Moody's: Finland's Municipal Guarantee Board Outlook Revised to Negative; Aaa Rating Affirmed

Moody's Public Sector Europe ("MPSE") has today affirmed the Aaa issuer rating of Municipal Guarantee Board (MGB) and changed the outlook to negative from stable. This action follows the recent action taken on the government bond rating of Finland (Aaa, Negative), given the very strong correlation between MGB and the sovereign credit risk 

The outlook change was prompted by Moody's recent decision to affirm the rating and change to negative from stable the outlook on the sovereign rating of Finland, as announced on 5th June, as reflected in macroeconomic linkages, institutional factors and financial market conditions. For full details of the Sovereign action please refer to the related announcement: https://www.moodys.com/research/--PR_326189 

RATINGS RATIONALE 

The rating action is based on the very strong credit correlation between MGB and the central government. The inter linkages, controls and importance of services provided by the RLG sector would indicate that the central government will provide support to MGB in the unlikely event of an acute liquidity stress. 

MGB was set by the Finnish parliament in 1996 under a special law with the purpose of safeguarding and developing the joint funding of Finnish municipalities. MGB plays its role by guaranting all funding by credit institutions directly or indirectly owned by municipalities that will be used for lending to municipalities, entities under their control and government guaranteed social housing entities. The rating is underpinned by the strong cooperation and linkages between the central government and MGB's member municipalities. While the joint guarantee is between MGB and the RLG sector, Moody's considers the role of the central government as a key factor. This is evidenced by the high level of central government oversight in the RLG sector, as well as the entity's key role in the funding of public services. 

RATIONALE FOR OUTLOOK 

Given the strong linkages between the entity and the Sovereign, the outlook mirrors the Sovereign's outlook. 

WHAT COULD CHANGE THE RATING --- DOWN 

Negative pressure on the rating could result from one or a combination of the following: (1) a downgrade in Finland's sovereign rating, (2) a weakening of the ties between the local government sector and the sovereign and (3) a weakening of the MGB Act and the joint guarantee and reduced importance of MGB 

The principal methodology used in this ratings was Government-Related Issuers published in October 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology. 

Moody's Public Sector Europe is the trading name of Moody's Investors Service EMEA Limited, a company incorporated in England with registered number 8922701 that operates as part of the Moody's Investors Service division of the Moody's group of companies