Fitch Affirms City of Madrid at `BBB'; Outlook Negative

Tue Oct 22, 2013 11:34am EDT

BARCELONA, October 22 (Fitch) Fitch Ratings has affirmed the City of Madrid's (Madrid) Long-term foreign and local currency ratings at `BBB'. The Outlook on the ratings is Negative. Fitch has also affirmed the Short-term foreign currency rating at `F2'. KEY RATING DRIVERS The affirmation reflects the City of Madrid's strong economy, growing tax base as well as a volatile current margin and significant debt. The ratings also reflect Fitch's expectations that the city will improve its financial performance and that it will deleverage over the medium term. Madrid is the political capital of Spain and the seat of political decision-making in the country. Fitch considers that as Spain's administrative centre Madrid is less exposed to economic cycles than other cities in Spain. Since 2010 Madrid has lost 1.2% of its population to reach 3.23 million in 2012, but remains the country's largest city at 7% of the national population. Between Q208 and 2013, the number of jobseekers rose 2.2x in Madrid versus 2.5x for Spain. Unemployment in the region of Madrid was estimated at 19.5% versus 26.3% for Spain at Q213, and its GDP per capita was estimated at 29% above national average. Property tax, the city main source of tax revenue, is rather resilient to the economic cycle and has benefitted from an increase of the tax rate as well and in the value of properties on the city fringe. Consequently, property tax amounted to EUR1201m in 2012, up from EUR305m in 2002, and is estimated by the city at EUR1.2bn in 2013, or 26% of current revenue. The city estimates that its debt will reach EUR6.78bn at end-2013, up from EUR4.18bn at end-2010, following its decision to assume the debt of several companies under the city's administration. Excluding these liabilities, the city's debt would only reach EUR4.2bn at end-2013. The city faces debt repayment of EUR700m per year up to 2015. Over the long-term, Madrid expects its debt to decline sharply, mainly as a consequence of limited investments. The city has also passed measures to contain operating expenditure growth and, in particular, to restructure its public sector entities. In its updated financial plan, Madrid said it would either cut spending or review some of the tax exemptions currently in place should current revenue be lower than expected. The city expects its current balance to improve to EUR1.2bn in 2013 from EUR989m in 2012 and EUR0.5bn in 2011, which would mean a strong current margin of 26% versus 22.9% in 2012 and 13% in 2011. Fitch expects the current margin to slightly decline in the next three years but should remain above 20% up to 2015. Madrid is the political capital of the Autonomous Community of Madrid (BBB/Negative/F2) and the political and economic capital of Spain (BBB/Negative/F2). Like other cities in Spain, Madrid is responsible for town planning, street lighting, waste collection and treatment, local police and public transport. RATING SENSITIVITIES The Outlook is Negative in line with the ratings of the Kingdom of Spain and any downward rating action of the sovereign would be replicated in the ratings of Madrid. The ratings may also be downgraded if Madrid is unable to deliver its targets according to its financial plan, with a weak current balance or an inability to deleverage. Contact: Primary Analyst Guilhem Costes Senior Director +34 93 323 8410 Fitch Ratings Espana, S.A.U. Paseo de Gracia, 85, Barcelona 08008 Secondary Analyst Fernando Mayorga Managing Director +34 93 323 84 00 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, "Tax-Supported Rating Criteria" dated 14 August 2012, and "International Local, Regional Governments Rating Criteria outside United States" dated 9 April 2013 are available at www.fitchratings.com Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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