State of Bremen

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State of Bremen

Key Rating Drivers

Ratings Affirmed: The affirmation of and Stable Outlook on the State of Bremen’s ratings reflect the unchanged assumptions of Fitch’s rating approach for the German Laender, under which the ratings are equalised with those of the Federal Republic of Germany (Bund;

AAA/Stable/F1+).

Rating Derivation Summary: Bremen’s Issuer Default Ratings (IDRs) are linked to the Bund’s.

We assess Bremen’s Standalone Credit Profile (SCP) at ‘a+’. The SCP results from a ‘Stronger’

risk profile and a debt sustainability that Fitch assesses as ‘bbb’ under its rating case scenario.

No other rating factors affect the rating. Equalisation of the German Laender’s ratings with the Bund’s is driven by the stability of the solidarity system underpinning the creditworthiness of all Laender, irrespective of the key risk factors and debt sustainability assessment.

The solidarity system is enshrined in the German constitution and reflects the institutional framework of the Laender. Under the German constitution all member states of the federal republic are jointly responsible for supporting a Land in financial distress. If a Land experiences

“extreme budgetary hardship”, it is entitled to financial assistance from all other Laender and the Bund. This principle has been reaffirmed by the constitutional courts on more than one occasion in the past, most recently in 2006.

‘Stronger’ Risk Profile: Bremen’s key risk factors are all assessed at ‘Stronger’. The ‘Stronger’

risk profile also reflects Bremen’s very good access to capital markets, corresponding strong refinancing capacity and appropriate treasury facilities preventing any temporary delays in the provision of liquidity and support.

Debt Sustainability at ‘bbb’: In Fitch’s rating-case scenario, Bremen’s economic liability burden would be slightly below 95% in 2023 (2018: 88.5%). Debt service coverage (Fitch’s synthetic calculation) would remain about 1x (2018: 1.1x), while this fiscal debt burden would improve to 339% (2018: 375%) in the coming years. Fitch’s rating case is based on conservative GDP growth assumptions to test rating resilience through the economic cycle and also takes into account additional stress on the main operating spending driver.

Additional Rating Factors: Bremen’s Long-Term IDR is rated on a par with the sovereign, reflecting the specific approach Fitch is applying for the German Laender. The ‘AAA’ IDR is primarily driven by the stability of the solidarity system that underpins the creditworthiness of Bremen, irrespective of its SCP of ‘a+’. IDR does not take into account any other extraordinary support from the Bund. No additional risk factors have been identified.

ESG Considerations: The highest ESG score is ‘3’, meaning that ESG issues are credit-neutral.

These issues are minimally relevant to the rating due to the mission of the issuer and the institutional page.

Rating Sensitivities

Sovereign Downgrade: A downgrade of the sovereign ratings would lead to a downgrade of Bremen. An adverse change to the most important institutional feature – the solidarity

Ratings

Foreign Currency

Long-Term IDR AAA

Short-Term IDR F1+

Local Currency

Long-Term IDR AAA

Short-Term IDR F1+

Long-term senior unsecured rating AAA Short-term senior unsecured ratting F1+

Outlooks

Long-Term Foreign-Currency IDR Stable Long-Term Local-Currency IDR Stable

Issuer Profile

The State of Bremen consists of the cities of Bremen and Bremerhaven with a combined population of 683,184 in 2Q19. It is the smallest of the 16 German states and is, together with Berlin and Hamburg, one of the three German city states.

Financial Data

State of Bremen

(EURm) 2018 2023rc

Economic liability

burden (%) 88.5 92.4

Payback (x) 18.4 27.9

Synthetic coverage (x)^a 0.6 0.4 Fiscal debt burden (%) 375.3 339.3 Net adjusted debt 20,640 20640 Operating balance 1,124 1,124 Operating revenue 5,499 7,438

Debt service 2,928 1,920

Mortgage-style debt

annuity^a 1,856 1,855

rc: Fitch’s rating-case scenario

a Fitch’s calculation (see Appendix C) Source: Fitch Ratings, State of Bremen

Applicable Criteria

Rating Criteria for International Local and Regional Governments (September 2019)

Related Research

Fitch Affirms 11 German Laender at ‘AAA’;

