Bucharest’s long-term foreign and local currency ratings have been affirmed at ‘BB+’ and ‘BBB+’ respectively.
The revision in Outlook from Negative to Stable reflects a similar rating action on Romania's Outlooks. 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.
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.
Fitch estimates the city’s debt have increased to 80% of current revenue in 2009, before declining by 2012. Although liquidity has been strong, this is expected to decline as the municipality undertakes new capital expenditure.
Fitch also noted that Bucharest is exposed to currency fluctuations and refinancing risks as most of the debt is contracted in euro and unhedged.
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