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

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

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

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

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

Appendix 4. List of Material Data Sources

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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