(The following statement was released by the rating agency)
WARSAW/LONDON/MOSCOW, July 18 (Fitch) Fitch Ratings has affirmed
the Polish City
of Szczecin's Long-term foreign and local currency Issuer
Default Ratings (IDR)
at 'BBB+' with Stable Outlooks and its Short-term foreign
currency IDR at 'F2'.
KEY RATING DRIVERS
The ratings reflect Szczecin's prudent financial management and
of its operating spending, its self-funding capacity and healthy
The ratings also factor in high liquidity and moderate direct
debt. They also
take into account growing indirect risk, persistent pressure on
spending and growing maintenance costs from completed
Fitch expects the city to maintain its robust operating
performance with an
operating margin of 11% per annum in 2014-2016, which will allow
to cover its
annual debt service of PLN70m by about 3x on average. This will
be driven by the
city's control on operating spending growth, and by increasing
local taxes and fees, supported by the expansion of the city's
Fitch forecasts Szczecin's direct debt will be moderate at 60%
revenue in 2014-2016, (2013: PLN935m; 57%), as almost all
financing needs were met in 2012. Fitch estimates that the
city's capex for
2014-2016 will average PLN420m a year (20% of total spending).
Over 50% of the
capex will be financed by capital revenue, as the city has
secured EU grants for
its investments. However, completed investments may put extra
on the city's budget in the medium term due to growing
Fitch projects that Szczecin's debt service and debt-to-current
will remain healthy in 2014-2016. The debt-to-current balance
ratio may increase
to seven years, which is well below the average debt maturity
estimated by Fitch
of 20 years. The city is exposed to interest rate and FX risks,
as almost all of
Szczecin's debt carries floating rates (80%) and 44% is
However, the city's prudent budgetary approach takes into
account of these risks
so that any adverse impact should be manageable.
Fitch regards the city's strong liquidity buffer and liquidity
practices as a positive rating factor. Cash in the city's
accounts plus liquid
deposits averaged above PLN130m at the end of each month in
PLN6.5m in interest income. The city has not had the need to use
credit line of PLN150m.
Fitch expects Szczecin's indirect risk from municipal companies'
increase to about PLN800m in 2015 from PLN612m at end-2013.
contingent risk is mitigated by the municipal companies'
capacity to repay their
debt by themselves. Although Szczecin may support its companies
injections, they should be small in relation to the city's
As with other Polish subnationals, Szczecin's operating
historically faced growth pressure. This is driven mainly by
responsibilities that were transferred to local governments by
the State and the
structural inflexibility of operating spending.
A downgrade could result from a weakening of the city's
operating margin to
below 7%, accompanied by debt rising well above Fitch's
in significant deterioration in the debt-to-current balance
ratio to beyond 10
Szczecin's rating could be upgraded if the city sustainably
operating performance, with an operating margin above 12%
stabilising direct debt following containment of capex in the
Fitch Polska S.A.
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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
Local and Regional Governments Rating Criteria', dated 23 April
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
International Local and Regional Governments Rating Criteria -
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