London, 23 February 2018 -- Moody's Public Sector Europe ("MPSE") has today upgraded the
City of Athens' issuer rating to B3 from Caa2. The outlook remains
positive.
This rating action follows Moody's decision to upgrade the Greek
government bond rating to B3 from Caa2 on 21 February 2018. For
additional information, please refer to the sovereign press release:
https://www.moodys.com/research/--PR_379430
RATINGS RATIONALE
Today's rating action on the City of Athens reflects Moody's
assessment of the improvement in the operating environment for Greek sub-sovereigns,
as captured in the rating action on the sovereign bond rating.
The sovereign rating upgrade indicates a reduction in the systemic risk
to which the City of Athens is exposed given its close operational and
financial linkages with the Greek government. 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. Moody's
expects the city's revenue to 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 easing pressure on fiscal consolidation.
The City of Athens' self-imposed fiscal discipline and controlled
spending was key for the city to achieve the positive performance over
the past six years, despite the challenging economic environment
in Greece. Continued successful management of its financial resources
are expected to lead the city to post another double-digit operating
surplus of about 12-13% of operating revenue in 2017 after
achieving a historical high operating surplus of 13% in 2016.
Moody's expects the city's operating performance to remain
solid in 2018, reflecting the improvement in the operating environment
for Greek local governments. The city's positive operating margin
combined with the prudent approach to capital expenditures should have
led to a consecutive financing surplus in the upper single-digits
in 2017.
RATIONALE FOR POSITIVE OUTLOOK
The positive outlook on the rating reflects the positive outlook on the
sovereign rating. It also takes into account Moody's expectations
of continued solid financial performances of the City of Athens,
its improving and adequate liquidity position, and moderate and
manageable debt burden.
Moody's notes that the city has satisfactorily managed its cash
flow and gradually reduced its debt burden over the past few years.
As the city remained committed not to borrow in 2017, its debt stock
should have amounted to EUR98 million as of year-end, representing
27% of its projected operating revenue, down from 30%
in 2016. Moody's expects Athens' debt to gradually
increase from 2018 onwards following the commencement of the city's
investment programme (ITI Plan) as part of the 2016-2020 Sustainable
Development Strategy. However, the city's debt-to-operating
ratio should not exceed 32%, a level which Moody's
considers as moderate and manageable for the city. Athens'
debt service is in check, representing 5.4% of total
revenue projected in 2017, up from 4.3% in 2016 and
will remain at around 5% in 2018-19 supported by the favorable
amortizing debt structure.
The growing financial surpluses have increased Athens' cash reserves
projected at EUR73 million at year-end 2017, representing
21% of estimated operating expenditure in 2017 compared with 19%
in 2016, which provides a comfortable financial cushion against
potential budgetary pressures and in support of capex funding in the medium-term.
WHAT COULD MOVE THE RATING UP/DOWN
An upgrade of Athens' rating would require a similar change in Greece's
sovereign rating associated with a continuation of solid budgetary performance,
adequate liquidity position and moderate debt levels.
Although unlikely given the positive outlook on the sovereign, 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 the City of Athens. 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$): 26,829 (2016
Actual) (also known as Per Capita Income)
Real GDP growth (% change): -0.2% (2016
Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0% (2016
Actual)
Gen. Gov. Financial Balance/GDP: 0.5%
(2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -1.1% (2016 Actual)
(also known as External Balance)
External debt/GDP: [not available]
Level of economic development: Low 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 21 February 2018, a rating committee was called to discuss the
rating of the City of Athens. The main points raised during the
discussion were: The systemic risk in which the issuer operates
has materially decreased.
PRINCIPAL METHODOLOGY
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.
Gjorgji Josifov
Asst Vice President - 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
