TEXT-S&P affirms, then drops Lipetsk Oblast 'BB/ruAA' ratings

Wed Sep 26, 2012 5:43am EDT

(The following statement was released by the rating agency)

Sept 26 -

Rating Action

On Sept. 26, 2012, Standard & Poor's Ratings Services affirmed its 'BB' long-term issuer credit rating and 'ruAA' Russia national scale rating on Russia's Lipetsk Oblast. The ratings were subsequently withdrawn due to contractual issues. At the time of withdrawal, the outlook was stable.

Rationale

The ratings were constrained by the oblast's high dependence on a single taxpayer, metallurgy company OJSC NLMK (BBB-/Negative/--; Russia national scale 'ruAAA'), and the consequent volatility of its revenue and budgetary performance. The developing, unbalanced institutional framework under which Russian regions operate led to the oblast's low financial flexibility.

The ratings were supported by Lipetsk Oblast's modest debt levels and our view of financial management as neutral for creditworthiness in an international context.

At the point of withdrawal, the outlook on the oblast was stable, reflecting our opinion that despite an expected weakening of budgetary performance in 2012, Lipetsk Oblast would maintain a neutral liquidity position with cash and committed credit lines well exceeding debt service falling due within the next 12 months. Our outlook factored in the oblast's adherence to cautious financial management policies with continuing application of cost-containing measures and reliance on medium-term borrowing.

Related Criteria And Research

-- Banking Industry Country Risk Assessment: Russia, March 19, 2012

-- Public Finance System Overview: The System For Russia's Regions Is Developing And Unbalanced, Oct. 21, 2011

-- Methodology For Rating International Local And Regional Governments, Sept. 20, 2010

-- Methodology And Assumptions For Analyzing The Liquidity Of Non-U.S. Local And Regional Governments And Related Entities And For Rating Their Commercial Paper Programs, Oct. 15, 2009

Ratings List

Ratings Affirmed

Lipetsk Oblast

Issuer Credit Rating BB/Stable/--

Russia National Scale Rating ruAA

Ratings Withdrawn

To From

Lipetsk Oblast

Issuer Credit Rating NR BB/Stable/--

Russia National Scale Rating NR ruAA

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