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

Fri Jun 13, 2014 11:35am EDT

(The following statement was released by the rating agency) WARSAW/PARIS/LONDON, June 13 (Fitch) Fitch Ratings has affirmed the Polish City of Plock's foreign and local currency Issuer Default Ratings (IDRs) at 'BBB' and Long-term National rating at 'A+(pol)'. The Outlooks are Stable. Fitch has also affirmed Plock's PLN80m and PLN86.9m senior unsecured bonds' Long-term local currency rating at 'BBB' and their National Long-term rating at 'A+(pol)'. KEY RATING DRIVERS The ratings reflect Plock's wealthy tax base, high financial flexibility and moderate debt. The ratings also take into consideration the city's volatile operating performance in 2012-2013 and the growing debt of municipal companies, although this is unlikely to put considerable pressure on the city's budget. Plock's stable and wealthy tax base supports high tax revenue. Petrochemical companies with their large property estate provide high property tax revenue (25% of operating revenue), and high personal income taxes (PIT; 20% of operating revenue) to the city's budget. They also support high corporate tax revenue (CIT) but expose the city's budget to the economic cycle of the oil industry, which can have a knock-on effect on CIT revenue, as in 2012-2013. Fitch expects Plock to post satisfactory operating performance with an operating margin of 8%-9% in 2014-2015. In 2013 Plock's operating balance declined to PLN43m, or 6.5% of operating revenue (2012: PLN85.6m or 12.2%) as a result of significantly lower revenue from CIT following the refund of overpaid tax to one of the largest taxpayers in the city. Pressure on operating spending could continue in the medium term, albeit mitigated by the rationalisation measures already launched. For 2014-2015 we expecting operating expenditure to grow 3% annually but below forecast operating revenue growth of 4%. Fitch forecasts the city's debt will grow in 2014 to PLN440m from PLN389m at end-2013 but should remain moderate at about 60% of current revenue, before stabilising in 2015-2016. In December 2013, Plock issued bonds to prepay PLN86.9m of its debt, taking advantage of favourable market conditions and improving its debt maturity profile. Debt restructuring and the deterioration of operating performance, however, caused the debt payback ratio to increase to 14 years in 2013, from five in 2012. Nevertheless, Fitch expects this ratio to improve to 10-11 years in 2014-2015. Fitch expects the city's contingent liabilities to rise in the medium term, to about PLN160m in 2015 from PLN130m at end-2013, although they should not put heavy pressure on Plock's budget. The increase would be driven by the rising debt of municipal companies as they implement investments co-financed by the EU. RATING SENSITIVITIES The ratings could be downgraded if the city is unable to restore its operating performance on a sustainable basis with the operating balance insufficient to meet debt service obligations. The ratings could be upgraded if the city improves its operating margin to above 12% on a sustainable basis with the operating balance fully covering annual debt service. Contact: Primary Analyst Magdalena Mikolajczak Analyst +48 22 338 62 85 Fitch Polska S.A. 16 Krolewska Street, Warsaw 00-103 Secondary Analyst Dorota Dziedzic Director +48 22 338 62 96 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; 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: International Local and Regional Governments Rating Criteria - Outside the United States here Tax-Supported Rating Criteria 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.

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