Fitch said in a statement that it has affirmed the Romanian City of Bucharest’s Long-term foreign currency Issuer Default Rating (IDR) at ‘BBB-‘, Long-term local currency IDR at ‘BBB’ and 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 status as Romania’s capital and correlating economic and financial centre functions as well as far above national average wealth levels, strong operating performance and its moderate debt servicing ratios. They also reflect the relatively high dependency of operating revenues on the economic cycle, high investment needs and uncertainties about contingent liabilities,” Fitch said.
The stable outlook reflects Fitch’s expectations that Bucharest’s budgetary performance will remain sound, as will the current debt ratios, as it has no plans to increase debt in 2014-2016, when Fitch also assumes real GDP growth to continue.
According to the rating agency, Bucharest faces large refinancing risk from its EUR500m eurobond maturing on 22 June 2015. “The city intends to issue a new eurobond to replace this but the exact details regarding timing of the issue will depend on market conditions.”
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. Also, any difficulties in successfully refinancing the maturing eurobond in 2015 or a significant increase in debt pressure due to deterioration of the operating performance as well as recognition of contingent liabilities linked to the city’s PSEs as direct debt would trigger negative rating action.