London, 25 April 2018 -- Moody's Public Sector Europe has today changed to positive from stable
the outlooks on the ratings of 9 Czech regional and local governments
(RLGs) and one government-related issuer (GRI). At the same
time, Moody's has affirmed all the global and national scale
ratings.
Today's rating actions follow a strengthening of the Czech Republic's
sovereign credit profile as captured by Moody's outlook change to positive
from stable on the Czech government bond rating of A1 on 20 April 2018.
For additional information, please refer to the related rating action:
Moody's changes Czech Republic's outlook to positive from stable,
affirms A1 ratings.
Specifically, Moody's has changed the outlook to positive from stable
and affirmed the issuer and foreign currency senior unsecured ratings
of the City of Prague (A1), and the issuer ratings of the City of
Brno (A1), City of Ostrava (A1), City of Ceska Lipa (A1),
Usti Region (A2), Liberec Region (A2), City of Trebic (A2),
City of Klatovy (A2), and City of Liberec (Baa1).
Additionally, the outlook was changed to positive from stable and
the rating was affirmed of one GRI: Sprava a udrzba silnic Pardubickeho
kraje (A2).
Concurrently, Moody's has affirmed the national scale issuer ratings
of City of Ceska Lipa (Aa1.cz), City of Klatovy (Aa2.cz),
City of Trebic (Aa2.cz), Liberec Region (Aa3.cz),
Usti Region (Aa3.cz), Sprava a udrzba silnic Pardubickeho
kraje (Aa3.cz) and City of Liberec (A3.cz).
RATINGS RATIONALE
RATIONALE FOR OUTLOOK CHANGE TO POSITIVE FROM STABLE AND AFFIRMATION OF
THE RATINGS
The outlook change to positive from stable of the cities of Prague,
Brno, Ostrava, Ceska Lipa, Trebic, Klatovy,
and Liberec as well as Usti Region and Liberec Region directly follows
the decrease in systemic risk following the change to positive outlook
for Czech Republic. Today's action reflects strong institutional,
macroeconomic and financial linkages between RLGs and the national government
as well as their strong individual performances. Moody's expects
that the continued economic growth of the national economy will further
support tax revenue growth of Czech RLGs.
Prague, Brno and Ostrava are the three biggest cities in the Czech
Republic and are characterized by their large and diversified economic
base. The A1 rating affirmation reflects (1) their strong operating
performances with gross operating balance-to-operating revenue
ratio ranging between 22% (Brno and Ostrava) and 24% (Prague)
over the last five years; (2) declining debt levels that are already
considered low to moderate representing 25% of Ostrava's
operating revenue, while Prague's and Brno's debt ratios
were 38% and 45% of operating revenue at year-end
2017 respectively.
On the other hand small- to medium-sized city of Ceska Lipa's
rating of A1 is characterized by very conservative budgetary management
with increasing financial surpluses and operating margins at a high 29%
of operating revenue recorded in 2017. The credit profile of Ceska
Lipa is also dominated by exceptionally high cash reserves mitigating
its moderate debt of 25% of operating revenue.
The outlook change to positive from stable and the affirmation of A2 for
the cities of Trebic, and Klatovy are also supported by their solid
operating margins, which vary between 23% (Trebic) and 26%
(Klatovy) of operating revenue at year-end 2017. The debt
levels of these two cities were below the sector average and their accumulated
cash reserves fully cover their outstanding debt.
The outlook change to positive from stable and the affirmation of Baa1
rating for the city of Liberec reflect an improvement in its financial
performance and debt metrics. Although below its peers, the
gross operating balance of the city improved to above 15% of operating
revenue in 2017 compared to 9% in 2013 while the debt burden has
decreased to around 76% of operating revenue from 120% over
the same period.
The outlook change to positive from stable and the affirmation of the
A2 ratings of Usti Region and Liberec Region primarily reflect the close
institutional, macroeconomic and financial linkages between the
Czech government and Czech regions.