Outlook Stable (April 2019) Germany (January 2020)

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Rating Synopsis

SCP Positioning Table

Risk profile Debt sustainability

Stronger aaa or aa a bbb bb b

High midrange aaa aa a bbb bb b

Midrange aaa aa a bbb bb or below

Low midrange aaa aa a bbb or below

Weaker aaa aa a or below

Vulnerable aaa aa or below

Suggested analytical

outcome (SCP) aaa aa a bbb bb b

Source: Fitch Ratings

Bremen’s Long-Term IDR of ‘AAA’ is linked to the rating of the Bund. Its SCP is assessed at ‘a+’.

This reflects the combination of a ‘Stronger’ risk profile (see Risk Profile: Stronger) and debt sustainability that Fitch assesses as ‘bbb’ under its rating case scenario (see Debt Sustainability of ‘bbb’), and no other rating factors affect the rating (see Other Rating Factors).

Issuer Profile

Bremen is located in the north-west of Germany and is the smallest of all Laender, both in terms of population and area (419.38km²). It comprises two cities (Bremen and Bremerhaven), which are about 53km apart.

In 2Q19, the state had a total population of 683,184, an increase of 21,296 (3.2%) since 2014, driven by migration. According to the statistical office, Bremen’s population is likely to increase by 5% in 2015-2035. Given the city’s centre functions as a city state, Bremen attracts jobseekers that often stay while applying for unemployment benefit or social aid. This partly explains why Bremen’s unemployment rate (10.2% in February 2020) is the highest among the other western states (4.9%) and Germany as a whole (5.3%).

Bremen’s nominal GDP of EUR34.3 billion increased by 2.1% year-on-year (yoy) in 2018, which was above Germany’s growth rate of 1.4%. Due to its city-state status influencing the number of inhabitants and thanks to its wealthy economy, its GDP per capita of EUR50,389 in 2018 was the second-highest among the German states and well above the national average of EUR40,851.

Bremen’s economic profile is dominated by a broad services sector (trade, traffic, real estate and public services), which accounts for 72% of gross value added (GVA). It is the second-most important export location after Hamburg due to its harbours. Most of its exports are food (fish, meat, dairy, tobacco and coffee) and Bremen is the most important reloading point for the automotive sector. The state focuses on the development of renewable energies.

Risk Profile: Stronger

Fitch has assessed Bremen’s risk profile at ‘Stronger’. This reflects a ‘Stronger’ assessment of its revenue robustness and adjustability, expenditure sustainability and adjustability, and of its liabilities and liquidity robustness, and liabilities and liquidity flexibility.

State of Bremen – Risk Profile Assessment

Risk profile Revenue

robustness Revenue

adjustability Expenditure

sustainability Expenditure adjustability

Liabilities &

liquidity robustness

Liabilities &

liquidity flexibility Stronger Stronger Stronger Stronger Stronger Stronger Stronger Source: Fitch Ratings

Rating History

Date

Long-Term Foreign- Currency IDR

Long-Term Local-Currency IDR

25 Oct 16 AAA

25 Mar 99 AAA Source: Fitch Ratings

State of Bremen

Socioeconomic Indicators

Bremen Country

Population (m) 0.7 82.9

2011-2018 average annual population growth (%)

0.5 0.5

GDP per capita, 2018

(EUR) 50,389 40,851

Unemployment rate,

February 2020 (%) 10.2 5.3 Poverty rate, 2018

(%) 22.7 15.5

Source: Fitch Ratings, VGR der Laender, Arbeitsagentur, destatis, State of Bremen

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Revenue Robustness: Stronger

The ‘Stronger’ assessment is driven by the high share of stable revenue sources due to a strong and diversified tax base and stable transfers from the Bund. We consider Bremen, in line with the other 15 Laender, to be resilient to any potential shocks, mitigating the risk of a shrinking revenue base.

The Laender’s main revenue sources are corporate income tax (CIT), value added tax (VAT) and personal income tax (PIT). These are shared between the Bund, the Laender and – to a lesser extent – the municipalities. By law the Laender receive 50% of CIT and 42.5% of PIT.

