Home Ratings and Research Currently valid ACRA Europe affirms unsolicited rating A- to STROPKOV, outlook Stable
ACRA Europe affirms unsolicited rating A- to STROPKOV, outlook Stable
Friday, 06 December 2019

The rating assigned to the city of Stropkov (hereinafter, the City) remains unchanged and is based primarily on the City's very low indebtedness and the low probability of its increase over the next 2-3 years, high short-term liquidity, and sufficient current balance surpluses.

The most recent budget adjustment, which was approved in October 2019, affirms the City's very high budgetary and management performance. The City has implemented significant changes in its municipal budget expenses as new legislative obligations for municipalities have resulted in higher costs. Although the operational balance surplus has decreased, it will still fully cover the City's annual debt servicing.

Rating components

Institutional Factors
Governance and Fiscal Flexibility Low
Budgetary and Management Performance Very high
Political Environment High
Transparency Very high
Final assessment  High
Financial Factors
Debt Profile Very high
Liquidity Profile Very high
Operating Balance Moderate
Regional Economy Moderate
Final assessment Very high
Extraordinary Support
Final assessment High
Overall score Very high
Final rating A-

Outlook: Stable

The Stable outlook has been affirmed based on the expectation of very low indebtedness, high short-term liquidity, and sufficient current balance surpluses.

The Stable outlook assumes that the rating will most likely stay unchanged within the 12-month horizon.

Key assumptions

  • Indebtedness not increasing significantly compared to 2019 forecast;
  • Short-term liquidity remaining above levels projected for 2019;
  • Operating balance reaching a higher surplus than projected for 2019. 

Potential outlook and/or rating change factors

A positive rating action may be prompted by:

  • Significantly lower debt levels than forecasted for 2019;
  • Significantly higher operating balance surplus compared to 2018;
  • Significantly higher use of capital grants than projected for 2019;
  • Significant improvement in macroeconomic development in the Slovak Republic.

The likelihood that the positive rating action factors will be fulfilled during the rating period is considered to be low.

A negative rating action may be prompted by:

  • Significantly higher debt levels than projected for 2019;
  • Significant deterioration of liquidity indicators compared to 2018;
  • Deficit or significantly lower operating balance surplus than projected for 2019,
  • Obligatory immediate payment of significant (material) claims from ongoing pending litigations.

The likelihood that the negative rating action factors will be fulfilled during the rating period is considered to be low.

In ACRA Europe‘s complementary assessments, an extraordinary support analysis with the rating of sovereign entity are also taken into consideration. The full rating report in Slovak is available here.

Appendix 1.  Budget Execution Reports for 2016–2018 in thous. EUR  

Budget item Execution Dec 31, 2016 % Execution Dec 31, 2017 % Execution Dec 31, 2018 %
Current income total 7,714 106% 8,189 102% 9,136 98%
Tax income 4,290 106% 4,666 102% 5,094 104%
Non-tax income 688 110% 693 109% 1,025 101%
Grants and subsidies 2,736 103% 2,830 101% 3,017 103%
Current expenditure total 6,817 100% 7,522 98% 8,369 98%
Interest expenses 33 100% 29 104% 25 100%
Current account surplus/deficit 897 x 667 x 767 x
Capital income total 1,853 100% 757 99% 340 170%
Income of property sold 15 115% 294 116% 158 173%
Capital grants and subsidies 1,838 100% 463 90% 182 167%
Capital expenditure total 1,806 97% 1,415 92% 1,009 96%
Capital account surplus/deficit 47 x -658 x -669 x
Financial operations, income 1,098 100% 576 90% 755 112%
Loans from banks 1,057 100% 0 100% 0 100%
Financial operations, expenditures 1,540 100% 223 100% 263 100%
Principal payments 1,540 100% 223 100% 195 100%
Financial account surplus/deficit -442 x 353 x 492 x
TOTAL INCOME 10,665 104% 9,522 101% 10,231 103%
TOTAL EXPENDITURE 10,163 99% 9,160 97% 9,641 98%
TOTAL BUDGET SURPLUS/DEFICIT 502 x 362 x 590 x

Sources: 2016-2018 Budget execution reports for the city of Stropkov, ACRA Europe’s calculations

