December 4 (SeeNews) - Standard & Poor's (S&P) said it has raised its long-term issuer credit rating of Bulgaria's capital city Sofia to BBB from BBB-, with positive outlook, following an upgrade of the country's ratings.
"The positive outlook mirrors our positive outlook on Bulgaria, and our view that Sofia may deliver better budget execution than our current base case, leading to lower debt absorption," S&P said in a statement on Tuesday.
Last week, S&P raised its long- and short-term foreign and local currency sovereign credit ratings on Bulgaria to 'BBB/A-2' from 'BBB-/A-3' with positive outlook, based on the ratings agency's view that Bulgaria is expected to continue to progressively strengthen its fiscal and external position.
S&P also said in its statement:
"OUTLOOK
We could raise the ratings on Sofia in the next two years if we raised the sovereign foreign currency ratings on Bulgaria and also see an improvement in the city's intrinsic credit quality. The latter could happen if benign economic developments or more measured execution of the municipal capital plan enabled Sofia to deliver better budgetary results and this translated into lower debt levels than our current base-case scenario.
We would revise the outlook to stable if we were to take a similar action on Bulgaria. We could also revise the outlook to stable if we saw evidence that budgetary execution would remain largely in line with our current forecasts, leaving direct debt elevated at above 60% of operating revenues.
RATIONALE
The rating action on Sofia follows our upgrade of Bulgaria (see "Ratings On Bulgaria Raised To 'BBB/A-2' From 'BBB-/A-3' On Solid Macroeconomic Fundamentals; Outlook Positive," published on Nov. 29, 2019, on RatingsDirect).
Sofia's stand-alone credit profile (SACP) is 'bbb', the same level as its issuer credit rating. The SACP is not a rating but a means of assessing the intrinsic creditworthiness of a local or regional government, assuming that there were no sovereign rating cap.
We do not consider that the city meets the conditions under which we would rate it higher than Bulgaria.
The rating on Sofia is supported by the city's status as the administrative, financial, and commercial center of Bulgaria. Although national GDP per capita lags that of European and international peers, Sofia's status supports higher wealth levels than the national average.
All Bulgarian local and regional governments (LRGs) held local elections this year. In Sofia, voting went to a second round, after which the acting mayor and nominee of the ruling GERB party was elected to a third consecutive term in office. We expect this political continuity to lead to stability in the city's financial agenda and guidelines. Over 2019-2021, we expect the city to post widening deficits after capital accounts, owing to a large capital investment program. Although this should result in some cash disbursement and accumulation of debt, we expect debt service coverage to remain robust and debt to be manageable."