The shares of VAT result from a more complex allocation process and the shares vary marginally yoy. In 2018, the share was 46.6% for the Laender, 50.2% for the Bund and 3.2% for the municipalities. The common tax revenues accounted for 73.4% of the total tax collected in Germany in 2017.

In 2018, tax revenue accounted for 65.8% of Bremen’s operating revenue, with PIT (18.9%), VAT (18.2%) and business tax (10.6%) the largest contributors. The Laender’s tax revenue growth has been above national GDP growth over the past five years.

Revenue Adjustability: Stronger

The ‘Stronger’ assessment of Revenue Adjustability is supported by a strong record of constitutionally established revenue equalisation – an essential part of Fitch’s rating assessment – which links the rating of Bremen and that of all the Laender to that of the Bund.

Extensive equalisation systems and a broad solidarity pact compensate for the financial disparity. This equalisation framework requires financially stronger Laender to transfer part of their above-average tax proceeds to the financially weaker ones. The framework partly offsets the differences among Laender’s tax revenue base and their financial strength.

The most recent reform of the “Bund-Laender-Finanzbeziehungen” (the financial equalisation system) confirms the stability of revenue equalisation and is likely to increase transfers to financial weaker Laender and lower the burden on the net donor states, which we assess as credit positive. Bremen is a net receiver from the system and is eligible – together with the State of Saarland (AAA/Stable/F1+) – for an additional EUR400 million annually.

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Taxes Transfers received Fees, fines and other operating revenue Interest revenue Capital revenue

Source: Fitch Ratings, State of Bremen (EURm)

Revenue Structure

Revenue Breakdown, 2018

Operating revenue (%)

Total revenue (%)

PIT 18.9

VAT 18.2

Business tax 10.6

Other tax items 18.1

Transfers 34.1

Other 0.1

Operating

revenue 100.0 95.9

Financial revenue 1.2

Capital revenue 2.9

Source: Fitch Ratings, State of Bremen

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Expenditure Sustainability: Stronger

The Laender have a prudent record of control over operating expenditure (opex). This is demonstrated by opex growth consistently below that of operating revenue. The main spending items consist of education and science, social security and administrative costs, which have a counter-cyclical nature. In times of economic stress, counter-cyclical measures are taken by the Bund.

Laender have been applying cost consolidation measures since 2010, resulting in opex growth below that of operating revenue growth, to comply with the debt brake rule from 2020. The Laender have maintained tight control of spending and began efforts in 2010 to keep opex growth consistently below that of operating revenue. Bremen and Saarland’s cost- consolidation measures were subject to supervision and control by the German Stability Board and it is monitoring the general budget developments for the remaining Laender.

Expenditure Adjustability: Stronger

The Laender have effective budget rules and have shown a strong ability to limit expenditure growth in recent years ahead of the debt brake. There is a moderate share of inflexible spending items, with personnel costs and transfers accounting for 89.6% of Bremen’s opex in 2018. Capex accounted for a moderate 11.1% of Bremen’s total spending in 2018. Despite the limited flexibility in adjusting capex, Bremen has a good record of cost consolidation to achieve balanced budgets and keep opex growth below the growth of operating revenue and a consistent high operating margin ranging between 17% in 2016 and 20.4% in 2018. Bremen is legally obliged to run a structurally balanced budget without taking on new net debt from 2020, which Fitch views positively.

Liabilities & Liquidity Robustness: Stronger

Bremen, like the other German Laender, operates within a solid national framework for debt and liquidity management and is showing strict market discipline, which Fitch views as credit- positive. As part of one of the largest subnational issuer groups, Bremen has very good access to the capital markets, with a strong record. Bremen regularly taps the markets with benchmark issue sizes and has an even maturity profile. Bremen frequently issues short-term bonds to cover requests stemming from margin calls of their swap counterparties (Bremen has contracted swaps to mitigate the risk of future increasing interest rates.

As interest rates are very low, Bremen has a negative net present value of its swap portfolio and subject to margin calls. Fitch does count these short-term obligations towards Bremen debt, as this is rather an accounting issue. We view low concentration risk due to the maturity profiles and no exposure to foreign-currency debt. Floating interest rate issues are hedged.

