep
EUR floating
Oct
Nov
EUR other
Dec
Jan
Feb
Mar
Apr
Foreign currencies
Source: Land North Rhine-Westphalia, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, SRI bonds,
private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 20.9bn (EUR 21.2bn)
Funding Q1 2015
EUR 4.5bn
The trend in issuing activities by NRW has been downward since 2011. Last year, a
total of EUR 21.2bn was raised. For 2015, the budget includes a funding target of
EUR 20.9bn, which would equate to net new debt of EUR 2.4bn. In 2015, NRW
became the first Bundesland to launch a bond issue that provided a sustainability
related investment (SRI), as a result of which NRW’s funding was further diversified.
Generally, no other Land takes advantage of foreign currency as much as NRW.
However, compared with the bond volume outstanding, the amounts are relatively
low. NRW raised a total of EUR 4.5bn via bonds and borrower’s note loans
(Schuldscheindarlehen, SSD) in Q1 2015, which means that 21.5% of the gross
credit authorisation has already been utilised.
NORD/LB Fixed Income Research
Page 93 of 142
Issuer Guide German Bundesländer 2015
Development of expenditure in EUR per capita
4,500
4,500
4,000
4,000
3,500
3,500
EUR per inhabitant
EUR per inhabitant
Development of revenue in EUR per capita
3,000
2,500
2,000
1,500
3,000
2,500
2,000
1,500
1,000
1,000
500
500
0
0
-500
Operating revenue
Tax revenue
Deficit/surplus
Ø of operating revenues
(non-city states)
2010
2,738
2,130
-282
2011
3,012
2,341
-181
2012
3,109
2,473
-218
2013
3,231
2,542
-139
2014
3,408
2,640
-108
3,155
3,452
3,537
3,686
3,829
Operating expense
Staff expenditure
Grants to municipals
Equalisation mechanism (net)
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
3,020
1,147
621
102
332
251
2011
3,192
1,204
661
107
362
247
2012
3,327
1,240
747
103
290
236
2013
3,370
1,264
800
88
296
224
2014
3,516
1,315
877
78
293
203
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR -1,903.4m (EUR +546.6m; 16th)
Balance/GDP (2013; ranking*)
-0.30% (-0.40%; 13th)
Balance per capita (2013; ranking*)
EUR -108 (EUR -139; 12th)
Tax revenue (vs. 2013)
EUR 46.4bn (EUR +1.7bn)
Taxes per capita (2013; ranking*)
EUR 2,640 (EUR 2,542; 9th)
Taxes/interest paid (2013; ranking*)
13.0x (11.3x; 9th)
Total revenue/interest paid
(2013; ranking*)
16.8x (14.4x; 10th)
Total debt (vs. 2013; ranking*)
EUR 140.1bn (EUR +2.6bn; 16th)
Debt/GDP (2013; ranking*)
22.4% (22.7%; 5th)
Debt/revenue (2013; ranking*)
2.3x (2.4x; 12th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
In 2014, NRW again recorded the highest deficit in absolute terms in Germany
(EUR 1.9bn). However, the reduction of EUR 0.5bn in the deficit meant that only
two other Bundesländer achieved a more significant improvement year-on-year.
Nevertheless, NRW is one of the six Bundesländer which have never balanced their
budget in the past ten years. Up 5.5% on 2013, the increase in total income was
well above average (Bundesländer average: 4.1%), although this was not attributable to tax revenue (+3.8% vs. 2013). Income from the financial equalisation system
rose considerably to EUR 1.4bn, which meant that it represented a total of 2.3% of
the budget. Although NRW has remained a net payer in the financial equalisation
scheme, the total charge of EUR 0.9bn was significantly lower than in previous
years (2013: EUR 2.5bn). On the expenses side, growth of 4.3% was posted, which
was primarily attributable to grants to municipalities (+9.6% vs. 2013) that accounted for around a quarter of the budget. Hesse was the only non-city state where
these expenses rose more rapidly in the past five years than in NRW. The increase
in personnel expenses was the third highest among the non-city states in 2014
(+4.1%), with a total of 37.4% of the budget spent on this item. Capital expenditure
was at a relatively stable level (8.3% of the budget) whereas a sharp decrease in
interest expenditure was recorded of 9.4%, which accounted for 5.8% of the budget.
Overall, a further increase in total debt by EUR 2.6bn to EUR 140.1bn was recorded, which means that a net debt repayment was achieved only once (2008) in the
past ten years. The Land forecasts its first positive budget balance for 2018. According to the NRW’s financial planning, the surplus will then be used to discharge
debt. In view of progress made with regard to reducing the portfolio, we now assess
the budgetary risk resulting from the loss offsetting obligation to the EAA as lower.
However, the EAA continues to represent a significant risk to NRW’s budget, in our
opinion.
Indicators of the Stability Council
Actual
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
2012
-151
-231
4.5
4.7
2013
-96
-192
2.6
4.0
Target
2014
-93
-286
2.5
4.4
9.0
11.4
7,407
8.2
10.4
7,633
7.4
10.6
7,778
8,875
8,929
9,051
Violations
No
No
No
No
2015
-55
-386
1.4
8.4
Financial planning
2016
2017
-17
-3
-386
-386
0.3
0.1
8.4
8.4
2018
11
-386
-0.5
8.4
6.9
11.6
7,895
6.8
11.6
7,983
7.0
11.6
8,065
7.3
11.6
8,112
9,251
9,451
9,651
9,851
No
Violations
No
No
No
No
No
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 94 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
3.8% 0.5%
Development of GDP and total debt since 2010
40,000
Financial & business
services, real estate
28.0%
35,000
Manufacturing (excl.
construction)
EUR per inhabitant
19.3%
Public services, education,
health care & private
households
Trade, transport. &
storage, accomodation,
inform. and comm.
Construction
30,000
25,000
20,000
15,000
10,000
5,000
23.5%
0
24.9%
Agriculture, forestry &
fishing
2010
GDP
2011
Debt
2012
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed I ncome Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 624.7bn (EUR +18.6bn; 1st)
GDP per capita (vs. 2013; ranking*)
EUR 35,549 (EUR +1,057; 6th)
Real GDP growth (2013; ranking*)
1.3% (-0.6%; 10th)
Export ratio (2013; ranking*)
28.9% (29.6%; 9th)
Import ratio (2013; ranking*)
33.1% (33.8%; 5th)
Unemployment rate
(2013; ranking*)
8.2% (8.3%; 8th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
NRW has made the largest contribution to national economic output for decades. As
one of the most important German industrial areas in the 20th century, the NRW’s
economy has been subject to change for several decades. While the manufacturing
industry previously contributed by far the largest share of gross value added, its
place has been taken by the finance, real estate and corporate services sectors.
Solely in comparison with 1991, the contribution to gross value added by the manufacturing industry has fallen by 8.4%. After the economic stagnation in 2013, real
GDP increased by 1.3% in 2014, which was slightly below the national average of
1.6%. In terms of GDP per capita, NRW’s economic output is close to the German
average. The unemployment rate fell again, although at 8.2% it remains above the
national average (6.7%). The export ratio amounted to 28.9%. Chemicals, machinery and metal products are exported in large quantities. With 64.6% of export goods
going to EU countries, the Netherlands and France were the most important trade
partners. The foreign trade deficit expanded from EUR 25.7bn in 2013 to EUR
26.1bn in 2014. Demographic change is likely to have less of an impact on NRW
than on the other Bundesländer. The proportion of 15 to 25-year-olds as a percentage of the total population is only higher in Baden-Württemberg and Bremen than in
NRW (11.4%).
We view NRW as a core investment within a Bundesländer portfolio. We rate its
strong and well-diversified economy, which accounts for a large part of German
economic output, as a relative strength. We also view the budgetary performance in
recent years positively, as the deficit has been significantly reduced. However, we
rate the long history of deficits combined with below average debt sustainability and
interest coverage as weaknesses compared with other Bundesländer. From our
perspective, the EAA still poses a potential risk factor for the state’s budget. The
pension liabilities, which we consider high compared with other Bundesländer, as
well as the relatively high levels of municipal debt are other factors that could put
pressure on the budget over the next few years (see also chapters Pension obligations as challenge for Bundesländer finances and Municipal budget situation as a
strain on Bundesländer finances).
Strengths
Weaknesses
+ Strong and well-diversified economy
+ Strong budgetary performance
–
–
–
–
Below average debt sustainability and interest
coverage
Long history of deficits
Contingent liabilities resulting from the EAA
Pension liabilities and municipal debt could prove
problematic
NORD/LB Fixed Income Research
Page 95 of 142
Issuer Guide German Bundesländer 2015
Rhineland-Palatinate
Basic information
Link to the Ministry of Finance
http://www.fm.rlp.de/
Number of inhabitants (2013)
3,994,366
State capital
Mainz
Minister-President
Malu Dreyer
Governing coalition
SPD/Green Party
Next election
13 March 2016
Amt. outstanding
A total of seven regions were merged to form the federal state of RhinelandPalatinate on 18 May 1946, which was initially in the American and subsequently
the French occupied zone after the Second World War. The Land, which has covered an area of 19,854 sq km since it was founded, now has a population of just
less than 4m. Industry plays a more significant role in the state’s economy than in
most Bundesländer. The proportion of gross value added attributable to the manufacturing industry (excluding construction) is only higher in Baden-Württemberg and
Saarland. Industry is concentrated in various locations along the Rhine. The chemicals sector is by far the most important sector of industry. Thanks to total revenue of
EUR 34.4bn, this sector was responsible for almost 40% of total sales in the Rhineland-Palatinate’s economy in 2013. Other key sectors, albeit far less so than the
chemicals industry, include vehicle manufacture and mechanical engineering, the
manufacturing of metal products as well as rubber and plastic articles. Tourism is
also more developed than in other Bundesländer. Among the non-city states, tourism intensity (the ratio of nights spent in tourist accommodation relative to 1,000
permanent residents) was only higher in three other federal states than in Rhineland-Palatinate in 2013. In 2014, an economic output of EUR 127.6bn was generated in Rhineland-Palatinate, which equated to around 4.4% of national GDP. The
state’s economic output increased, in price-adjusted terms, by 1.1% Y/Y (Germany:
1.6% Y/Y), after it had decreased by 0.4% (Germany: +0.1% Y/Y) in the previous
year. In 2014, only two other Bundesländer generated a greater cash shortfall at
year-end. The deficit came to EUR 0.6bn, which was a slight increase compared
with the previous year. Having become a contributor in the federal financial equalisation system in 2012 after being a recipient for many years, Rhineland-Palatinate
returned to being a net recipient in 2014.
Outstanding bonds issued by Rhineland-Palatinate (EURm)
Debt level
6,000
EUR 33.3bn
5,000
Of which bonds*
EUR 29.0bn
4,000
EURm
Of which borrower’s note loans
EUR 10.3bn
Bloomberg ticker
RHIPAL
* As of 5 May 2015. Other figures as of 31
December 2014.
3,000
2,000
1,000
0
2015 2016 2017 2018 2019 2020 2021 2022 2023
Foreign currencies
0
0
180
0
0
0
0
0
0
EUR other
122
30
0
112
0
0
0
0
0
EUR floating
2,000 3,975 1,200
0
1,150 1,500
0
0
0
EUR fixed
795 1,488 1,960 1,955 885 1,330 2,450 1,750 190
2024
0
0
200
892
2025 >2025
0
0
2
0
0
20
750
188
NB: foreign currencies are converted into EUR at rates as at 5 May 2015.
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
AAA
stab
Moody’s
-
-
S&P
-
-
Fitch
Since 22 December 2011, rating agency Fitch has awarded bonds issued by Rhineland-Palatinate with its top rating of AAA combined with a stable outlook. Fitch justifies this on the basis of the principle of federal loyalty in conjunction with the federal
financial equalisation system. According to Fitch, an AAA risk is inherent in this
system, which is why any reform of these mechanisms could lead to ratings being
amended. A downgrade of the Federal Republic of Germany would also lead to the
federal state’s rating being downgraded.
NORD/LB Fixed Income Research
Page 96 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-20
-25
-30
-35
-35
-40
0
-40
0
1
2
3
4
5
6
Years to maturity
RHIPAL
RHIPAL
7
Bundesländer
Bundesländer
8
9
10
Bunds
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
RHIPAL
National German agencies
Regional German agencies
Bunds
RHIPAL
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS-WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of benchmark issues in 2014/2015*
Weighting in iBoxx € Regions
40
2.2%
Asset swap spread / discount margin at issue
30
Basis points
No. of bonds in iBoxx € Regions
3
Pick-up to swaps*
-18 to -11bp
Asset swap spread / discount margin as of 05 Mai
20
10
0
-10
-20
Pick-up to Bunds*
*Vs. interpolated figures; minimum term 1 year;
minimum volume EUR 0.5bn
RHIPAL 1 3/4
03/25/24
(Fixed; 2014)
RHIPAL 0 1/2
09/03/21
(Fixed; 2014)
RHIPAL 0
01/15/16
(Floating;
2014)
RHIPAL 0
03/16/16
(Floating;
2014)
RHIPAL 0
07/15/16
(Floating;
2014)
RHIPAL 0
11/29/19
(Floating;
2014)
RHIPAL 0 1/2
01/21/25
(Fixed; 2015)
RHIPAL 0
01/15/20
(Floating;
2015)
-30
12 to 23bp
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
9,000
1,600
8,000
1,400
7,000
1,200
EURm
EURm
6,000
5,000
4,000
3,000
1,000
800
600
2,000
400
1,000
200
SSD
Bonds
2009
2010
2011
2012
2013
2014
1,731
4,926
2,360
5,779
1,637
6,158
1,712
6,439
1,510
6,960
1,100
6,100
Q1
2015
347
1,693
0
May
Jun
Jul
Aug
EUR fixed
Sep
Oct
Nov
EUR floating
Dec
Jan
Feb
Mar
Apr
EUR other
Source: Land Rhineland-Palatinate, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, joint Länder bonds
(Gemeinschaft deutscher Länder) ,
private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 7.7bn (EUR 7.2bn)
Funding Q1 2015
EUR 2.0bn
Following a steady upward trend in funding volumes, the volume of bonds issued by
Rhineland-Palatinate decreased to EUR 7.2bn in 2014. A further decrease was
recorded in the funding contribution made through borrower’s note loans
(Schuldscheindarlehen, SSD). In 2014, they accounted for around 15.3% of funding
(2010: 29.0%). Despite the relatively high annual volume issued, RhinelandPalatinate regularly takes part in transactions of joint Länder bonds (Gemeinschaft
deutscher Länder). For the 2015 financial year, a gross credit authorisation of EUR
7.7bn is in place. If it is fully utilised, it equates to net new borrowing of EUR 1.0bn.
In Q1 2015, Rhineland-Palatinate already raised EUR 2.0bn in the capital market,
which means that 26.6% of the gross credit authorisation has been utilised.
NORD/LB Fixed Income Research
Page 97 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
4,500
4,500
4,000
4,000
EUR per inhabitant
EUR per inhabitant
3,500
3,000
2,500
2,000
1,500
1,000
500
3,500
3,000
2,500
2,000
1,500
1,000
0
500
-500
-1,000
Operating revenue
Tax revenue
Equalisation mechanism (net)
Deficit/surplus
Ø of operating revenues
(non-city states)
0
2010
2,970
2,091
19
-481
2011
3,100
2,221
14
-514
2012
3,345
2,434
-26
-287
2013
3,460
2,555
26
-137
2014
3,650
2,643
5
-154
3,155
3,452
3,537
3,686
3,829
Operating expense
Staff expenditure
Grants to municipals
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
3,451
1,286
687
324
266
2011
3,613
1,330
748
339
254
2012
3,632
1,352
783
333
243
2013
3,596
1,369
812
362
246
2014
3,803
1,408
953
356
237
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR -614.3m (EUR -68.7m; 14th)
Balance/GDP (2013; ranking*)
-0.48% (-0.44%; 14th)
Balance per capita (2013; ranking*)
EUR -154 (EUR -137; 14th)
Tax revenue (vs. 2013)
EUR 10.6bn (EUR +0.4bn)
Taxes per capita (2013; ranking*)
EUR 2,643 (EUR 2,555; 8th)
Taxes/interest paid (2013; ranking*)
11.2x (10.4x; 10th)
Total revenue/interest paid
(2013; ranking*)
15.4x (14.1x; 12th)
Total debt (vs. 2013; ranking*)
EUR 33.3bn (EUR -0.1bn; 11th)
Debt/GDP (2013; ranking*)
26.1% (26.9%; 9th)
Debt/total revenue (2013; ranking*)
2.3x (2.4x; 11th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
With a deficit of EUR 0.6bn, only two other Bundesländer generated a larger shortfall in 2014. The deficit slightly expanded compared with 2013. Rhineland-Palatinate
is one of six federal states that has not reported a surplus in the last ten years. Tax
income grew by 3.4% vs. 2013, which led to growth in total income of 5.5% vs.
2013. Income from the federal financial equalisation system, which was up by
around EUR 0.1bn to EUR 0.5bn, proved to be a growth driver. However, this effect
was offset by outflows linked to the VAT equalisation system. Rhineland-Palatinate
recorded the second highest growth in expenditure of all the Bundesländer (+5.8%
vs. 2013). This growth was primarily driven by grants to municipalities (+17.4% vs.
2013 – highest growth rate in the Bundesländer comparison), which accounted for
25.1% of the budget in 2014. Personnel expenses (37.0% of the budget) were up
2.9%, whereas capital expenditure was slightly reduced by 2%. The investment
ratio was relatively average at 9.4%. A minor decrease was recorded in interest
expenses (-3.8% vs. 2013), although the reduction was far below the Bundesländer
average (-8.1%). Despite the negative balance, a budget reduction of liabilities outstanding was achieved, which amounted to EUR 33.3bn. By and large, there was a
further improvement in the Land’s credit metrics. Nevertheless, debt sustainability
and interest coverage are still below average compared with the other Bundesländer. For the first time since the Stability Council was established, it identified no
exceeded threshold values in its latest meeting. In all cases, there were good and in
some instances comfortable safety margins with respect to the permitted limits.
Irrespective of the generally positive financial planning, Rhineland-Palatinate is one
of only four Bundesländer which do not forecast a balanced budget for the end of
their respective financial planning periods.
Indicators of the Stability Council
Actual
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
Target
2012
-133
-231
2013
-66
-192
2014
-123
-286
3.8
4.7
9.3
1.1
4.0
9.0
2.9
4.4
10.1
11.4
8,082
8,875
10.4
8,213
8,929
10.6
8,487
9,051
Violations
No
No
No
No
Financial planning
2015
-100
-386
2016
-96
-386
2017
-61
-386
2018
-39
-386
2.1
8.4
10.2
2.2
8.4
10.9
1.3
8.4
10.7
0.7
8.4
10.9
11.6
8,745
9,251
11.6
9,025
9,451
11.6
9,293
9,651
11.6
9,547
9,851
No
Violations
No
No
No
No
No
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 98 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
1.2%
15.9%
29.7%
Manufacturing (excl.
construction)
40,000
Public services, education,
health care & private
households
Financial & business
services, real estate
30,000
35,000
EUR per inhabitant
5.4%
Development of GDP and total debt since 2010
Trade, transport. &
storage, accomodation,
inform. and comm.
