Fitch Affirms Poland's City of Rybnik at 'A+(pol)'; Outlook Stable

Fri Jul 4, 2014 12:06pm EDT

(The following statement was released by the rating agency) LONDON/WARSAW/FRANKFURT, July 04 (Fitch) Fitch Ratings has affirmed the Polish City of Rybnik's National Long-term rating at 'A+(pol)'. The Outlook is Stable. KEY RATING DRIVERS The City of Rybnik ratings reflects the city's sound operating performance and solid strategic and financial management which, together with high capital revenue and sound liquidity, support the city's strong self-financing capacity. The rating also takes into account the city's low debt and reduced debt financing needs. These strengths are offset by persisting pressure on opex from a challenging legal framework and growing maintenance costs from completed investments. Rybnik's liquidity is much higher than in other Polish cities rated by Fitch. In 2013 the city's month-end cash balances more than three times covered its annual debt service. Its cash position at end-2013 was PLN96m, limited by demand on debt financing. Rybnik has also a liquidity credit line of PLN10m, which has been un-utilised over the last four years. Fitch expects the city's direct debt to remain in line with 2013's levels or even decline in 2014, given its high self-financing capacity. Fitch forecasts Rybnik's direct debt in 2014-2016 to remain below 15% of current revenue (2013: 13.5%). Debt coverage expected to remain at or below two years over the medium term. Rybnik has a track record of sound operating performance, which Fitch expects to continue in 2014-2016. The city should be able to keep its operating margin at 11% over the medium term. Its operating balance, which averages PLN65m, should comfortably exceed debt service. In 2013, the operating balance amounted to PLN69m, or 12.2% of operating revenue, covering debt service by three times. However, the small size of the city's budget leaves it vulnerable to a weakening of the domestic economy. Prudent financial management is demonstrated in the city's cautious budgeting, with actual results always stronger than budgeted, mainly due to strict monitoring and rationalisation of the city's spending. This has reduced the pressure on Rybnik to increase spending, especially in rigid items such as education and social care. Fitch expects the city to continue its efficient opex control and to prudently manage the budget over the medium term. As with other Polish subnationals, Rybnik faces pressure to increase opex. This is driven mainly by underfunded responsibilities that were transferred to local governments by the state and the structural inflexibility of dominant expenditure in education and social care. Over the medium term the city's budget may also be affected by growing maintenance costs associated with an expanding infrastructure. RATING SENSITIVITIES The rating could be upgraded if the city strengthens its operating performance on a sustained basis, with its operating margin above 14% and containment of direct risk at less than 20% of current revenue. A downgrade could result from sustained deterioration of operating performance far beyond Fitch's expectations or a significant rise in debt resulting in weak debt coverage of more than six years. 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 22 338 67 01 Committee Chair Guido Bach Senior Director +49 69 7680 76 111 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.

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