(The following statement was released by the rating agency)

Jan 28 - Fitch Ratings has affirmed the City of Plock's Long-term foreign and local currency ratings at 'BBB' and National Long-term rating at 'A+(pol)'. The Outlooks are Stable. At the same time, Fitch has affirmed the City of Plock's PLN80m senior unsecured bond issue's Long-term local currency rating at 'BBB' and National Long-term rating at 'A+(pol)'.

RATING RATIONALE

Plock's ratings reflect the city's wealthy tax base, relatively high financial flexibility and moderate debt level. The ratings also take into consideration the growing debt of the city's companies, although this should not put major direct pressure on the city's budget.

The affirmation further reflects Fitch's expectations that the city's authorities will be able to maintain a good and more stable operating performance in 2013-2014, after volatile results in 2011-2012, and secure healthy debt service and debt coverage ratios, despite the generally weaker economic climate and projected gradual increase in the city's debt.

Fitch expects Plock's operating balance to stabilise at ca. PLN60m or 8% of operating revenue in 2013-2014, after exceptionally strong results in 2012 (PLN88m and 12.6%), supported by the one-off increase in CIT revenue. The generally weaker economic climate in Poland and fragile PIT growth may put pressure on the city's operating results in 2013-2014, but this should be gradually mitigated by the opex rationalisation measures launched by the city's authorities, especially those in the education.

Plock's wealthy tax base results in a very high tax revenue in its budget. Consequently, Plock has much greater financial flexibility than other cities of a similar size. However, the priority of the city's management is to provide high level of services to its inhabitants and, simultaneously, to maintain relatively low local tax rates and fees for its inhabitants, which lowers Plock's self-financing capacity for its investments.

The city's planned investments mean that Fitch expects Plock's debt to gradually grow in 2013-2015, exceeding PLN400m in 2015 from PLN344m at end-2012, but to remain moderate, at about 55% of current revenue. The debt coverage ratio should remain satisfactory, at about 10 years in 2013-2015, corresponding well with the long debt maturity profile of about 12 years. In 2013, the city plans to refinance PLN16m of its debt early, further improving the debt amortisation schedule. Excluding the extra debt repayments, the operating balance should cover debt service by 1.2x in 2013, and 1.4x in the following years.

Fitch expects the city's contingent liabilities to grow in the medium term, rising to about PLN160m in 2015 from about PLN110m at end-2011, although they should not put major direct pressure on the city's budget. Growth will result from the growing debt of municipal companies, which implement investments co-financed by the EU.

RATING SENSITIVITIES

The ratings could be downgraded if the city's operating results deteriorates on the consecutive basis, with debt service exceeding the operating balance and debt-to-current balance exceeding the debt maturity.

The ratings could be upgraded if there was a structural recovery in the city's operating performance due to the opex rationalisation measures launched by the city's authorities, with the operating balance returning to the historical performance of 2007-2010 while fully covering annual debt service.

KEY ASSUMPTIONS

Fitch assumes that the city's tax base will remain strong in the medium term allowing Plock to sustain above the national average tax revenue and financial flexibility.

Fitch also assumes that the city will comply with all the EU regulations and procedures when implementing the investments projects co-financed by the EU, which will protect the city from returning high amounts of the previously received grants.

Fitch assumes that the city will not face any major compensation payments to the contractors of the city's investments or compensation for the changes in the area development plans approved by the city's authorities, and will not have to return major amounts of taxes received in previous years.

(Bangalore Ratings Team, Hotline: +91 80 4135 5898 Debanjali.Ghosh@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Debanjali.Ghosh.reuters.com@reuters.net)

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