Home Ratings and Research Currently valid ERA affirms unsolicited rating A- to STROPKOV, outlook Stable
ERA affirms unsolicited rating A- to STROPKOV, outlook Stable
Friday, 07 June 2019

The affirmation of the unsolicited credit rating of Stropkov 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 rating assigned to the city of Stropkov remains unchanged and is mainly based on a positive assessment of very low indebtedness and the low probability of its increase in the outlook for the next 2-3 years, the high level of the short-term liquidity indicator, and the sufficient level of current balance surpluses.

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 outlook has been assigned based on the expectation of a very low level of indebtedness, high level of the short-term liquidity indicator, and sustainable level of current 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 2019 forecast;
  • The short-term liquidity ratio will not reach lower levels than forecasted for 2019;
  • The operating balance will reach 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 level of operating balance surplus than projected for 2019;
  • Obligation to pay immediately the 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 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

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, 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:

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, 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

9,889

9,750

10,202

  Tax income

5,525

5,665

6,000

  Non-tax income

939

880

890

  Grants and subsidies

3,425

3,205

3,312

Current expenditure total

9,534

9,159

9,489

  Interest expenses

23

20

18

Current account surplus/deficit

355

591

713

Capital income total

1,079

0

0

  Income of property sold

88

0

0

  Capital grants and subsidies

991

0

0

Capital expenditure total

1,542

207

218

Capital account surplus/deficit

- 463

- 207

- 218

Financial operations, income

345

0

0

  Loans from banks

0

0

0

Financial operations, expenditures

236

112

87

  Principal payments

236

112

87

Financial account surplus/deficit

109

- 112

- 87

TOTAL  INCOME

11,313

9,750

10,202

TOTAL  EXPENDITURE

11,313

9,478

9,794

TOTAL BUDGET SURPLUS/DEFICIT 

0

272

408

Sources: 2019-2021 Multiannual budget forecats for the city of Stropkov, 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

Stropkov city web-page

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

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 8, 2018. The rated entity was notified about affirmation of credit rating assessment and outlook on June 5, 2019 and after the notification there were no changes or amendments in the rating. The previous unsolicited credit rating was released at A-, outlook Stable.

Download pdf:

Rating Report_Sub-Sovereign_STROPKOV_EN.pdf


Approved by the Rating Committee:

Zuzana Hrebičková, Acting

Head of credit rating analysts

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