Rating action

Scope Ratings GmbH (Scope) has assigned long-term issuer and senior unsecured debt ratings of AA+/Stable to Telemark County Municipality (Telemark) in both local and foreign currency. Additionally, Scope has assigned short-term issuer ratings of S-1+/Stable in both local and foreign currency.

Rating rationale

The AA+ rating assigned to Telemark is based on:

• A strongly integrated institutional framework for Norwegian counties: The framework ensures financial stability through fiscal equalisation, central grants, and proactive government support, balancing autonomy with oversight to maintain fiscal discipline and address disparities. Scope’s evaluation of the institutional framework places Norwegian counties within an indicative rating range spanning from AAA to AA. This assessment reflects their strong integration with the Norwegian sovereign (AAA/Stable).
   
• A robust individual credit profile. Telemark County Municipality benefits from moderate debt levels, effective debt management, solid liquidity and adequate reserves, with limited risks from contingent liabilities. Challenges include high operating expenditures, structurally limited revenue flexibility, and demographic pressures that weaken financial performance and restrict the county’s ability to absorb shocks.

Key rating drivers

Strong intergovernmental integration with the Norwegian sovereign. Scope’s evaluation of the institutional framework places Norwegian counties, including the County of Telemark, within an indicative rating range of AAA to AA, reflecting their strong integration with the Norwegian sovereign (AAA/Stable). This robust framework underpins their financial and operational resilience, effective governance, and proactive central government support. However, Norwegian counties face challenges such as dependence on central transfers and adaptation to recent equalisation reforms.

Norway’s fiscal equalisation system redistributes revenues to offset demographic and regional cost differences, ensuring broadly comparable financial capacity across counties. In parallel to the 2024 split of counties, which also affected ‘Vestfold og Telemark’, the General-Purpose Grant Scheme was revised. While some counties benefit and others lose, the scheme’s core function of expenditure and income equalisation remains unchanged. Grants typically constitute the majority of operating revenue for all counties (on average around 60%). The second largest income is from tax revenue, while revenues from alternative sources, such as service fees and energy concessions, remain very limited for most counties.

Norway's sub-sovereign support framework is highly predictable, characterised by proactive interventions from the central government, including supervisory oversight and crisis-response mechanisms such as grants and cost compensation. Fiscal discipline is enforced through the Local Government Act, which mandates an operational budget balance and deficit correction within two years. Counties facing imbalances are monitored through the ROBEK registry. In times of crisis, the government has consistently reinforced stability through grants and cost compensation mechanisms, reflecting a credible history of support.

Norwegian counties maintain substantial autonomy in sourcing funds through banks, bonds, and the state-owned Kommunalbanken (KBN), which offers favourable financing aligned with government policy. This underpins the financial resilience of Norwegian counties.

Finally, Norwegian sub-sovereigns play a significant role in national policymaking through effective coordination with the central government and inter-regional cooperation. Mechanisms like KS (Norwegian Association of Local and Regional Authorities) ensure balanced decision-making and stable governance.

Telemark’s individual credit profile is supported by moderate debt levels, effective debt management, solid liquidity and adequate reserves, with limited risks from contingent liabilities.

Moderate debt levels support the AA+ rating. At end-2024, the county’s long-term debt as a share of operating income stood at 80.4%. While the measure marginally surpassed the self-imposed target of 80%, debt levels are roughly in line with peers. While the county plans to stabilise this ratio through 2029, achieving this will require strict budget discipline and the full implementation of planned efficiency and savings measures, including reductions in staffing and discretionary spending. Given significant operating pressures and elevated investment needs, limiting further debt accumulation will depend on continued use of contingency reserves to reduce additional borrowing requirements.

Effective debt management. Telemark benefits from effective debt management, with self-imposed financial targets guiding financial management and monitoring, in addition to the regulations set out in the Local Government Act. Similarly to peers, the county benefits from a resilient debt profile, with no exposure to foreign exchange risks, and a high share (65% at end-August 2025) of net exposed debt at fixed rates. Telemark did not make use of interest rate hedges in the form of swaps in 2024. The average interest rate on outstanding loans stood at 4.71% at end-August.

