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Rating Action:

Moody's upgrades City of Athens' rating to Caa2; changes the outlook to positive

26 Jun 2017

London, 26 June 2017 -- Moody's Public Sector Europe ("MPSE") has today upgraded the City of Athens' long-term issuer rating to Caa2 from Caa3 and changed the outlook to positive from stable, following a similar action on Greece's sovereign rating.

This rating action follows Moody's decision to upgrade the Greek government rating to Caa2 from Caa3 and to change the outlook to positive from stable on 23 June 2017. For additional information, please refer to the sovereign press release: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_368411.

RATINGS RATIONALE

Moody'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 the improved sovereign conditions, given its key role as the country's economic and financial hub. We expect the city's revenue to benefit from the improved macroeconomic conditions as 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 improve predictability of government transfers to Athens, which accounted for an additional 38% of Athens' operating revenue in 2016, thus easing pressure on fiscal consolidation.

RATIONALE FOR POSITIVE OUTLOOK

The positive outlook on Athens' rating reflects the city's continuity in pursuing positive financial results and debt reduction in a challenging economic environment. The rating is also underpinned by the continued commitment of the city administration to prudent budgetary policy reflected in improving operating margins of 13% at year-end 2016 compared with 9% in 2015. Moody's notes that the city's self-imposed fiscal discipline has helped Athens to consolidate its rigid budget and pursue positive financial results for the sixth consecutive year, posting a surplus of 12% of total revenue compared with 8% in 2015. Moody's expects that Athens will maintain a cautious approach to expenditures.

Moody's notes that the city has satisfactorily managed its cash flow and gradually reduced its debt burden over the past few years. Its debt stock, which amounted to EUR115 million as of year-end 2016, represented a moderate 30% of its annual operating revenue, down from 34% in 2015. Moody's expects Athens' debt stock to continue declining with its debt standing at around EUR98 million by year-end 2017, as the city remains committed not to borrow this year. Athens' debt service remains well manageable at 4.3% of total revenue and will remain at similar levels in 2017-18 supported by the favorable amortizing debt structure.

The growing financial surpluses have increased Athens' cash reserves averaging at 15% of operating expenditure in 2016 compared with 8% at year-end 2015, 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 recent sovereign upgrade, 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 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$): 26,669 (2016 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 0% (2016 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 0% (2016 Actual)

Gen. Gov. Financial Balance/GDP: 0.7% (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: 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 22 June 2017, 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 fiscal or financial strength, including its debt profile, has materially increased. 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 June 2017. 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 Limited 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

No Related Data.
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