Frankfurt am Main, April 09, 2021 -- Moody's Public Sector Europe ("Moody's") has today
affirmed the Aaa long-term senior unsecured debt ratings and P-1
short-term Commercial Paper rating assigned to the City of Gothenburg
and maintained the stable issuer outlook. At the same time,
Moody's has affirmed Gothenburg's Baseline Credit Assessment (BCA)
of aa1.
A full list of affected ratings is provided towards the end of this press
release.
RATINGS RATIONALE
RATIONALE FOR THE RATING AFFIRMATIONS
Today's rating action reflects the City of Gothenburg's record of
robust financial performance as well as prudent and sophisticated financial
management, which will enable it to withstand the impact of the
coronavirus pandemic-induced shock. The rating affirmation
also takes into account Gothenburg's strong financial flexibility
under Sweden's institutional framework and the unprecedented central
government support to the local government sector in response to the pandemic.
The city has recorded positive gross operating balances (GOB) during the
past decade and its financial results are consistently close to budgeted
numbers. Despite the adverse economic effects from the pandemic,
according to preliminary data for 2020, the city has posted a GOB
of 3% of operating revenue, which is slightly lower than
the five-year average of 5%. The positive GOB in
2020 was attributable to additional grants from the central government
and higher than expected proceeds from personal income tax, the
city's main operating revenue source, which largely mitigated
the impact of the pandemic. Moody's notes that even without
the additional grants from the central government the GOB would still
have remained in positive territory.
Positive economic growth prospects in 2021 and 2022 leading to growing
tax revenues and the city's tight control over its operating expenditure
should result in an improved GOB-to-operating revenue ratio
at approximately 5% over the same period.
The rating affirmation also reflects Moody's expectation that the
city's debt burden will remain at low levels, standing at
21% of operating revenue at year-end 2020. Moody's
forecasts Gothenburg's debt levels (excluding self-supporting
debt) to increase to 25% and 27% in 2021 and 2022,
respectively, as the city has to respond to growing population investment
needs related to healthcare, social services, education and
infrastructure. When considering the portion of the debt on-lent
by the city to its owned companies, the total debt would mount to
107% of operating revenue at year-end 2020. However,
Moody's considers the debt of Gothenburg's companies as self-supporting
and therefore deducts that portion of the reported gross debt.
Moody's believes that the institutional framework is supportive
and that the city has strong linkages with the central government,
hence its final rating benefits from the assumption of very high support
in case of need. Moody's expects that the central government
has both the willingness and ability to provide extraordinary support
in a currently unlikely stress scenario.
RATIONALE FOR STABLE OUTLOOK
Moody's has maintained a stable issuer outlook on the City of Gothenburg.
The stable outlook mirrors the stable outlook on the sovereign rating.
It also reflects Moody's view that the city has strong economic
and institutional profile, which along with its fundamentally sound
finances provide a high degree of shock absorption capacity.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental considerations are not material to Gothenburg's rating.
Social considerations are also not material to the city's credit profile.
Swedish RLGs face a trend of an ageing population, resulting in
declining labour supply and higher pension and social cost. Over
time, these challenges can add pressure on local governments' finances,
even though central government plays a significant role in mitigating
some of those pressures. Moody's assesses these effects as
manageable.
Governance considerations are material to Gothenburg's rating.
Budgetary discipline in Sweden is a constitutional requirement,
which requires each of the RLGs to maintain structurally balanced budgets
and to provide two years of financial projections as Swedish law requires.
Budget planning is prudent, transparent and predictable.
The specific economic indicators, as required by EU regulation,
are not available for Gothenburg, 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: Sweden, Government of
GDP per capita (PPP basis, US$): 55,265 (2019
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.4% (2019 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.7%
(2019 Actual)
Gen. Gov. Financial Balance/GDP: 0.6%
(2019 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 5.1% (2019 Actual) (also
known as External Balance)
External debt/GDP: [not available]
Economic resiliency: aa1
Default history: No default events (on bonds or loans) have been
recorded since 1983.
SUMMARY OF MINUTES FROM RATING COMMITTEE
On 06 April 2021, a rating committee was called to discuss the rating
of Gothenburg, City of. The main points raised during the
discussion were: The issuer's institutions and governance strength,
have not materially changed. The issuer's governance and/or management,
have not materially changed. The issuer's fiscal or financial strength,
including its debt profile, has not materially changed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A downgrade is currently unlikely, given the stable outlook.
A sovereign downgrade would however put downward rating pressure on the
city, as a result of the strong linkages with the sovereign.
Weakening financial performance with negative operating balances in combination
with significantly higher debt levels would also exert downward rating
pressure.
The specific economic indicators, as required by EU regulation,
are not available for City of Gothenburg (Sweden). The following
national economic indicators are relevant to the sovereign rating,
which was used as an input to this credit rating action.
LIST OF AFFECTED RATINGS
Issuer: Gothenburg, City of
Affirmations:
....Commercial Paper, Affirmed P-1
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Affirmed (P)Aaa
....Other Short Term (Foreign Currency),
Affirmed (P)P-1
....Senior Unsecured Regular Bond/Debentures,
Affirmed Aaa
Outlook Actions:
....Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Regional and Local
Governments published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091595.
Alternatively, 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 further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are unsolicited.
a.With Rated Entity or Related Third Party Participation:
YES
b.With Access to Internal Documents: YES
c.With Access to Management: NO
For additional information, please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
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.
Gjorgji Josifov
Asst Vice President - Analyst
Sub-Sovereign Group
Moody's Deutschland GmbH, Czech branch
Washingtonova 17
110 00 Praha 1 (Prague 1)
Prague
Czech Republic
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Mauro Crisafulli
MD-Sub Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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Client Service: 44 20 7772 5454