While some exposure to interest rate movements remains given a moderate average fixed-interest period of 1.87 years and the fact that 69.5% of fixed-rate debt has a remaining fixed period of less than one year, this risk is mitigated by Telemark’s access to Kommunalbanken. As a state-owned development bank and the county’s largest lender, accounting for 64% of its debt portfolio, Kommunalbanken provides stable and relatively low-cost long-term funding.

At end-August, 31.7% of Telemark’s debt portfolio had a maturity of less than one year, exceeding the 30% regulatory limit. Although this breach is linked to transitional effects from the division of the former county and is expected to be corrected through refinancing in December, it nevertheless highlights tighter short-term refinancing needs.

Telemark benefits from solid liquidity and adequate reserves. Telemark’s credit profile is supported by adequate reserves that help absorb the transition to the new operating framework. At end-2024, the provision fund stood at 15.8% of gross operating revenues, well above the 10% target. Even excluding the premium deviation fund, reserves remained solid at 10.8%. These buffers are expected to decline over the planning horizon as they are used to support capital transfers amid ongoing operating pressures, a common trend seen across counties. Cash holdings decreased slightly in 2024 but continued to cover more than 12 months of debt service. Additionally, access to Kommunalbanken, ensures reliable external funding, safeguarding against liquidity risks.

Telemark’s exposure to contingent liabilities remains low-risk and well-controlled. Most outstanding guarantees are tied to Vegfinans Vestfold og Telemark AS, one of the financing arms of the regional toll road operator. Despite significant guarantee volumes, Vegfinans’ low-risk business model ensures a minimal probability of guarantee activation. Additionally, pension-related liabilities are well-covered, with pension funds accounting for 96% of obligations at end-2024, reducing long-term financial strain.

Challenges for Telemark relate to high operating expenditure, limited revenue flexibility, and demographic pressures.

High operating expenditures. Telemark recorded a NOK 93.6m deficit in 2024, materially weaker than budgeted and indicative of a cost base misaligned with the county’s revised income framework following the split of ‘Vestfold og Telemark’. Uncertainties following the split of the counties are coupled with higher personnel costs and inflationary pressures across service areas. The net operating margin fell to -2.4% of gross operating revenue, the weakest among peers and well below the +3% target, signalling limited headroom to absorb shocks, rebuild reserves, or finance investments from operating activities.

Given persistent expenditure pressures and only moderate revenue growth, Scope expects the margin to remain below target for several years, with a gradual recovery only towards 2029. Cost rigidities, such as in education, transport, and personnel-heavy services, limit the county’s ability to adjust spending. To address these pressures, the county has initiated savings measures. However, the planned operating reduction of up to NOK 200m in the next few years and NOK 75m in 2026 will require strict prioritisation, tighter cost control, and sustained effective budgetary management.

Limited revenue flexibility and demographic pressures. Telemark’s budgetary performance is structurally constrained by limited revenue-raising capacity, as framework grants and taxes account for over 70% of operating income and provide little room for discretionary increases. This revenue rigidity restricts the county’s ability to respond to rising operating costs, absorb shocks or finance expanding service demands, leaving expenditure adjustment as the primary consolidation tool.

Demographic developments present a challenge despite considerations within the equalisation system. An ageing population will intensify demand for health, care and mobility services, structurally raising operating costs. At the same time, a projected decline in the 16 to 18 age group, which is central to the equalisation formula, will reduce equalisation transfers over the coming years. Absent changes to the revenue system, Telemark could face a reduction in discretionary income of around NOK 158m by 2040, compared with a NOK 28.2m positive compensation in 2025 for the 16–18-year-olds. Although Norway’s equalisation system remains robust by international standards, it does not fully offset these structural headwinds, reinforcing the county’s limited budgetary flexibility.

Rating-change drivers

The Stable Outlooks reflect Scope’s view that risks to the ratings are balanced over the coming 12 to 18 months.

Upside scenarios for the ratings and Outlooks are if (individually or collectively):

1. Reforms to the institutional framework materially strengthened regions’ integration in institutional arrangements.
    
2. Telemark’s individual credit profile strengthened significantly.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. The Kingdom of Norway’s ratings/Outlooks were downgraded.
    