Bremen is therefore not exposed to market volatilities and, due to its frequent refinancing, consistently reduces its interest burden.

Bremen has prudent debt management, predominantly funding its maturing debt by bond issues during 2019. The average lifetime of capital market debt decreased from 7.2 years in 2018 to 6.6 years in 2019 and the average annual interest rate slightly increased to 3.03% in 2019 (2018: 2.93%). The slight increase of interest rates is based on Bremen’s use of swaps to lock in interest rates for future debt to protect against an increase of interest rates.

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Operating expenditure Interest expenditure Capital expenditure

Source: Fitch Ratings, State of Bremen (EURm)

Expenditure Structure

Expenditure Breakdown, 2018

Opex (%)

Total expenditure (%) Personnel costs 38.4

Goods and services 10.4 Current transfers

made 51.2

Other 0.0

Operating

expenditure 100.0 78.0

Financial charges 10.9

Capital expenditure 11.1

Debt Analysis

2018 End- Fixed-rate (% of direct debt) 92.2 Short-term debt (% of direct debt) 9.3 Apparent cost of debt (%) 2.9 Average maturity (year) 7.2 Debt service (2018, EURm) 2,928 Operating balance (2018, EURm) 1,124 Source: Fitch Ratings, State of Bremen

Liquidity

(EURm) End-2018

Available cash 0.0

Unrestricted cash 0.0

Undrawn committed credit lines 0.0 Source: Fitch Ratings, State of Bremen

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At end-2018, Bremen’s guarantees totalled EUR1.25 billion (end-2017: EUR1.55 billion) and we view the state’s risk towards these guarantees to be rather low and no particular concentration on a single project. The debt of its majority-owned shareholdings (government- related entities, GREs) amounted to EUR2.6 billion at end-2018, corresponding to 11% of its direct debt. The two largest single items are GEWOBA Aktiengesellschaft Wohnen und Bauen and its development bank, the Bremer Aufbau-Bank GmbH. GEWOBA (30% of GREs’ debt in 2018) services its debt itself. For the bank, Bremen provides a deficiency guarante e and maintenance obligation and is liable for all its obligations (29% of GREs’ debt in 2018). We assume the bank’s debt’s risk to be limited, as the bank business is focussed on supporting the local economy and supervised by the state.

Liabilities & Liquidity Flexibility: Stronger

There is a strong framework for emergency liquidity support from upper-tier governments, with counterparty risk on treasury facilities above the ‘A+’ level. Bremen’s well-established and active liquidity management system, together with its sound access to capital markets and corresponding strong refinancing capacity and appropriate treasury facilities should prevent any temporary delays in the provision of liquidity and support. Bremen’s liquidity risk is largely offset through bilateral and mutual agreements linking all Laender and the Bund, and ensuring their ability to assist one another. Liquidity would only fail to be forthcoming for Bremen if there were a complete federal breakdown, in which neither the other Laender nor the Bund itself could provide liquidity.

All the liquidity provision facilities reflect the strong financial support mechanism, anchored in the German financial constitution: the Bund and the Laender would support a single state facing financial distress. This sub-factor is core for Fitch’s rating approach to the German Laender.

0.0 0.2 0.4 0.6 0.8 1.0

0 6,000 12,000 18,000 24,000 30,000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Overall Adjusted Debt Structure

Contingent liabilities (LHS) Adjusted debt (LHS)

Unrestricted cash/overall adjusted debt (%) (RHS)

(EURm) (%)

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Debt Sustainability of ‘bbb’

Debt Sustainability – Type A

Primary metrics Secondary metrics

Economic liability burden (%)

Payback (x)

Coverage (x)

Fiscal debt burden (%)

aaa X ≤ 40 X ≤ 5 X >= 4 X ≤ 50

aa 40 < X ≤ 70 5 < X ≤ 9 2 ≤ X < 4 50 < X ≤ 100

a 70 < X ≤ 100 9 < X ≤ 13 1.5 ≤ X < 2 100 < X ≤ 150

bbb 100 < X ≤ 140 13 < X ≤ 18 1.2 ≤ X < 1.5 150 < X ≤ 200 bb 140 < X ≤ 180 18 < X ≤ 25 1 ≤ X < 1.2 200 < X ≤ 250

b X >180 X > 25 X < 1 X > 250

Note: Yellow highlights show metric ranges applicable to Bremen.

