April 29 (SeeNews) - Global rating agency Standard & Poor's on Thursday said it downgraded its issuer credit rating on the Bulgarian city of Varna to 'BB' from 'BB+' with a stable outlook.
"The downgrade reflects the deterioration in Varna's risk profile as a result of a notable increase in debt and a pronounced drop in liquidity," said Standard & Poor's credit analyst Jean-Louis Renaud.
Standard & Poor's issued a statement in which it also said:
"This has occurred within a context of continuing high capital expenditures and lower revenue growth due to Bulgaria's continuing economic contraction.
The rating is constrained by Varna's tight liquidity, rapid growth in debt, and limited revenue predictability amidst an environment of high infrastructure investments and continuing economic contraction.
These factors are mitigated by Varna's diversified and wealthy economy relative to the national average, and improved operating performance thanks to strong expenditure control.
The stable outlook reflects our view that Varna's budgetary performances will stabilize at the currently sustainable levels, notably amidst higher operating surpluses, continued access to borrowing, and no accumulation of debt beyond forecast levels. We forecast the city's liquidity will remain tight, but sustainable.
"We might lower the rating if Bulgaria's economic contraction continues beyond 2010 or amplifies, with a concomitant impact on Varna's revenue growth and operating balances," said Mr. Renaud.
Moreover, the city could face negative rating pressures if: the anticipated EU/central government funding is not available for investment projects already started; anticipated asset sales are not forthcoming; or planned capital expenditures are not adjusted downward, thus prompting the city to increase its debt significantly beyond forecasts.
Although unlikely, we might raise the rating if the city were to gain more substantial financial support from the state budget or EU funds; enhance revenue performance beyond forecasts, leading to better-that-expected budgetary performance and lower debt accumulation; or improve its currently weak liquidity position."