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Fitch Revises City of Bialystok's Outlook to Positive
July 25, 2014 / 4:05 PM / in 3 years

Fitch Revises City of Bialystok's Outlook to Positive

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: City of Bialystok – Rating Action Report here WARSAW/PARIS, July 25 (Fitch) Fitch Ratings has revised Polish City of Bialystok's Outlook to Positive from Stable and affirmed its Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB-' and National Long-term rating at 'A(pol)'. KEY RATING DRIVERS The Outlook change reflects the following key rating drivers and their relative weights: HIGH Fitch expects Bialystok's operating performance to continue improving and direct debt to fall. Pressure on costs due to new infrastructure is mitigated by the management's prudent approach to spending. The ratings also factor in the full self-finance capacity of investments, provided that the sale of the city's heating company MPEC is successful. Fitch expects Bialystok's operating performance to further improve due to its prudent budgeting practice and continuous opex rationalisation measures. The operating margin is forecast by Fitch to rise to about 11% by 2017 from 9.2% in 2013. We expect the operating balance to average PLN140m annually in 2014-2017 and exceed 1.4x the average debt service during this period. In 2013, Bialystok's operating performance improved by more than Fitch's expectations, with the operating balance sufficient to cover debt service. Fitch expects Bialystok to continue its long track record of high capex in 2014-2017, mainly on roads and public transport. Capital expenditure is likely to average PLN330m annually or 20% of total expenditure. Fitch projects that capital revenue will finance on average 80% of capex, with the rest financed from the current balance. Expected sales proceeds from MPEC (PLN260m) and EU capital grants will make up most of the city's capital revenue. If the sale of MPEC is successful Bialystok would be reporting a surplus before debt variation in 2014, a year ahead of schedule. Unlike in 2013, investments in 2014-2017 will be financed entirely from the current balance and capital revenue as the city's policy is to refrain from incurring new debt. Subject to a successful MPEC sale, Bialystok's direct debt will decrease to PLN470m or 30% of current revenue by end-2017 from PLN757.3m in 2013 (63%). Part of the proceeds from the MPEC sale would be used for early repayment of PLN30m of bonds in 2014. Even without the MPEC sale, debt is likely to decrease to about 50% of current revenue by 2017. MEDIUM Fitch expects Bialystok's indirect risk to peak at PLN408m in 2015 from PLN198m in 2013. This is due to the PLN164m loan financing of a solid waste incineration plant built by PUHP Lech Sp. z o.o.. When construction is complete at end-2015, the company should be able to repay the debt itself, limiting the risk to Bialystok's budget. The city would also be providing support of up to PLN11m annually in 2014-2029 for the repayment of debt raised for a stadium construction (PLN110m). RATING SENSITIVITIES The ratings could be upgraded if the city maintains its operating performance with an operating balance of at least 9% of operating revenue and sufficient to fully cover debt service. The Outlook could be changed to Stable if operating performance weakens with the operating balance insufficient to cover debt service and/or if debt significantly exceeds Fitch's projections. 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 Christophe Parisot Managing Director +33 1 44 29 91 34 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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