Bremen’s debt sustainability is assessed at ‘bbb’. This assessment reflects its slightly weakening economic liability burden increasing to 92.4% in the medium term in our rating case scenario (2018: 88.5%) and a weak coverage ratio (Fitch’s synthetic calculation) likely to remain well below 1x. We expect the state’s high fiscal debt burden to improve close to 340%

at end-2023 from 375% in 2018.

Debt Sustainability Ratios:

 Economic Liability Burden: (Net Adjusted Debt + a Pro-Rata Share of Central Government Debt) / Local GDP (%)

 Payback: Net adjusted debt/Operating balance (x)

 Fiscal debt burden: Net adjusted debt/operating revenue (%)

 Synthetic DSCR: Operating balance/mortgage style debt annuity; Fitch’s synthetic calculation (x; see Appendix C)

0 500 1000 1500 2000 2500 3000 3500 4000 4500

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035+

Debt Amortisation Schedule 2020-2050 – Capital Repayments

Source: State of Bremen (EURm)

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Fitch’s rating case scenario ends in 2023 and is based on conservative assumptions as reflected in the table below.

Fitch’s Base and Rating Cases Main Assumptions

2019-2023 CAGR

Past 5-yr CAGR Base case Rating case

National real GDP growth (Fitch’s assumptions)^a 1.8 1.1 1.1

Operating revenue growth (%) 6.4 6.6 2.0

Tax revenue growth (%) 8.0 7.7 2.0

Transfers received growth (%) 3.2 4.4 2.0

Operating expenditure growth (%) 7.4 7.4 4.0

Net capital expenditure (average a year; EURm) 543 663 518

Apparent cost of debt (%), last year 2.7 2.9 2,9

a Macro assumptions reflect Fitch’s sovereign assumptions Source : Fitch Ratings

Sound Operating Performance and Improving Debt Ratios

Bremen has a sound operating performance record and its operating margin improved to 20.4% in 2018 from 19.2% in 2017. The average margin was 21.1% in 2014-2018. Bremen’s operating balance was EUR1,124 million in 2018 (2017: EUR1,015 million). In our rating case scenario, we expect it to decline to EUR737 million in 2023, driven by our stressed

0 30 60 90 120

2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F

aaa aa a

bbb bb b

Historical Base case Rating case

Economic Liability Burden - Fitch's Base and Rating Case Scenarios

(%)

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4

2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F

(x) Historical Base case

Rating case

Synthetic Debt Service Coverage Ratio - Fitch's Base and Rating Case Scenarios

200 300 400 500

2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F

(%) Historical Base case

Rating case

Fiscal Debt Burden - Fitch's Base and Rating Case Scenarios

Debt Sustainability Ratios – Fitch’s Rating Case Scenario

2018 2023rc Economic liability

burden (%) 88.5 92.4

Payback (x) 18.4 27.9

Synthetic coverage (x) 0.7 0.4 Actual coverage (x) 0.4 -1.1 Fiscal debt burden (%) 3751.3 339.3 rc: Fitch’s rating case

Fitch’s Rating-Case Scenario The rating case is a through-the-cycle scenario that incorporates a

combination of revenue, cost or financial risk stresses.

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At end-2018, Bremen’s direct debt totalled EUR20,649 million and its overall debt EUR24,458 million, including EUR1.2 billion of guarantees and EUR2.6 billion of debt to its majority- owned shareholdings. Based on preliminary data, the direct debt was EUR20,853 million at end-2019, so Bremen’s direct debt slightly increased by EUR213 million year-on-year.

According to the public data from the Federal Finance Ministry showing the debt of the central government and the German Laender, Bremen’s total direct debt is EUR29,823 million. This includes EUR8,970 million of short-term debt. Bremen is exposed to derivatives, which have been contracted to hedge the risk of change in interest rates, which we view positively.

