Moody’s has changed the outlook on the municipality of Alba Iulia to stable from positive, affirming the municipality’s Ba1 long-term issuer ratings, a press release informs.
The change of the outlook to stable from positive reflects Alba Iulia’s plan to accelerate capital spending in response to significant infrastructure needs and to take on significant additional debt. In Moody’s view, this signals a departure from the municipality’s fiscal consolidation policy prevailing between 2015 and 2016 which consisted in strengthening liquidity and reducing debt.
The municipality will fund its high capital expenditure planned for 2018-2019 by issuing new bonds, causing a significant increase in its debt-to-revenue ratio over 80 percent in 2018-2019 (from 45 percent in 2017).
The rating agency’s analysts expects that the municipality’s operating margins will remain sound at around 20 percent of operating revenue in the next two years driven by rising revenue that will mitigate pressure coming from significant wage increases.
Moody’s notes that the municipality has very low exposure to municipal companies as the debt carried by the municipal water company (namely APA CTTA Alba SA) is self-supporting.
”An upgrade of Romania’s sovereign rating and/or a reduction in municipal debt to levels below 50% of operating revenue, albeit unlikely given its borrowing plan, accompanied by sound operating surpluses and good liquidity, would have a positive effect on Alba Iulia’s rating. Conversely, a downgrade of Romania’s sovereign rating and/or a weakening in operating margins below 15 percent of operating revenue and liquidity that would threaten municipal capacity to service its debt could lead to a downgrade of Alba Iulia’s rating,” the release reads.