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S&P Downgrades Croatian Capital Zagreb to BBB- from BBB, Outlook Negative

Sep 1, 2009, 6:00:01 PMArticle by Tsvetelina Gavrilova
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September 1 (SeeNews) - Standard & Poor’s Ratings Services (S&P) said on Tuesday it downgraded to BBB- from BBB its long-term issuer credit rating on Croatian capital Zagreb with negative outlook as the city has recorded a faster-than-expected accumulation of tax-supported debt and has a weaker liquidity position amidst the economic contraction.

S&P Downgrades Croatian Capital Zagreb to BBB- from BBB, Outlook Negative

The agency issued the following statement:

“MOSCOW (Standard & Poor's) Sept. 1, 2009--Standard & Poor's Ratings Services said today that it had lowered its long-term issuer credit rating on the Croatian capital City of Zagreb to 'BBB-' from 'BBB'. The outlook is negative.

The downgrade reflects the city's faster-than-expected growth of tax-supported debt as a percentage of consolidated operating revenues, along with the weakening of the consolidated liquidity position amidst the economic contraction in the Republic of Croatia (BBB/Negative/A-3).

"The rating on the City of Zagreb is based on its position as the administrative, financial, and commercial center of Croatia and its continuing robust budgetary performance amidst the economic crisis," said Standard & Poor's credit analyst Jean-Louis Renaud.

These factors are constrained by the city's rapidly growing tax-supported debt to 71% of consolidated operating revenues in 2008 (from 57% in 2007), severe restrictions in its own debt-raising capacity, and declining liquidity.

We forecast Croatia's economy will contract by 5% in 2009, with the contraction slowing to between either slightly negative or zero in 2010, with positive growth returning only in 2011.

The negative outlook reflects the uncertainty over the length and severity of the country's economic contraction and concomitant uncertainty over Zagreb's revenues and over the extent of further tax-supported debt accumulation to 2012.”

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