News Column

Moody's assigns Aa3 to City of Nagoya's domestic bonds

August 3, 2014

Moody's Japan K.K. has assigned a Aa3 rating to a domestic bond issued by City of Nagoya. The rating outlook is stable.

The bond issuance is:

 JPY10 billion Series 1 senior unsecured bonds due 2024 (Scheduled



The Aa3 rating assigned to Nagoya reflects the Moody's view that given the close linkage between the government of Japan (Aa3, stable) and the regional and local governments (RLGs), their ratings should be the same.

A key component of the ratings of Nagoya and other RLGs is the extremely high likelihood that in the event of a liquidity crisis the Japanese government would step in to provide immediate assistance. The country's highly centralized system of local government as well as Japan's unique history of risk socialization provides clear evidence that this support would be forthcoming.

The considerable level of oversight and supervision of the RLGs exercised by the central government ensures that any credit issues at the RLGs are uncovered and addressed early, thereby bolstering the probability of extraordinary support.

The well-developed equalization system of transfers, or the Local Allocation Tax (LAT) system, assures that no individual entity's revenues would fall to a level that would require emergency assistance. This feature is a clear indication of the government's strong policy stance towards preventing a default at any of the RLGs.

Nagoya's ratings also reflect its higher debt burden compared to most designated cities rated by Moody's, offset in part by its strong liquidity position, and a wealthy local economy, which underpins a strong own-source revenue base.

City of Nagoya is one of 20 designated cities in Japan and has a population of 2.2 million. Its local GDP is JPY12 trillion, according to the most recent statistics.

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Source: EMBIN (Emerging Markets Business Information News)

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