Home Ratings and Research Currently valid ERA downgrades the unsolicited credit rating of SKALICA to BBB-, outlook Stable
ERA downgrades the unsolicited credit rating of SKALICA to BBB-, outlook Stable
Friday, 31 May 2019

The downgrade of the unsolicited credit rating of Skalica stems from changes in the evaluation of key assessment indicators according to ERA's new Methodology, where greater importance is placed on debt, liquidity profile, and operating balance indicators. With floating weights, higher weight is assigned to debt and liquidity indicators when exceeding the deterioration limit values.

The downgrade of the rating assigned to the city of Skalica stems from the assessment of the financial factors where the results of the operating balance analysis show a low level of surpluses, which are the base for the city's future development and debt repayments. The assessment takes into account the results of debt analysis, in particular, the risk of fulfillment of debt service and liquidity indicators, where ERA has applied the floating weights and adjusted the weights according to the risk of potential deterioration.

Rating components

Institutional Factors

Governance and Fiscal Flexibility

Moderate

Budgetary and Management Performance

High

Political Environment

High

Transparency

Very high

Final assessment

High

Financial Factors

Debt Profile

Very high

Liquidity Profile

Moderate

Operating Balance

Low

Regional Economy

High

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 high risk of debt ratio increase, low levels of short-term liquidity, and a low level 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 projection for 2019;
  • The short-term liquidity ratio will not reach lower levels than forecasted for 2019;
  • The operating balance surplus will not be lower 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;
  • Significant increase in the operating balance surplus to more than twice the debt service in 2019;
  • Significant improvement in short-term ratio compared to 2018;
  • 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;
  • Operating balance deficit in 2019.

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


In ERA'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 31/12/2016

in %

Execution 31/12/2017

in %

Execution 31/12/2018

in %

Current income total

13,570

103 %

13,834

98 %

15,307

101 %

  Tax income

7,634

105 %

7,730

99 %

8,648

101 %

  Non-tax income

2,341

108 %

2,345

98 %

2,556

103 %

  Grants and subsidies

3,595

96 %

3,759

98 %

4,103

99 %

Current expenditure total

12,271

98 %

13,137

98 %

14,198

98 %

  Interest expenses

205

91 %

189

96 %

171

96 %

Current account surplus/deficit

1,299

x

697

x

1,109

x

Capital income total

1,199

59 %

1,582

74 %

2,191

83 %

  Income of property sold

332

63 %

272

70 %

1,061

86 %

  Capital grants and subsidies

867

58 %

1,310

75 %

1,130

80 %

Capital expenditure total

953

33 %

3,842

91 %

3,185

92 %

Capital account surplus/deficit

246

x

- 2,260

x

- 994

x

Financial operations, income

973

47 %

3,063

84 %

2,073

85 %

  Loans from banks

199

100 %

2,446

84 %

1,934

85 %

Financial operations, expenditures

1,901

100 %

1,426

63 %

1,774

80 %

  Principal payments

1,601

100 %

1,426

63 %

1,774

80 %

Financial account surplus/deficit

- 928

x

1,637

x

299

x

TOTAL  INCOME

15,742

91 %

18,480

93 %

19,571

97 %

TOTAL  EXPENDITURE

15,125

87 %

18,405

93 %

19,157

95 %

TOTAL BUDGET SURPLUS/DEFICIT 

518

x

50

x

414

x

Sources: 2016-2018 Budget execution reports for the city of Skalica, ERA's calculations

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

Balance item

31/12/2016

31/12/2017

31/12/2018

Assets

Fixed Assets:

66,790

65,361

66,604

  Intangible assets

68

64

60

  Tangible assets

47,226

48,187

49,434

  Long-term financial assets

19,496

17,110

17,110

Short-term assets:

8,393

7,441

7,524

  Stock

1

1

1

  Settlements

7,077

6,807

6,590

  Long-term receivables 

3

3

3

  Short-term receivables

470

296

219

  Cash and equivalents

842

334

711

  Repayable financial assistance

0

0

0

Accruals

10

8

2

TOTAL ASSETS

75,193

72,810

74,130

Liabilities

 

 

 

Equity / Funds

44,037

41,503

42,629

Liabilities

14,165

14,092

14,638

  Long-term liabilities

8,686

9,882

11,026

  Short-term liabilities

1,669

982

1,007

  Reserves

4

12

2

  Bank loans and financial assistance

3,707

3,192

2,557

  Settlements

99

24

47

Accruals

16,991

17,215

16,864

TOTAL LIABILITIES

75,193

72,810

74,130

Sources: 2016-2018 Financial statements for the city of Skalica, ERA'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

15,897

15,715

15,809

  Tax income

9,395

9,064

9,158

  Non-tax income

2,379

2,542

2,542

  Grants and subsidies

4,123

4,109

4,109

Current expenditure total

14,446

14,072

14,066

  Interest expenses

180

179

179

Current account surplus/deficit

1,451

1,643

1,743

Capital income total

959

424

424

  Income of property sold

208

30

30

  Capital grants and subsidies

751

394

394

Capital expenditure total

3,588

1,880

1,880

Capital account surplus/deficit

- 2,629

- 1,456

- 1,456

Financial operations, income

3,675

1,875

1,875

  Loans from banks

3,675

1,875

1,875

Financial operations, expenditures

2,055

2,059

2,074

  Principal payments

1,873

1,876

1,891

Financial account surplus/deficit

1,620

- 184

- 199

TOTAL  INCOME

20,531

18,014

18,108

TOTAL  EXPENDITURE

20,089

18,011

18,020

TOTAL BUDGET SURPLUS/DEFICIT 

442

3

88

Sources: 2019-2021Multiannual budget forecats for the city of Skalica , ERA'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 31/12/2016, 31/12/2017, and 31/12/2018

Statistical Bureau of the Slovak Republic

Notes to financial statements for 31/12/2016, 31/12/2017, and 31/12/2018

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

Skalica city web-page

City controller report on budget forecast for 2019 and Multiannual city budget for 2020-2021

Investment plan for 2019

Regulatory disclosure

The unsolicited credit rating and outlook were issued in accordance with ERA methodology for sovereign entities in the version from May 31, 2019 (available at www.euroratings.co.uk, 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 www.euroratings.co.uk (Regulatory Framework/Disclosure). This rating is issued as an unsolicited rating, i.e. was not initiated by the rated entity or a related third party. The rated entity did not participate in the rating process and the information and documentation for its development was obtained from publicly available sources in accordance with ERA methodology. ERA did not have access to the rated entity's internal documents. ERA, in the context of routine care, verified all sources entering the rating process. ERA considers the scope and quality of the information entering the analytical process to be sufficient to assign a credit rating. The disclosure of the unsolicited rating and outlook was preceded by the approval of the Rating Committee. No actual or potential conflicts of interest have arisen. Since July 30, 2012, ERA 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 previous rating assessment was released on June 29, 2018. The rated entity was notified about affirmation of credit rating assessment and outlook on May 29, 2019 and after the notification there were no changes or amendments in the rating. The previous unsolicited credit rating was released at BBB, outlook Stable.

Download pdf:

Rating_Report_Sub-Sovereign_SKALICA_EN_2019.pdf

Minutes from the Rating Committee


Approved by the Rating Committee:

Zuzana Hrebičková, Acting

Head of credit rating analysts

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