Fitch revises outlook on Katowice to positive

Fitch Ratings has revised the Katowice’s outlook to positive from stable and affirmed the City’s long-term foreign and local currency rating at “A-“. Fitch has also affirmed the City’s national long-term rating at “AA+(pol)” with a stable outlook.

The rating action follows the recent revision of the outlook on Poland’s long-term foreign and local currency Issuer Default Ratings (IDRs) to positive from stable, as the City of Katowice’s long-term foreign currency rating is constrained by the sovereign rating.

The ratings affirmation reflects Katowice’s continued solid, albeit declining operating performance, with operating balance totalling PLN 152,4 million, i.e. 11,6% of operating revenue in 2012 (2011: PLN 185,1 million, 14,4%), covering debt service 5x. The ratings also incorporate a wealthy economy and tax base and high liquidity buffer, which supports debt servicing. The ratings also take into account the projected moderate growth of the City’s direct and indirect debt in 2013 – 2015.

Fitch expects Katowice to maintain a solid operating performance in the medium term, in order to secure solid debt ratios, as it is crucial for Katowice to maintain its current rating.

Fitch believes that the City’s tax base will remain strong in the medium term allowing Katowice to sustain tax revenue above the national average and financial flexibility.

Fitch also assumes that the City will comply with all the EU regulations and procedures when implementing the investments projects co-financed by the EU, which will protect Katowice from returning high amounts of the previously received EU grants.

An upgrade of the sovereign rating, accompanied by the City’s solid operating performance, coupled with declining pressure on debt-funded capex could trigger a positive rating action.

source: Fitch Ratings