Construction
25,000
20,000
15,000
10,000
5,000
23.3%
0
Agriculture, forestry &
fishing
24.5%
2010
GDP
2011
Debt
2012
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed I ncome Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 127.6bn (EUR +3.4bn; 6th)
GDP per capita (vs. 2013; ranking*)
EUR 31,948 (EUR +843; 10th)
Real GDP growth (2013; ranking*)
1.1% (-0.4%; 13th)
Export ratio (2013; ranking*)
37.7% (37.5%; 5th)
Import ratio (2013; ranking*)
25.0% (25.3%, 11th)
Unemployment rate
(2013; ranking*)
5.4% (5.5%; 3rd)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
In 2014, real GDP increased by 1.1%, which was below the national average of
1.6%. Thus, the spread of Rhineland-Palatinate’s GDP per capita to the national
average further increased. In recent years, the positive economic performance has
been matched by falling unemployment rates, which have been below the national
average at all times. In 2014, the unemployment rate was only lower in BadenWürttemberg and Bavaria than it was in Rhineland-Palatinate (5.4%; Germany:
6.7%). The Bundesland’s economy is dominated by the manufacturing industry,
which only generates a higher proportion of gross value added in BadenWürttemberg and Saarland. Thanks to sales of EUR 34.4bn, the chemicals industry
alone was responsible for almost 40% of total sales generated by RhinelandPlatinate’s economy in 2013. Chemicals and pharmaceutical products accounted for
just over one third of the Land’s exports in 2014. Vehicle production and mechanical
engineering as well as the manufacture of rubber and plastic articles and metal
products are also key industries for the federal state. Generally, the RhinelandPalatinate economy is very export-focused. The export ratio amounted to 37.7%.
The main trading partners were France and the USA, while almost 60% of exports
of goods went to EU member states. In 2014, only two Bundesländer achieved a
higher foreign trade surplus than Rhineland-Palatinate, which reported EUR 16.2bn
(previous year: EUR 15.2bn). The challenges arising from demographic change are
likely to be relatively average compared with the other Bundesländer.
In our opinion, bonds issued by the federal state of Rhineland-Palatinate rank
among the core investments in a Bundesländer portfolio. We view the strong budgetary performance, which was characterised by a significant reduction in the deficit,
as a particular strength. We also view the economic structure positively, while low
levels of unemployment constitute another strength from our perspective. However,
we view the long history of deficits in conjunction with below average debt sustainability and interest coverage negatively. We also rate the heavy dependence on the
chemicals industry and below average GDP per capita as relative weaknesses.
Strengths
Weaknesses
+ Strong budgetary performance
+ Strong economic structure
+ Low unemployment
–
–
–
–
Long history of deficits
Below-average debt sustainability and interest
coverage
Highly dependent on the chemicals industry
Still below-average economic output per capita
NORD/LB Fixed Income Research
Page 99 of 142
Issuer Guide German Bundesländer 2015
Saarland
Basic information
Link to the Ministry of Finance
http://www.finanzen.saarland.de
Number of inhabitants (2013)
990,718
State capital
Saarbrücken
Minister-President
Annegret Kramp-Karrenbauer
Governing coalition
CDU/SPD
Next election
Spring 2017
Amt. outstanding
With an area of 2,569 sq km Saarland is the smallest of all the Bundesländer (excluding city states). At the same time, its overall population of almost 1.0m means
that it is virtually twice as densely populated as the adjacent federal state of Rhineland-Palatinate. Saarland is the youngest of the West German Bundesländer: after
the Second World War, Saarland was initially a French protectorate until 1949 and
an autonomous region until 1957, before it was incorporated within the Federal
Republic of Germany. Its economy is above all characterised by the manufacturing
industry. If one excludes the construction industry, the only Bundesland where the
proportion of gross value added attributable to this sector is higher is BadenWürttemberg. In recent decades, Saarland’s traditional dependence on industry has
diminished slightly but it is still considerable. Virtually a third of gross value added
was generated by this sector. Mechanical engineering and the automotive industry
are of particular importance here, although the metal industry has also remained a
key sector. In 2014, the Saarland economy generated a GDP of EUR 33.5bn and
was consequently responsible for 1.2% of total German economic output. In real
terms, GDP increased by 1.3% Y/Y (Germany: 1.6% Y/Y) after economic output
had decreased by 1.6% Y/Y (Bund: +0.1% Y/Y) in the previous year. Saarland’s
budget has been in difficulties for decades. In 2010, the Stability Council identified
an impending budgetary crisis. Since then, Saarland has been obliged to follow a
restructuring programme, compliance with which is monitored by the Stability Council. In 2014, Saarland achieved a significant improvement of EUR 0.2bn in its cash
shortfall to EUR 0.3bn, the lowest deficit since 2001. Saarland has been a net recipient since the federal financial equalisation system was established.
Outstanding bonds issued by Saarland (EURm)
Debt level
600
EUR 14.0bn
Of which bonds*
500
EUR 6.5bn
EURm
Of which borrower’s note loans
EUR 7.8bn
Bloomberg ticker
400
300
SAARLD
* As of 5 May 2015. Other figures as of 31
December 2014.
200
100
0
EUR floating
EUR fixed
2015
275
85
2016
300
165
2017
120
165
2018
500
0
2019
0
250
2020
0
500
2021
250
0
2022
275
0
2023
250
0
2024
0
0
2025
0
0
>2025
125
50
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
Fitch
-
-
Moody’s
-
-
S&P
-
-
Saarland has not been rated since 2 December 2010. Previously, Fitch rated the
creditworthiness of the smallest German non-city state AAA, namely equivalent to
that of Germany. We assume that Fitch would continue to put the rating on the
same level as the Federal Republic, since this is what the rating agency does with
other Bundesländer. Fitch argues on the basis of the combination of the federal
financial equalisation system and the principle of federal loyalty. From our perspective, Moody’s and S&P would award ratings that are at least one notch lower than
that of the Federal Republic. In our opinion, the credit metrics of the Bundesländer
rated Aaa or AAA by the two agencies deviate too markedly from those of Saarland
to justify the same rating for Saarland.
NORD/LB Fixed Income Research
Page 100 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-20
-25
-30
-35
-35
-40
0
-40
0
1
2
SAARLD
3
4
5
6
Years to maturity
Bundesländer
Bunds
7
8
9
Bundesländer
10
Bunds
1
2
3
4
5
6
7
8
9
10
Years to maturity
SAARLD
National German agencies
Regional German agencies
Bunds
National German agencies
Regional German agencies
Bunds
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS -WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of selected issues in 2014/2015*
Weighting in iBoxx € Regions
25
Asset swap spread / discount margin at issue
-
Asset swap spread / discount margin as of 05 Mai
20
Basis points
No. of bonds in iBoxx € Regions
Pick-up to swaps*
-26bp
Pick-up to Bunds*
15
10
5
0
5bp
-5
-10
SAARLD 0 10/09/18 (Floating; 2014)
*Vs. interpolated figures; minimum term 1 year;
minimum volume EUR 0.5bn
Issuing activity by year
Bond amounts maturing in the next 12 months
2,000
200
1,800
180
1,600
160
1,400
140
1,200
EURm
EURm
SAARLD 0 06/14/21 (Floating; 2014)
* Issue volume of at least EUR 0.25bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
1,000
120
100
800
80
600
60
400
40
200
20
SSD
Bonds
2009
2010
2011
2012
2013
2014
1,359
230
765
695
297
840
177
1,140
425
1,338
528
1,256
Q1
2015
180
200
0
May
Jun
Jul
Aug
Sep
EUR fixed
Oct
Nov
Dec
Jan
Feb
Mar
Apr
EUR floating
Source: Land Saarland, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Joint Länder bonds
(Gemeinschaft deutscher Länder),
private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 1.3bn (EUR 1.8bn)
Funding 2015ytd
EUR 0.4bn
Having previously used borrower’s note loans (Schuldscheindarlehen, SSD) virtually exclusively for funding, Saarland has focused increasingly on bonds in recent
years. The total funding has posted positive growth rates since 2011, with a stabilisation evident most recently. Last year, Saarland raised a total of EUR 1.8bn in the
capital market via bonds, joint Länder bonds (Gemeinschaft deutscher Länder) and
SSD, while not fully utilising the gross credit authorisation of EUR 1.9bn. For 2015,
there is a gross credit authorisation of EUR 1.3bn, which would equate to net new
borrowing of EUR 0.4bn if it were fully utilised. The Land has already raised EUR
0.4bn since the beginning of this year (29.0% of the funding target).
NORD/LB Fixed Income Research
Page 101 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
5,000
4,500
4,000
EUR per inhabitant
EUR per inhabitant
4,000
3,000
2,000
1,000
3,500
3,000
2,500
2,000
1,500
1,000
0
-1,000
Operating revenue
Tax revenue
Equalisation mechanism (net)
Deficit/surplus
Ø of operating revenues
(non-city states)
500
0
2010
2,894
2,039
319
-949
2011
3,330
2,297
338
-403
2012
3,292
2,336
638
-694
2013
3,457
2,480
688
-462
2014
3,624
2,646
740
-304
3,155
3,452
3,537
3,686
3,829
Operating expense
Staff expenditure
Grants to municipals
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
3,842
1,310
480
541
488
2011
3,733
1,354
496
360
468
2012
3,986
1,371
565
405
508
2013
3,919
1,411
598
377
484
2014
3,927
1,458
609
344
475
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR -300.7m (EUR +157.0m; 12th)
Balance/GDP (2013; ranking*)
-0.90% (-1.41%, 15th)
Balance per capita (2013; ranking*)
EUR -304 (EUR -462; 15th)
Tax revenue (vs. 2013)
EUR 2.6bn (EUR +0.2bn)
Taxes per capita (2013; ranking*)
EUR 2,646 (EUR 2,480; 7th)
Taxes/interest paid (2013; ranking*)
5.6x (5.1x; 15th)
Total revenue/interest paid
(2013; ranking*)
7.6x (7.1x; 16th)
Total debt (vs. 2013; ranking*)
EUR 14.0bn (EUR +0.2bn; 3rd)
Debt/GDP (2013; ranking*)
41.7% (42.2%, 14th)
Debt/revenue (2013; ranking*)
3.9x (4.0x; 15th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
In 2014, Saarland once again succeeded in cutting its deficit significantly, from just
under EUR 0.5bn to EUR 0.3bn, which is the Land’s lowest deficit since 2001.
However, the deficit per capita remained higher than in any other non-city state.
Along with Saarland, only four other non-city states have not achieved a surplus for
ten years. Saarland achieved this deficit reduction partly as a result of growth in
income. Overall, the cash inflow rose by 4.8% vs. 2013. At 6.7%, tax revenue only
increased more rapidly in three other Länder than it did in Saarland. Income from
the federal financial equalisation system continued to increase, by 4.8%, meaning
that it again accounted for approximately a fifth of the Land’s total income. The key
driver behind the reduction of the deficit was minimal growth in expenditure. At
0.2%, a lesser change was only evident in Thuringia. Personnel expenses were up
3.3% and accounted for 37.1% of the budget. At the same time, grants to municipalities (15.5% of expenditure) increased by 1.9%. Conversely, capital expenditure
was cut. A reduction of 8.8% was recorded in this item, with only SchleswigHolstein reducing its investments to a greater extent. Compared with 2010, Saarland’s capital expenditures were 38.1% down most recently, which represents the
sharpest fall for all the Bundesländer. At 8.8%, the investment ratio is just below
average (9.7%) now. Interest expenses were also down by 1.9%. Together with
Bremen, Saarland is the Bundesland with the lowest interest coverage. However,
an improvement is evident. The debt level again increased by a further EUR 0.2bn
to EUR 14.0bn. Only Bremen and Berlin have higher per capita debt levels. Yet, an
improvement was evident for Saarland’s debt sustainability. According to the financial planning, a balanced budget is not yet expected, even as late as 2018. Debt
and interest coverage are also likely to significantly exceed the permitted threshold
values specified by the Stability Council in the coming years.
Indicators of the Stability Council
Actual
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
2012
2013
Target
2014
-852
-231
23.2
-664
-192
18.5
-632
-286
17.2
4.7
19.2
11.4
4.0
17.2
10.4
4.4
17.5
10.6
13,082
8,875
13,853
8,929
14,291
9,051
Violations
Yes
Yes
Yes
Yes
2015
Financial planning
2016
2017
2018
-537
-386
14.9
-424
-386
12.1
-349
-386
10.2
-242
-386
7.5
8.4
16.4
11.6
8.4
15.6
11.6
8.4
15.4
11.6
8.4
15.0
11.6
14,215
9,251
14,467
9,451
14,647
9,651
Yes
14,682
9,851
Yes
Violations
Yes
Yes
Yes
Yes
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 102 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector in 2013
4.2% 0.2%
Development of GDP and total debt since 2010
Manufacturing (excl.
construction)
40,000
Financial & business
services, real estate
30,000
35,000
30.3%
EUR per inhabitant
16.2%
Public services, education,
health care & private
households
Trade, transport. &
storage, accomodation,
inform. and comm.
Construction
24.1%
25,000
20,000
15,000
10,000
5,000
0
Agriculture, forestry &
fishing
25.0%
2010
GDP
2011
Debt
2012
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed Income Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 33.5bn (EUR +1.0bn; 15th)
GDP per capita (vs. 2013; ranking*)
EUR 33,862 (EUR +987; 8th)
Real GDP growth (2013; ranking*)
1.3% (-1.6%; 11th)
Export ratio (2013; ranking*)
41.1% (40.9%; 4th)
Import ratio (2013; ranking*)
37.8% (35.2%; 3rd)
Unemployment rate
(2013; ranking*)
7.2% (7.3%; 7th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
After negative price-adjusted economic growth rates in both 2012 and 2013, real
GDP increased by 1.3% in 2014, which was slightly below the national average
(Germany: 1.6%). During the last ten years, real GDP growth fluctuated more only
in Baden-Württemberg. Still, economic output in relation to the total number of inhabitants remains below average. Having stood at 10.7% in 2005 (Germany:
11.4%), the unemployment rate subsequently fell sharply to 7.2% in 2014. The
economy in Saarland has been undergoing a process of structural change for decades. However, the manufacturing industry remains very significant. At 30.3%, its
share of gross value added is higher than that in any federal state except BadenWürttemberg. Key sectors include the automotive industry, mechanical engineering
and, traditionally, the metal industry. Generally, the Saarland economy is very export-focused: In 2014, the export ratio amounted to 41.1% with a foreign trade surplus of EUR 1.0bn (2013: EUR 1.8bn). Only the city-states Bremen and Hamburg
as well as Baden-Württemberg achieved higher export ratios. Saarland’s most important trading partners were the UK and France. In 2014, three quarters of exports
were attributable to vehicles, vehicle parts, machinery, metals and metal products.
Vehicles and vehicle parts alone accounted for more than a third of exports. Demographic change is likely to have a slightly greater impact on Saarland than on most
Bundesländer, as the proportion of people aged over 45 in the total population, at
55.1%, is considerably above the national average (51.0%).
We see Saarland as an interesting opportunity for diversification within a Bundesländer portfolio. We view the strong budgetary performance, where success in
the restructuring programme is already apparent, positively. In our opinion, its
strong manufacturing industry is one of Saarland’s relative strengths. However, the
long history of budget deficits combined with below-average credit metrics is negative from our perspective. The substantial fluctuations in real GDP growth are another negative factor. We also presume there are substantial implicit pension liabilities, given that no other Bundesland devotes such a high proportion of its expenditure to pensions (see also chapter on the pension obligations of the Bundesländer).
Strengths
Weaknesses
+ Strong budgetary performance
+ Strong manufacturing industry
–
–
–
–
Long history of deficits
Below-average debt sustainability and interest
coverage
Substantial fluctuation in real GDP growth
Pension liabilities may pose a problem
NORD/LB Fixed Income Research
Page 103 of 142
Issuer Guide German Bundesländer 2015
Saxony
Basic information
Link to the Ministry of Finance
http://www.finanzen.sachsen.de
Number of inhabitants (2013)
4,046,385
State capital
Dresden
Minister-President
Stanislaw Tillich
Governing coalition
CDU/SPD
Next election
Autumn 2019
Amt. outstanding
With an area of 18,419 sq km and around 4m inhabitants, Saxony is the East
German Bundesland with the greatest population density apart from the city state of
Berlin. Since it was established on 3 October 1990, the Free State of Saxony has
also been the strongest of the new Bundesländer in an economic sense. Saxony’s
three most important economic sectors are public and private sector services (I),
manufacturing industry (II) as well as finance, real estate and corporate services
(III). The finance, corporate services and housing sector has become increasingly
important in recent decades: compared with 1991, the proportion of gross value
added attributable to this sector has increased by around 11.8% to 22.9% in 2013.
Since reunification, a large number of companies from various economic sectors
have settled in Saxony. Particularly companies from the microelectronics and
electro-technology sectors as well as mechanical engineering and automotive
industry have relocated to Saxony. In 2014, the economy in the federal state of
Saxony generated a GDP of EUR 108.7bn, which equated to 3.7% of total German
output. In real terms, GDP increased by 1.9% Y/Y (Germany: 1.6% Y/Y), after it had
grown by 0.6% Y/Y (Germany: 0.1% Y/Y) in the previous year. In 2014, the Saxon
budget generated a cash surplus of EUR 0.7bn for the fourth time in a row.
Although it has decreased in recent years, only three other Länder have generated
a higher surplus. Saxony is traditionally the largest recipient in the federal financial
equalisation system. In 2014 alone, the Free State received a total of EUR 5.7bn
via this system.
Outstanding bonds issued by Saxony (EURm)
Debt level
120
EUR 6.9bn.
Of which bonds*
100
EUR 0.4bn
EURm
Of which borrower’s note loans
EUR 6.5bn
Bloomberg ticker
80
60
SAXONY
* As at 5 May 2015. Other amounts as at 31
December 2014.
40
20
0
EUR fixed
2015
100
2016
20
2017
95
2018
100
2019
10
2020
0
2021
100
2022
0
2023
0
2024
0
2025
0
>2025
0
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
Fitch
-
-
Moody’s
-
-
AAA
stab
S&P
The rating agency S&P rates the creditworthiness of the federal state of Saxony at
AAA with a stable outlook. S&P views in particular the federal financial equalisation
system and the principle of federal loyalty as justification, although the impressive
budgetary performance is also highlighted. The moderate debt to tax revenue ratio
and the exemplary management of the budget are further strengths. Moreover,
Saxony benefits from a high level of liquidity, a strong economy and average
revenue flexibility. Overall, the federal state is in a good position to compensate for
the phasing out of the special-need BEZ (Sonderbedarfs-BEZ) at the end of 2019
and to comply with the debt brake from 2020.
NORD/LB Fixed Income Research
Page 104 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-20
-25
-30
-35
-35
-40
-40
0
0
1
2
SAXONY
3
4
5
6
Years to maturity
Bundesländer
7
Bunds
8
Bundesländer
9
10
Bunds
1
2
3
4
5
6
7
8
9
10
Years to maturity
SAXONY
National German agencies
Regional German agencies
Bunds
National German agencies
Regional German agencies
Bunds
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m (exception: Saxony: EUR 100m).
National agencies: KfW, FMS-WM, Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
6y spread performance*
Weighting in iBoxx € Regions
20
70
Spread (rhs)
No. of bonds in iBoxx € Regions
Pick-up to swaps*
-13 to -6bp
Pick- up to Bunds*
ASW spread in bp
-
18 to 24bp
SAXONY 3 1/4 03/23/21
DBR 2 1/2 01/04/21
10
60
0
50
-10
40
-20
30
-30
20
-40
10
G-spread in bp
Relative value
-50
0
Dec-13 Jan-14 Mar-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15
* Vs. interpolated figures; minimum term 1
year; minimum volume EUR 0.1bn.
* Bond is not necessarily liquid. Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
60
2,000
50
1,500
40
EURm
EURm
2,500
1,000
30
20
500
10
SSD
Bonds
2009
2010
2011
2012
2013
2014
1,100
-
1,725
325
1,943
250
698
-
1,135
-
709
-
Q1
2015
208
-
0
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
EUR fixed
Source: Land Saxony, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 1.4bn (EUR 0.7bn)
Funding Q1 2015
EUR 0.2bn
Generally, the primary market activities of the federal state of Saxony have been
characterised by fluctuating volumes in recent years. The Free State only raised
more than EUR 2.0bn in 2010 and 2011. At the same time, bonds play a very minor
role in the Land’s funding. This instrument was last used in 2010 and 2011. The
vast majority of its funding is raised through borrower’s note loans
(Schulscheindarlehen; SSD). Having had a gross credit authorisation of EUR 0.9bn
in 2014, a total of EUR 0.7bn was raised via SSD. There is a gross credit
authorisation of EUR 1.4bn for 2015, which would equate to a net repayment of
debt of EUR 0.1bn if utilised in full. Saxony already raised EUR 0.2bn in Q1 2015,
which equates to 15.4% of the gross credit authorisation.
