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Fitch Rates Polish City of Czestochowa 'AA(pol)'; Outlook Stable
December 7, 2017 / 10:12 PM / in 9 days

Fitch Rates Polish City of Czestochowa 'AA(pol)'; Outlook Stable

(The following statement was released by the rating agency) WARSAW/LONDON, December 07 (Fitch) Fitch Ratings has assigned the Polish City of Czestochowa a National Long-Term rating of 'AA(pol)'. The Outlook is Stable. The rating reflects Fitch's view that the city's healthy operating performance will be maintained over the medium term, supported by prudent financial management. The rating also reflects the city's moderate debt levels and low debt financing needs over the medium term, translating into sound debt service ratios. KEY RATING DRIVERS Fitch expects Czestochowa to continue its healthy operating performance in 2017-2019. In our base case scenario, we estimate an operating balance of about PLN90 million per year or about 8% of operating revenue in 2017-2019, which would cover projected debt servicing 1.8x (about PLN50 million annually including debt repayment and interest). This will be underpinned by the city's prudent budgetary and financial policy, including ongoing rationalisation of operating spending, as well as by tax revenue increase following economic expansion. Based on the city's preliminary data Fitch continues to expect a small budget deficit of 1% of total revenue (nominally about PLN15 million) for 2017. The budget deficit may widen to 2% in 2018-2019 but should still remain small, in comparison to the city's peers, despite the roll- out of investments that are co-financed from the 2014-2020 EU budget. Fitch projects that the city's investments could total PLN600 million in 2017-2019 (on average 15% of annual total expenditure), of which almost PLN160 million is expected for 2017. We expect that about 90% of the investments will be funded by the city's current balance and capital revenue (mainly EU grants), with only 10% by debt. Czestochowa has a moderate debt burden and lower appetite for new debt than its peers. Therefore over the medium term Fitch expects the city's debt-to-current revenue to remain stable at about 40%. For 2017, we forecast debt to total about PLN450 million. Debt-to-current balance is likely to remain at about six years, well below the city's final debt maturity of 15 years. A new long-term PLN250 million European Investment Bank loan to be drawn in 2017-2021 is likely to fully cover the city's debt needs arising from its investments that are co-financed from the 2014-2020 EU budget. Fitch expects Czestochowa's tax revenue growth to be supported by Poland's GDP growth, which the agency forecasts at 4.4% for 2017 and 3.6% for 2018. The city's local tax base is well-diversified, but is weaker than cities that are capitals of Polish regions, which may therefore constrain tax revenue growth in the medium term. GDP per capita in 2015 (latest available data) for the Czestochowski sub-region, which includes the city and surrounding villages, was 85.3% of the national average. We estimate the city's wealth indicators are on a par with the national average, as Czestochowa is the strongest city in the sub-region. The location of two special economic zones within the city is supportive of local economic development. Fitch assesses the regulatory regime for Polish local and regional governments (LRGs) as neutral to the rating. LRGs' activities and financial statements are closely monitored and reviewed by the central administration. LRGs' finances are public and LRGs are obliged to disclose their financial accounts on a timely basis and in detail. The main revenue sources such as income tax revenue, transfers and subsidies from the central government are centrally distributed according to a legally defined formula, which limits the central government's scope for discretion. RATING SENSITIVITIES Czestochowa's rating could be upgraded if the city strengthens its financial flexibility and operating performance, while maintaining sound debt metrics and its debt payback ratio below five years on a sustained basis. A downgrade could result from a weakening of the city's operating performance, accompanied by significant increase of debt, resulting in deterioration of the debt payback ratio towards 10 years on a sustained basis. Contact: Primary Analyst Renata Dobrzynska Director +48 22 338 62 82 Fitch Polska S.A. 16 Krolewska Street Warsaw 00-103 Secondary Analyst Magdalena Mikolajczak Analyst +48 22 338 62 85 Committee Chairperson 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 International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures 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. 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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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