However, in the low interest rate environment, the net present value of the swaps is negative and, based on netting agreements with the banks, Bremen is a net payer. We do not consider the amount of short-term obligations as debt of Bremen, as these netting agreements are an accounting issue and Bremen has a claim towards the bank in the same amount. Bremen is funding this through bond issues with a tenor below one year with zero interest rates.

We have not considered a change of the interest rate policy of the ECB in 2019-2023, but considering a reduced demand for fixed-income bonds, Bremen may face an increase of interest expenditure. In 2018, interest expenditure accounted for 11% of its operating revenue and 10% in 2023. An increase of Bremen’s interest burden will limit its operating revenue flexibility but we view this risk as limited until 2023.

Other Rating Factors

Bremen’s final IDR is driven by Fitch’s rating approach for the German Laender. The equalisation of its ratings with those of the Bund is primarily driven by the stability of the solidarity system, which underpins the creditworthiness of all Laender, irrespective of Fitch’s assessment of Bremen’s key risk factors (all ‘Stronger’), its debt sustainability (‘bbb’) and its SCP assessment of ‘a+’. No other rating factors affect the final rating.

From SCP to IDR: Factors Beyond the SCP

Support SCP

Sovereign Rating

Intergovern.

financing

Ad-hoc support Floor

Asymmetric

risks Cap

Notches above the sovereign IDR

a+ AAA - - AAA - - - AAA

Peer Analysis

German States and International Peers

German states Risk profile Primary metric (x) SCP IDR Outlook

Bremen Stronger 92.4 a+ AAA Stable

Berlin Stronger 64.2 aa AAA Stable

Hamburg Stronger 38.0 aaa AAA Stable

Saxony-Anhalt Stronger 62.1 aa AAA Stable

Schleswig-Holstein Stronger 52.6 aa+ AAA Stable

International Peers

Zurich, Canton of Stronger 14.9 aaa AAA Stable

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’ – ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.

For more information on our ESG Relevance Scores, visit https://www.fitchratings.com/site/esg.

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Appendix A

State of Bremen

(EURm) 2015 2016 2017 2018 2019rc 2023rc

Taxes 2,606 3,048 3,129 3,345 3,512 4,726

Transfers received 1,652 1,775 1,830 1,873 1,956 2,323

Fees, fines and other operating revenue 232 255 316 281 293 390

Operating revenue 4,490 5,078 5,275 5,499 5,761 7,438

Operating expenditure -3,395 -4,215 -4,260 -4,375 -4,746 -6,314

Operating balance 1,090 863 1,015 1,124 1,015 1,124

Interest revenue 64 54 65 71 72 75

Interest expenditure -579 -598 -613 -608 -600 -640

Current balance 580 320 467 587 487 559

Capital revenue 95 144 151 163 178 258

Capital expenditure -445 -457 -595 -627 -636 -690

Capital balance -350 -313 -444 -464 -458 -432

Total revenue 6,883 7,828 7,980 8,053 7,871 9,052

Total expenditure -6,446 -7692 -7,554 -7,902 -7,892 -8,925

Surplus (deficit) before net financing 229 8 23 123 29 127

New direct debt borrowing 2,235 2,551 2,489 2,320 1,860 1,280

Direct debt repayment -2,028 -2,423 -2,087 -2,292 -1,910 -1,280

Net direct debt movement 208 128 402 28 -50 0

Overall results 437 136 426 151 -21 127

Debt

Short-term debt 0 0 0 0 0 0

Long-term debt 21,228 20,881 20,444 20,562 20,562 20,562

Intergovernmental debt 88 86 83 78 78 78

Direct debt 21,316 20,967 20,527 20,640 20,640 20,640

Other Fitch-classified debt 0 0 0 0 0 0

Adjusted debt 21,316 20,967 20,527 20,640 20,640 20,640

Guarantees issued (excluding adjusted

debt portion) 1,054 1,233 1,554 1,251 1,251 1,251

Majority-owned GRE debt and other contingent liabilities

2,530 2,491 2,567 2,567 2,567 2,567 Overall adjusted debt 24,900 24,692 24,572 24,458 24,458 24,458 Total cash, liquid deposits, and sinking

funds

0 0 0 0 -21 333

Restricted cash 0 0 0 0 0 0

Unrestricted cash 0 0 0 0 0 0

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Appendix B

State of Bremen

2015 2016 2017 2018 2019rc 2023rc Fiscal performance ratios

Operating balance/operating revenue (%) 25.1 17.0 19.2 20.4 18.5 12.2 Current balance/current revenue (%) 13.7 6.2 8.8 10.5 8.6 3.2 Operating revenue growth (annual % change) 7.4 13.1 3.9 4.3 1.5 2.1 Operating expenditure growth