This fiscal dependence on state resources exposes regions' finances
to the performance of the central government budget and evolving intergovernmental
relations. Regional governments' finances in the Czech Republic
depend on the decisions of the central government, leaving the regional
governments with no leeway with regard to taxes.
Both rated regions displayed improving operating margins at around 10%
of operating revenue at year-end 2017 supported by the latest tax
sharing mechanism adjustments. Their debt levels were very low
at the end of last year ranging between 5% (Usti Region) of operating
revenue and 8% (Liberec Region).
The outlook change to positive from stable and the affirmation of the
A2 rating of Sprava a udrzba silnic Pardubickeho kraje (SUS PK) reflect
its status as a GRI, wholly owned by the Pardubice Region and the
strong institutional and financial linkages with its support provider.
It also takes into account SUS PK's very limited investment and
zero debt.
RATIONALE FOR AFFIRMATION OF NATIONAL SCALE RATINGS
The affirmation of the national scale ratings of six RLGs and one GRI
(Aa1.cz of City of Ceska Lipa), (Aa2.cz of City of
Klatovy, City of Trebic), (Aa3.cz of Liberec Region,
Usti Region, Sprava a udrzba silnic Pardubickeho kraje), (A3.cz
of City of Liberec) reflects Moody's assessment that these RLGs'
and GRI's fiscal performances are adequate for their rating categories.
WHAT COULD CHANGE THE RATINGS UP/DOWN
A further strengthening of the Czech sovereign credit profile could lead
to upward rating pressure for regional and local governments and government-related
issuers. Upward rating pressure to the ratings of RLGs rated at
sovereign rating level will be directly linked to the upgrade of the sovereign
credit profile.
For RLGs and GRI rated below the sovereign rating level, an evidence
of a given entity's ability to display comparatively stronger credit fundamentals
could also exert upward rating pressure.
Given the positive outlook on the sovereign bond rating, the negative
pressure is not expected. At the same time, any unexpected
deterioration in the financial and debt credit metrics of RLGs and GRIs,
could exert downward pressure on ratings or outlooks.
The sovereign action required the publication of these credit rating actions
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 these entities. The following national economic
indicators are relevant to the sovereign rating, which was used
as an input to this credit rating action.
Sovereign Issuer: Czech Republic, Government of
GDP per capita (PPP basis, US$): 33,529 (2016
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 2.6% (2016 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2% (2016
Actual)
Gen. Gov. Financial Balance/GDP: 0.7%
(2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 1.6% (2016 Actual) (also
known as External Balance)
External debt/GDP: [not available]
Level of economic development: Very 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 19 April 2018, a rating committee was called to discuss the rating
of the Brno, City of; Ceska Lipa, City of; Klatovy,
City of; Liberec, City of; Liberec, Region of;
Ostrava, City of; Prague, City of; Sprava a udrzba
silnic Pardubickeho kraje; Trebic, City of; Usti,
Region 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 rating Brno, City of, Ceska
Lipa, City of, Klatovy, City of, Liberec,
City of, Liberec, Region of, Ostrava, City of,
Prague, City of, Trebic, City of, Usti,
Region of was Regional and Local Governments published in January 2018.
The principal methodology used in rating Sprava a udrzba silnic Pardubickeho
kraje was Government-Related Issuers published in August 2017.
Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.
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.
The person who approved Brno, City of, Ceska Lipa, City
of, Klatovy, City of, Liberec, City of,
Liberec, Region of, Ostrava, City of, Prague,
City of, Trebic, City of,
and Usti, Region of, credit ratings is Mauro Crisafulli,
Associate, Managing Director, Sub-Sovereign Group,
Journalists Tel: 44 20 7772 5456, Client Service Tel:
44 20 7772 5454.
The person who approved Sprava a udrzba silnic Pardubickeho kraje credit
ratings is David Rubinoff, MD - Sub Sovereigns, Sub-Sovereign
Group, Journalists Tel: 44 20 7772 5456, Client Service
Tel: 44 20 7772 5454.
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-Sovereign Group
Moody's Investors Service EMEA Ltd. 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
Associate Managing Director
Sub-Sovereign 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