NORD/LB Fixed Income Research
Page 105 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
4,500
5,000
4,000
EUR per inhabitant
EUR per inhabitant
4,000
3,000
2,000
1,000
3,500
3,000
2,500
2,000
1,500
1,000
0
-1,000
Operating revenue
Tax revenue
Equalisation mechanism (net)
Deficit/surplus
Ø of operating revenues
(non-city states)
500
0
2010
4,002
2,031
1,459
-44
2011
4,484
2,211
1,478
501
2012
4,276
2,377
1,517
320
2013
4,240
2,470
1,455
203
2014
4,280
2,524
1,444
164
3,155
3,452
3,537
3,686
3,829
Operating expense
Staff expenditure
Grants to municipals
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
4,046
867
941
971
89
2011
3,982
900
946
833
83
2012
3,956
908
884
681
81
2013
4,037
928
984
756
74
2014
4,116
965
1,057
767
63
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR 663.1m (EUR -159.3m; 4th)
Balance/GDP (2013; ranking*)
0.61% (0.79%; 3rd)
Balance per capita (2013; ranking*)
EUR 164 (EUR 203; 4th)
Tax revenue (vs. 2013)
EUR 10.2bn (EUR +0.2bn)
Taxes per capita (2013; ranking*)
EUR 2,524 (EUR 2,470; 15th)
Taxes/interest paid (2013; ranking*)
40.0x (33.2x; 2nd)
Total revenue/interest paid
(2013; ranking*)
67.8x (57.1x; 1st)
Total debt (vs. 2013; ranking*)
EUR 6.9bn (EUR -1.0bn; 1st)
Debt/GDP (2013; ranking*)
6.3% (7.5 %; 2nd)
Debt/revenue (2013; ranking*)
0.4x (0.5x; 1st)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Saxony achieved a cash surplus for the fourth time in a row, although it was down
once again at EUR 0.7bn. Nevertheless, only three other Länder recorded a higher
surplus, while only Mecklenburg-Western Pomerania has achieved a surplus as
often as Saxony in the last ten years (eight times). After Brandenburg, tax revenue
per capita continued to be the smallest and ultimately grew at a below average rate
at 2.2% vs. 2013 (average: 4.5%). The rise in total revenue was similarly below
average (+0.9%; average: +4.2%), and can, for example, be attributed to the
scheduled reduction of the special-need BEZ (Sonderbedarfs-BEZ). Overall inflows
from the financial equalisation system fell by 0.7%, yet this continued to represent
almost a third of the Bundesland’s total income. Only Saxony-Anhalt and Thuringia
receive a higher share of their total income via the equalisation system. In terms of
expenditure growth of 2.0% was recorded, with personnel expenses alone
increasing by 4.0%. In 2014, this item accounted for 23.4% of the budget,
representing the second most important expense item after grants to municipalities
(25.7%). These rose by 7.4% compared to 2013, and therefore only four other
federal states saw a higher increase than in Saxony. In addition, capital
expenditures increased by 1.4% vs. 2013, which means that once again no other
Bundesland had a higher investment ratio than Saxony (18.6%). Interest expenses
meanwhile fell by 15.1% vs. 2013, accounting for only 1.5% of the budget. Interest
coverage is correspondingly high, with only Bavaria boasting comparably high
values. Once again, net liabilities at the end of the financial year fell by EUR 1.0bn
to EUR 6.9bn, leading to a further improvement in the already outstanding debt
sustainability ratios. The financial planning shows that further net debt amortisation
can be expected in the coming budgetary periods.
Indicators of the Stability Council
Actual
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
2012
500
2013
302
Target
2014
6
-231
2.3
-192
-1.8
-286
-4.2
4.7
2.7
4.0
2.6
4.4
2.7
11.4
2,004
10.4
1,877
10.6
1,861
8,875
8,929
9,051
Violations
no
no
no
no
2015
111
Financial planning
2016
2017
119
166
2018
147
-386
-0.8
-386
-3.0
-386
-3.8
-386
-2.4
8.4
2.5
8.4
2.6
8.4
2.6
8.4
2.8
11.6
1,843
11.6
1,824
11.6
1,806
11.6
1,787
9,251
9,451
9,651
no
9,851
no
Violations
no
no
no
no
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 106 of 142
Issuer Guide German Bundesländer 2015
7.3%
1.0%
28.2%
17.2%
Public services, education,
health care & private
households
Manufacturing (excl.
construction)
Financial & business
services, real estate
Trade, transport. &
storage, accomodation,
inform. and comm.
Construction
Development of GDP and total debt since 2010
40,000
35,000
EUR per inhabitant
Gross value added by economic sector in 2013
30,000
25,000
20,000
15,000
10,000
5,000
22.9%
0
23.5%
Agriculture, forestry &
fishing
2010
GDP
2011
Debt
2012
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed Income Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 108.7bn (EUR +3.9bn; 8th)
GDP per capita (vs. 2013; ranking*)
EUR 26,852 (EUR +973; 12th)
Real GDP growth (2013; ranking*)
1.9% (0.6%; 3rd)
Export ratio(2013; ranking*)
33,1% (30,0%; 6.)
Import ratio(2013; ranking*)
18.9% (18.0%; 13th)
Unemployment rate
(2013; ranking*)
8.8% (9.4%; 11th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
In 2014, the economy of Saxony generated an above-average real GDP growth for
the third consecutive year. Although GDP per capita has been the highest of all
East German federal states for years, it is still well below the national average. At
the same time, the unemployment rate has fallen steadily, but, at 8.8%, was still
well above the national average of 6.7% in 2014. The Land’s gross value added is
broadly diversified, with the private and public service sectors together with
manufacturing industry forming the largest pillars of gross value added.
Construction only plays a more significant role in Thuringia than in the Saxony.
Companies from the microelectronic and electro-technology sectors as well as
mechanical engineering and automotive industry have meanwhile become key
components of the Saxon economy. Exports are of significant importance for the
economy in Saxony: the export ratio amounted to 33.1%, while the foreign trade
surplus stood at EUR 15.5bn in 2014 (previous year: EUR 12.6bn). Only three other
Länder posted a higher foreign trade balance. Over half the exports consisted of
vehicles and vehicle parts as well as machinery. China and the USA were the
state’s most important trading partners, while only 43.0% of exports went to EU
members – less than in any other Bundesland. Demographic change is especially
problematic for Saxony, as 24.7% of the population is aged over 65 – the highest
figure in the federal republic (average: 20.8%).
We see Saxony as an interesting opportunity for diversification within a
Bundesländer portfolio. We rate its debt sustainability and interest coverage, which
are only comparable with those of Bavaria, as strengths. We also rate the low
absolute indebtedness, which is the lowest of all the Länder, positively. In our
opinion, the diversified economy is another relative strength of Saxony. However,
we view its heavy dependence on the federal financial equalisation system as a
negative factor, even though this is likely to be lower for Saxony than for other East
German Bundesländer. Its lower than average GDP per capita and above-average
unemployment rates are also weaknesses. We rate demographic change, which is
likely to have more impact on Saxony than on most other Bundesländer, as a major
risk factor.
Strengths
Weaknesses
+
+
+
–
Strong debt sustainability and interest coverage
Low absolute debt
Diversified economy
–
–
–
Heavy dependence on federal financial equalisation
system
GDP per capita remains below average
Unemployment still relatively high
Demographic change is a risk factor
NORD/LB Fixed Income Research
Page 107 of 142
Issuer Guide German Bundesländer 2015
Saxony-Anhalt
Basic information
Link to the Ministry of Finance
http://www.mf.sachsen-anhalt.de
Number of inhabitants (2013)
2,244,577
State capital
Magdeburg
Minister-President
Reiner Haseloff
Governing coalition
CDU/SPD
Next election
13 March 2016
Amt. outstanding
With 2.2m inhabitants living in an area of 20,450 sq km, the federal state of SaxonyAnhalt is the Bundesland with the third lowest population density. Like the other
new Länder, Saxony-Anhalt has existed in its current form since 3 October 1990. Its
key industries include the manufacturing industry, transport and services in
particular. According to our analysts at NORD/LB Regionalwirtschaft, almost three
quarters of employees in the 100 largest companies (according to employee
numbers) in Saxony-Anhalt were employed in these three sectors in 2013. The
manufacturing industry is dominated by the chemicals industry, the food industry,
mechanical engineering and the metals industry. Yet again, in terms of sales, the
front-runner in the Saxon-Anhalt economy in 2013 was a company from the oil
industry. Most of the 100 largest companies are based in the region between
Wernigerode, Magdeburg and Halle. In addition to the economic sectors mentioned
above, agriculture also plays a comparatively important role. Agriculture and
forestry only account for a larger share of gross value added in MecklenburgWestern Pomerania. The economy of the federal state of Saxony-Anhalt generated
a GDP of EUR 55.6bn in 2014, which equalled 1.9% of total German economic
output. On a price-adjusted basis, GDP grew by 0.4% Y/Y (Germany: 1.6% Y/Y),
which was the lowest real growth rate of all the federal states in 2014. In the
previous year, real GDP had decreased by 0.8% Y/Y (Germany: +0.1% Y/Y). In
2014, the federal state again achieved a cash surplus in its budget of EUR 70m,
after having generated a positive balance of EUR 249m in 2013. Saxony-Anhalt has
been a recipient within the federal financial equalisation system since it was
established. Saxony-Anhalt is the only Bundesland, which receives consolidation
aid of EUR 80m p.a., although the Stability Council has not identified any impending
budget crisis here.
Outstanding bonds issued by Saxony-Anhalt (EURm)
Debt level
2,500
EUR 20.5bn.
Of which bonds*
2,000
Of which borrower’s note loans
EUR 9.3bn
Bloomberg ticker
EURm
EUR 10.4bn
1,500
1,000
SACHAN
* As at 5 May 2015. Other amounts as at 31
December 2014.
500
0
2015 2016 2017 2018
Foreign currencies 145
256
0
50
EUR other
10
75
531
5
EUR floating
160
490
50
375
EUR fixed
1,041 1,230 1,000 260
2019
0
0
120
0
2020
0
0
280
170
2021 2022
0
0
25
0
205
220
1,000
10
2023 2024 2025 >2025
0
0
0
10
0
0
40
132
250
100
25
0
1,125 1,000
50
0
NB: foreign currencies are converted into EUR at rates as at 5 May 2015.
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
Fitch
AAA
stab
Moody’s
Aa1
stab
S&P
AA+
stab
The creditworthiness of Saxony-Anhalt is rated by all three major rating agencies.
Fitch rates the Bundesland AAA with a stable outlook. Fitch views the principle of
federal loyalty combined with the federal financial equalisation system, in which the
agency sees an AAA risk, as justification for this rating. Moody’s and S&P also cite
this system as a decisive factor influencing their decisions. Moody’s also views the
improvement in budgetary discipline positively. S&P notes the very strong
budgetary performance, the strong housekeeping and liquidity as well as in
particular the outstanding access to the capital markets positively, but views the
lack of budgetary flexibility and high levels of debt negatively. S&P considers both
debt in relation to tax income and the implicit pension liabilities to be very high. S&P
estimated pension liabilities at more than 100% of revenue in 2014, which would
equate to around EUR 10.0bn.
NORD/LB Fixed Income Research
Page 108 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-20
-25
-30
-30
-35
-35
-40
0
-40
0
1
2
3
4
5
6
Years to maturity
SACHAN
SACHAN
7
Bundesländer
Bundesländer
8
9
10
Bunds
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
SACHAN
National German agencies
Regional German agencies
Bunds
SACHAN
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS -WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of selected benchmarks 2014/2015*
Weighting in iBoxx € Regions
25
3.6%
Asset swap spread / discount margin at issue
No. of bonds in iBoxx € Regions
5
Pick-up to swaps*
-18 to -11bp
Basis points
20
Asset swap spread / discount margin as of 05 Mai
15
10
5
0
-5
Pick-up to Bunds*
-10
15 to 22bp
-15
-20
SACHAN 1 7/8 04/10/24 (Fixed; 2014)
*Vs. interpolated figures; minimum term 1 year;
minimum volume EUR 0.5bn.
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
3,000
1,200
2,500
1,000
800
EURm
EURm
2,000
1,500
600
1,000
400
500
200
SSD
Bonds
2009
2010
2011
2012
2013
2014
1,999
349
1,519
876
1,008
1,425
336
1,429
170
1,803
617
2,018
Q1
2015
60
254
0
May
Jun
EUR fixed
Jul
Aug
Sep
EUR floating
Oct
Nov
EUR other
Dec
Jan
Feb
Mar
Apr
Foreign currencies
Source: Land Saxony-Anhalt, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 2.6bn (EUR 2.6bn)
Funding Q1 2015
EUR 0.3bn
In 2014, the funding volume exceeded EUR 2.5bn for the first time since 2008.
Overall around EUR 2.6bn was raised on the capital markets via borrower’s note
loans (Schuldscheindarlehen; SSD) and bonds. With a funding contribution of
23.4%, SSD boasted the highest share of financing since 2011. Gross credit
authorisations amounting to EUR 2.6bn have been granted for 2015, which means
that a similar funding volume as in the previous year can be expected. If the
authorisation was fully utilised, the Land would repay a net figure of around EUR
0.1bn in total. Saxony-Anhalt already raised EUR 0.3bn in Q1 2015 via SSD and
bonds, which equates to 12.1% of its gross credit authorisation.
NORD/LB Fixed Income Research
Page 109 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
5,000
5,000
4,500
EUR per inhabitant
EUR per inhabitant
4,000
3,000
2,000
4,000
3,500
3,000
2,500
2,000
1,500
1,000
1,000
0
500
0
-1,000
Operating revenue
Tax revenue
Equalisation mechanism (net)
Deficit/surplus
Ø of operating revenues
(non-city states)
2010
3,996
2,023
1,552
-263
2011
4,339
2,271
1,548
-77
2012
4,391
2,399
1,823
23
2013
4,508
2,491
1,777
111
2014
4,449
2,525
1,786
31
3,155
3,452
3,537
3,686
3,829
Operating expense
Staff expenditure
Grants to municipals
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
4,259
1,026
912
664
334
2011
4,416
1,065
978
624
341
2012
4,368
1,069
980
570
316
2013
4,397
1,091
1,030
550
282
2014
4,418
1,104
1,010
563
265
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR 70.1m (EUR -179.2m.; 9th)
Balance/GDP (2013; ranking*)
0.13% (0.46%; 9th)
Balance per capita (2013; ranking*)
EUR 31 (EUR 111; 9th)
Tax revenue (vs. 2013)
EUR 5.7bn (EUR +0.1bn)
Taxes per capita (2013; ranking*)
EUR 2,525 (EUR 2,491; 14th)
Taxes/interest paid (2013; ranking*)
9.5x (8.8x; 12th)
Total revenue/interest paid
(2013; ranking*)
16.8x (16.0x; 9th)
Total debt (vs. 2013; ranking*)
EUR 20.5bn (EUR +0.1bn; 7th)
Debt/GDP (2013; ranking*)
36.9% (37.3%; 13th)
Debt/revenue (2013; ranking*)
2.1x (2.0x; 9th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
In 2014, Saxony-Anhalt recorded a surplus for the third year in succession, which,
at EUR 0.1bn, amounted to only a quarter of the surplus in the previous year.
Therefore, the budget has closed with a surplus five times in the last ten financial
years. On the income side, a decline by 1.3% vs. 2013 was posted and tax income
rose by 1.4%, with only three other Bundesländer reporting a lower increase than
Saxony-Anhalt. Tax income therefore continues to be the lowest in relation to the
number of inhabitants compared with the other Länder. Income from the federal
financial equalisation system remained relatively stable, whereby the scheduled
reduction of the special-need BEZ (Sonderbedarfs-BEZ) was compensated for by
the other equalisation levels. In 2014, the financial equalisation system accounted
for 34.1% of total income, with only Thuringia deriving a larger share of its income
from the central government and the Bundesländer. In terms of expenditures,
significantly below average growth of 0.5% vs. 2013 was posted. While personnel
expenses rose at a lower rate than in any other federal state (1.2%), making up
25% of the budget, grants to municipalities were reduced by 1.9% (22.9% of total
expenditure). Interest expenses also fell at a rate of 6.1%, accounting for 6.0% of
the budget. Meanwhile, capital expenditure increased by 2.3%, with Saxony-Anhalt
continuing to invest heavily at an above average rate with an investment ratio of
12.7% (average 9.7%). The positive budgetary trend was also reflected in the credit
metrics; the interest coverage improved once again, but was still below average
compared to the other Länder. Debt sustainability ultimately remained relatively
stable, although there should be a clear improvement in this area given the planned
net repayments in the coming budgetary periods. Consequently, total debt in
relation to the number of inhabitants is likely to diverge further from the admissible
threshold values. In previous years, limit overruns led to the generation of a
violation according to the definition of the Stability Council.
Indicators of the Stability Council
Actual
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
Target
2012
2013
2014
-30
-231
58
-192
10
-286
0.9
4.7
11.2
-0.1
4.0
9.6
-0.2
4.4
9.0
11.4
9,103
8,875
10.4
9,068
8,929
10.6
9,046
9,051
Violations
no
no
no
yes
Financial planning
2015
2016
2017
2018
25
-386
85
-386
63
-386
132
-386
-0.9
8.4
8.2
-1.4
8.4
7.6
-1.6
8.4
8.0
-1.9
8.4
7.8
11.6
9,035
9,251
11.6
9,024
9,451
11.6
9,013
9,651
no
11.6
9,002
9,851
no
Violations
no
no
no
no
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 110 of 142
Issuer Guide German Bundesländer 2015
6.9%
2.0%
28.7%
15.0%
Public services, education,
health care & private
households
Manufacturing (excl.
construction)
Financial & business
services, real estate
Trade, transport. &
storage, accomodation,
inform. and comm.
Construction
Development of GDP and total debt since 2010
40,000
35,000
EUR per inhabitant
Gross value added by economic sector in 2013
30,000
25,000
20,000
15,000
10,000
5,000
21.9%
0
Agriculture, forestry &
fishing
25.5%
2010
GDP
2011
2012
Debt
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed I ncome Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 55.6bn (EUR +0.9bn; 12th)
GDP per capita (vs. 2013; ranking*)
EUR 24,779 (EUR +412; 15th)
Real GDP growth (2013; ranking*)
0.4% (-0.8%; 16th)
Export ratio (2013; ranking*)
27.0% (27.4%; 10th)
Import ratio (2013; ranking*)
28.8% (29.7%; 9th)
Unemployment rate
(2013; ranking*)
10.7% (11.2%; 13th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
In 2014, no other federal state’s economy generated a lower real GDP growth than
that of Saxony-Anhalt. Since 2005, Saxony-Anhalt produced the lowest real GDP of
all the Bundesländer. GDP per capita therefore remains well below the German
national average. Although the unemployment rate fell to 11.2% in 2014 (Germany:
6.9%). Only two Länder have rates higher than this. The Land’s gross value added
is dominated by public sector and private sector services in particular and by the
manufacturing industry (excluding the construction sector). According to our
NORD/LB Regionalwirtschaft, almost three quarters of the employees in the 100
largest companies in Saxony-Anhalt (according to employee numbers) were
employed in manufacturing industry, the transport and services sectors. Agriculture
still plays an important role with only Mecklenburg-Western Pomerania reporting a
higher proportion of gross value added attributable to agriculture and forestry in
2013. The export ratio amounted to 27.0% in 2014. Approximately 27.5% of exports
were produced by the chemicals industry. In total, 69.9% of exports were destined
for EU countries, with Poland and the UK the most important trading partners.
