Home Ratings and Research Currently valid ACRA Europe affirms unsolicited rating of BBB+ to DUNAJSKÁ STREDA, outlook Stable
ACRA Europe affirms unsolicited rating of BBB+ to DUNAJSKÁ STREDA, outlook Stable
Friday, 15 May 2020

The rating assigned to the city of Dunajská Streda remains unchanged and is mainly based on a positive assessment of high liquidity levels and operating balance surpluses. In the debt profile, the lower assessment is based on the results of the debt burden analysis, where ACRA Europe has lowered the scoring because of deterioration in the debt outlook indicators.

Given the ongoing coronavirus crisis, which caused a two-month slowdown in the Slovakian economy, all municipal entities expect a shortfall in the share of tax revenues of approximately 7% according to current economic forecasts. The amount of this type of income depends on the growth of the total wages in the national economy and the unemployment rate, while the expectations for these indicators in 2020 are rather pessimistic. Deterioration of other regional indicators are also expected. Despite this, ACRA Europe considers the budget of the city of Dunajská Streda to be properly balanced, mainly due to operating balance surpluses accumulated in previous years.

Rating components

Institutional Factors

Governance and Fiscal Flexibility

Moderate

Budgetary and Management Performance

High

Political Environment

High

Transparency

High

Final assessment

 High

Financial Factors

Debt Profile

Very high

Liquidity Profile

Very high

Operating Balance

High

Regional Economy

Moderate

Final assessment

High

Extraordinary Support

Final assessment

High

Overall score

High

Final rating

BBB+


Outlook: Stable

The outlook has been assigned based on the expectation of a high level of short-term liquidity, sustainable level of current balance surpluses, and the city's ability to cover all of its debt service obligations.

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

Key assumptions

• The shortfall in the share of taxes will not reach a significantly higher amount than the one forecast by the Council for Budget Responsibility in April 2020;

• Indebtedness will remain at a level comparable to 2019;

• The short-term liquidity ratio will remain at a level comparable to 2019;

• An operating balance surplus in 2020.

Potential outlook and/or rating change factors

A positive rating action may be prompted by:

  • Significantly higher operating balance surplus compared to 2019;
  • Significantly lower debt levels than forecast for 2020;
  • Significantly higher use of capital grants than projected for 2020;
  • Significant improvement in macroeconomic indicators in the Slovak Republic for 2020.

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 shortfall in operating balance income than forecast for 2020;
  • Significantly higher debt levels than projected for 2020;
  • Significant deterioration of liquidity indicators compared to 2019;
  • Significantly lower level of operating balance surplus than projected for 2020.

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 the sovereign entity are also taken into consideration. The full rating report in Slovak is available here.

Appendix 1. Budget Execution Reports for 2017–2019 in thous. EUR

Budget item

Execution

Dec 31, 2017

in %

Execution

Dec 31, 2018

in %

Execution

Dec 31, 2019

in %

Current income total

18,842

100%

21,146

102%

23,332

101%

  Tax income

10,761

102%

11,973

104%

13,138

102%

  Non-tax income

2,295

97%

2,933

98%

2,757

101%

  Grants and subsidies

1,341

93%

6,240

100%

7,437

99%

Current expenditure total

16,642

99%

18,510

96%

20,710

96%

  Interest expenses

86

99%

92

104%

95

94%

Current account surplus/deficit

2,200

x

2,636

x

2,622

x

Capital income total

178

18%

674

43%

1,456

76%

  Income of property sold

178

101%

674

43%

404

106%

  Capital grants and subsidies

0

0%

0

0%

1,052

70%

Capital expenditure total

1,316

28%

6,236

74%

4,091

80%

Capital account surplus/deficit

-1,138

x

-5,562

x

-2,635

x

Financial operations, income

1,477

61%

5,888

100%

2,583

102%

  Loans from banks

668

42%

2,532

100%

0

0%

Financial operations, expenditures

619

100%

558

100%

897

91%

  Principal payments

419

100%

421

100%

583

100%

Financial account surplus/deficit

858

x

5,330

x

1,686

x

TOTAL INCOME

20,497

93%

27,708

98%

27,371

99%

TOTAL EXPENDITURE

18,577

84%

25,304

90%

25,698

93%

TOTAL BUDGET SURPLUS/DEFICIT 

1,920

x

2,404

x

1,673

x

Sources: 2017–2019 Budget execution reports for the city of Dunajská Streda, ACRA Europe's calculations

