May 16 (SeeNews) - Moody's Public Sector Europe (MPSE) said it has upgraded to Ba2 from Ba3 the senior unsecured debt rating of the Zagrebacki Holding, a 100%-owned utility company of the City of Zagreb, while affirming its stable outlook.
The upgrade of the rating reflects Moody's opinion that the credit quality of Zagrebacki Holding is closely linked to the credit quality of the City of Zagreb, highlighting the city's increasingly supportive policy stance towards the Holding, the ratings agency said in a statement late on Monday.
Moody's also said in the statement:
"The upgrade of the rating reflects Moody's opinion that the credit quality of the Zagrebacki Holding D.O.O. (the Holding) is closely linked to the credit quality of the City of Zagreb (Ba2, stable), highlighting the city's increasingly supportive policy stance towards the Holding, which culminated with a guarantee provided on a new bond issue in 2016, significantly increasing the share of debt guaranteed by the city. Moreover, the Holding benefits from its strong institutional and financial linkage with the City of Zagreb as its sole owner, either in the form of subsidies or regulated tariffs in most businesses. The rating also incorporates the strong oversight exercised by the City of Zagreb as well as the Holding's monopolistic status and strategic role for the city's utilities sector. As a result, Moody's believes that Zagrebacki Holding D.O.O.'s credit quality ultimately aligns with the City of Zagreb's credit rating. While Moody's will continue to monitor the financial health of the Holding, Moody's will no longer assign a Baseline Credit Assessment (BCA) to Zagrebacki Holding D.O.O..
The Holding's rating remains underpinned by the company's stabilized financial performance, improved debt maturity profile and boosted liquidity position. While the Holding's debt-to-operating-revenue ratio remains high, it decreased to 109% in 2016 from 114% in 2013 and Moody's expects further debt reduction below 100% by 2019.
WHAT COULD CHANGE THE RATINGS UP/DOWN
An upgrade of Zagrebacki Holding D.O.O.'s rating would result from a similar action on the City of Zagreb's rating, given their close financial and operational linkages.
A downgrade of the Holding's rating would result from a downgrade of the City of Zagreb's rating. In addition, negative changes in the institutional and financial framework under which the Holding operates could also exert downward pressure on the company's rating."