(Repeat for additional subscribers)
July 17 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Miejskie
Przedsiebiorstwo Komunikacyjne - Lodz Spolka z o.o.'s (MPK) revenue bond
programme at 'BBB-'.
KEY RATING DRIVERS
The affirmation is based on Fitch's expectation that the revenue bond
programme's liquidity will remain sufficient until maturity. It also factors in
the ring-fencing of the revenue bonds from MPK's other operations.
The revenue bond rating reflects liquidity provided by the City of Lodz to
support MPK, which is strategically important to the city due to its provision
of the tram and bus service, including Lodzki Tramwaj Regionalny (LTR) tram
Lodz's annual payments as remuneration to MPK for its LTR tram service are
essential for the liquidity of the revenue bond programme. Fitch is of the view
that the city is committed to ensuring the company's financial viability and
would provide additional financial support, if necessary.
The City of Lodz's annual payments to MPK's venture account (VA), comprising
mainly the remuneration for the LTR tram service, significantly exceed MPK's
annual obligations to bondholders. Between June 2013 and May 2014 those payments
to the VA were PLN24.3m while obligations to the revenue bonds were PLN11m.
The VA ring-fences revenue generated by the venture assets paid to the account
from MPK's other operating risks. MPK can only access the VA for purposes other
than relating to the bond programme if the amount within the account exceeds 12
months of bond service.
The revenue bondholders are legally better protected than MPK's other creditors.
They have first claim on revenues in the VA and also a pledge on the venture
assets excluding them from the bankruptcy estate. The City of Lodz is obliged to
contract LTR transport services to and inject equity into MPK, providing MPK
with resources to service the revenue bonds over the long term.
MPK plans to cover 51.8 million kilometres of transport services in 2014, lower
than in 2012. This is because new large infrastructural investments in the City
of Lodz in 2013-2015 have led to a temporary reorganisation of the public
transport network. Revenue may stabilise in 2014-2015 at about PLN590m (2013:
PLN573m), PLN24m of which will come from the LTR service.
The company's debt remains considerable (2013: PLN276.6m) and may rise in the
medium term due to planned rolling stock replacement. The revenue bonds remain
the biggest debt item, accounting for 44% of the company's total debt in 2013.
The revenue bond's rating may be downgraded if the special protection of the
bondholders weakens or if liquidity to the VA deteriorates significantly.
Weakening of the strategic importance of MPK to the City of Lodz leading to
reduced willingness to support the company may also lead to a downgrade.
A full guarantee from the City of Lodz, which is highly unlikely, covering all
MPK's obligations under the revenue bond programme could lead to an upgrade.