Overall, a foreign trade deficit of EUR 1.0bn was incurred (previous year: deficit of
EUR 1.3bn). Demographic change is a particular challenge for the state: the
population has shrunk more rapidly here than in any other Bundesland since 2002
(-11.9%), while around 57.5% of the population were aged over 45 in 2013 – the
highest figure in the Federal Republic. At the same time, the proportion of children
aged below 15 was smaller in Saxony-Anhalt, at 11.0%, than in any other
Bundesland.
We view the strong budgetary performance in recent years, which has increasingly
led to surpluses, as one of Saxony-Anhalt’s strengths. We also rate its strong
manufacturing industry positively. However, we identify its heavy dependence on
the federal financial equalisation system as a relative weakness. Its economic
output per capita is still below-average while unemployment is comparatively high.
Saxony-Anhalt is likely to be more affected by demographic change than other
Bundesländer, which we view as a major challenge for the state’s finances and its
economy.
Strengths
Weaknesses
+ Strong budgetary performance
+ Strong manufacturing industry
–
–
–
–
Heavy dependence on federal financial equalisation
system
GDP per capita remains below average
Relatively high unemployment
Demographic changes poses a risk
NORD/LB Fixed Income Research
Page 111 of 142
Issuer Guide German Bundesländer 2015
Schleswig-Holstein
Basic information
Link to the Ministry of Finance
http://www.schleswig-holstein.de
Number of inhabitants (2013)
2,815,955
State capital
Kiel
Minister-President
Torsten Albig
Governing coalition
SPD/Greens/SSW
Next election
Spring 2017
Amt. outstanding
With an area of 15,799 sq km, Schleswig-Holstein is the smallest non-city state in
Germany after Saarland. Founded on 23 August 1946, Schleswig-Holstein was the
first Bundesland to give itself a constitution after the promulgation of the Basic Law.
Traditionally, fishing is an important area of the economy. Approximately two thirds
of fishing in Germany is attributable to Schleswig-Holstein. Tourism is of crucial
importance to the state’s economy. Only the neighbouring federal state of
Mecklenburg-Western Pomerania had a greater tourism intensity (nights spent per
permanent resident) in 2013. Around three quarters of gross value added is
generated via the services sector, which is slightly more than the national average
(approximately 69%). Promotion of economic development is concentrated, in
particular, on the food industry, information technology, telecommunications and
media, life science, logistics, aviation and micro- and nanotechnology. Its location
between the North Sea and the Baltic Sea also means that attention is also focused
on the maritime economy, tourism and the renewable energies sector. The
economy of Schleswig-Holstein produced a GDP of EUR 84.0bn in 2014 (2.9% of
total German economic output). In real terms, the GDP grew by 1.7% Y/Y
(Germany: 1.6% Y/Y) after it had decreased by 0.3% Y/Y (Germanys: +0.1% Y/Y) in
2013. In 2014, Schleswig-Holstein generated a cash deficit again at the year-end of
EUR 244m, after having achieved a surplus of EUR 115m in 2013 for the first time
in years. In 2010, the Stability Council determined that Schleswig-Holstein was
facing an impending budgetary crisis. A restructuring programme was consequently
adopted, compliance with which is monitored by the Stability Council. The
Bundesland again became a net recipient in the federal financial equalisation
system in 2014.
Outstanding bonds issued by Schleswig-Holstein (EURm)
Debt level
1,600
EUR 27.1bn
1,400
Of which bonds*
1,200
EUR 13.8bn
Of which borrower’s note loans
1,000
EURm
EUR 12.0bn
Bloomberg ticker
800
600
SCHHOL
* As at 5 May 2015. Other amounts as at 31
December 2014.
400
200
0
Foreign currencies
EUR other
EUR floating
EUR fixed
2015
0
0
150
50
2016 2017
0
0
0
0
175
950
1,260 400
2018
0
0
650
496
2019
96
0
450
940
2020
0
0
750
250
2021
0
0
850
45
2022
0
0
0
500
2023
0
0
800
0
2024
0
0
550
0
2025 >2025
0
119
0
0
0
0
0
0
NB: foreign currencies are converted into EUR at rates as at 5 May 2015.
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
AAA
stab
Moody’s
-
-
S&P
-
-
Fitch
The rating agency Fitch rates bonds issued by the federal state of SchleswigHolstein AAA with a stable outlook. Fitch argues that generally an AAA risk is
inherent in the system of federal financial equalisation and the principle of federal
loyalty. Accordingly, reforms to this system could lead to changes in ratings. A
downgrade of the Federal Republic would also be passed onto Schleswig-Holstein
directly. Up to 16 December 2010, S&P also awarded the Bundesland’s short-term
liabilities an A-1 rating.
NORD/LB Fixed Income Research
Page 112 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-20
-25
-30
-35
-35
-40
-40
0
0
1
2
3
4
5
6
Years to maturity
SCHHOL
SCHHOL
7
Bundesländer
Bundesländer
8
9
10
Bunds
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
SCHHOL
National German agencies
Regional German agencies
Bunds
SCHHOL
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS-WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of selected benchmarks 2014/2015*
Weighting in iBoxx € Regions
30
-
Asset swap spread / discount margin at issue
25
Basis points
No. of bonds in iBoxx € Regions
Pick-up to swaps*
-17 to -11bp
Asset swap spread / discount margin as of 05 Mai
20
15
10
5
0
Pick-up to Bunds*
-5
16 to 23bp
-10
SCHHOL 0 01/20/23 (Floating; 2015)
*Vs. interpolated figures; minimum term 1 year;
minimum volume EUR 0.5bn.
SCHHOL 0 10/30/24 (Floating; 2014)
SCHHOL 0 02/12/21 (Floating; 2014)
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
5,000
600
4,500
4,000
500
3,000
EURm
EURm
3,500
2,500
400
300
2,000
1,500
200
1,000
500
100
SSD
Bonds
2009
2010
2011
2012
2013
2014
1,157
3,137
1,097
3,583
473
3,026
225
3,064
571
2,090
700
3,500
Q1
2015
365
814
0
May
Jun
Jul
Aug
Sep
EUR fixed
Oct
Nov
Dec
Jan
Feb
Mar
Apr
EUR floating
Source: Land Schleswig-Holstein, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, joint Länder bonds
(Gemeinschaft deutscher Länder),
private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 4.0bn (EUR 4.2bn)
Funding Q1 2015
After a decline in issue volumes in previous years, funding volume increased
sharply in 2014 to EUR 4.2bn, with reliance on borrower’s note loans
(Schuldscheindarlehen; SSD) as strong as last seen in 2011. In addition to
borrower’s note loans, Schleswig-Holstein also uses benchmarks for funding and
regularly participates in transactions of the Gemeinschaft deutscher Länder. The
gross credit authorisation for 2015 comes to EUR 4.0bn, which would equate to a
net new debt of EUR 0.3bn. Since the start of the year 29.4% (EUR 1.2bn) of the
authorisation has already been utilised.
EUR 1.2bn
NORD/LB Fixed Income Research
Page 113 of 142
Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
5,000
4,500
4,000
EUR per inhabitant
EUR per inhabitant
4,000
3,000
2,000
1,000
3,500
3,000
2,500
2,000
1,500
1,000
0
500
-1,000
Operating revenue
Tax revenue
Equalisation mechanism
(net)
Deficit/surplus
Ø of operating revenues
(non-city states)
2010
2,814
2,058
2011
3,055
2,237
2012
3,253
2,416
2013
3,466
2,603
2014
3,417
2,548
189
39
-3
93
80
-469
-246
-61
41
-87
3,155
3,452
3,537
3,686
3,829
0
Operating expense
Staff expenditure
Grants to municipals
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
3,283
1,153
790
347
342
2011
3,301
1,192
767
345
336
2012
3,313
1,228
820
280
324
2013
3,425
1,247
932
259
306
2014
3,503
1,284
1,023
231
275
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR -244.1m (EUR -359.5m; 11th)
Balance/GDP (2013; ranking*)
-0.29% (0.14%; 12th)
Balance per capita (2013; ranking*)
EUR -87 (EUR 41; 11th)
Tax revenue (vs. 2013)
EUR 7.2bn (EUR -0.2bn)
Taxes per capita (2013; ranking*)
EUR 2,548 (EUR 2,603; 13th)
Taxes/interest paid (2013; ranking*)
9.3x (8.5x; 13th)
Total revenue/interest paid
(2013; ranking*)
12.4x (11.3x; 14th)
Total debt (vs. 2013; ranking*)
EUR 27.1bn (EUR +0.4bn; 10th)
Debt/GDP (2013; ranking*)
32.3% (32.9%;12th)
Debt/revenue (2013; ranking*)
2.8x (2.7x; 14th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
After achieving a surplus in 2013 for the first time in years, the budget posted a
deficit again in 2014 of EUR 0.2bn. Revenues fell by 1.4% vs. 2013, with
Schleswig-Holstein recording a sharper decline in tax income than any other
Bundesland (-2.1%). Taxes continued to remain well below average in relation to
the number of inhabitants. By contrast, net income from the financial equalisation
system more than doubled to EUR 0.5bn. For the first time since 2008 the Land
was on the receiving end of the VAT equalisation system, which led to this
pronounced change. In terms of expenditures, growth of 2.3% vs. 2013 was posted,
which was largely due to higher grants to municipalities (+9.7%). In 2014, this item
accounted for 29.2% of spending. Personnel expenses continued to be the largest
budget item at 36.6%, a plus of 2.9%. Capital expenditure was down once again (10.7%), with no other Bundesland making more drastic spending cuts in this area.
At 6.6%, only Berlin and Lower Saxony had a lower investment ratio. On the
expenditure front, interest expenses were also down, which fell by 10.3% and
accounted for 7.8% of the budget. Correspondingly, the figures for interest
coverage improved despite the decline in revenues, but are still the lowest
compared to the other Länder. In 2014, debt rose to EUR 0.4bn, with only the
Saarland posting a higher total debt per capita than Schleswig-Holstein among the
non-city states. Debt sustainability ultimately followed a sideways trend, with the
debt to income ratio increasing slightly. In general, the figures were among the
weakest of all the Bundesländer. Despite this, the financial planning assumes that
surpluses will be achieved in the coming budgetary periods, which are to be used to
repay debts. A contingent liability exists for the participation in the HSH
Finanzfonds, in which Hamburg and Schleswig-Holstein each hold half of the
shares and via which a guarantee is in place for HSH Nordbank. This is limited to
EUR 10bn, although any drawing on the guarantee can only take place if the firstloss tranche of EUR 3.2bn to be borne by HSH itself is exceeded.
Indicators of the Stability Council
Actual
Financial balance in EUR per capita
Threshold value
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
2012
-87
2013
-24
Target
2014
-96
-231
1.8
-192
-0.8
-286
3.1
4.7
12.3
4.0
11.0
4.4
11.2
11.4
9,623
10.4
9,415
10.6
9,518
8,875
8,929
9,051
Violations
no
no
yes
yes
2015
-27
Financial planning
2016
2017
23
50
2018
70
-386
1.1
-386
-0.3
-386
-1.0
-386
-1.4
8.4
10.1
8.4
9.9
8.4
10.2
8.4
10.1
11.6
9,553
11.6
9,541
11.6
9,504
11.6
9,448
9,251
9,451
9,651
no
9,851
no
Violations
no
no
no
yes
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 114 of 142
Issuer Guide German Bundesländer 2015
Gross value added by economic sector 2013
1.4%
28.4%
18.5%
40,000
Public services, education,
health care & private
households
Financial & business
services, real estate
35,000
EUR per inhabitant
5.2%
Development of GDP and total debt since 2010
Trade, transport. &
storage, accomodation,
inform. and comm.
Manufacturing (excl.
construction)
Construction
30,000
25,000
20,000
15,000
10,000
5,000
19.8%
0
2010
Agriculture, forestry &
fishing
26.8%
GDP
2011
2012
Debt
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed I ncome Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 84.0bn (EUR 2.7bn; 10th)
GDP per capita (vs. 2013; ranking*)
EUR 29,838 (EUR +970; 11th)
Real GDP growth (2013; ranking*)
1.7% (-0.3%; 5th)
Export ratio (2013; ranking*)
23.4% (23.4%; 12th)
Import ratio (2013; ranking*)
23.6% (23.5%; 12th)
Unemployment rate
(2013; ranking*)
6.8% (6.9%; 6th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
After real GDP had decreased by 0.3% in 2013 (Germany: +0.1% Y/Y), economic
output increased by 1.7% on a price-adjusted basis in 2014, which was slightly
above the national average of 1.6%. The unemployment rate has fallen steadily,
and , at 6.8%, was slightly higher than the level of the national figure in 2014. The
Land’s gross value added is shaped by the private and public services sectors,
which contributed around 55.1% to the federal state’s gross value added in 2013.
The manufacturing industry (excluding the construction industry) plays a relatively
insignificant role; the only non-city state where it is less significant is MecklenburgWestern Pomerania. Its location on the North and Baltic Sea means that tourism is
more significant there than in many Länder: nights spent per permanent resident
were only higher in Mecklenburg-Western Pomerania in 2013. Traditionally, fishing
is still very important. Approximately two thirds of German fishing comes from
Schleswig-Holstein. In 2014, the export ratio amounted to 23.4%. The export
proportion of chemical products (27.5%) was higher than in any other federal state.
In total, 58.6% of exports went to EU member states in 2014. Denmark and the
Netherlands were the most important trading partners. A foreign trade deficit of EUR
0.2bn was generated in total in 2014 (previous year: deficit of EUR 0.1bn). The
challenges arising from demographic change are likely to be relatively average
compared to other federal states.
We rate Schleswig-Holstein as an interesting opportunity for diversification within a
Bundesländer portfolio. We view the strong budgetary performance positively, even
if the past fiscal year was a step backwards in our opinion. The fact that debt
sustainability, interest coverage and GDP per capita are still below-average is a
negative factor. We estimate that pension liabilities are high (see also chapter
Pension obligations as challenge for Bundesländer finances) and view this as well
as the contingent liability resulting from HSH Nordbank as a risk factor.
Strengths
Weaknesses
+ Strong budgetary performance
–
–
–
Below-average debt sustainability and interest
coverage
Substantial pension liabilities
Contingent liabilities resulting from HSH Nordbank
NORD/LB Fixed Income Research
Page 115 of 142
Issuer Guide German Bundesländer 2015
Thuringia
Basic information
Link ot the Ministry of Finance
http://www.thueringen.de/de/tfm
Number of inhabitants (2013)
2,160,840
State capital
Erfurt
Minister-President
Bodo Ramelow
Governing coalition
The Left/SPD/Greens
Next Election
Autumn 2019
Amt. outstanding
In terms of its area of 16,172 sq km, Thuringia is the smallest of the East German
Bundesländer (excl. Berlin). However, with just under 2.2m inhabitants, only the
Free State of Saxony is more densely populated among the new Länder. The
economy of the Free State of Thuringia, which was established in 1990, is
dominated by the manufacturing industry, which accounts for a greater proportion of
gross value added than in any other East German Bundesland. Including the
construction sector, which accounts for a higher proportion of gross value added
here than in any other Land, this sector is responsible for more than a third of the
federal state’s gross value added. A large part of the Free State’s economic output
is attributable to the region around the chain of towns from Jena to Weimar and
Erfurt in particular. The automotive and mechanical engineering sectors as well as
the optical and medical technology sectors are of particular significance here. Other
key areas are the food industry, information and communications technology, the
creative industries, the plastics industry, logistics, the solar industry as well as
energy and environment technologies. The Thuringian economy is distinguished by
a high innovation capability: In 2013, Thuringia registered more patents per capita
than any other East German Bundesland. The economy of the federal state
generated a GDP of EUR 54.3bn in 2014, which equalled 1.9% of total German
national output. On a price-adjusted basis, economic output increased by 1.6% Y/Y,
(Germany: 1.6% Y/Y), after it had decreased by 0.4% Y/Y (Germany: +0.1% Y/Y) in
the previous year.In 2014, the budget closed with a cash surplus of EUR 186m
(previous year: EUR 341m). Thuringia has been a net recipient since it was taken
into account in the federal financial equalisation system.
Outstanding bonds issued by Thuringia (EURm)
Debt level
900
EUR 15.7bn
800
Of which bonds*
700
EUR 5.4bn
EURm
Of which borrower’s note loans
EUR 10.6bn
Bloomberg ticker
600
500
400
THRGN
* As at 5 May 2015. Other amounts as at 31
December 2014.
300
200
100
0
EUR floating
EUR fixed
2015
0
500
2016
0
0
2017
0
600
2018
150
400
2019
150
620
2020
0
710
2021
0
300
2022
0
0
2023
0
500
2024
0
500
2025
0
0
>2025
0
0
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
AAA*
-
Moody’s
-
-
S&P
-
-
Fitch
* Only for several bonds. Other bonds do not
have a rating.
Thuringia has not been rated as an issuer by Fitch since 2 December 2010.
Previously, the rating agency rated the Free State’s creditworthiness AAA. In 2011,
the Free State issued a bond (THRGN 2.875 05/11/15; DE000A1KQ8H0), which
Fitch has rated AAA since it was issued. The Land also tapped an existing bond
(THRGN 1.625 08/17/20; DE000A1REW10) in February 2013, which has also been
rated AAA by Fitch since then. Bonds issued after 19 April 2013 also have a rating.
Fitch argues that an AAA risk is generally inherent in the federal financial
equalisation system and the principle of federal loyalty.
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-20
-25
-30
-35
-35
-40
0
-40
0
1
2
3
4
5
6
Years to maturity
THRGN
THRGN
7
Bundesländer
Bundesländer
8
9
10
Bunds
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
THRGN
National German agencies
Regional German agencies
Bunds
THRGN
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS-WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of selected issues 2014/2015*
Weighting in iBoxx € Regions
10
Asset swap spread / discount margin at issue
-
Asset swap spread / discount margin as of 05 Mai
5
Basis points
No. of bonds in iBoxx € Regions
Pick-up to swaps*
-16 to -15bp
0
-5
-10
Pick-up to Bunds*
12 to 16bp
-15
-20
THRGN 0 7/8 11/25/24 (Fixed; 2014)
*Vs. interpolated figures; minimum term 1 year;
minimum volume EUR 0.5bn
* Amount issued of at least EUR 0.25bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Bond amounts maturing in the next 12 months
3,000
600
2,500
500
2,000
400
EURm
EURm
Issuing activity by year
1,500
300
1,000
200
500
100
SSD
Bonds
2009
2010
2011
2012
2013
2014
1,830
248
2,453
-
1,259
800
249
1,139
102
1,205
428
1,250
Q1
2015
209
-
0
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
EUR fixed
Source: Land Thuringia, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, joint Länder bonds
(Gemeinschaft deutscher Länder ),
private placements
Gross credit authorisation 2015
(funding volume 2014)
EUR 1.9bn (EUR 1.7bn)
Funding Q1 2015
EUR 0.2bn
In 2014, the issue volume of the federal state of Thuringia increased after years of
decline. However, the total funds raised (EUR 1.7bn) were below the gross credit
authorisation of EUR 1.9bn. Once again the importance of borrower’s note loans
(Schuldscheindarlehen; SSD), via which the Land generated a quarter of the
funding, has increased. Other key funding instruments are now bonds, which are
issued in the Bundesland’s own name and via joint Länder bonds. A gross credit
authorisation of EUR 1.9bn has been granted for 2015, and if it is fully utilised the
Land would repay a net sum of around EUR 0.1bn. Thuringia already raised EUR
0.2bn via SSD and bonds in Q1 in 2015, meaning that 11.0% of the gross credit
authorisation has been used.