2. Reforms to the institutional framework materially weakened regions’ integration in institutional arrangements.
    
3. Telemark’s individual credit profile weakened significantly.

Qualitative Scorecards (QS1, QS2)

Scope’s institutional framework assessment determines the intergovernmental integration between sub-sovereigns and their rating anchor, which is the sovereign or a higher-tier government. To perform this assessment, Scope applies the Institutional Framework scorecard (QS1), centred on six analytical components: i) exceptional support and bailout practices; ii) systemic budgetary support and fiscal equalisation; iii) funding practices; iv) fiscal rules and oversight; v) revenue and spending powers; and vi) political coherence and multilevel governance.

Scope considers the institutional framework under which the Norwegian counties operate to display ‘strong’ integration for exceptional support and bailout practices, funding practices, fiscal rules and oversight, and political coherence and multilevel governance. The system displays ‘full’ integration for systemic budgetary support and fiscal equalisation, and revenue and spending powers. Consequently, Scope's assessment of the institutional framework establishes an indicative minimum rating of ‘aa’ for Norwegian counties.

Furthermore, Scope assesses the individual credit profile based on quantitative and qualitative analysis of four risk categories: i) debt and liquidity; ii) budget; iii) economy; and iv) ESG.

The outcome of these assessments, as reflected in the application of the Individual Credit Profile scorecard (QS2), is an individual credit profile score for Telemark of 55 out of 100.

The mapping of this score to the range defined by the Institutional Framework assessment results in an indicative rating of ‘aa+’ for Telemark.

The review of potential exceptional circumstances that cannot be captured by the Institutional Framework and Individual Credit Profile scorecards did not lead to further adjustments to Telemark’s indicative rating.

As such, the final rating corresponds to the indicative rating of AA+.

Environment, social and governance (ESG) factors

ESG factors material to Telemark’s credit quality are captured by Scope’s rating approach through several analytical areas.

Scope’s assessment of Norway’s sovereign credit quality includes an appraisal of ESG risks as detailed in Scope’s Sovereign Rating Methodology.

Governance considerations are material to Telemark’s rating and are included in Scope’s institutional framework assessment and its assessment of the county’s individual credit profile. These assessments highlight the robust quality of governance alongside the administration’s practices of sound liquidity and conservative financial planning.

The institutional framework assessment captures governance factors under fiscal rules and oversight, assessed as ‘strong integration’ for the Norwegian counties reflecting the financial rules mandated by the Local Government Act and close monitoring of finances. Additionally, governance factors are captured by political coherence and multilevel governance assessed as ‘strong’ integration for the Norwegian counties. This reflects extensive inter-regional cooperation that fosters policy coordination and a balanced, stable government structure.

The individual credit profile captures governance factors under the ESG ‘Governance and transparency’ component, which is assessed as Stronger. This assessment reflects transparent policymaking, a stable and predictable political environment, and forward-looking financial planning and management that tracks self-imposed fiscal targets.

Social considerations are reflected in Scope’s assessment under the ESG ‘Social factors’ component, which is assessed as Neutral. While demographics are considered within the equalisation system, which mitigates risks compared to other regions across Europe, developments in the older age groups and the 16–18-year-olds are a key determining factor for social expenses as well as income levels from the equalisation system.

Environmental factors are reflected in Scope’s assessment under the ESG ‘Environmental factors’ component, which is assessed as Neutral. Emissions in Telemark are dominated by industry, mainly by five plants in Grenland. In 2023, the category ‘industry, oil and gas’ accounted for around 80% of all emissions in Telemark, and this is the emission category that varies the most from year to year. Telemark has adopted a goal to reduce emissions by 60% by 2030, compared to 2009 (building on the national goal of reducing GHG emissions by 55% by 2030 compared to 1990).

Rating committee
The main points discussed by the rating committee were: i) institutional framework for Norwegian counties, ii) Telemark’s individual credit profile including debt, budget, economy and ESG components; and iii) peer comparison.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sub-Sovereign Rating Methodology, 12 September 2025), is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation         NO
With access to internal documents                                      NO
With access to management                                              NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Elena Klare, Analyst
Person responsible for approval of the Credit Ratings: Jakob Suwalski, Executive Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 21 November 2025.

Potential conflicts
See scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on Telemark are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see "Publication Calendar 2025 Sovereign, Sub-Sovereign and Supranational Ratings" published on 16 June 2025 on www.scoperatings.com). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case the deviation from Scope Ratings’ published calendar was due to the first-time publication of the ratings.

Conditions of use / exclusion of liability
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