(annual % change)

4.5 24.2 1.1 2.1 0.3 0

Surplus (deficit) before net financing/total

revenue (%) 4.9 0.1 0.4 2.1 0.3 0.0

Surplus (deficit) before net financing/GDP (%) 0.7 0.0 0.1 0.4 0.0 0.0 Total revenue growth (annual % change) 3.3 13.5 4.1 4.4 1.5 2.1 Total expenditure growth (annual % change) 0.0 19.2 3.8 2.6 3.4 2.1

Debt ratios Primary metrics

Economic liability burden (%) 100.9 96.0 91.9 88.5 95.0 92.4

Secondary metrics

Payback ratio (x) 19.5 24.3 20.2 18.4 20.0 27.9

Fiscal debt burden (%) 474.9 412.8 389.2 375.3 369.1 339.3

Synthetic debt service coverage ratio (x) 0.6 0.5 0.6 0.6 0.6 0.4

Other debt ratios

Liquidity coverage ratio (x) 0.4 0.3 0.4 0.4 0.4 0.4

Direct debt maturing in one year/total direct

debt (%) 3.5 5.1 6.7 9.3 9.3 9.3

Direct debt (annual % change) 8.0 -1.6 -2.1 0.6 -0.2 0.0

Apparent cost of direct debt

(interest paid/direct debt) (%) 2.8 2.8 2.9 3.0 2.9 2.9

Revenue ratios

Tax revenue/total revenue (%) 56.1 57.8 57.0 58.4 58.4 58.3

Current transfers received/total revenue (%) 35.5 33.6 33.3 32.7 32.7 32.7

Interest revenue/total revenue (%) 1.4 1.0 1.2 1.2 1.2 1.3

Capital revenue/total revenue (%) 2.0 2.7 2.8 2.8 2.8 2.8

GDP deflated total revenue growth

(annual % change) 1.3 12.0 2.5 3.1 -0.4 2.1

Expenditure ratios

Staff expenditure/total expenditure (%) 28.6 30.1 29.4 30.0 23.1 27.2 Current transfers made/total expenditure (%) 40.1 41.3 40.4 39.9 30.1 36.2 Interest expenditure/total expenditure (%) 13.1 11.3 11.2 10.8 10.6 9.8 Capital expenditure/total expenditure (%) 10.1 8.7 10.9 11.2 11.0 6.0 GDP deflated total expenditure growth

(annual % change) -1.1 17.6 2.2 1.3 1.5 2.1

rc: Fitch’s rating case, based on conservative assumptions. 2023 is the last year of the rating case scenario n.a. – no data

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Appendix C: Data Adjustments

Net Adjusted Debt Calculation

 Net adjusted debt calculation (including unrestricted cash calculation if applicable)

Synthetic Coverage Calculation

Fitch’s synthetic coverage calculation assumes a mortgage-style amortisation over 15 years of the entity’s net adjusted debt, using its average cost of debt. This synthetic calculation is used to assess the German states’ debt sustainability.

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Appendix D: Rating Cases Comparisons and Rating Sensitivities

0 40 80 120 160

2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F

(%) Historical Base case Rating case

Negative trigger Positive trigger

Economic Liability Burden - Fitch’s Base and Rating Case Scenario

0 20 40 60 80 100 120

2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F

State of Bremen State of Berlin

State of Hamburg State of Saxony-Anhalt

State of Schleswig-Holstein State of North Rhine-Westphalia

Fitch-Rated German Laender Rating Case Scenarios - Economic Liability Burden

Source: Fitch Ratings, Fitch-rated German Laender (%)

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The ratings above were solicited and assigned or maintained at the request of the rated entity/issuer or a related third party. Any exceptions follow below.

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