Appendix 2. Balance Sheet for 2017–2019 in thous. EUR

Balance item

Dec 31, 2017

Dec 31, 2018

Dec 31, 2019

Assets

 

 

 

Fixed Assets:

65,293

68,486

70,914

  Intangible assets

101

112

111

  Tangible assets

44,193

47,238

49,639

  Long-term financial assets

20,999

21,136

21,164

Short-term assets:

8,953

8,353

8,182

  Stock

0

0

0

  Settlements

3,340

3,937

4,628

  Long-term receivables 

0

0

0

  Short-term receivables

1,813

1,685

1,465

  Cash and equivalents

3,400

2,331

1,785

  Repayable financial assistance

400

400

304

Accruals

232

193

14

TOTAL ASSETS

74,478

77,032

79,110

Liabilities

 

 

 

Equity/Funds

60,767

61,920

63,039

Liabilities

9,042

9,836

9,046

  Long-term liabilities

1,949

1,849

1,767

  Short-term liabilities

2,241

969

933

  Reserves

2

2

0

  Bank loans and financial assistance

4,850

7,016

6,346

  Settlements

0

0

0

Accruals

4,670

5,277

7,025

TOTAL LIABILITIES

74,478

77,032

79,110

Sources: 2017–2019 Financial statements for the city of Dunajská Streda, ACRA Europe's calculations

Appendix 3. Multiannual City Budget for 2020–2022 in thous. EUR

Budget item

Budget for 2020

(after changes)

Budget for 2021

Budget for 2022

Current income total

23,940

24,131

24,324

  Tax income

13,452

13,641

13,934

  Non-tax income

2,672

2,674

2,574

  Grants and subsidies

7,816

7,816

7,816

Current expenditure total

21,983

21,979

22,019

  Interest expenses

101

120

160

Current account surplus/deficit

1,957

2,152

2,305

Capital income total

85

85

85

  Income of property sold

85

85

85

  Capital grants and subsidies

0

0

0

Capital expenditure total

1,426

1,169

2,600

Capital account surplus/deficit

-1,341

-1,084

-2,515

Financial operations, income

0

1,000

2,500

  Loans from banks

0

1,000

2,500

Financial operations, expenditures

610

582

582

  Principal payments

582

582

582

Financial account surplus/deficit

-610

418

1,918

TOTAL INCOME

24,025

25,216

26,909

TOTAL EXPENDITURE

24,019

23,730

25,201

TOTAL BUDGET SURPLUS/DEFICIT

6

1,486

1,708

Sources: 2020–2022 Multiannual budget forecast for the city of Dunajská Streda, ACRA Europe's calculations


Appendix 4. List of Material Data Sources

Internal data sources

External data sources

Budget execution reports for 2017, 2018, and 2019

Ministry of Finance of the Slovak Republic

Balance sheet for Dec 31, 2017, Dec 31, 2018, and Dec 31, 2019

Statistical Bureau of the Slovak Republic

Notes to financial statements for Dec 31, 2017, Dec 31, 2018, and Dec 31, 2019

Eurostat

Budget forecast for 2020 and Multiannual city budget for 2021–2022

World Bank

Budget amendments in 2020

National Bank of Slovakia

2019 City controller report on control results

Dunajská Streda city web-page

City controller report on budget forecast for 2020 and Multiannual city budget for 2021–2022

Council for Budget Responsibility

Investment Plan for 2020

 

 

 

Rating history

The rating was last released for distribution on June 7, 2019, and revised and affirmed on December 6, 2019. The previous unsolicited rating assessment was released at BBB+, 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 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 May 13, 2020, and after the notification there were no changes or amendments in the rating.

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

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