Fitch Affirms Polish City of Torun at 'BBB'; Outlook Stable

Mon Dec 2, 2013 11:34am EST

FRANKFURT/LONDON/WARSAW, December 02 (Fitch) Fitch Ratings has affirmed the Polish City of Torun Long-term foreign and local currency ratings at 'BBB' with Stable Outlook. Fitch has also affirmed the city's National Long-term rating at 'A(pol)' with Stable Outlook. KEY RATING DRIVERS The affirmation reflects Torun's sound financial and strategic management, and Fitch expectations that the city will maintain strong operating results, and attain satisfactory debt coverage ratios over the medium- to long-term. The ratings also take into account the city's fairly high debt following investments, and expected increase in the debt of the city's municipal companies. Fitch expects the city to maintain strong operating results in the medium term, with its operating balance accounting for 13%-14% of operating revenue in 2014-2015 (13.4% projected for 2013). Its operating balance should be sufficient to cover debt service, estimated at about PLN110m annually for 2014-2015. Fitch takes a positive view of the city's financial and strategy management, particularly its long-term financial projections, its on-going monitoring of financial markets and its budgetary execution. However, the city's aggressive investment policy has led to high indebtedness. The city's direct risk may reach almost PLN900m at end-2013 before stabilising at about PLN1bn in 2014-2015, accounting for a high 115% of current revenue. However, Fitch expects debt coverage ratios to remain satisfactory, at 14 years in 2014-2015 (12.5 years projected for 2013) due to the city's strong operating performance. Although the city's debt is fairly high, it is within national debt limits and its long maturity profile positively distinguishes Torun from its peers. Due to the investments of municipal companies, Fitch expects Torun's indirect debt to rise to about PLN480m in 2015 from PLN200m in 2012. Once the investments are complete in 2015 Fitch expects the city will support the companies' debt servicing with capital injections. RATING SENSITIVITIES A downgrade could result from deterioration in operating performance or from direct debt exceeding Fitch's projections, leading to stressed debt-service and debt-coverage ratios, with operating balance insufficient for debt service. The ratings could be upgraded if direct and indirect debt starts to follow a declining trend, after completion of the investments, and if the city maintains strong operating performance. Contact: Primary Analyst Renata Dobrzynska Director +48 22 338 62 82 Fitch Polska S.A. 16 Krolewska Street Warsaw 00-103 Secondary Analyst Maurycy Michalski Associate Director +48 22 330 67 01 Committee Chairperson Guido Bach Senior Director +49 69 768 076 111 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012, and 'International Local and Regional Governments Rating Criteria outside United States', dated 9 April 2013, are available on 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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