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Development of revenue in EUR per capita
Development of expenditure in EUR per capita
4,500
5,000
4,000
EUR per inhabitant
EUR per inhabitant
4,000
3,000
2,000
1,000
3,500
3,000
2,500
2,000
1,500
1,000
0
-1,000
Operating revenue
Tax revenue
Equalisation mechanism (net)
Deficit/surplus
Ø of operating revenues
(non-city states)
500
0
2010
3,892
2,036
1,517
-265
2011
4,153
2,216
1,537
-120
2012
4,196
2,357
1,553
136
2013
4,303
2,483
1,506
158
2014
4,231
2,557
1,488
86
3,155
3,452
3,537
3,686
3,829
Operating expense
Staff expenditure
Grants to municipals
Capital expenditure
Interest expense
Ø of operating expenses
(non-city states)
2010
4,157
1,041
1,012
664
288
2011
4,274
1,075
1,080
639
291
2012
4,060
1,071
984
525
285
2013
4,145
1,092
984
584
268
2014
4,145
1,134
995
544
254
3,382
3,562
3,609
3,684
3,830
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
Budget figures 2014
Balance (vs. 2013; ranking*)
EUR 185.9m (EUR -155.4m; 8th)
Balance/GDP (2013; ranking*)
0.34% (0.65%; 6th)
Balance per capita (2013; ranking*)
EUR 86 (EUR 158; 7th)
Tax revenue (vs. 2013)
EUR 5.5bn (EUR +0.2bn)
Taxes per capita (2013; ranking*)
EUR 2,557 (EUR 2,483; 12th)
Taxes/interest paid (2013; ranking*)
10.1x (9.3x; 11th)
Total revenue/interest paid
(2013; ranking*)
16.6x (16.1x; 11th)
Total debt (vs. 2013; ranking*)
EUR 15.7bn (EUR -0.2bn; 4th)
Debt/GDP (2013; ranking*)
28.9% (30.2%; 11th)
Debt/revenue (2013; ranking*)
1.7x (1.7x; 6th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
In 2014, Thuringia closed the financial year with a cash surplus for the third year in
succession. However, at EUR 0.2bn, the balance was just less than half the
previous year’s figure. This halving of the balance was in particular the result of a
fall in overall income (-1.7% vs. 2013). Only Brandenburg recorded a greater
decline. The cause was a reduction in income from the federal financial equalisation
system, which was largely due to a scheduled reduction of special-need BEZ
(Sonderbedarfs-BEZ). The equalisation accounted for 34.2% of total revenue, the
highest figure across the Länder. Tax income grew by 3.0%, but in relation to
population it was still below average. Total expenditure remained virtually constant,
whereas in the other Länder it continued to rise. Personnel expenses were up 3.8%,
meaning that 27.3% of the budget was used for this item. Almost a quarter of
expenses were destined for the Bundesland’s local authorities, whose grants
increased by 1.1% vs. 2013. Capital expenditure was reduced by 6.7%, resulting in
an investment ratio of 13.1%, so that Thuringia ranks in the upper middle range of
federal states based on this criterion. However, only two other federal states cut
their capital expenditure more than Thuringia. Interest expenses on the other hand
fell by 5.0%. Overall, a net repayment of debt of EUR 0.2bn took place in 2014. The
positive performance led to an improvement in interest coverage and debt
sustainability, with Thuringia continuing to occupy the middle ground compared with
the other Bundesländer. The financial planning for the coming budgetary periods
reveals that the positive trend for credit metrics is set to continue. The planning
therefore gives reason to expect surpluses, which are to be used for further debt
reduction.
Indicators of the Stability Council
Actual
2012
Target
2014
2013
Financial balance in EUR per capita
126
140
8
Threshold value
-231
-1.0
4.7
-192
-3.0
4.0
-286
-0.9
4.4
10.1
11.4
7,425
9.1
10.4
7,325
9.9
10.6
7,295
8,875
8,929
9,051
Credit financing ratio in %
Threshold value
Interest-tax ratio in %
Threshold value (non-city states)
Total debt in EUR per capita
Threshold value (non-city states)
Violations in the period
Violations
no
no
no
no
2015
Financial planning
2016
2017
45
43
48
-386
-1.1
8.4
-386
-1.2
8.4
-386
-1.2
8.4
8.7
11.6
7,252
8.4
11.6
7,208
8.0
11.6
7,165
9,251
9,451
9,651
no
no
2018
-386
8.4
11.6
9,851
Violations
no
no
no
no
Source: Stability Council, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
7.3%
1.7%
29.2%
14.7%
Public services, education,
health care & private
households
Manufacturing (excl.
construction)
Financial & business
services, real estate
Trade, transport. &
storage, accomodation,
inform. and comm.
Construction
Development of GDP and total debt since 2010
40,000
35,000
EUR per inhabitant
Gross value added by economic sector in 2013
30,000
25,000
20,000
15,000
10,000
5,000
21.1%
0
Agriculture, forestry &
fishing
26.0%
2010
GDP
2011
Debt
2012
2013
2014
GDP (avg. of non-city states)
Source: Federal Office for Statistics, Federal Ministry of Finance, national accounts produced by the Länder, NORD/LB Fixed Income Research
Economy 2014
GDP (vs. 2013; ranking*)
EUR 54.3bn (EUR +1.7bn; 13th)
GDP per capita (vs. 2013; ranking*)
EUR 25,142 (EUR +803; 14th)
Real GDP growth (2013; ranking*)
1.6% (-0.4%; 7th)
Export ratio (2013; ranking*)
24.0% (23.0%; 11th)
Import ratio (2013; ranking*)
15.9% (15.6%; 14th)
Unemployment rate
(2013; ranking*)
7.8% (8.2%; 9th)
* Ranking of the Bundesland among the
Länder for the respective key figure, where 1 is
the best figure in the comparison of the
Länder.
Comment
After real GDP had decreased in 2013, the economy recovered in 2014 and
achieved a real economic growth of 1.6%, which equalled the national average. At
7.8%, the unemployment rate is still higher than average compared with the
Germany average of 6.7%, but it is the lowest of all the East German Länder. Public
and private service providers make the largest contribution to the federal state’s
gross value added; in 2013, the proportion attributable to this sector was only higher
in Berlin and Mecklenburg-Western Pomerania. The manufacturing industry also
plays a key role in the Thuringia’s economy. Including the construction industry,
which contributes more to gross value added here than anywhere else in Germany,
approximately 33.3% of Thuringia’s gross value added was attributable to this
sector in 2013. The automotive and mechanical engineering sectors as well as
optical and medical technology sectors are of major importance in Thuringia. In
2014, Thuringia’s export ratio amounted to 24.0%, with IT equipment, machinery
and food representing the most important export categories. In total, it generated a
foreign trade surplus of EUR 4.4bn (previous year: EUR 3.9bn), which equates to
the fifth highest figure among the Länder. A total of 64% of the goods exported were
destined for EU member countries, while France and the US were the most
important trading partners. Demographic change will hit Thuringia particularly hard:
the number of inhabitants has only fallen more rapidly in Saxony-Anhalt since 2002
(-9.7%) and the percentage of people aged over 65 is only higher in three other
Bundesländer.
We view the federal state Thuringia as an interesting opportunity for diversification
within a Bundesländer portfolio. We view the strong budgetary performance, which
led to sustained budgetary surpluses and should lead to further positive balances in
the future, positively. We also rate the strong manufacturing industry positively. On
the other hand, the heavy dependence on the federal financial equalisation system
as well as the fact that GDP per capita remains below average are negative in our
opinion. We also view demographic change, which should represent a greater
challenge for Thuringia than for most other Länder from our perspective, as a risk
factor.
Strengths
Weaknesses
+ Strong budgetary performance
+ Strong manufacturing industry
–
–
–
High dependence on the federal financial
equalisation system
GDP per capita remains below average
Demographic change poses a risk
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Gemeinschaft deutscher Länder
SchleswigHolstein
MecklenburgVorpommern
Hamburg
Bremen
Brandenburg
Thüringen
Rheinland-Pfalz
Saarland
Link to bond overview
http://fm.rlp.de/finanzen/geld-undkapitalmarkt/laenderjumbos/
Bloomberg ticker
LANDER
Amt. outstanding
A peculiarity of the German sub-sovereign market is the Gemeinschaft deutscher
Länder. Within this framework, several Bundesländer carry out joint issues (known
as Länder jumbos), whereby each Bundesland is liable for its own share of the
overall issue. Consequently, there is no joint and several liability. The first time the
Bundesländer came together to issue such a joint bond was in 1996. Since then the
Gemeinschaft deutscher Länder has become an established part of the bond
market, with some Bundesländer placing joint bonds on an almost regular basis.
The large-volume Länder jumbos enable these federal states, which otherwise have
a comparatively small refinancing requirement, to achieve economies of scale that
are reflected in lower interest expenses. A total of eight Bundesländer are
participants in the bonds presently outstanding. While Saxony-Anhalt, Hesse and
North Rhine-Westphalia ceased to use Länder jumbos as a funding instrument after
the first issuance in 1996, and Berlin has not participated in the joint issuing body
since 2002, the following Bundesländer have at times made use of Länder jumbos
as key funding instruments: Brandenburg, Bremen, Hamburg, MecklenburgWestern Pomerania, Rhineland-Palatinate, Saarland, Schleswig-Holstein and
Thuringia garnered substantial amounts of its funding volume via Länder jumbos
that are currently outstanding. In 2014, these eight federal states generated 18.4%
of German national output, which was slightly less than North Rhine-Westphalia’s
contribution. The combined GDP amounted to EUR 533.3bn.
Outstanding bonds issued by Gemeinschaft deutscher Länder (EURm)
Outstanding bond volume*
4,000
EUR 21.7bn
3,500
Bloomberg ticker
LANDER
3,000
EURm
* As at 5 May 2015.
2,500
2,000
1,500
1,000
500
0
2015
EUR fixed 2,406
2016
3,500
2017
3,000
2018
1,250
2019
2,850
2020
0
2021
1,000
2022
1,725
2023
2,200
2024
2,250
2025
1,500
>2025
0
Source: Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
AAA*
-
Moody’s
-
-
S&P
-
-
Fitch
* No issuer ratings available. However, Fitch
rates the individual bonds.
As a result of the particular structure of the Gemeinschaft deutscher Länder there is
no issuer rating. Instead, Fitch rates each individual issue in order to take account
of the differing participation structures. However, this does not lead to any
differences and Fitch awards an AAA rating to all Länder jumbos. As justification for
the rating, Fitch cites the system comprising the principle of federal loyalty and
federal financial equalisation, in which it generally sees an AAA risk. In total, an
outstanding volume of EUR 21.7bn is attributable to the Gemeinschaft deutscher
Länder, making it an important player in the German Bundesländer bond market. All
of the outstanding volume is denominated in euros with fixed coupons. Other
instruments such as borrower's note loans (Schuldscheindarlehen; SSD) are not
jointly issued. Having issued a Länder jumbo as a floater in 2008, the Gemeinschaft
has subsequently refrained from using this instrument for joint refinancing.
NORD/LB Fixed Income Research
Page 120 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-20
-25
-30
-35
-35
-40
0
-40
0
1
2
3
4
5
6
Years to maturity
LANDER
LANDER
7
Bundesländer
Bundesländer
8
9
10
Bunds
Bunds
1
2
3
4
5
6
7
8
9
Years to maturity
LANDER
National German agencies
Regional German agencies
Bunds
LANDER
National German agencies
Regional German agencies
Bunds
10
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS-WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Relative value
Performance of selected issues 2014/2015*
30
Weighting in iBoxx € Regions
Asset swap spread / discount margin at issue
12.0%
Asset swap spread / discount margin as of 05 Mai
20
Basis points
No. of bonds in iBoxx € Regions
13
Pick-up to swaps*
-20 to -11bp
10
0
-10
Pick-up to Bunds*
-20
10 to 23bp
-30
LANDER 0 1/2 02/05/25 (Fixed; LANDER 1 1/8 09/30/24 (Fixed; LANDER 1 3/4 05/14/24 (Fixed; LANDER 1 1/2 01/29/21 (Fixed;
2015)
2014)
2014)
2014)
*Vs. interpolated figures; minimum term 1 year;
minimum volume EUR 0.5bn.
* Amount issued of at least EUR 0.5bn. Bonds are not necessarily liquid.
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
5,000
1,600
4,500
1,400
3,500
1,200
3,000
1,000
EURm
EURm
4,000
2,500
2,000
800
1,500
600
1,000
400
500
200
Taps
Bonds
2009
2010
2011
2012
2013
2014
2,750
356
3,094
150
3,750
725
4,000
200
2,000
250
3,000
Q1
2015
1,500
0
May Jun
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
EUR fixed
Source: Land Rhineland-Palatinate, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks, taps
Funding volume 2014
EUR 3.3bn
The use of Länder jumbos has fluctuated slightly in recent years. In 2013, the issue
volume dropped to a temporary low at EUR 2.2bn, mainly due to the issue of the
Deutschland-Bond (Bund-Länder bond; bond jointly issued by the Länder and the
Federal Republic) Following a volume of EUR 3.3bn for 2014, EUR 1.5bn has
already been issued in Q1 2015.
Funding volume Q1 2015
EUR 1.5bn
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
Share of current outstanding volume attributable
to the Bundesländer (EURbn)
MV, 2,988
Cumulative share of total volume issued since
1996 (EURbn)
RP, 8,371
HH, 2,964
HB, 9,070
SL, 5,348
TH, 3,293
SL, 2,842
HB, 3,308
BE, 2,146
MV, 9,143
BB, 969
HE, NW &
ST, 1,790
BB, 641
TH, 444
RP, 3,432
HH, 10,078
SH, 3,708
SH, 10,300
Source: Land Rhineland-Palatinate, NORD/LB Fixed Income Research
Schleswig-Holstein and
Hamburg biggest
participants in
Gemeinschaft deutscher
Länder
Schleswig-Holstein, Rhineland-Palatinate and Bremen presently account for the
largest share of the outstanding Länder jumbo volume, while Mecklenburg-Western
Pomerania, Hamburg and the Saarland have similarly high levels. Since the
inception of the Gemeinschaft deutscher Länder, the North German Bundesländer
have obtained the most funds through joint Länder bonds.
Comment
In our opinion, the Gemeinschaft deutscher Länder represents an interesting
opportunity to exploit large-volume Länder bonds. The greatest advantage is the
higher level of liquidity, since the volume of Länder jumbos is only matched by a
few bonds from German Bundesländer. The fact that the participants are mainly
Länder which have only a small supply in their own name is also positive from our
perspective. Conversely, the members of the Gemeinschaft primarily comprise
Länder which to some extent have budgetary problems. The Stability Council
determined imminent budgetary crises in 2010 for the federal states of Berlin,
Bremen, Saarland and Schleswig-Holstein, all of which except Berlin are involved in
joint Länder bonds. With Mecklenburg-Western Pomerania and Thuringia,
substantial shares are also attributable to Bundesländer, which in the past few
years have taken it in turns to record the lowest GDP per capita and are heavily
dependent on the federal financial equalisation system. Moreover, we view the
complex structure as a negative factor. In our opinion, the fact that there is no joint
and several liability can lead to differences between individual bonds.
Strengths
Weaknesses
+ Includes smaller issuers
+ Higher bond volumes
–
–
Participants are primarily Bundesländer with
budgetary problems, strong dependency on financial
equalisation and/or below-average GDP per capita
Complex structure
NORD/LB Fixed Income Research
Page 122 of 142
Issuer Guide German Bundesländer 2015
Bund-Länder-Bond
Participants
Federal Republic, BE, BB, HB, HH,
MV, NW, RP, SL, ST & SH
Bloomberg ticker
BULABO
The Bund-Länder bond, also known as the Deutschland-Bond (D-Bond), was
issued jointly by the federal government and ten Bundesländer for the first time in
2013. Contrary to the original requests of the federal states, the issue was launched
without any joint and several liability on the part of the federal government. Instead,
the federal government and Bundesländer are only liable for their own share of the
issue. The fundamental structure of the D-Bond is therefore similar to that of a joint
Länder bond. As is the case for all instruments issued by the Federal Republic of
Germany, Collective Action Clauses (CACs) apply to the federal government's
share, which amounts to 13.5%. No CACs apply to the shares of the federal states.
With a share of 20%, North Rhine-Westphalia is the biggest participant in the joint
issue. The federal government, Berlin and Bremen each account for 13.5%. The
participation quotas for the remaining Bundesländer range from 2.75% (SaxonyAnhalt) to 8.00% (Schleswig-Holstein). However, after a lengthy marketing phase,
the issue enjoyed little success overall and EUR 3bn was issued as against an
original placement target of EUR 3-5bn. The order book was rumoured to stand at
EUR 3.3bn. Based on the issue spread, after the launch we estimated that the
participating Bundesländer would hardly have achieved any interest rate
advantages. Accordingly, our calculations show that the interest rate disadvantage
of the federal government was not offset either.
Participation in the Bund-Länder bond (EURm)
Outstanding Bund-Länder bond (EURm)
3,500
RP, 202.5
BB, 202.5
SL, 202.5
SH, 240.0
3,000
HH, 157.5
MV, 97.5
ST, 82.5
HB, 405.0
EURm
2,500
2,000
1,500
1,000
500
BE, 405.0
Bund, 405.0
0
NW, 600.0
EUR fixed
2015
0
2016
0
2017
0
2018
0
2019 2020 2021
0
3,000
0
2022
0
2023
0
2024
0
2025 >2025
0
0
Source: Federal Ministry of Finance, Bloomberg, NORD/LB Fixed Income Research
Ratings
Long-term
Outlook
AAA*
-
Moody’s
-
-
S&P
-
-
Fitch
Fitch rates the D-Bond in a similar fashion to joint Länder bonds, setting its rating at
the same level as the federal government. As justification for the rating, Fitch cites
the system comprising the principle of federal loyalty and the federal financial
equalisation, in which it generally sees an AAA risk. We assume that Moody’s or
S&P would not have awarded any Aaa or AAA rating. In our opinion, the shares
attributable to Bundesländer such as NRW and Berlin, which do not have any Aaa
or AAA ratings from the respective rating agencies, are too large for this.
* No issuer ratings available. However, Fitch
rates the individual bond.
NORD/LB Fixed Income Research
Page 123 of 142
Issuer Guide German Bundesländer 2015
ASW spreads vs. German agencies
0
0
-5
-5
-10
-10
-15
-15
Basis points
Basis points
ASW spreads vs. Bunds and Länder
-20
-25
-30
-20
-25
-30
-35
-35
-40
-40
0
0
1
2
BULABO
3
4
5
6
Years to maturity
Bundesländer
Bunds
7
8
Bundesländer
9
10
Bunds
1
2
3
4
5
6
7
8
9
10
Years to maturity
BULABO
National German agencies
Regional German agencies
Bunds
National German agencies
Regional German agencies
Bunds
NB: Residual term to maturity >1 year and <10 years; minimum outstanding volume of EUR 500m. National agencies: KfW, FMS -WM,
Rentenbank. Regional agencies: NRW.Bank, EAA, L-Bank, LfA, IBB, BayernLabo, WIBank.
Source: Bloomberg, NORD/LB Fixed Income Research
Spread performance
Weighting in iBoxx € Regions
0
2.1%
No. of bonds in iBoxx € Regions
Basis points
1
Pick-up to swaps*
-20bp
Pick-up to Bunds*
11bp
Spread (rhs)
50
DBR 3 07/04/20
45
-10
40
-15
35
-20
30
-25
25
-30
20
-35
15
-40
10
-45
5
-50
Dec-13
* Vs. interpolated figures; minimum maturity 1
year; minimum volume EUR 0.5bn
BULABO 1 1/2 07/15/20
-5
Basis points
Relative Value
0
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Source: Bloomberg, NORD/LB Fixed Income Research
Issuing activity by year
Bond amounts maturing in the next 12 months
3,500
10
3,000
9
8
7
2,000
EURm
EURm
2,500
1,500
6
5
4
1,000
3
500
2
1
0
Bonds
2009
-
2010
-
2011
-
2012
-
2013
3,000
2014
-
2015ytd
-
0
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
Source: Land Rhineland-Palatinate, Bloomberg, NORD/LB Fixed Income Research
Funding
Funding instruments
Benchmarks
Funding volume 2014
EUR 0.0bn
Funding volume Q1 2015
EUR 0.0bn
The joint funding of the central government and the Bundesländer has been
discussed for years. While the Bundesländer always pushed for a joint and several
liability, the Federal Republic rejected this option. Instead, a joint issue was carried
out, with each participant only liable for their own share. However, in our opinion,
this compromise solution was less than successful: the issue volume was supposed
to be EUR 3-5bn, but in the end the volume was set at EUR 3bn. The fact that the
order volume was rumoured to only amount to EUR 3.3bn and thus differed
considerably from expectations, is likely to have contributed to this. Using the
secondary market levels, we calculated that only North Rhine-Westphalia is likely to
have achieved a clear interest rate advantage. According to our estimates, the
overall interest rate disadvantage of the Federal Republic was not offset.
