Fitch affirms Romanian City of Brasov at ‘BBB-‘

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Fitch Ratings has affirmed the Romanian City of Brasov’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BBB-‘ with Stable Outlooks and its Short-Term Foreign Currency IDR at ‘F3′. The affirmation reflects Fitch’s expectation that the city’s sound operating performance will continue in the medium term, supporting the city’s strong self-funding capacity.

The IDRs factor in healthy debt service and debt payback ratios in the medium term, as well as the city’s low level of debt. The IDRs also reflect substantial indirect risk stemming from the high level of liabilities of Centrale Electrica de Termoficare SA (CET), the city-owned former heating service provider, which is currently under bankruptcy procedure.

According to Fitch’s base case scenario, Brasov’s operating balance will remain sound in 2017-2019, averaging 20% of operating revenue, which would be in line with the historical average from 2012-2016. This will be supported by the city authorities’ continued cost-control measures and tax revenue growth, aided by the projected growth of the national economy. This should result in a nominal operating balance averaging RON130 million, which should be sufficient to fund the city’s investment plan. In 2016, Brasov’s operating balance was high at RON178 million or 30.2% of operating revenue and above our expectations.

Consequently, the city reported a surplus before debt of 26%, improving the city’s cash position to RON256 million at end-2016 (2015: RON102 million). Fitch envisages the city’s budgetary deficit to average 10% of total revenue in the medium term following the rollout of new investments.

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