NOTE: On June 2, 2017, the press release was corrected as follows: at the end of the press release, the Moody’s entity for the first contact was changed to Moody's Investors Service EMEA Limited Czech Branch. Revised release follows.
London, 15 May 2017 -- Moody's Public Sector Europe (MPSE) has today changed the outlook
on the City of Warsaw to stable from negative. The long-term
issuer rating of A2 and senior unsecured MTN program rating of (P)A2 have
been affirmed.
Today's rating actions were prompted by the improvement in Poland's
credit profile as captured by Moody's recent decision to change
the outlook on the Government of Poland to stable from negative.
For details, please refer to the press release: https://www.moodys.com/research/--PR_366374.
RATINGS RATIONALE
RATIONALE FOR THE CHANGES IN OUTLOOK TO STABLE
The outlook change to stable on Poland on 12 May 2017 prompted the outlook
change to stable from negative on Warsaw's rating. The sovereign
outlook change indicates improved fiscal strength, that supports
the credit profile of Polish sub-sovereigns due to close financial
linkages with the central government.
RATIONALE FOR THE AFFIRMATION
The affirmation of the rating reflects satisfactory operating performance
and strong financial results that significantly boosted the city's
cash cushion and allowed the city to scale down its funding needs.
Warsaw's strong credit profile stems from the city's capacity
to generate own-source revenue, that together with local
taxes account for 40% of operating.
Operating performance remains satisfactory with gross operating margins,
at 10% of operating revenues in 2016 and likely to stabilize going
forward.
Good self-funding capacity for capex thanks to strong financial
results. Warsaw finances its infrastructure needs with support
from the European Union's funds. Major infrastructure projects
are concentrated in transport, in particular the construction of
a new metro line and roads, followed by the acquisition of a new
transport fleet by the city's transport company.
Education, healthcare and social services will also receive extra
funding. Capital spending will accelerate in 2017-19,
funded by accumulated cash reserves at the beginning and acquiring debt
not earlier than in 2018.
The direct debt of Warsaw keeps falling and will reach a modest 33%
of operating revenue in 2018, when the city plans to withdraw new
debt to support its capital spending and refinance part of its maturing
bonds. Including indirect debt from the municipal companies,
the net debt burden will get close to 40% of operating revenue
in the next two years from 49% in 2016.
Warsaw's rating also takes into account the city's strategic
role in the national economy. The city's GDP per capita is
close to 300% of the national average, the highest in the
country.
WHAT COULD CHANGE THE RATING UP/DOWN
An upgrade of the sovereign rating would lead to an upgrade of Warsaw's
rating, provided the city maintains sound financial performance,
good liquidity and moderate debt levels.
Conversely, a downgrade of Poland's sovereign rating would
lead to a downgrade of Warsaw's rating. In addition,
downward rating pressure may arise from a significant deterioration in
financial performance and cash reserves and/or an increase in debt levels.
The sovereign action required the publication of this credit rating action
on a date that deviates from the previously scheduled release date in
the sovereign release calendar, published on www.moodys.com.
The specific economic indicators, as required by EU regulation,
are not available for the Warsaw, City of. The following
national economic indicators are relevant to the sovereign rating,
which was used as an input to this credit rating action.
Sovereign Issuer: Poland, Government of
GDP per capita (PPP basis, US$): 27,764 (2016
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 2.7% (2016 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0.8%
(2016 Actual)
Gen. Gov. Financial Balance/GDP: -2.4%
(2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -0.3% (2016 Actual)
(also known as External Balance)
External debt/GDP: [not available]
Level of economic development: High level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 12 May 2017, a rating committee was called to discuss the rating
of the Warsaw, City of. The main points raised during the
discussion were: The systemic risk in which the issuer operates
has materially decreased.
The principal methodology used in these ratings was Regional and Local
Governments published in January 2013. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Dagmar Urbankova
Analyst
Sub-Sovereigns Group
Moody's Investors Service EMEA Limited Czech Branch
Washingtonova 17
110 00 Praha 1 (Prague 1)
Prague,
Czech Republic
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
David Rubinoff
MD - Sub Sovereigns
Sub-Sovereigns Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service EMEA Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