NORD/LB Fixed Income Research
Page 124 of 142
Issuer Guide German Bundesländer 2015
Comment
In the run-up to the inaugural D-Bond issue, we too assumed there was great
potential for success. On the whole, however, the participation quotas with large
shares attributable to Bundesländer such as Berlin, Bremen and North RhineWestphalia, the absence of joint and several liability as well as the market
conditions at the time actually resulted in a relatively unsuccessful issue. As with
Länder jumbos, we see the fact that the D-Bond also includes smaller issuers that
rarely issue larger volumes in their own name as a strength. We also view the
participation of the central government as positive, since in our opinion this clearly
improves the overall credit profile. The fact that at EUR 3bn the bond is one of the
largest in the Bundesländer segment is another positive aspect from our
perspective. Conversely, we see the fact that the participants in the bond largely
comprise Bundesländer with budgetary problems, a strong dependency on the
federal financial equalisation system and/or below-average GDP per capita, a
weakness of the D-Bond. We also view the complex structure as negative in this
context, and the lack of sustainability in the structure is a further weakness.
Consequently, we were unable to calculate an overall interest rate advantage. On
the contrary, the costs are likely to have outweighed the savings. Coupled with the
absence of (great) success for the first issue, we do not expect another D-Bond to
be issued in this configuration. However, we do anticipate that the debate
surrounding joint funding of the central government and the Bundesländer will
continue.
Strengths
Weaknesses
+ Includes smaller issuers
+ Participation of central government
+ Larger bond volume
–
–
–
Most of the participants are Bundesländer with
budgetary problems, strong dependency on financial
equalisation system and/or below-average GDP per
capita
Complex structure
Lack of sustainability
NORD/LB Fixed Income Research
Page 125 of 142
Issuer Guide German Bundesländer 2015
Appendix
Overview of debt levels, Schuldscheindarlehen and bonds
Debt level
(EURbn)
Outstanding
SSD volume
(EURbn)**
Outstanding
bond volume
(EURbn)*
Number of bonds*
Baden-Württemberg
47.3
28.1
19.2
46
Bavaria
26.1
17.9
6.2
21
Berlin
60.6
21.1
37.4
157
Brandenburg
16.7
5.1
11.3
84
Bremen
19.7
5.8
13.1
19
Hamburg
23.2
10.7
12.8
35
Hesse
41.4
10.4
33.1
93
Mecklenburg-Western Pomerania
9.4
4.6
5.1
10
Lower Saxony
57.8
21.0
35.3
79
North Rhine-Westphalia
140.1
43.0
94.3
369
Rhineland-Palatinate
33.3
10.3
29.0
99
Saarland
14.0
7.8
6.5
25
Saxony
6.9
6.5
0.4
9
Saxony-Anhalt
20.5
9.3
10.5
101
Schleswig-Holstein
27.1
12.0
13.8
56
Thuringia
Issuer
15.7
10.6
5.4
21
Gemeinschaft deutscher Länder
-
-
21.7
17
Bund-Länder-Bond
-
-
3.0
1
559.8
224.1
333.5
1,242
Total
* As of 5 May 2015. Other amounts as of 31/12/2014. Outstanding bond volume includes shares in Gemeinschaft deutscher Länder and
Bund-Länder-Bond. ** Borrower’s note loans.
Source: Bloomberg, issuers, Federal Ministry of Finance, NORD/LB Fixed Income Research
Appendix
Issuer
(Bloomberg ticker)
Ratings overview
Moody’s
Fitch
S&P
Rating
Date
Outlook
Date
Rating
Date
Outlook
Date
Rating
Date
Outlook
Date
BW (BADWUR)
BY (BAYERN)
BE (BERGER)
BB (BRABUR)
HB (BREMEN)*
HH (HAMBRG)
HE (HESSEN)
MV (MECVOR)*
NI (NIESA)
NW (NRW)
RP (RHIPAL)
SL (SAARLD)
SN (SAXONY)
ST (SACHAN)
SH (SCHHOL)
TH (THRGN)*
Gem. dt. Länder
(LANDER)**
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
-
-
-
stab
stab
stab
stab
stab
stab
-
06/03/12
-
AAA
AAA
AA
AAAAA
AA+
-
06/03/12
-
stab
stab
stab
stab
stab
stab
-
04/03/14
-
Aaa
Aaa
Aa1
Aa1
Aa1
Aa1
-
14/12/99
-
stab
stab
stab
stab
stab
stab
stab
-
AAA
-
-
-
-
-
-
-
-
-
-
-
Bund-Länder (BULABO)**
AAA
-
-
-
-
-
-
-
-
-
-
-
25/03/99
22/05/13
30/08/12
17/12/03
22/12/11
06/11/03
19/04/12
17/12/07
22/04/13
30/08/12
21/12/07
22/12/11
18/01/08
19/04/12
20/01/00
15/12/06
15/12/06
04/03/14
15/03/07
-
04/03/14
04/03/14
04/03/14
04.03.14
04.03.14
-
19/01/12
29/11/05
20/12/04
19/01/12
16/12/10
-
19/01/12
29/11/05
21/12/04
19/01/12
16/12/10
-
* Ratings for several bonds (see respective issuer profiles). ** Ratings for all currently outstanding bonds.
Source: Bloomberg, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 126 of 142
Issuer Guide German Bundesländer 2015
Appendix
Key figures 2014
Net
revenue
Net
expenditure
Balance
Total debt
GDP
Debt as %
of GDP
Balance as %
of GDP
Baden-Württemberg
42,952
42,254
697
47,299
438,267
10.8%
0.2%
Bavaria
51,786
50,178
1,608
26,111
521,932
5.0%
0.3%
Berlin
23,799
22,961
838
60,561
117,271
51.6%
0.7%
Brandenburg
10,537
10,210
327
16,718
61,897
27.0%
0.5%
Bremen
4,658
5,097
-440
19,744
30,236
65.3%
-1.5%
Hamburg
12,297
11,873
424
23,227
103,145
22.5%
0.4%
Hesse
23,011
23,677
-666
41,437
250,494
16.5%
-0.3%
Mecklenburg-Western Pomerania
7,394
7,131
263
9,372
38,477
24.4%
0.7%
Lower Saxony
27,140
27,346
-205
57,803
253,623
22.8%
-0.1%
North Rhine-Westphalia
59,881
61,784
-1,903
140,077
624,668
22.4%
-0.3%
Rhineland-Palatinate
14,578
15,192
-614
33,273
127,614
26.1%
-0.5%
Saarland
3,590
3,891
-301
13,981
33,548
41.7%
-0.9%
Saxony
17,318
16,655
663
6,890
108,653
6.3%
0.6%
Saxony-Anhalt
9,986
9,916
70
20,520
55,617
36.9%
0.1%
Schleswig-Holstein
9,621
9,865
-244
27,106
84,021
32.3%
-0.3%
9,143
8,957
186
15,699
54,328
28.9%
0.3%
327,691
326,988
702
559,819
2,903,790
19.3%
0.0%
Key figures 2014 (EURm)
Thuringia
Total
Source: Federal Ministry of Finance, Federal Office for Statistics, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 127 of 142
Issuer Guide German Bundesländer 2015
Appendix
2014 (EURm)
Bundesländer budgets 2014
BW
BY
BE
BB
HB
HH
HE
MV
42,952
31,831
74.1%
51,786
39,659
76.6%
23,799
13,127
55.2%
10,537
6,143
58.3%
4,658
2,565
55.1%
12,297
9,889
80.4%
23,011
18,536
80.6%
7,394
4,211
53.1%
-
-
1,105
4.6%
1,142
4.8%
3,357
14.1%
221
2.1%
1,031
9.8%
515
4.9%
195
4.2%
60
1.3%
663
14.2%
-
-
184
2.5%
769
10.4%
464
6.3%
VAT equalisation (UStA)
as % of total revenue
Total financial equalisation
as % of total revenue
Net expenditure
Personnel expenditure
as % of total expenditure
Interest expense
as % of total expenditure
Grants to municipalities
as % of total expenditure
Capital expenditure
as % of total expenditure
42,254
15,628
39.5%
1,581
3.7%
10,252
24.3%
4,270
10.1%
50,178
19,804
39.5%
885
1.8%
9,531
19.0%
5,313
10.6%
1,219
26.2%
5,097
1,499
29.4%
561
11.0%
13
0.3%
721
14.1%
-
5,684
23.8%
22,961
7,207
31.4%
1,753
7.6%
5
0.0%
1,380
6.0%
973
9.2%
2,740
26.0%
10,210
2,358
23.1%
239
4.2%
3,126
30.6%
1,344
13.2%
11,873
3,837
32.3%
685
5.8%
1
0.0%
897
7.6%
23,677
8,677
36.6%
1,191
5.0%
4,608
19.5%
1,867
7.9%
902
12.2%
2,319
31.4%
7,131
1,857
26.0%
317
4.4%
1,924
27.0%
1,087
15.2%
Länderfinanzausgleich (LFA)
as % of total revenue
VAT equalisation (UStA)
as % of total revenue
Total financial equalisation
as % of total revenue
2,426
5.7%
1,508
3.7%
3,937
9.7%
4,823
9.6%
1,998
4.0%
6,821
13.6%
209
0.9%
-
-
4
0.1%
4
0.1%
31
0.3%
276
2.3%
307
2.6%
1,747
7.4%
959
4.1%
2,706
11.4%
-
Financial balance
Total debt
2014 (EURm)
697
46,111
NI
1,608
27,498
NW
838
61,270
RP
327
17,212
SL
-440
19,846
SN
424
23,213
ST
-666
40,318
SH
263
9,480
TH
Net revenue
Tax revenue
as % of total revenue
General supplementary grants (BEZ)
as % of total revenue
Special-need BEZ (Sonderbedarfs-BEZ)
as % of total revenue
27,140
20,131
74.2%
126
0.5%
-
59,881
46,389
77.5%
472
0.8%
-
14,578
10,558
72.4%
157
1.1%%
46
0.3%
3,590
2,622
73.0%
69
1.9%
63
1.8%
17,318
10,214
59.0%
425
2.5%
1,781
10.3%
9,986
5,667
55.3%
239
2.3%
1,390
12.2%
9,621
7,176
74.6%
93
1.0%
53
0.6%
9,143
5,526
60.4%
227
2.5%
1,020
11.2%
238
0.9%
549
2.0%
913
3.4%
693
1.5%
905
1,377
2.3%
275
1.8%
478
3.3%
146
4.1%
197
5.5%
735
20.5%
1,097
6.3%
2,375
13.7%
5,677
32.8%
585
5.6%
1,390
12.8%
3,400
33.6%
178
1.8%
131
1.4%
535
5.6%
559
6.1%
1,317
14.4%
3,123
34.2%
Net expenditure
Personnel expenditure
as % of total expenditure
27,346
10,647
38.9%
61,784
23,109
37.4%
15,192
5,625
37.0%
3,891
1,444
37.1%
16,655
3,904
23.4%
9,916
2,477
25.0%
9,865
3,615
36.6%
8,957
2,449
27.3%
Interest expense
as % of total expenditure
Grants to municipalities
as % of total expenditure
1,522
5.6%
7,181
26.3%
3,565
5.8%
15,402
24.9%
946
6.2%
3,808
25.1%
470
12.1%
604
15.5%
255
1.5%
4,276
25.7%
594
6.0%
2,268
22.9%
774
7.8%
2,880
29.2%
549
6.1%
2,150
24.0%
Capital expenditure
as % of total expenditure
Länderfinanzausgleich (LFA)
as % of total revenue
VAT equalisation (UStA)
as % of total revenue
1,665
6.1%
-
5,157
8.3%
2,269
3.7%
1,421
9.4%
431
2.8%
341
8.8%
-
3,102
18.6%
-
1,264
12.7%
-
652
6.6%
-
1,177
13.1%
-
Total financial equalisation
as % of total revenue
Financial balance
-205
2,269
3.7%
-1,903
431
2.8%
-614
-301
663
70
-244
186
13,981
6,890
20,520
27,106
15,699
Net revenue
Tax revenue
as % of total revenue
General supplementary grants (BEZ)
as % of total revenue
Special-need BEZ (Sonderbedarfs-BEZ)
as % of total revenue
Länderfinanzausgleich (LFA)
as % of total revenue
Länderfinanzausgleich (LFA)
as % of total revenue
VAT equalisation (UStA)
as % of total revenue
Total financial equalisation
as % of total revenue
Total debt
57,803
140,077
33,273
Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 128 of 142
Issuer Guide German Bundesländer 2015
Appendix
Overview by key economic indicators
Development of nominal GDP since 2004 (EURbn)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
331.9
335.4
356.1
376.2
380.3
354.6
383.6
405.1
412.3
420.8
438.3
Bavaria
390.0
396.3
412.2
432.7
436.0
425.7
449.1
478.6
490.9
504.3
521.9
Berlin
85.2
86.9
90.1
94.5
99.0
99.0
103.1
108.1
109.5
112.3
117.3
Brandenburg
48.0
48.7
50.8
53.0
54.9
53.7
56.1
57.7
58.9
60.3
61.9
Bremen
24.6
25.0
26.2
27.2
27.6
25.3
26.8
27.8
29.0
29.4
30.2
Hamburg
85.8
87.7
89.0
92.2
95.1
91.3
94.6
95.9
97.6
99.5
103.1
Hesse
210.3
211.9
218.6
227.4
230.3
219.1
226.9
235.1
236.5
242.7
250.5
Mecklenburg-Western Pomerania
30.9
31.1
31.9
33.7
34.7
34.3
35.2
36.4
36.6
37.3
38.5
Lower Saxony
191.7
196.0
204.6
213.6
219.5
210.0
222.7
235.6
240.5
246.6
253.6
North Rhine-Westphalia
500.2
507.1
524.1
556.6
570.7
548.9
564.9
588.1
596.6
606.1
624.7
Rhineland-Palatinate
100.3
100.9
104.8
109.5
111.4
108.5
114.4
119.8
122.4
124.2
127.6
Saarland
27.3
28.7
29.8
31.3
31.7
28.6
30.3
32.0
32.4
32.6
33.5
Saxony
84.9
84.8
88.9
93.0
94.1
91.2
95.0
99.3
101.5
104.7
108.7
Saxony-Anhalt
45.8
45.9
47.9
50.1
50.9
48.6
51.4
52.0
53.8
54.7
55.6
Schleswig-Holstein
67.7
68.1
70.2
72.1
74.5
72.3
73.9
76.6
79.7
81.3
84.0
Thuringia
43.1
43.1
44.9
46.9
47.4
45.5
48.2
50.9
51.6
52.6
54.3
2,267.6
2,297.8
2,390.2
2,510.1
2,558.0
2,456.7
2,576.2
2,699.1
2,749.9
2,809.5
2,903.8
Bund
Development of nominal GDP since 2004 in EUR per capita
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
30,970
31,246
33,156
34,999
35,380
33,001
35,674
38,533
39,014
39,583
41,224
Bavaria
31,344
31,784
32,996
34,562
34,826
34,032
35,819
38,462
39,210
40,009
41,409
Berlin
25,136
25,606
26,483
27,654
28,858
28,758
29,785
32,496
32,433
32,829
34,271
Brandenburg
18,678
19,035
19,953
20,908
21,758
21,371
22,392
23,534
24,042
24,638
25,272
Bremen
37,114
37,754
39,480
41,032
41,727
38,180
40,630
42,643
44,345
44,752
45,994
Hamburg
49,436
50,306
50,718
52,067
53,644
51,445
52,937
55,824
56,264
56,958
59,063
Hesse
34,484
34,775
35,986
37,448
37,978
36,138
37,399
39,218
39,307
40,138
41,435
Mecklenburg-Western Pomerania
17,991
18,223
18,850
20,080
20,839
20,785
21,433
22,664
22,873
23,371
24,101
Lower Saxony
23,962
24,516
25,637
26,796
27,614
26,480
28,126
30,307
30,914
31,659
32,555
North Rhine-Westphalia
27,671
28,083
29,072
30,926
31,826
30,713
31,656
33,522
33,987
34,493
35,549
Rhineland-Palatinate
24,691
24,870
25,851
27,072
27,659
27,045
28,572
30,031
30,683
31,106
31,948
Saarland
25,859
27,294
28,589
30,165
30,724
27,991
29,732
32,117
32,614
32,875
33,862
Saxony
19,757
19,838
20,914
22,044
22,433
21,877
22,888
24,495
25,060
25,879
26,852
Saxony-Anhalt
18,376
18,580
19,616
20,784
21,354
20,644
22,027
22,852
23,826
24,367
24,779
Schleswig-Holstein
23,916
24,052
24,770
25,409
26,284
25,546
26,089
27,329
28,384
28,868
29,838
Thuringia
18,290
18,483
19,410
20,492
20,901
20,223
21,564
23,319
23,796
24,339
25,142
Bund
27,486
27,873
29,037
30,530
31,194
30,032
31,513
33,601
34,150
34,785
35,952
Lowest figures in orange, highest figures in blue.
