MILAN/BARCELONA/LONDON, October 24 (Fitch) Fitch Ratings has
Italian City of Busto Arsizio's (BA) Long-term foreign and local
ratings at 'BBB+' and Short-term foreign currency rating at
'F2'. The rating
action affects EUR38m of debt outstanding, as well as future
Outlook is Negative.
KEY RATING DRIVERS
BA's rating affirmation reflects its solid yet weakening
tight control over spending and moderate and declining debt
burden. The ratings
also factor in the city's moderate tax leeway and strong cash
sustaining its liquidity.
BA's operating margin in 2012 was strong at 14%, or EUR10m, due
restraint and the rationalisation on municipal subsidiaries.
Fitch expects the
operating margin to decline over the medium term to 11% and
level off at EUR8m
as continued reduction in government transfers should only be
by tax hikes and rationalisation of expenditure. However, debt
should comfortably remain at 1.2x over 2013-2015.
Municipalities' revenue structure is being reshaped. Property
tax on primary
residences (IMU) was replaced by national transfers in 2013, and
by a new
service tax which will be levied by cities from 2014. Fitch does
not expect the
replacement of the property tax with the service tax in 2014 to
cause a decline
in Busto's operating surplus.
BA's moderate fiscal leeway (7% of its revenue), mostly in the
tax surcharge and free fund balance totalling EUR13m in 2012,
further buffer against unpredictable budgetary deficits.
Fitch expects that a relaxation of the stability pact rules for
will lead to an increase in investments to about EUR13m in
EUR11m on average in 2011-2012 despite diminishing asset
disposals and the
city's sound infrastructure. New projects should be spread over
a large number
of small projects, mainly related to maintenance of streets and
Fitch expects BA's debt to further decline and stabilise at
about EUR35m by 2015
from a moderate level of EUR38m in 2012 (EUR70m in 2007).
Coverage of debt
servicing by the current balance should remain sound at five
years. The city
issued cash flow swap in 2007 to avoid debt repayment
Improved collection rates above 95% for taxes and fees have
resulted in high
cash reserves, which totalled EUR35m at end-2012. Fitch,
however, expects the
relaxation of internal stability pact rules to reduce cash and
cash deposits to
EUR25m in 2014-2015.
BA is a mid-size city in the prosperous Region of Lombardy with
population of about 82,000. City's GDP per capita was 10% above
the EU27 average
while unemployment was low at 9% relative to the nationwide 12%
BA's ratings are exposed to a downgrade of the sovereign
(BBB+/Negative). A debt
service coverage ratio falling below 1x, as well as a
in macroeconomic conditions impacting BA's budgetary performance
could lead to a
negative rating action. Conversely, a rating upgrade would be
contingent on an
upgrade of the sovereign.
+39 02 87 90 87 260
Fitch Italia - Societa Italiana per il Rating S.p.A.
Vicolo Santa Maria alla Porta, 1
+39 02 87 90 87 216
+34 93 323 84 10
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530
Additional information is available at www.fitchratings.com.
Applicable criteria 'Tax-Supported Rating Criteria' dated 14
August 2012 and
'International Local and Regional Governments Rating Criteria '
dated 9 April
2013, are available at www.fitchratings.com
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