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S&P upgrades Bulgarian capital Sofia to BBB-, outlook stable

S&P upgrades Bulgarian capital Sofia to BBB-, outlook stable gary yim/Shutterstock.com

SOFIA (Bulgaria), December 6 (SeeNews) – Standard & Poor's said it has raised its long-term issuer credit rating on Bulgaria's capital Sofia to BBB- with a stable outlook.

"We assess Sofia's stand-alone credit profile (SACP) at 'bbb', and consider the ratings on Bulgarian local and regional governments to be capped by the sovereign rating," the ratings agency said in a statement published late on Tuesday.

The stable outlook on Sofia reflects the outlook on Bulgaria, S&P added.

S&P also said in the statement:

"RATING ACTION

On Dec. 5, 2017, S&P Global Ratings raised its long-term issuer credit rating on the city of Sofia to 'BBB-' from 'BB+'. The outlook is stable.

As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on the city of Sofia are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see "Calendar Of 2017 EMEA Sovereign, Regional, And Local Government Rating Publication Dates: Midyear Update," published July 10, 2017, on Ratings Direct. Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case, the reason for the deviation is the upgrade of Bulgaria to 'BBB-' from 'BB+' on Dec. 1, 2017. The next scheduled rating publication on the city of Sofia will be in 2018, with exact timing publicly available in our next Calendar of Sovereign, Regional, And Local government Rating Publication Dates, which will be published later this month.

OUTLOOK

The stable outlook on Sofia continues to reflect that on Bulgaria (BBB-/Stable/A-3). Any rating action we take on the sovereign would likely be followed by a similar action on Sofia, assuming no change in the city's intrinsic credit characteristics.

Downside Scenario 

We will take a negative rating action on Sofia if there is a similar action on Bulgaria. We view an intrinsic downside scenario as unlikely because our assessment of Sofia's 'bbb' SACP remains one notch higher than its long-term credit rating.

Upside Scenario 

An upside scenario is contingent on our ratings on Bulgaria, which continue to cap the issuer credit ratings on Sofia, in our view. This scenario also assumes Sofia will continue to perform in line with our current base-case assumptions.

RATIONALE

The rating action on Sofia follows our recent upgrade of Bulgaria to 'BBB-' from 'BB+' (see "Ratings On The Republic of Bulgaria Raised To 'BBB-/A-3' On External Strength; Outlook Stable," published on Dec. 1, 2017, on RatingsDirect).

The long-term ratings on Sofia primarily reflect our 'BBB-' long-term sovereign credit ratings on Bulgaria. We do not consider that the city meets the conditions under which we would rate a local or regional government (LRG) higher than the related sovereign. We consequently cap the long-term rating on Sofia at the level of our long-term rating on Bulgaria. In our opinion, Bulgarian cities, including Sofia, are not able to maintain more resilient credit characteristics than the sovereign in a stress scenario. In particular, we view their creditworthiness as limited by the still-high dependence on central government's decisions on allocating revenue sources between levels of governments, including grants, which subjects local budgets to volatility and low predictability on reform outcome.

We assess Sofia's SACP at 'bbb'. The SACP is not a rating but a means of assessing the intrinsic creditworthiness of a LRG under the assumption that there is no sovereign rating cap.

The SACP on Sofia is supported by the city's status as the administrative, financial, and commercial center of Bulgaria. This contributes to diversification and projected, steady local economic growth, while wealth levels are still lagging behind its international peers. The SACP also reflects our view of the city's robust liquidity and relatively good budgetary flexibility, based on its significant autonomy in managing local revenues. This flexibility is somewhat constrained, however, by the local government's reluctance to raise taxes and fees. Owing to a large capital investment program, we think that the city's budgetary performance will remain average with consistent deficits after capital accounts, while the debt burden will not increase from currently moderate levels due to a projected pick-up in revenues. The SACP is constrained by Sofia's still-developing institutional framework. Combined with weak, albeit strengthening, financial management, this limits the predictability of the city's financial performance. We also expect contingent liabilities to remain high."



 

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