Source: Federal Office for Statistics, national accounts produced by the federal states (VGRdL), NORD/LB Fixed Income Researc h
NORD/LB Fixed Income Research
Page 129 of 142
Issuer Guide German Bundesländer 2015
Real GDP growth in % Y/Y
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0.3
0.6
6.1
3.9
0.3
-9.0
7.5
4.8
0.3
0.3
2.4
Bavaria
2.1
1.3
3.8
3.4
0.2
-4.5
4.8
5.7
1.1
0.8
1.8
Berlin
-1.2
1.7
3.3
3.4
4.0
-1.4
3.0
3.7
-0.3
0.2
2.2
Brandenburg
1.7
0.8
3.0
1.8
2.1
-2.8
3.1
0.9
0.5
-0.2
0.9
Bremen
0.2
0.9
4.2
1.8
0.5
-8.8
4.7
2.3
2.9
-0.8
0.7
Hamburg
0.5
1.6
1.8
2.1
3.4
-5.0
2.0
0.9
-0.2
0.2
1.6
Hesse
0.0
0.3
3.3
2.8
0.7
-7.6
3.2
2.7
-1.0
0.7
1.4
Mecklenburg-Western Pomerania
1.0
-0.2
1.6
4.4
1.6
-0.8
0.0
1.6
-0.9
-0.6
1.6
Lower Saxony
1.7
1.2
3.7
2.9
1.9
-5.1
4.9
4.3
0.4
0.4
1.3
North Rhine-Westphalia
1.3
0.5
2.9
3.9
1.4
-5.3
2.5
2.7
0.1
-0.6
1.3
Rhineland-Palatinate
2.5
0.0
3.5
2.6
0.6
-4.6
4.8
3.4
0.7
-0.4
1.1
Saarland
3.0
3.4
2.9
2.3
0.3
-10.6
5.2
4.7
-0.9
-1.6
1.3
Saxony
1.8
-0.5
4.3
3.2
0.0
-4.2
3.1
3.1
0.8
0.6
1.9
Saxony-Anhalt
0.9
-0.7
3.4
2.4
0.2
-5.3
4.5
-1.0
1.8
-0.8
0.4
Schleswig-Holstein
1.7
0.2
2.8
1.6
2.7
-3.7
0.8
2.3
2.7
-0.3
1.7
Thuringia
1.6
-0.3
3.5
2.8
-0.3
-5.1
4.7
4.1
0.1
-0.4
1.6
Bund
1.2
0.7
3.7
3.3
1.1
-5.6
4.1
3.6
0.4
0.1
1.6
Baden-Württemberg
Unemployment rate in %
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
6.2
7.0
6.3
4.9
4.1
5.1
4.9
4.0
3.9
4.1
4.0
Bavaria
6.9
7.8
6.8
5.3
4.2
4.8
4.5
3.8
3.7
3.8
3.8
Berlin
17.7
19.0
17.5
15.5
13.8
14.0
13.6
13.3
12.3
11.7
11.1
Brandenburg
18.7
18.2
17.0
14.7
12.9
12.3
11.1
10.7
10.2
9.9
9.4
Bremen
13.2
16.8
14.9
12.7
11.4
11.8
12.0
11.6
11.2
11.1
10.9
Hamburg
9.7
11.3
11.0
9.1
8.1
8.6
8.2
7.8
7.5
7.4
7.6
Hesse
8.2
9.7
9.2
7.5
6.5
6.8
6.4
5.9
5.7
5.8
5.7
Mecklenburg-Western Pomerania
20.4
20.3
19.0
16.5
14.1
13.5
12.7
12.5
12.0
11.7
11.2
Lower Saxony
9.6
11.6
10.5
8.8
7.6
7.7
7.5
6.9
6.6
6.6
6.5
North Rhine-Westphalia
10.2
12.0
11.4
9.5
8.5
8.9
8.7
8.1
8.1
8.3
8.2
Rhineland-Palatinate
7.7
8.8
8.0
6.5
5.6
6.1
5.7
5.3
5.3
5.5
5.4
Saarland
9.2
10.7
9.9
8.4
7.3
7.7
7.5
6.8
6.7
7.3
7.2
Saxony
17.8
18.3
17.0
14.7
12.8
12.9
11.8
10.6
9.8
9.4
8.8
Saxony-Anhalt
20.3
20.2
18.3
15.9
13.9
13.6
12.5
11.6
11.5
11.2
10.7
Schleswig-Holstein
9.8
11.6
10.0
8.4
7.6
7.8
7.5
7.2
6.9
6.9
6.8
Thuringia
16.7
17.1
15.6
13.1
11.2
11.4
9.8
8.8
8.5
8.2
7.8
Bund
10.8
11.4
10.1
8.5
7.6
8.1
7.4
6.9
6.9
6.9
6.7
Lowest figures in orange, highest figures in blue. Other way round for unemployment rate.
Source: Federal Office for Statistics, national accounts produced by the federal states (VGRdL), NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 130 of 142
Issuer Guide German Bundesländer 2015
Appendix
Overview by budget indicators
Total debt (EURbn)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
39.1
41.1
42.5
43.1
43.1
43.0
44.6
44.5
44.4
46.1
47.3
Bavaria
23.1
24.9
24.8
24.3
23.6
29.0
30.6
30.3
29.2
27.5
26.1
Berlin
55.1
58.6
60.1
57.7
57.0
59.8
61.3
62.5
61.9
61.3
60.6
Brandenburg
16.5
17.0
17.2
17.4
17.2
17.4
17.8
17.9
18.0
17.2
16.7
Bremen
11.4
12.4
13.5
14.4
15.4
16.1
17.7
18.4
19.3
19.8
19.7
Hamburg
20.7
21.5
21.9
21.9
21.9
22.9
23.8
21.2
20.9
23.2
23.2
Hesse
29.4
31.0
30.1
30.6
31.2
34.0
37.7
39.5
40.9
40.3
41.4
Mecklenburg-Western Pomerania
10.3
10.8
10.7
10.1
9.9
9.9
9.8
9.7
9.6
9.5
9.4
Lower Saxony
47.8
48.9
49.7
50.4
51.1
52.3
54.8
56.8
56.0
57.1
57.8
North Rhine-Westphalia
105.9
112.2
116.0
117.1
116.5
123.3
126.8
130.0
133.8
137.5
140.1
Rhineland-Palatinate
23.7
25.1
25.7
26.1
26.1
27.4
28.5
29.4
32.9
33.4
33.3
Saarland
7.4
8.2
8.8
9.2
9.5
10.6
11.3
11.6
13.3
13.8
14.0
Saxony
11.8
12.1
11.6
11.1
9.6
8.8
8.9
9.5
8.6
7.9
6.9
Saxony-Anhalt
18.0
19.2
19.3
20.1
19.8
19.8
20.5
20.7
20.6
20.4
20.5
Schleswig-Holstein
20.0
21.3
22.2
22.4
22.8
24.5
26.0
27.0
27.3
26.7
27.1
Thuringia
14.1
15.1
15.8
15.7
15.3
15.7
16.2
16.3
16.2
15.9
15.7
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
3,650
3,824
3,960
4,012
4,007
4,002
4,145
4,125
4,120
4,243
4,449
Bavaria
1,858
1,997
1,983
1,945
1,884
2,316
2,440
2,405
2,320
2,166
2,072
Berlin
16,272
17,254
17,668
16,903
16,611
17,376
17,724
17,834
17,671
17,195
17,699
Debt in EUR per capita
Brandenburg
6,415
6,643
6,755
6,844
6,822
6,941
7,093
7,181
7,197
6,914
6,826
Bremen
17,210
18,709
20,362
21,764
23,273
24,379
26,771
27,753
29,117
29,920
30,034
Hamburg
11,914
12,311
12,479
12,364
12,343
12,895
13,317
11,809
11,595
12,734
13,301
Hesse
4,828
5,088
4,952
5,043
5,141
5,608
6,213
6,479
6,708
6,584
6,854
Mecklenburg-Western Pomerania
5,966
6,312
6,339
5,998
5,958
5,999
5,971
5,913
5,860
5,837
5,870
Lower Saxony
5,976
6,117
6,232
6,316
6,429
6,595
6,921
7,174
7,078
7,204
7,420
North Rhine-Westphalia
5,858
6,214
6,436
6,507
6,497
6,899
7,103
7,284
7,498
7,706
7,972
Rhineland-Palatinate
5,843
6,184
6,338
6,456
6,484
6,816
7,111
7,355
8,236
8,356
8,330
Saarland
7,042
7,774
8,429
8,870
9,260
10,375
11,130
11,415
13,083
13,661
14,112
Saxony
2,756
2,834
2,728
2,622
2,286
2,111
2,138
2,294
2,077
1,917
1,703
Saxony-Anhalt
7,218
7,791
7,905
8,324
8,316
8,408
8,797
8,933
8,919
8,925
9,142
Schleswig-Holstein
7,084
7,535
7,823
7,902
8,028
8,668
9,173
9,510
9,619
9,399
9,626
Thuringia
5,969
6,447
6,838
6,860
6,755
6,981
7,263
7,344
7,282
7,206
7,265
Lowest figures in blue, highest figures in orange. Source: Federal Ministry of Finance, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 131 of 142
Issuer Guide German Bundesländer 2015
Debt level in % of GDP
Baden-Württemberg
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
11.78
12.24
11.94
11.46
11.33
12.13
11.62
10.98
10.78
10.96
10.79
Bavaria
5.93
6.28
6.01
5.63
5.41
6.80
6.81
6.33
5.95
5.45
5.00
Berlin
64.74
67.38
66.71
61.12
57.56
60.42
59.51
57.78
56.53
54.54
51.64
Brandenburg
34.35
34.90
33.86
32.73
31.35
32.48
31.68
31.04
30.50
28.52
27.01
Bremen
46.37
49.55
51.58
53.04
55.77
63.85
65.89
65.99
66.31
67.46
65.30
Hamburg
24.10
24.47
24.60
23.75
23.01
25.07
25.16
22.15
21.38
23.34
22.52
Hesse
14.00
14.63
13.76
13.47
13.54
15.52
16.61
16.79
17.28
16.62
16.54
Mecklenburg-Western Pomerania
33.16
34.64
33.63
29.87
28.59
28.86
27.86
26.54
26.17
25.41
24.36
Lower Saxony
24.94
24.95
24.31
23.57
23.28
24.90
24.61
24.10
23.29
23.15
22.79
North Rhine-Westphalia
21.17
22.13
22.14
21.04
20.42
22.46
22.44
22.10
22.42
22.68
22.42
Rhineland-Palatinate
23.66
24.86
24.52
23.85
23.44
25.20
24.89
24.55
26.90
26.88
26.07
Saarland
27.23
28.48
29.48
29.40
30.14
37.06
37.43
36.09
40.88
42.24
41.68
Saxony
13.95
14.29
13.04
11.89
10.19
9.65
9.34
9.56
8.47
7.55
6.34
Saxony-Anhalt
39.28
41.93
40.30
40.05
38.94
40.73
39.94
39.72
38.33
37.29
36.89
Schleswig-Holstein
29.62
31.33
31.58
31.10
30.54
33.93
35.16
35.24
34.26
32.87
32.26
Thuringia
32.64
34.88
35.23
33.48
32.32
34.52
33.68
32.07
31.32
30.18
28.90
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Debt level / tax revenue
Baden-Württemberg
1.75x
1.85x
1.77x
1.60x
1.54x
1.74x
1.80x
1.63x
1.50x
1.53x
1.49x
Bavaria
0.89x
0.96x
0.89x
0.78x
0.71x
0.94x
0.99x
0.90x
0.83x
0.73x
0.66x
Berlin
6.88x
7.21x
6.64x
5.76x
5.35x
6.17x
5.85x
5.77x
5.33x
5.14x
4.61x
Brandenburg
3.62x
3.93x
3.62x
3.17x
3.09x
3.49x
3.47x
3.25x
3.10x
2.78x
2.72x
Bremen
6.12x
6.84x
6.68x
6.84x
6.62x
7.74x
8.80x
8.03x
8.42x
8.24x
7.70x
Hamburg
2.87x
2.91x
2.59x
2.59x
2.37x
2.92x
2.91x
2.44x
2.34x
2.56x
2.35x
Hesse
2.27x
2.36x
1.99x
1.79x
1.85x
2.30x
2.53x
2.46x
2.49x
2.30x
2.24x
Mecklenburg-Western Pomerania
3.42x
3.76x
3.38x
2.85x
2.68x
2.87x
2.96x
2.76x
2.52x
2.43x
2.23x
Lower Saxony
3.42x
3.46x
3.12x
3.02x
2.89x
3.11x
3.30x
3.32x
2.96x
2.87x
2.87x
North Rhine-Westphalia
3.12x
3.23x
3.13x
2.89x
2.77x
3.21x
3.34x
3.16x
3.08x
3.08x
3.02x
Rhineland-Palatinate
3.30x
3.50x
3.27x
2.97x
2.85x
3.28x
3.40x
3.32x
3.39x
3.27x
3.15x
Saarland
4.24x
4.40x
4.47x
4.04x
4.16x
5.11x
5.46x
5.05x
5.71x
5.60x
5.33x
Saxony
1.61x
1.70x
1.44x
1.24x
1.04x
1.01x
1.05x
1.06x
0.89x
0.79x
0.67x
Saxony-Anhalt
4.12x
4.54x
4.16x
3.99x
3.80x
4.05x
4.35x
4.00x
3.81x
3.65x
3.62x
Schleswig-Holstein
4.14x
4.24x
3.99x
3.66x
3.54x
4.10x
4.46x
4.31x
4.03x
3.65x
3.78x
Thuringia
3.46x
3.72x
3.77x
3.21x
3.03x
3.40x
3.57x
3.37x
3.16x
2.96x
2.84x
Lowest figures in blue, highest figures in orange.
Source: Federal Ministry of Finance, Federal Office for Statistics, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 132 of 142
Issuer Guide German Bundesländer 2015
Tax revenue / interest expenses
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
11.9x
11.3x
10.6x
13.9x
15.0x
15.4x
13.5x
14.9x
17.7x
17.4x
20.1x
Bavaria
25.2x
24.8x
25.8x
31.3x
35.5x
34.5x
29.7x
31.3x
33.8x
39.6x
44.8x
Berlin
3.5x
3.4x
3.7x
4.1x
4.6x
4.3x
4.7x
4.9x
5.5x
6.2x
7.5x
Brandenburg
5.4x
5.5x
6.1x
6.9x
6.9x
7.1x
8.1x
9.1x
10.1x
13.3x
14.4x
Bremen
3.7x
3.6x
3.7x
3.5x
3.7x
3.2x
2.9x
3.6x
3.5x
3.8x
4.6x
Hamburg
7.4x
7.8x
9.2x
8.6x
8.9x
8.3x
9.0x
9.9x
10.8x
11.9x
14.4x
Hesse
9.6x
9.7x
11.0x
12.5x
12.3x
11.0x
11.1x
11.8x
11.7x
13.8x
15.6x
Mecklenburg-Western Pomerania
6.3x
6.2x
6.9x
7.7x
8.6x
8.5x
8.7x
9.6x
10.4x
11.4x
13.3x
Lower Saxony
5.9x
6.0x
7.0x
7.5x
8.0x
7.7x
8.9x
8.9x
10.0x
12.0x
13.2x
North Rhine-Westphalia
7.3x
7.6x
8.0x
8.6x
8.7x
8.3x
8.5x
9.5x
10.5x
11.3x
13.0x
Rhineland-Palatinate
6.6x
6.7x
7.4x
7.9x
7.6x
7.0x
7.9x
8.7x
10.0x
10.4x
11.2x
Saarland
4.8x
4.8x
4.9x
5.5x
5.3x
4.7x
4.2x
4.9x
4.6x
5.1x
5.6x
Saxony
12.9x
12.1x
14.6x
17.1x
19.1x
21.6x
22.9x
26.6x
29.4x
33.2x
40.0x
Saxony-Anhalt
5.1x
4.8x
5.1x
5.5x
5.3x
5.9x
6.1x
6.7x
7.6x
8.8x
9.5x
Schleswig-Holstein
5.5x
5.7x
6.2x
6.6x
6.9x
6.3x
6.0x
6.7x
7.5x
8.5x
9.3x
Thuringia
6.0x
5.8x
5.9x
7.0x
7.5x
7.3x
7.1x
7.6x
8.3x
9.3x
10.1x
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
29,271
29,915
31,919
34,360
35,833
33,234
34,845
37,419
38,977
40,478
42,952
Bavaria
32,816
33,152
35,468
38,460
41,090
39,370
40,593
44,633
45,244
48,869
51,786
Berlin
17,569
18,430
18,720
25,424
21,840
19,599
20,255
20,794
22,569
22,746
23,799
Brandenburg
9,010
9,098
9,610
10,242
10,126
9,512
9,413
10,056
10,074
10,829
10,537
Bremen
3,360
3,104
3,221
3,333
3,668
3,359
3,318
3,953
4,136
4,368
4,658
Hamburg
9,641
9,654
10,243
10,652
11,265
9,558
10,220
11,105
11,188
11,219
12,297
Hesse
16,238
17,039
18,887
20,493
19,968
18,188
18,755
20,372
20,478
22,004
23,011
Mecklenburg-Western Pomerania
6,363
6,583
6,915
7,096
7,203
7,194
6,723
7,273
7,284
7,335
7,394
Lower Saxony
19,995
19,084
21,559
22,784
23,129
22,620
22,655
23,692
25,730
26,352
27,140
North Rhine-Westphalia
41,217
43,816
44,424
47,975
50,051
47,223
48,857
52,837
54,574
56,770
59,881
Rhineland-Palatinate
10,504
10,651
11,176
11,805
12,150
11,598
11,893
12,367
13,349
13,819
14,578
Saarland
2,848
2,515
2,613
2,947
2,830
2,601
2,945
3,323
3,273
3,425
3,590
Saxony
15,495
15,344
16,425
17,463
17,354
16,651
16,605
18,177
17,318
17,156
17,318
Saxony-Anhalt
9,157
9,212
9,540
9,936
9,882
9,687
9,331
9,879
9,921
10,118
9,986
Schleswig-Holstein
7,136
6,839
7,329
7,972
8,288
7,878
7,976
8,561
9,129
9,760
9,621
Thuringia
8,256
8,327
8,527
9,265
9,385
8,841
8,699
9,061
9,107
9,297
9,143
Net revenue (EURm)
Lowest figures in orange, highest figures in blue. Other way round for net revenue.
Source: Federal Ministry of Finance, Federal Office for Statistics, NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 133 of 142
Issuer Guide German Bundesländer 2015
Net revenue in EUR per capita
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
2,731
2,786
2,972
3,196
3,333
3,093
3,240
3,559
3,688
3,724
4,040
Bavaria
2,637
2,659
2,839
3,072
3,282
3,147
3,237
3,587
3,614
3,848
4,109
Berlin
5,186
5,428
5,499
7,442
6,364
5,693
5,853
6,252
6,687
6,383
6,955
Brandenburg
3,509
3,555
3,772
4,039
4,014
3,787
3,760
4,099
4,112
4,350
4,302
Bremen
5,066
4,678
4,851
5,027
5,542
5,076
5,022
6,061
6,316
6,585
7,085
Hamburg
5,557
5,537
5,839
6,016
6,357
5,387
5,721
6,463
6,451
6,154
7,042
Hesse
2,663
2,797
3,109
3,375
3,292
3,000
3,091
3,399
3,404
3,594
3,806
Mecklenburg-Western Pomerania
3,700
3,856
4,083
4,225
4,328
4,357
4,094
4,526
4,551
4,516
4,631
Lower Saxony
2,499
2,387
2,701
2,858
2,910
2,853
2,861
3,048
3,308
3,325
3,484
North Rhine-Westphalia
2,280
2,426
2,464
2,666
2,791
2,642
2,738
3,012
3,109
3,182
3,408
Rhineland-Palatinate
2,586
2,624
2,758
2,918
3,016
2,890
2,970
3,100
3,345
3,458
3,650
Saarland
2,696
2,395
2,505
2,843
2,747
2,544
2,894
3,330
3,292
3,401
3,624
Saxony
3,607
3,590
3,865
4,138
4,139
3,994
4,002
4,484
4,276
4,161
4,280
Saxony-Anhalt
3,671
3,730
3,907
4,119
4,149
4,111
3,996
4,339
4,391
4,428
4,449
Schleswig-Holstein
2,523
2,414
2,586
2,810
2,924
2,782
2,814
3,055
3,253
3,433
3,417
Thuringia
3,505
3,567
3,690
4,047
4,138
3,930
3,892
4,153
4,196
4,221
4,231
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
31,260
31,611
32,856
32,861
34,472
34,578
35,694
37,824
39,047
40,688
42,254
Bavaria
34,249
34,383
34,991
35,892
41,229
47,423
41,883
44,350
43,879
46,759
50,178
Berlin
20,539
21,596
20,522
20,711
20,854
21,039
21,669
21,910
21,892
22,266
22,961
Brandenburg
9,519
9,623
9,936
9,828
10,029
9,963
9,943
9,933
10,066
10,119
10,210
Bremen
4,249
4,103
4,066
4,051
4,101
4,260
4,573
4,554
4,675
4,852
5,097
Hamburg
10,492
9,952
10,348
10,397
11,091
10,449
11,123
11,502
11,753
11,815
11,873
Hesse
17,937
17,669
19,138
21,072
21,043
20,905
20,690
21,716
22,242
22,512
23,677
Mecklenburg-Western Pomerania
6,963
6,945
6,830
6,707
6,888
6,797
6,841
7,028
7,124
7,017
7,131
Lower Saxony
21,859
21,786
21,788
23,471
23,444
24,638
24,528
26,035
26,551
26,733
27,346
North Rhine-Westphalia
48,101
50,591
47,798
49,906
51,193
52,965
53,892
56,005
58,408
59,220
61,784
Rhineland-Palatinate
11,650
11,539
12,057
12,176
12,959
13,219
13,817
14,417
14,492
14,364
15,192
Saarland
3,248
3,281
3,295
3,317
3,351
3,524
3,910
3,725
3,964
3,883
3,891
Saxony
15,885
15,545
15,827
15,509
16,057
16,630
16,788
16,144
16,022
16,334
16,655
Saxony-Anhalt
10,111
10,213
10,141
9,814
9,828
9,843
9,945
10,053
9,868
9,869
9,916
Schleswig-Holstein
7,933
8,326
8,185
8,332
8,582
8,886
9,306
9,251
9,299
9,645
9,865
Thuringia
9,275
9,089
9,007
9,060
9,140
9,055
9,291
9,324
8,813
8,956
8,957
Net expenditure (EURm)
Lowest figures in orange, highest figures in blue. Other way round for net expenditure.