Appendix 2. Balance Sheet for 2016–2018 in thous. EUR

Balance item Dec 31, 2016 Dec 31, 2017 Dec 31, 2018
Assets      
FixedAssets: 20,673 19,694 19,242
Intangible assets 2 4 34
Tangible assets 18,458 17,477 16,995
Long-term financial assets 2,213 2,213 2,213
Short-term assets: 8 846 9,425 9,211
Stock 4 6 6
Settlements 7,298 7,988 7,835
Long-term receivables  165 0 0
Short-term receivables 100 236 279
Cash and equivalents 1,279 1,195 1,091
Repayable financial assistance 0 0 0
Accruals 157 67 0
TOTAL ASSETS 29,676 29,186 28,453
Liabilities      
Equity/Funds 20,466 20,471 20,518
Liabilities 2,329 2,374 2,105
Long-term liabilities 1,345 1,301 1,291
Short-term liabilities 377 689 443
Reserves 2 2 2
Bank loans and financial assistance 559 380 230
Settlements 46 2 139
Accruals 6,881 6,341 5,831
TOTAL LIABILITIES 29,676 29,186 28,453

Sources: 2016-2018 Financial statements for the city of Stropkov, ACRA Europe’s calculations

Appendix 3. Multiannual City Budget for 2019–2021 in thous. EUR

Budget item Budget for 2019 (after changes) Budget for 2020 Budget for 2021
Current income total 10,004 9,750 10,202
Tax income 5,535 5,665 6,000
Non-tax income 915 880 890
Grants and subsidies 3,554 3,205 3,312
Current expenditure total 9,730 9,159 9,489
Interest expenses 23 20 18
Current account surplus/deficit 274 591 713
Capital income total 1,212 0 0
Income of property sold 124 0 0
Capital grants and subsidies 1,088 0 0
Capital expenditure total 1,484 207 218
Capital account surplus/deficit -272 -207 -218
Financial operations, income 485 0 0
Loans from banks 0 0 0
Financial operations, expenditures 177 112 87
Principal payments 177 112 87
Financial account surplus/deficit 308 -112 -87
TOTAL INCOME 11,700 9,750 10,202
TOTAL EXPENDITURE 11,390 9,478 9,794
TOTAL BUDGET SURPLUS/DEFICIT 310 272 408

Sources: 2019-2021 Multiannual budget forecast for the city of Stropkov , ACRA Europe’s calculations

Appendix 4. List of Material Data Sources

Internal data sources External data sources
Budget execution reports for 2016, 2017, and 2018 Ministry of Finance of the Slovak Republic
Balance sheet for Dec 31, 2016, Dec 31, 20167, and Dec 31, 2018 Statistical Bureau of the Slovak Republic
Notes to financial statements for Dec 31, 2016, Dec 31, 20167, and Dec 31, 2018 Eurostat
Budget forecast for 2019 and Multiannual city budget for 2020-2021 World Bank
Budget amendments in 2019 National Bank of Slovakia
2018 City controller report on control results Stropkov city web-page
City controller report on budget forecast for 2019 and Multiannual city budget for 2020-2021  
Semi-annual monitoring report of budget implementation in City of Stropkov  

Rating history

The rating was last released for distribution on June 7, 2019. The previous unsolicited rating assessment was released at A-, outlook Stable.

Regulatory disclosure

The unsolicited credit rating and outlook were issued in accordance with ACRA Europe methodology for sub-sovereign entities in the version from May 31, 2019 (available at https://acra-europe.com, section Methodology). In the same section is a rating scale including an explanation of the importance of each rating category and a default definition. Information on the rate of historical failure is available at www.cerep.esma.europa.eu, and the explanatory statement of the meaning of those default rates is available at https://acra-europe.com (Regulatory Framework/Disclosure). The disclosure of the unsolicited rating and outlook was preceded by the approval of the Rating Committee. Since July 30, 2012, ACRA Europe has been a registered credit rating agency according to Regulation (EC) No 1060/2009 of the European Parliament and of the Council of September 16, 2009, on credit rating agencies.

The sub-sovereign ratings and their outlook are expected to be revised within 6 months following the publication date of this press release as per the Calendar of planned sub-sovereign rating revisions and publications.

This rating is issued as an unsolicited rating. The rated entity did not participate in the credit rating assignment. ACRA Europe did not have access to the rated entity’s internal documents or management. ACRA Europe, in the context of routine care, verified all sources entering the rating process and considers the scope and quality of the information entering the analytical process to be sufficient to assign a credit rating. The rated entity was notified on December 4, 2019, and after the notification there were no changes or amendments in the rating.

ACRA Europe provided no additional services to the City of Stropkov. No conflicts of interest were discovered in the course of the sovereign credit rating assignment.

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