Fitch Affirms City of Czestochowa at 'BBB'; Outlook Stable

Fri May 16, 2014 11:36am EDT

(The following statement was released by the rating agency) WARSAW/LONDON/MOSCOW, May 16 (Fitch) Fitch Ratings has affirmed the Polish City of Czestochowa's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB'. The Outlooks are Stable. KEY RATING DRIVERS The affirmation reflects Czestochowa's continued stable operating performance in line with Fitch's expectations, underpinned by prudent fiscal management. This allows the city to maintain healthy debt metrics with a smooth and favourable maturity profile. The ratings also take into account projected stabilisation of the city's debt. In addition, the ratings factor in the indirect risk relating to the city's hospital, which may continue to require support from the city's budget. Fitch expects the city to maintain its operating balance at about 8%-9% of operating revenue in 2014-2015 (about PLN75m-PLN80m), which will allow the city to cover its debt service obligations (instalments and interests) by about 2x. Fitch expects this to be driven by the city's continued efforts to keep operating expenditure growth below that of operating revenue and by expected recovery of income tax revenue as the national economy recovers in 2014. Fitch forecasts that Czestochowa's debt will increase to PLN480m by 2015 from PLN437m at end-2013 to finance investments projects. Debt should stabilise at a moderate 50% of current revenue, similar to 2013, given expected tax revenue growth (both income and property tax). A majority of Czestochowa's debt is drawn from the European Investment Bank, resulting in low funding costs, long maturity and a smooth debt repayment profile. We do not expect debt coverage (debt to current balance) to exceed nine years, well below the city's estimated long-term debt maturity of 14 years and hence supportive of the ratings. Fitch expects Czestochowa's capital expenditure to remain moderate in 2014-2015, averaging 13%-14% of total expenditure (2013: 13%). This is because Fitch does not expect EU funds available for Polish LGs' capex for 2014-2020 to start to be disbursed until end-2015 at the earliest. The city's contingent liabilities include the long-term debt of its public sector companies and health care units, partly guaranteed by the city. Fitch assesses this risk as low in comparison with the city's peers. Much of the city's indirect risk continues to stem from its hospital, which is in a weak financial position and may require further financial assistance from the city by means of guarantees, loans or loss cover. However, the size of such potential support should be small relative to the city's budget at below 1% of operating revenue. RATING SENSITIVITIES An upgrade may result from an improvement of the operating margin to above 11% on a sustained basis, accompanied by debt stabilisation at below 50% of current revenue. A downgrade could result if debt coverage exceeds 15 years due to a sustained deterioration in the operating margin far below Fitch's expectations, or if there is a significant rise in Czestochowa's debt. Contact: Primary Analyst Magdalena Mikolajczak Analyst +48 22 330 62 85 Fitch Polska S.A. 16 Krolewska Street Warsaw 00-103 Secondary Analyst Maurycy Michalski Associate Director +48 22 330 67 01 Committee Chair Vladimir Redkin Senior Director +7 495 956 9901 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Malgorzata Socharska, Warsaw, Tel: +48 22 338 62 81, Email: Malgorzata.Socharska@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', dated 23 April 2014, are available on www.fitchratings.com. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here International Local and Regional Governments Rating Criteria - Outside the United States here Additional Disclosure Solicitation Status here ALL 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.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.