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Fitch Affirms City of Barcelona at 'BBB+'; Outlook Positive
September 15, 2017 / 9:27 PM / 3 months ago

Fitch Affirms City of Barcelona at 'BBB+'; Outlook Positive

(The following statement was released by the rating agency) BARCELONA/PARIS/LONDON, September 15 (Fitch) Fitch Ratings has affirmed the City of Barcelona's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB+' with Positive Outlook. Fitch has also affirmed the Short-Term Foreign Currency IDR at 'F2'. Barcelona's bond issues/senior unsecured ratings have been also affirmed at 'BBB+'. The affirmation reflects Barcelona's strong operating performance and liquidity in 2016 and moderate direct debt. The affirmation also reflects the city's strong economy. The Positive Outlook reflects that of the Spanish sovereign (BBB+). KEY RATING DRIVERS Institutional Framework Barcelona's IDRs are not affected by the Negative Outlook on the Autonomous Community of Catalonia's 'BB' IDR. The city has a supportive relationship with the central government and endorsement of Barcelona's institutional framework, including financial and debt monitoring, is an exclusive responsibility of the central government. Moreover, Barcelona's funding is fully ring-fenced from the regional government scope, as with other municipal entities of common regime in Spain. Strong Economy Barcelona is the administrative, political and economic centre of the Autonomous Community of Catalonia, hosting 21.4% of the region's population in 2016. The city has a diversified and wealthy economy and benefits from strong tourist activity, with as many as 76,930 hotel rooms available in July 2017, an 11% increase since December 2012. Barcelona's seaport is a leader in Europe with the highest cruise passenger traffic in the Mediterranean and with significant and growing containers traffic. We do not expect the city's revenue will be impacted by the recent terrorism attack in Barcelona as most of the revenue comes from the central government and self-collected revenue, which is resilient to economic cycles. Its strong economy is demonstrated by a regional GDP per capita that was 19.4% above the Spanish average in 2016 and a higher-than-average employment rate of 53.4% (48.7% in Spain) in 2Q17. Job creation in the city increased 9% between 4Q11 and 2Q17, after significant job losses of 10% over the past five years. In 1Q17, local housing prices were 60% above those in Catalonia, having grown 17% since 4Q13. Strong Operating Performance Barcelona's strong operating performance is driven by large transfers from the central government from the funding system and high property tax collection. The city's 2017 draft budget was approved in January 2017, following a vote of confidence by the mayor. Fitch expects Barcelona's operating margin will remain stable in 2017 at 16%-17%, corresponding to the city's 15% target of current balance-to-current revenue. Fitch expects operating revenue will grow 2%-3% in 2017, based on greater resources from the funding system and higher tax collection. For 2017, the government will continue to take advantage of its financial leeway to increase operating expenditure by 2%-3%, mainly on social spending. Moderate Direct Debt; Strong Liquidity Direct debt remained moderate at EUR835.5 million or 32.9% of current revenue in 2016 (EUR835.7 million or 32.2% in 2015). For 2017, Fitch expects direct debt will remain moderate at close to 32%-33% of expected current revenue, well below the 60% debt target set by the government in coalition. Pressure on debt servicing is moderate, with a total of EUR226.6 million debt maturing over the next three years, representing about 27% of outstanding direct debt at end-2016. Nevertheless, this is mitigated by the city's strong access to commercial loans and a cash position of EUR753.6 million at end-2016, which indicates a low 8.7% net overall risk relative to current revenue. Its strong cash position also means that no renewal of short-term credit lines was necessary in 2016, and we expect it to remain so in 2017. RATING SENSITIVITIES Barcelona's IDRs are constrained by the sovereign IDRs and are sensitive to changes in the sovereign ratings. KEY ASSUMPTIONS Fitch could place Barcelona's IDRs on Rating Watch Negative should Catalonia win recognition of its claim to independence. Contact: Primary Analyst Julia Carner Analyst +34 93 323 8401 Fitch Ratings Espana, S.A.U. Av. Diagonal, 601, Barcelona 08028 Secondary Analyst Guilhem Costes Senior Director +34 93 323 8410 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; Pilar Perez, Barcelona, Tel: +34 93 323 8414, Email: pilar.perez@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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