Source: Federal Office for Statistics, national accounts produced by the federal states (VGRdL), NORD/LB Fixed Income Researc h
NORD/LB Fixed Income Research
Page 134 of 142
Issuer Guide German Bundesländer 2015
Net expenditure in EUR per capita
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
2,917
2,944
3,060
3,057
3,207
3,218
3,319
3,598
3,694
3,744
3,975
Bavaria
2,752
2,758
2,801
2,867
3,293
3,791
3,340
3,564
3,505
3,682
3,981
Berlin
6,063
6,361
6,029
6,062
6,077
6,111
6,261
6,587
6,486
6,249
6,710
Brandenburg
3,707
3,760
3,900
3,876
3,976
3,967
3,972
4,049
4,109
4,065
4,169
Bremen
6,407
6,184
6,124
6,109
6,196
6,438
6,921
6,982
7,140
7,315
7,754
Hamburg
6,048
5,708
5,899
5,872
6,259
5,889
6,226
6,694
6,777
6,481
6,799
Hesse
2,942
2,900
3,150
3,470
3,470
3,449
3,410
3,623
3,697
3,676
3,917
Mecklenburg-Western Pomerania
4,049
4,068
4,032
3,993
4,139
4,116
4,165
4,374
4,452
4,320
4,467
Lower Saxony
2,732
2,725
2,729
2,944
2,950
3,107
3,098
3,349
3,413
3,373
3,510
North Rhine-Westphalia
2,661
2,802
2,651
2,773
2,855
2,963
3,020
3,192
3,327
3,320
3,516
Rhineland-Palatinate
2,869
2,843
2,975
3,010
3,217
3,294
3,451
3,613
3,632
3,594
3,803
Saarland
3,075
3,124
3,159
3,200
3,252
3,446
3,842
3,733
3,986
3,856
3,927
Saxony
3,697
3,637
3,724
3,675
3,830
3,989
4,046
3,982
3,956
3,961
4,116
Saxony-Anhalt
4,053
4,135
4,153
4,068
4,126
4,177
4,259
4,416
4,368
4,319
4,418
Schleswig-Holstein
2,804
2,939
2,888
2,937
3,028
3,138
3,283
3,301
3,313
3,393
3,503
Thuringia
3,938
3,893
3,897
3,958
4,030
4,025
4,157
4,274
4,060
4,066
4,145
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
-1,974
-1,682
-916
1,521
1,372
-1,334
-830
-376
-66
-210
697
Bavaria
-1,432
-1,229
479
2,573
-131
-8,052
-1,287
283
1,365
2,110
1,608
Berlin
-2,966
-3,160
-1,800
4,713
987
-1,438
-1,414
-1,114
678
480
838
Financial balance (EURm)
Brandenburg
-509
-526
-319
414
97
-451
-529
123
8
710
327
Bremen
-887
-1,002
-847
-718
-435
-907
-1,254
-601
-539
-484
-440
Hamburg
-837
-290
-96
264
183
-888
-892
-403
-554
-596
424
-1,693
-628
-251
-577
-1,086
-2,717
-1,938
-1,347
-1,765
-508
-666
-600
-362
84
389
316
396
-118
245
160
318
263
Lower Saxony
-1,871
-2,708
-228
-687
-315
-2,018
-1,873
-2,343
-821
-381
-205
North Rhine-Westphalia
-6,885
-6,775
-3,374
-1,931
-1,145
-5,740
-5,035
-3,168
-3,834
-2,450
-1,903
Rhineland-Palatinate
-1,143
-886
-881
-346
-808
-1,622
-1,924
-2,049
-1,143
-546
-614
Saarland
-407
-771
-690
-374
-501
-923
-965
-400
-690
-458
-301
Saxony
-390
-201
599
1,954
1,297
21
-183
2,035
1,289
822
663
Saxony-Anhalt
-954
-1,001
-601
122
54
-156
-615
-175
53
249
70
Schleswig-Holstein
-798
-1,486
-856
-360
-294
-1,008
-1,330
-690
-170
115
-244
-1,019
-761
-480
-205
246
-214
-591
-263
294
341
186
Hesse
Mecklenburg-Western Pomerania
Thuringia
Lowest figures in blue, highest figures in orange. Other way round for financial balance.
Source: Federal Office for Statistics, national accounts produced by the federal states (VGRdL), NORD/LB Fixed Income Researc h
NORD/LB Fixed Income Research
Page 135 of 142
Issuer Guide German Bundesländer 2015
Financial balance in EUR per capita
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
-184
-157
-85
141
128
-125
-79
-39
-7
-19
66
Bavaria
-115
-99
38
206
-10
-644
-103
23
109
166
128
Berlin
-875
-931
-529
1.380
288
-418
-409
-336
201
135
245
Brandenburg
-198
-206
-125
163
38
-180
-211
50
3
285
133
Bremen
-1.337
-1.510
-1.276
-1.083
-657
-1.362
-1.899
-921
-824
-729
-669
Hamburg
-482
-166
-55
149
103
-502
-505
-231
-326
-327
243
Hesse
-278
-103
-41
-95
-179
-448
-319
-224
-293
-83
-110
Mecklenburg-Western Pomerania
-349
-212
50
232
190
240
-72
152
100
196
164
Lower Saxony
-234
-339
-29
-86
-40
-255
-237
-301
-106
-48
-26
North Rhine-Westphalia
-381
-375
-187
-107
-64
-321
-282
-181
-218
-137
-108
Rhineland-Palatinate
-281
-218
-217
-86
-201
-404
-480
-512
-284
-137
-154
Saarland
-385
-734
-661
-361
-486
-903
-949
-403
-694
-455
-304
Saxony
-91
-47
141
463
309
5
-44
501
320
199
164
Saxony-Anhalt
-382
-405
-246
51
23
-66
-263
-77
23
109
31
Schleswig-Holstein
-282
-525
-302
-127
-104
-356
-469
-246
-61
41
-87
Thuringia
-433
-326
-208
-90
108
-95
-265
-120
136
155
86
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Baden-Württemberg
-0.60
-0.51
-0.26
0.40
0.36
-0.38
-0.22
-0.10
-0.02
-0.05
0.16
Bavaria
-0.37
-0.31
0.12
0.59
-0.03
-1.89
-0.29
0.06
0.28
0.42
0.31
Berlin
-3.49
-3.64
-2.00
4.99
1.00
-1.45
-1.37
-1.03
0.62
0.43
0.71
Brandenburg
-1.06
-1.08
-0.64
0.78
0.18
-0.84
-0.94
0.21
0.01
1.18
0.53
Bremen
-3.61
-3.99
-3.22
-2.64
-1.57
-3.57
-4.68
-2.16
-1.86
-1.64
-1.45
Hamburg
-0.99
-0.34
-0.12
0.28
0.18
-0.98
-0.94
-0.41
-0.57
-0.60
0.41
Hesse
-0.81
-0.30
-0.11
-0.25
-0.47
-1.24
-0.85
-0.57
-0.75
-0.21
-0.27
Mecklenburg-Western Pomerania
-1.94
-1.16
0.27
1.15
0.91
1.16
-0.33
0.67
0.44
0.85
0.68
Lower Saxony
-0.97
-1.38
-0.11
-0.32
-0.14
-0.96
-0.84
-0.99
-0.34
-0.15
-0.08
North Rhine-Westphalia
-1.38
-1.34
-0.64
-0.35
-0.20
-1.05
-0.89
-0.54
-0.64
-0.40
-0.30
Rhineland-Palatinate
-1.14
-0.88
-0.84
-0.34
-0.73
-1.49
-1.68
-1.71
-0.93
-0.44
-0.48
Saarland
-1.46
-2.67
-2.29
-1.18
-1.65
-3.22
-3.19
-1.25
-2.13
-1.41
-0.90
Saxony
-0.46
-0.24
0.67
2.10
1.38
0.02
-0.19
2.05
1.28
0.79
0.61
Saxony-Anhalt
-2.08
-2.18
-1.25
0.24
0.11
-0.32
-1.19
-0.34
0.10
0.46
0.13
Schleswig-Holstein
-1.18
-2.18
-1.22
-0.50
-0.39
-1.39
-1.80
-0.90
-0.21
0.14
-0.29
Thuringia
-2.37
-1.77
-1.07
0.44
0.52
-0.47
-1.23
-0.52
0.57
0.65
0.34
Financial balance in % of GDP
Lowest figures in orange, highest figures in blue.
Source: Federal Ministry of Finance, Federal Office for Statistics, NORD/LB Fixed Inc ome Research
NORD/LB Fixed Income Research
Page 136 of 142
Issuer Guide German Bundesländer 2015
Appendix
Age structure of population in German Bundesländer
Share of various age groups as % of population
Under 6 years
6 to 15 years
15 to 25 years
25 to 45 years
45 to 65 years
65+ years
Baden-Württemberg
5.1%
8.2%
11.4%
25.9%
29.6%
19.8%
Bavaria
5.2%
8.6%
11.8%
25.4%
29.4%
19.6%
Berlin
5.7%
7.2%
10.0%
30.2%
27.8%
19.1%
Brandenburg
4.8%
7.3%
7.5%
23.2%
34.2%
22.8%
Bremen
4.9%
7.4%
11.5%
26.7%
28.2%
21.3%
Hamburg
5.6%
7.6%
10.6%
30.8%
26.6%
18.8%
Hesse
5.2%
8.3%
11.0%
25.6%
29.9%
20.1%
Mecklenburg-Western Pomerania
4.9%
7.1%
8.1%
23.8%
33.8%
22.4%
Lower Saxony
4.9%
8.6%
11.3%
23.7%
30.3%
21.2%
North Rhine-Westphalia
5.0%
8.4%
11.4%
24.6%
30.1%
20.5%
Rhineland-Palatinate
4.9%
8.1%
11.4%
23.7%
31.4%
20.6%
Saarland
4.2%
7.2%
10.8%
22.8%
32.8%
22.3%
Saxony
5.1%
7.1%
8.0%
24.7%
30.4%
24.7%
Saxony-Anhalt
4.6%
6.7%
7.9%
23.2%
32.9%
24.7%
Schleswig-Holstein
4.8%
8.4%
10.9%
23.2%
30.3%
22.3%
Thuringia
4.8%
6.9%
8.0%
24.2%
32.4%
23.7%
Bund
5.0%
8.1%
10.8%
25.1%
30.2%
20.8%
Source: Federal Office for Statistics, NORD/LB Fixed Income Research
Appendix
Election calendar
Provisional dates for next Landtag election
Provisional dates for next Landtag election
Regular cycle
13 March 2016
5 years
Bavaria
Autumn 2018
5 years
Berlin
Autumn 2016
5 years
Brandenburg
Autumn 2019
5 years
Bremen
10 May 2015
4 years
Hamburg
Spring 2020
5 years
Hesse
Autumn 2018
5 years
Mecklenburg-Western Pomerania
Autumn 2016
5 years
Lower Saxony
Winter 2018
5 years
North Rhine-Westphalia
Spring 2017
5 years
13 March 2016
5 years
Saarland
Spring 2017
5 years
Saxony
Autumn 2019
5 years
13 March 2016
5 years
Schleswig-Holstein
Spring 2017
5 years
Thuringia
Autumn 2019
5 years
Baden-Württemberg
Rhineland-Palatinate
Saxony-Anhalt
Source: NORD/LB Fixed Income Research
NORD/LB Fixed Income Research
Page 137 of 142
Issuer Guide German Bundesländer 2015
Appendix
Data and definitions used
Data source and actuality
for securities
Nearly all of the data on securities used within this Issuer Guide is based on the
Bloomberg financial information system, whereby our own trading (NOLB) was used
as the primary source of price information. The respective composition of the iBoxx
indexes for the month of May was obtained from data provider Markit.
Data source and actuality
for borrower's note loans
(Schuldscheindarlehen;
SSD)
To determine the issue volume of borrower's note loans, the data was requested
directly from the individual Bundesländer. Similarly, the amount of borrower’s note
loans debt outstanding was provided by the federal states.
Data source and
assumptions for
assessment of budget
situation
The cash statistics of the Federal Ministry of Finance were used to analyse the
Bundesland budgets for financial year 2014. It should be noted, that these figures
do not necessarily reflect the actual budgets. Rather the cash statistics relate to
payments actually made in 2014. In our opinion, this does not appropriately illustrate the movements in funds from the financial equalisation between the Bundesländer (Länderfinanzausgleich; LFA) for financial year 2014. For instance, a
payment claim can arise in one financial year but actual payments can take place in
part in the following year. Payments from supplementary federal grants (BEZ) are
similar in this regard, which is why we use the provisional annual financial statements 2014 of the Federal Ministry of Finance to illustrate the figures relating to the
federal financial equalisation system. The historical data for the Bundesländer
budgets is based on the final results of the development of the Länder budgets.
Debt sustainability and
interest coverage
Determining the debt sustainability and interest coverage represents an
important part of our analysis of the budgets of the Bundesländer. These terms
relate to the various key indicators that measure debt and interest expenses against
other variables. Here, we use debt in relation to economic output or the total revenue of a Bundesland as one example of debt sustainability. In our debt sustainability analysis we also look at debt per capita. When determining interest coverage,
we focus primarily on the ratio of revenue or taxes to the interest expenses of a
period.
Data source and
assumptions for
assessment of economic
situation
When analysing the economic situation in a Bundesland we used data from the
Federal Statistical Office (Destatis) and from the respective statistical offices in the
Bundesländer. In some instances we also used data from other sources, such as
the German Patent and Trade Mark Office (DPMA). The data used is in part based
on analyses by our NORD/LB Regionalwirtschaft department.
Special thanks to
Fabian Herold
We would like to thank Fabian Herold for his cooperation on this report, whose
commitment and ideas have resulted in a highly detailed presentation of the market
for bonds issued by the Bundesländer in Germany.
NORD/LB Fixed Income Research
Page 138 of 142
Issuer Guide German Bundesländer 2015
Contacts
Fixed Income Research
Michael Schulz
Head
+49 511 361-5309
[email protected]
Kai Niklas Ebeling
Covered Bonds
+49 511 361-9713
[email protected]
Fabian Gerlich
Public Issuers
+49 511 361-9787
[email protected]
Michaela Hessmert
Banks
+49 511 361-6915
[email protected]
Melanie Kiene
Banks
+49 511 361-4108
[email protected]
Jörg Kuypers
Corporates / Retail Products
+49 511 361-9552
[email protected]
Matthias Melms
Covered Bonds
+49 511 361-5427
[email protected]
Sascha Remus
Corporates / Retail Products
+49 511 361-2722
[email protected]
Norman Rudschuck
Public Issuers
+49 511 361-6627
[email protected]
+49 511 361-5587
[email protected]
Markets Sales
Carsten Demmler (Head)
Institutional Sales (+49 511 9818-9440)
Uwe Tacke (Head)
[email protected]
Uwe Kollster
[email protected]
Julia Bläsig
[email protected]
Gabriele Schneider
[email protected]
Thorsten Bock
[email protected]
Dirk Scholden
[email protected]
Christian Gorsler
[email protected]
Sales Savings Banks / Regional Banks (+49 511 9818-9400)
Christian Schneider
(Head)
[email protected]
Stefan Krilcic
[email protected]
Jens Angermann
[email protected]
Martin Koch
[email protected]
Oliver Bickel
[email protected]
Bernd Lehmann
[email protected]
Kai-Ulrich Dörries
[email protected]
Jörn Meissner
[email protected]
Marc Ehle
[email protected]
Lutz Schimanski
[email protected]
Sascha Goetz
[email protected]
Brian Zander
[email protected]
Fixed Income / Structured Products Sales Europe (+352 452211-515)
René Rindert (Head)
[email protected]
Patricia Lamas
[email protected]
Morgan Kermel
[email protected]
Laurence Payet
[email protected]
Shipping / Aircraft
+49 511 9818-8150
Corporate Clients
+49 511 9818-4003
Real Estate /
Structured Finance
+49 511 9818-8150
FX/MM
+49 511 9818-4006
Corporate Sales
Syndicate / DCM (+49 511 9818-6600)
Thomas Cohrs (Head)
[email protected]
Julien Marchand
[email protected]
Annika Haß
[email protected]
Andreas Raimchen
[email protected]
Axel Hinzmann
[email protected]
Udo A. Schacht
[email protected]
Thomas Höfermann
[email protected] Marco da Silva
[email protected]
Alexander Malitsky
[email protected]
Lutz Ulbrich
[email protected]
Financial Markets Trading
Jumbos / Covered Bonds
+49 511 9818-8040
Frequent Issuers
+49 511 9818-9640
Collateral Mgmt / Repos
+49 511 9818-9200
Governments
+49 511 9818-9660
Financials
+49 511 9818-9490
Structured Products +49 511 9818-9670
Customer Exec. &
Trading
+49 511 9818-9480
NORD/LB Fixed Income Research
Page 139 of 142
Issuer Guide German Bundesländer 2015
Disclaimer
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All information contained in this material is obtained from sources we believe to be reliable, but which have not ind ependently been
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Past performance is not necessarily indicative of future results. Foreign currency rates of exchange, fluctuations or similar factors
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NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
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Time of going to press
06 May 2015
Disclosure of NORD/LB’s potential conflicts of interest according to § 34b Abs. 1 WpHG and
§ 5 FinAnV
None.
NORD/LB Fixed Income Research
Page 141 of 144
Issuer Guide German Bundesländer 2015
Additional disclosures
Sources and price indications
Depending on the issuer, we use information from financial data suppliers, our own estimates, company data and the
public media for the preparation of our financial analyses. Unless otherwise stated in the report, prices indicated relate to
the closing price on the previous day. Fees and commissions apply to securities (buy, sell, hold) and these may reduce
the yield on investments.
Analytical methods and updates
In the preparation of financial analyses, we take company-specific methods used for fundamental securities’ analysis,
quantitative/statistical methods and models, as well as technical analytical methods as the basis for valuations and for the
regular updates. It should be noted that the results of analyses provide a snapshot overview and that past developments
do not constitute a reliable indicator for future profits. The basis of the valuations is subject to unforeseen change at any
time, potentially leading to different conclusions. The present report is prepared on an irregular basis. Recipients are not
automatically entitled to receive report update publications.
Recommendation system and history of last 12 months
Positive: Positive expectations for the issuer, a security type or a specific security of an issuer.
Neutral: Neutral expectations for the issuer, a security type or a specific security of an issuer.
Negative:Negative expectations for the issuer, a security type or a specific security of an issuer.
Relative value (RV): Relative value recommendation in comparison to a market segment, an issuer or a maturity.
Issuer / security
Hamburg
Hamburg
Schleswig-Holstein
Schleswig-Holstein
Date
Recommendation
Bond type
Cause
06/05/2015
15/10/2014
06/05/2015
15/10/2014
Positive
Negative
Positive
Negative
SSA
SSA
SSA
SSA
Fundamental
RV
Fundamental
RV
NORD/LB Fixed Income Research
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Issuer Guide German Bundesländer 2015
NORD/LB Fixed Income Research
Issuer Guide German Bundesländer 2015
NORD/LB Fixed Income Research