Fitch Revises Bucharest's Outlook To Stable; Affirms at 'BB+'

Bucharest's short-term foreign currency rating is affirmed at 'B'. Also, the long-term foreign currency rating of its EUR500 million bond due 22 June 2015 has been affirmed at 'BB+', Fitch said.

The revision in outlook from negative to stable reflects a similar rating action on Romania's outlooks on February 2.

"The ratings of the city are underpinned by Bucharest's role as the economic and political capital, its still satisfactory budgetary performance and manageable debt level. The ratings take into account the significant foreign currency debt exposure and, potentially, refinancing risks as well as economic contraction at the national and city levels," Fitch said in statement.

It said the ratings could benefit from a positive change in the sovereign ratings as long as budgetary performance and debt remain at the current levels. A negative rating action could be triggered by deterioration in the operating performance and debt exceeding 150% of operating revenues. Any downward rating action on Romania's ratings will also be automatically reflected in Bucharest's ratings.

Fitch also said that, like other Romanian cities, Bucharest's financial position is tightly controlled by the highly centralised budgetary system and the strong governance relationship with the sovereign. The Romanian state controls a city's tax base, rates and collection as well as important expenditure items such as salaries. It also approves the city's debt. All these factors, however, constrain budgetary flexibility, according to Fitch,

"Debt is estimated by the city to have increased to 80% of current revenue in 2009 (2008: 78%), before declining by 2012. Although liquidity has been strong, this is expected to decline as the municipality undertakes new capital expenditure. There is some indirect risk as Radet, the municipal heating company, has reported significant losses in the past," the release said.

It added that Bucharest is exposed to currency fluctuations and refinancing risks as most of the debt is contracted in euro (including the bond issued in 2005) and unhedged.

Bucharest is the capital of Romania and its main economic and financial centre. It has a population of about 1.94 million (9% of Romania). Local GDP per capita was about 50% of the EU-27 average at end-2007 and 2.2x higher then the national average.

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