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Rating Action:

Moody's upgrades City of Athens' rating to B1 and changes outlook to stable

04 Mar 2019

London, 04 March 2019 -- Moody's Public Sector Europe ("MPSE") has today upgraded the City of Athens' issuer rating to B1 from B3 and changed the outlook to stable from positive.

This rating action follows Moody's decision to upgrade the Greek government bond rating to B1 from B3 on 1 March 2019. For additional information, please refer to the sovereign press release: https://www.moodys.com/research/Moodys-upgrades-Greeces-rating-to-B1-stable-outlook--PR_395805

RATINGS RATIONALE

The decision to upgrade by two notches the City of Athens' long-term rating reflects its close operational and financial linkages with the central government. In Moody's opinion the improvement in Greece's sovereign credit profile, captured by the rating action on the sovereign bond rating, indicates a reduction in the systemic risk to which the City of Athens is exposed. In addition, the institutional linkages intensify the close ties between the two levels of government through the sovereign's ability to change the institutional framework under which Greek municipalities operate.

Moody's expects Athens to benefit from many of the conditions that factor into the improvement seen at the sovereign level, given its key role as the country's economic and financial hub. The city's revenue will benefit from the strengthened macroeconomic conditions as around 37% of the city's operating revenues are comprised of taxes and tariffs that are highly sensitive to the local economic conditions. Also, the improved sovereign fiscal position should translate to greater predictability of government transfers to Athens, which account for an additional 38% of Athens' operating revenue, thus lowering the risk surrounding the city's revenue projections and facilitating the achievement of fiscal targets.

The City of Athens' self-imposed fiscal discipline and controlled spending was key for the city to achieve the positive performance over the past years in face of the challenging economic environment in Greece. The city recorded operating surpluses averaging 6.9% of its operating revenues over the 2014-2018 period. Moody's expects the city's operating performance to remain at a similar level in 2019, reflecting the improvement in the operating environment for Greek local governments and a continued tight control of its operating expenditure.

Moody's notes that the city has satisfactorily managed its cash flow and gradually reduced its debt burden over the past few years. Athens' debt stock amounted to EUR98 million as of year-end 2018, representing 24.6% of its projected operating revenue, down from 26.3% in 2017. The debt stock will continue to decrease and Moody's expects the city to post a direct debt-to-operating ratio of around 23% at YE2020. Athens' debt service is manageable, representing 4.9% of total revenue projected in 2018, down from 5.3% in 2017 and will remain at around 5% in 2019-20 supported by the favorable amortizing debt structure.

Moody's expects Athens to gradually increase its capital expenditure in line with its investment programme (ITI Plan). However, the city has already secured the necessary debt financing with the European Investment Bank (EIB, Aaa stable). Moreover the growing financial surpluses have increased Athens' cash reserves projected at EUR78 million at year-end 2018, representing 20.4% of estimated operating expenditure in 2018 compared with 17.9% in 2017, which provides a comfortable financial cushion against potential budgetary pressures and in support of capex funding in the medium-term.

RATIONALE FOR STABLE OUTLOOK

The stable outlook on the rating reflects Moody's expectations of continued positive financial performances of the City of Athens, supported by the stable outlook on the sovereign credit profile, as well as the city's improving and adequate liquidity position, and moderate and manageable debt burden.

WHAT COULD MOVE THE RATING UP/DOWN

Given Athens is rated at the same level as the sovereign, an upgrade of Athens' rating would require a similar change in Greece's sovereign rating, in addition to a continuation of solid budgetary performance, adequate liquidity position and moderate debt levels.

Similarly, a deterioration of the sovereign credit strength would apply downward pressure on Athens' rating given the close financial and operational linkages between the two. Fiscal slippage or the emergence of significant liquidity risks would also exert downward pressure on the rating.

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 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: Greece, Government of

GDP per capita (PPP basis, US$): 27,796 (2017 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 1.5% (2017 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 0.7% (2017 Actual)

Gen. Gov. Financial Balance/GDP: 0.8% (2017 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -1.8% (2017 Actual) (also known as External Balance)

External debt/GDP: [not available]

Level of economic development: Moderate level of economic resilience

Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.

SUMMARY OF MINUTES FROM RATING COMMITTEE

On 28 February 2019, a rating committee was called to discuss the rating of the Athens, City of. The main points raised during the discussion were: the issuer's economic fundamentals, including its economic strength: have not materially changed; the issuer's institutional strength/ framework: 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; 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 2018. 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.

Nadejda Seu
Analyst
Sub-Sovereign Group
Moody's Investors Service EMEA Limited France Branch
96 Boulevard Haussmann
Paris 75008
France
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

No Related Data.
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