RATINGS RATIONALE

The affirmation of Land Baden-Wuerttemberg's Aaa ratings follows Moody's decision to downgrade the ratings of Landesbank Baden-Württemberg (LBBW) to A3/P-2 with stable outlook, from A2/P-1 on 06 June 2012, thereby concluding the rating agency's review for downgrade of the Landesbank's ratings. The decision to maintain the Aaa ratings of the Land of Baden-Wuerttemberg reflects Moody's assessment that the downgrade of LBBW has only a limited impact on the Land, despite the latter's exposure to the bank via high contingent liabilities, comprising direct guarantees for a risk-shield and a deficiency guarantee, in addition to the Land's responsibilities as a co-owner of LBBW (the Land's share is 40.5%, thereof 19.6% direct ownership). For more details regarding the key drivers for the downgrade of LBBW's ratings, please refer to (http://www.moodys.com/research/Moodys-takes-multiple-actions-on-German-banks-ratings-most-outlooks--PR_247330).

"In Moody's view, the Land's exposure to the bank and related risks still appear manageable given its stable credit metrics and improving budgetary situation," says Moody's Analyst Andrea Wehmeier. "However, the adjustment of Land Baden-Wuerttemberg's BCA to 3 from 2 was prompted by the downgrade of LBBW's standalone credit rating (or BCA) to ba1 from baa3, combined with the impact of the contingent liabilities arising from the related Landeskreditbank Baden-Wuerttemberg Förderbank (L-Bank, rated Aaa, stable) and planned capital support measures for Energie Baden-Wuerttemberg AG (A3, negative)," adds Ms. Wehmeier.

Land Baden-Wuerttemberg is one of the strongest economic regions in Germany, but is exposed to global economic developments given its position as a major exporter. With 11 million inhabitants and a GDP of EUR 362 billion, the Land is one of the largest of the 16 German Laender (or regions). Baden-Wuerttemberg has a strong and diversified regional economy, based on a mixture of medium-sized companies and several large corporations, making it one of the wealthiest regions in Europe.

WHAT COULD CHANGE THE RATING UP / DOWN

Although unlikely, a deterioration in Land Baden-Wuerttemberg's credit metrics and rising indebtedness could pressure the rating. Additional pressure may come in the event that the Land's bank-related risk exposure, both to the Landesbank LBBW and L-Bank, materialise. Moody's considers that Germany's general legal framework and federal support mechanisms are key factors supporting the rating. Alterations in the fundamental supportive structure of the sector or a change in the sovereign rating could lead to a negative rating action.

METHODOLOGY

The methodologies used in this rating were The Application of Joint-Default Analysis to Regional and Local Governments published in December 2008, and Regional and Local Governments Outside the US published in May 2008. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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Andrea Wehmeier Vice President - Senior Analyst Sub-Sovereign Group Moody'sDeutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 David Rubinoff MD - Sub-Sovereigns Sub-Sovereign Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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