SP downgraded the rating of Lviv to “SD”, then returned it to the level of “CCC” after a delay of coupon payment
Ratings Services Standard Poor”s lowered its long-term credit rating, as well as national scale rating of Lviv to the level of “SD” ( “selective default”) after defaulting on a small coupon. This is stated in the message S P.
According to the report, in addition, the rating agency downgraded the senior unsecured debt rating of bonds in the amount of 92 million UAH. maturity of 20 July 2012 (1 st tranche) and 19 December 2012 (2 nd tranche) to “D”. City made a default on one of the trenches.
Then
Lviv ratings were raised to “CCC /uaBB “, also increased ratings of senior unsecured debt - to” CCC /uaBB “, because the necessary funds have been transferred. The forecast on ratings - “Negative”.
“Lviv ratings reflect a very low level of support from the Ukrainian system of intergovernmental fiscal relations, as well as the centralized nature of the system,” - said a credit analyst at Standard Poor”s Boris Kopeikin.
The report states that the government actually controls the execution of the budgets of regional and local authorities (RMOV), because the revenues and expenses should be credited RMOV in the State Treasury, and the expenditures made from these accounts.
According to SP, 19 January 2010 Administration of Lviv in the State Treasury called the request to transfer funds for payment coupons maturing on January 22. Treasury has not undertaken a timely payment. Given the period of grace period of two working days, the city allowed a default on January 26. After treatment the mayor of Lviv to the government treasury funds transferred payment agent, who received them on January 27. According to the city, all the bondholders have received coupon payments on January 27.
“Based on information available to analysts Standard Poor”s, the delay was caused by technical problems and we do not expect that a similar situation with respect to interest payments to recur in the future to Lviv or any Ukrainian RMOV with similar ratings. But dependence on the treasury system may become an obstacle to increasing the rating of any Ukrainian RMOV to a level above the sovereign rating, under any circumstances in the future “- said in a statement.
SP noted that the ratings of Lviv still reflect Ukraine”s sovereign ratings (rating on liabilities in foreign currency: CCC /Stable /C; rating on obligations in national currency: V-/Stabilnyy/S; national scale rating: uaBBB ). The ratings also take into account the low financial flexibility of the city budget and financial uncertainty caused by the obligations of the city to improve its infrastructure in connection with the Lviv several soccer matches of Euro 2012 (they will be held in Ukraine and Poland), which constantly leads to the necessity of significant costs and already led to the accumulation of debt needed to financeea1projects related to the championship. In addition, the rating is constrained by a slowdown in economic development and declining incomes, and low liquidity of the city.
“forecast” Negative “reflects the likelihood that in 2010-2011. Lvov will pursue an aggressive policy of debt, which will lead to accelerated accumulation of debt to finance the preparations for Euro 2012, as well as to raise the cost of servicing and repayment debt “, - said Kopeikin.
SP stresses that in the event of further deterioration of the liquidity position of the city due to the reduction of income or as a result of that new borrowing will lead to a city high foreign exchange risk, or too costly to service and repay debt over the next 12-36 months, the ratings could be lowered. Furthermore, the negative rating actions in Lviv can be caused by a similar rating action on Ukraine or further difficulties in working with the Treasury.
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