Fitch Affirms Polish City of Katowice at 'A-'; Outlook Stable

Fri Feb 7, 2014 11:36am EST

WARSAW/LONDON, February 07 (Fitch) Fitch Ratings has affirmed the Polish City of Katowice's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'A-'. Fitch has also affirmed the city's National Long-term rating at 'AA+(pol)'. The Outlooks are Stable. KEY RATING DRIVERS The affirmation reflects Katowice's continued good operating performance, albeit weaker than in previous years, but still in line with Fitch's expectations and the ratings. The ratings take into account Katowice's high liquidity buffer, which supports debt servicing, and its wealthy economy and tax base. The ratings also factor in the city's projected moderate direct and indirect debt in 2014-2015. Fitch expects the city's operating performance to continue its weakening trend in 2014-2015, although it should remain above the city's rating peers and provide strong debt coverage. Fitch estimates the city's operating margin in this period will hover around 9%-10% (2013: 10.7% according to the city's estimate). This would correspond on average to PLN140m of projected operating balance, which should 2.5x cover debt service (including debt repayment and interest). In Fitch's view, opex growth will continue to exceed operating revenue growth. This will result from the city's policy, which aims at providing a high level of services to the city's inhabitants and investment providers. The city's liquidity buffer will be partially absorbed by capex in 2014-2015, but should remain strong, about PLN200m (PLN390m in 2013), covering the city's annual debt service, which is projected at about PLN50m on average. Following investments, Katowice's debt could peak at about PLN700m at end-2014 (end-2013: PLN600m), but will still account for a moderate 45% of current revenue (43% in 2013). The city has already secured all its debt financing needs for 2014-2015 investments, with PLN105m available under the contracted long-term loans. The direct debt to current balance ratio should remain healthy, at about six years (four years in 2013), which will be well below the city's average debt maturity (of about 19 years). RATING SENSITIVITIES An upgrade of the sovereign rating, accompanied by the continued good operating performance, with reducing pressure on debt-funded capex, could trigger positive rating action. A downgrade could result from a significant deterioration of the city's debt coverage above nine years due to a sustained deterioration in the operating margin or a significant rise in the city's net direct risk. Contact: Primary Analyst Maurycy Michalski Associate Director +48 22 330 67 01 Fitch Polska S.A. 16 Krolewska Street Warsaw 00-103 Secondary Analyst Magdalena Mikolajczak Research Analyst +48 22 338 62 85 Committee Chairperson Vladimir Redkin Director +7 495 956 99 01 Media Relations: 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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