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Fitch Affirms City of Poznan at 'A-'; Outlook Stable
April 25, 2014 / 3:40 PM / 3 years ago

Fitch Affirms City of Poznan at 'A-'; Outlook Stable

(The following statement was released by the rating agency) LONDON/WARSAW/MILAN, April 25 (Fitch) Fitch Ratings has affirmed the Polish City of Poznan's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'A-'. The Outlook is Stable. KEY RATING DRIVERS The affirmation reflects Poznan's sound operating performance, with an operating margin of 14% in 2013, which outperformed Fitch's expectations. This was attributed to effective financial and cost management, which results in a high self-funding capacity and debt ratios that are commensurate with the current ratings. The ratings also take into account the city's moderate direct debt, which Fitch expects will decrease in 2014-2016. The ratings also reflect projected growth of the city's indirect debt of its related companies. Fitch expects the city to maintain its strong operating results over the medium term, with an operating margin of 12%-13% for 2014-2016. This will be supported by on-going operating cost rationalisation and by measures aimed at strengthening the city's revenue generation capacity, including attracting private investments to high gross value-added sectors. Poznan's operating balance for 2013 amounted to PLN346m, exceeding Fitch's projections. The strong performance was driven by higher personal income and property tax revenue and operating cost savings. Poznan's capital expenditure is likely to average PLN540m per year for 2014-2016, i.e. 19% of total spending, as the city continues with its infrastructure investments (mainly in roads and public transport). The city's self-funding capacity is high, with the current balance and capital revenue (including a high share of EU grants) covering most of the capital expenditure. In 2013, capital expenditure amounted to PLN500m, of which PLN30m was financed with debt, as in line with Fitch's projections. Fitch expects Poznan's debt to decline to about 60%-65% of current revenue in 2014-2016 from 75% in 2013. In nominal terms, debt is expected to total PLN1.6bn by end-2016. At end-2013 direct debt amounted to PLN1.8bn, similar to 2012. Debt service for 2013 was PLN401m (of which PLN329m was principal and PLN72m interest payments), as the city repaid PLN128m one-year loans with EU grants and refinanced PLN65m of loans on less than favourable terms. For 2014-2016, annual direct debt service is forecast by Fitch to total PLN213m p.a., which will be covered by the operating balance by 1.5x. Poznan's debt coverage (debt to current balance) should further improve to six years by end-2016 from seven years at end-2013, in line with the city's average debt maturity. Fitch expects the city's indirect debt to grow further to PLN1.3bn by 2015 from PLN1.05bn at end-2013. However, it should not put direct pressure on the budget, as it mainly relates to self-supported debt of the city's water company Aquanet S.A. (BBB/Stable). RATING SENSITIVITIES A downgrade could result from sustained deterioration of the operating margin to below 9%, accompanied by continued debt growth approaching 100% of current revenue, leading to a weak debt coverage ratio. The ratings could be upgraded if the city maintains its solid operating performance over the medium term with the operating margin above 12%, accompanied by contained direct debt growth and an upgrade of the sovereign rating. Contact: Primary Analyst Dorota Dziedzic Director +48 22 338 62 96 Fitch Polska S.A. 16 Krolewska Street Warsaw 00-103 Secondary Analyst Maurycy Michalski Associate Director +48 22 330 67 01 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:; Malgorzata Socharska, Warsaw, Tel: +48 22 338 62 81, Email: Additional information is available on Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012, and 'International Local and Regional Governments Rating Criteria outside United States', dated 23 April 2014, are available on 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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