Home Ratings and Research Currently valid ACRA Europe affirms unsolicited rating of A- to TRNAVA, outlook Stable
ACRA Europe affirms unsolicited rating of A- to TRNAVA, outlook Stable
Friday, 22 May 2020

The rating assigned to the city of Trnava remains unchanged and is mainly based on a positive assessment of the debt levels, high liquidity levels, and operating balance surpluses.

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.

The city of Trnava has adjusted its budget in accordance with economic forecasts in order to ensure that budget stability is maintained despite the expected revenue shortfall. The city has partially mitigated the shortfall in shared tax revenues by adjusting almost all items of operating expenditure. In addition, the shortfall of some tax and non-tax operating revenues is expected to be substituted by other revenues (e.g. by increasing the waste disposal fee). Having executed municipal budgets with annual surpluses in previous years, the city is now able to use its reserve resources not only to arrange expenditure refinancing related to the COVID 19 pandemic, but also to keep providing high quality services to its inhabitants and to continue its own development projects.

Rating components

Institutional Factors

Governance and Fiscal Flexibility

Moderate

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

High

Regional Economy

Moderate

Final assessment

Very high

Extraordinary Support

Final assessment

High

Overall score

Very high

Final rating

A-

Outlook: Stable

The outlook has been assigned based on the expectation of low risk after increased debt, a high level of liquidity, and high levels of operating balance surpluses.

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

Key assumptions

• Indebtedness will not increase significantly compared to the forecast for 2020;

• The short-term liquidity ratio will not reach lower levels than forecast for 2020;

• The operating balance will reach a higher surplus than forecast for 2020.

Potential outlook and/or rating change factors

A positive rating action may be prompted by:

• Significantly lower debt levels than forecast for 2020;

• Significantly higher operating balance surplus compared to 2019;

• Significantly higher use of capital grants than budgeted for 2020;

• Significant improvement in macroeconomic indicators 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 forecast for 2020;

• Significant deterioration of liquidity indicators compared to 2019;

• Significantly lower level of operating balance surplus than forecast 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

%

Execution  

Dec 31, 2018

%

Execution  

Dec 31, 2019

%

Current income total

52,194

106%

55,464

104%

60,123

103%

  Tax income

36,836

106%

39,729

105%

41,108

103%

  Non-tax income

5,781

117%

5,709

114%

6,543

95%

  Grants and subsidies

9,577

100%

10,026

97%

12,472

99%

Current expenditure total

44,555

97%

47,252

85%

52,358

94%

  Interest expenses

268

97%

229

90%

208

78%

Current account surplus/deficit

7,639

x

8,212

x

7,765

X

Capital income total

334

16%

973

24%

1,651

38%

  Income of property sold

267

18%

833

114%

1,035

109%

  Capital grants and subsidies

67

12%

140

4%

416

13%

Capital expenditure total

9,064

47%

7,508

38%

9,030

44%

Capital account surplus/deficit

-8,730

x

-6,535

x

-7,379

x

Financial operations, income

8,799

54%

6,369

43%

9,482

59%

  Loans from banks

1,450

27%

1,289

33%

2,877

56%

Financial operations, expenditures

2,092

105%

2,206

100%

2,375

96%

  Principal payments

1,856

93%

2,076

94%

2,163

88%

Financial account surplus/deficit

6,707

x

4,163

x

7,107

x

TOTAL  INCOME

61,327

91%

62,806

87%

71,256

91%

TOTAL  EXPENDITURE

55,711

83%

56,966

79%

63,763

81%

TOTAL BUDGET SURPLUS/DEFICIT

5,616

x

5,840

x

7,493

x

Sources: 2017–2019 Budget execution reports for the city of Trnava, 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:

168,561

166,331

167,203

  Intangible assets

6

6

3

  Tangible assets

148,652

146,422

147,996

  Long-term financial assets

19,903

19,903

19,204

Short-term assets:

50,695

54,969

60,150

  Stock

63

66

86

  Settlements

33,491

36,157

39,918

  Long-term receivables

626

451

2,950

  Short-term receivables

2,650

3,163

2,503

  Cash and equivalents

13,865

15,132

14,693

  Repayable financial assistance

0

0

0

Accruals

240

336

161

TOTAL ASSETS

219,496

221,636

227,514

Liabilities

 

 

 

Equity/Funds

174,599

177,652

 183,174

Liabilities

19,936

21,347

22,306

  Long-term liabilities

4,687

4,890

4,461

  Short-term liabilities

3,874

4,069

5,493

  Reserves

2,584

4,292

3,246

  Bank loans and financial assistance

8,581

8,050

9,008

  Settlements

210

46

98

Accruals

24,961

22,638

22,034

TOTAL LIABILITIES

219,496

221,636

227,514

Sources: 2017–2019 Financial statements for the city of Trnava, 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

60,506

63,521

64,505

  Tax income

40,982

45,412

46,442

  Non-tax income

5,429

5,608

5,540

  Grants and subsidies

14,095

12,501

12,523

Current expenditure total

58,701

57,076

57,106

  Interest expenses

230

200

180

Current account surplus/deficit

1,805

6,445

7,399

Capital income total

3,626

2,056

1,000

  Income of property sold

100

1,000

1,000

  Capital grants and subsidies

3,526

1,056

0

Capital expenditure total

11,833

8,359

8,258

Capital account surplus/deficit

-8,207

-6,303

-7,258

Financial operations, income

9,179

2,776

2,271

  Loans from banks

2,825

0

0

Financial operations, expenditures

2,702

2,918

2,412

  Principal payments

2,547

2,718

2,212

Financial account surplus/deficit

6,477

- 142

-141

TOTAL  INCOME

73,311

68,353

67,776

TOTAL  EXPENDITURE

73,236

68,353

67,776

TOTAL BUDGET SURPLUS/DEFICIT 

75

0

0

Sources: 2020–2022 Multiannual budget forecast for the city of Trnava, 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

Trnava city web-page

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

Council for Budget Responsibility of Slovakia

Participatory budget for the city of Trnava - summary

Labor, Social Affairs and Family Office of Slovakia


Rating history

The rating was last released for distribution on May 31, 2019, revised and affirmed on November 29, 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 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 20, 2020, and after the notification there were no changes or amendments in the rating.

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

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