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Fitch Affirms Poland's City of Torun at 'BBB'; Outlook Stable
May 23, 2014 / 3:45 PM / 3 years ago

Fitch Affirms Poland's City of Torun at 'BBB'; Outlook Stable

(The following statement was released by the rating agency) LONDON/WARSAW/MOSCOW, May 23 (Fitch) Fitch Ratings has affirmed the Polish City of Torun's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB' and its National Long-term rating at 'A(pol)'. The Outlooks are Stable. KEY RATING DRIVERS The affirmation reflects the City of Torun's strong operating results in 2013 and, consequently, its healthy debt service and debt coverage ratios. In Fitch's view, the city's operating performance will continue to be supported by prudent financial and strategic management. The ratings also factor in Torun's fairly high debt following capital expenditure, and expected growth in the debt of the city's public sector companies. The ratings further take into account persistent pressure on the city's operating expenditure. Fitch expects Torun's operating balance to average PLN115m in 2014-2015 or 13%-14% of operating revenue, which should be sufficient for debt service. Since 2011 the city's operating results have been improving. The operating margin rose further to 14.7% in 2013, from 13.7% in 2012. The debt coverage ratio also improved to 10 years in 2013 from 12 years in 2012 while the operating balance covered debt service by 1.2x. Fitch takes a positive view of the city's financial and strategic management, particularly its long-term financial projections, and its monitoring of both market conditions and budgetary execution. Torun's authorities have taken steps to control costs, to increase its revenue generation capacity through local tax policies and to acquire EU grants for investment. However, the city's aggressive investment policy has resulted in its high indebtedness. In 2014 the city will make final payments for a completed bridge construction - Torun's most costly investment. Fitch expects the city's debt to stabilise at around 116% of current revenue for 2014 and 2015. The city's strong operating performance should keep debt coverage in line with its average debt maturity, estimated at 14 years for 2014 and 2015. The city is exposed to interest rate risk as 98% of Torun's debt carries floating rates. However, Fitch believes such risks should be kept manageable by the city's prudent budgetary approach. Indirect risk is expected to grow in 2014-2015 as a result of municipal companies' investments. Fitch forecasts indirect debt to rise to PLN460m in 2015 from PLN261m in 2013. Torun will support the companies' debt service with capital injections upon completion of the investment project, and these figures would have already been included in the city's multiyear financial projections for 2014-2040. As with other Polish subnationals, Torun has been facing pressure to increase its operating expenditure. This is driven mainly by under-funded responsibilities transferred to local governments by the state and by rigid spending that is dominated by education and social care. Torun, with 200,000 inhabitants, is located in the Kujawsko-Pomorskie Region. In 2011 the Bydgosko-Torunski sub-regional gross regional product per capita was 105.5% of the national average. RATING SENSITIVITIES The ratings could be downgraded if operating performance deteriorates and/or direct debt exceeds Fitch's projections, leading to stressed debt service and debt coverage ratios, with the operating balance insufficient for debt service. The ratings could be upgraded if the city reduces its direct and indirect debt, after completion of the municipal companies' investments, while maintaining strong operating performance. 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 22 330 67 01 Committee Chair Vladimir Redkin Senior Director +7 495 956 9901 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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