Note: On July 07, 2017, the press release was corrected as follows: the location for the first contact was updated to “Moody's Investors Service EMEA Limited Czech Branch.” Revised release follows.
London, 24 March 2017 -- Moody's Public Sector Europe, ("MPSE") has today upgraded the City
of Tallinn's long-term issuer rating to A2 from A3, the outlook
The main drivers for the change in the rating are a continued improvement
in the fiscal position whereby the operating margins increased above Moody's
expectations, and stabilisation of debt at moderate level.
Tallinn has boosted its liquidity holdings, which now represent
a considerable buffer for the City. The A2 rating also recognises
the City's effective cost control and further streamlining effort
that may bring additional savings and help to withstand inflationary pressures
The stable outlook on Tallinn's rating reflects Moody's expectations
that the City will continue to post good financial positions over the
medium-term and maintain manageable debt levels despite an anticipated
increase in debt over the next few years.
The upgrade of Tallinn's rating reflects the stronger fiscal position
generated by the City, driven by continued improvement in operating
performance. In 2016, the operating surplus exceeded 13%
of operating revenue and Moody's anticipates continued strong results
in the future. Moody's notes this achievement marks a contrast
to the mild operating margins generated in 2011-14 (5.5%
to 8.5%). Population inflow and positive macroeconomic
development have driven the operating revenue growth. As such,
tax revenues have increased 30% since 2012. Moody's
estimates that the Estonian economy will continue to improve, reaching
an annual growth rate of 2.9% by 2019 (from 1.1%
in 2015), which provides further support to the City's tax
Concomitantly, Tallinn cautiously manages operating costs which
protects financial results, should revenues fail to achieve their
anticipated levels. Furthermore, the solid financial surpluses
of the recent past have increased Tallinn's cash holdings to 11%
of operating revenue, which provides for two years of debt service
After two years of deleveraging, Tallinn is expected to draw new
debt across 2017-19, prompted by an intensification in capital
spending. Moody's forecasts net debt will slightly increase
to a moderate 58% of operating revenue in 2017 and remain stable
for the following two years given stronger revenues and higher EU transfers.
The capital spending is planned to consume a moderately high 22%
of the City's expenditure in 2017 and will be mostly directed into
roads, tram lines, schools and an upgrade of the City's
assets. Tallinn plans to use EU transfers more widely to maintain
high self-funding capacity.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectations that Tallinn's
fiscal position will remain at current levels over the medium-term.
The City has proven to be effective in executing its fiscal policy under
which the operating expenditure cannot rise faster than operating revenue.
Furthermore, prudent debt management means the City will avoid any
WHAT COULD CHANGE THE RATINGS UP/DOWN
An extended ability to raise additional own source revenues and reduction
in debt burden would be considered positively.
Downward pressure on the rating could arise from Tallinn's failure to
maintain healthy operating surpluses or to balance its financing position
associated with a growth in the City's overall debt exposure.
The specific economic indicators, as required by EU regulation,
are not available for this entity. The following national economic
indicators are relevant to the sovereign rating, which was used
as an input to this credit rating action.
Sovereign Issuer: Estonia, Government of
GDP per capita (PPP basis, US$): 28,650 (2015
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.5% (2016 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0.9%
Gen. Gov. Financial Balance/GDP: 0.2%
(2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 0.6% (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.
SUMMARY OF MINUTES FROM RATING COMMITTEE
On 22 March 2017, a rating committee was called to discuss the rating
of the Tallinn, City of. The main points raised during the
discussion were: The issuer's governance and/or management,
have materially increased. The issuer's fiscal or financial strength,
including its debt profile, has materially increased.
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.
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
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Moody's Investors Service EMEA Limited Czech Branch
110 00 Praha 1 (Prague 1)
Associate Managing Director
Moody's Investors Service EMEA Ltd.
One Canada Square
London E14 5FA
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