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

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

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

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

Sources: 2016-2018 Financial statements for the city of Stropkov, ERA's calculations

Appendix 3. Multiannual City Budget for 2019 – 2021 in thous. EUR

Sources: 2019-2021 Multiannual budget forecats for the city of Stropkov, ERA's calculations

Appendix 4. List of Material Data Sources

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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