Fitch said in a statement that it has affirmed Bucharest’s long-term foreign currency Issuer Default Rating (IDR) at ‘BBB-’, its long-term local currency IDR at ‘BBB’ and its short-term foreign currency IDR at ‘F3’. The senior unsecured rating of the city’s outstanding EUR500 million bond has also been affirmed at ‘BBB-’.
“The affirmation reflects Bucharest’s capital status, including being the economic and administrative centre of Romania. The ratings also reflect its above-national average wealth levels, its strong operating performance and its sound debt coverage. They further reflect the city’s high refinancing risk through a bond maturing in 2015, uncertainties over its contingent liabilities and its exposure to the euro exchange rate,” Fitch said.
The stable outlook reflects Fitch’s expectations that Bucharest will extend its sound budgetary performance, including healthy debt ratios since it has no plans to increase debt in 2014, while assuming real GDP growth to continue in 2014.
According to the rating agency, Bucharest faces large refinancing risk from its eurobond maturing on 22 June 2015. “The city plans to borrow bank loans to refinance the bullet repayment. For this, the city is exempted from the legal debt servicing limit on Romanian local governments of no more than 30% of the city’s revenues over the past three years.”
Fitch expects Bucharest to maintain its operating margin at around 30% as it has done over the past three years.
It noted that Bucharest’s ratings are at the same level as the sovereign. Maintaining its strong operating performance that ensures investments are largely funded by internal resources, together with debt below 100% of current revenue, would be rating-positive. On the other hand, uncertainty over refinancing plans for maturing bond obligations would be rating-negative.