Fitch Downgrades Armenian City of Yerevan to 'B+'; Outlook Stable

12.10.2020 20:10
Fitch Downgrades Armenian City of Yerevan to 'B+'; Outlook Stable

YEREVAN, October 12. /ARKA/.Fitch Ratings has downgraded the Armenian City of Yerevan's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'B+' from 'BB-'. The Outlook is Stable.

The Fitch Ratings said in a press release that the downgrade follows a similar action on the sovereign ratings of Armenia, due to worse-than- expected economic deterioration caused by the coronavirus pandemic and the recent escalation of the large-scale military actions along the Line of Contact in the Nagorno-Karabakh conflict zone. We view the city's ratings as being capped by the sovereign's.

According to it, Yerevan's risk profile reflects a 'Weaker' assessment for four key factors - revenue robustness and adjustability; expenditure adjustability; and liabilities and liquidity flexibility. The other attributes, expenditure sustainability and liabilities and liquidity robustness, are assessed as 'Midrange'.

According to the  rating case, Yerevan's debt payback ratio (net direct risk-to-operating balance) - the primary metric of debt sustainability assessment - will remain strong over the next five years due to sufficient cash and expected low debt, which leads to our 'aaa' assessment. The secondary metrics, fiscal debt burden measured as net adjusted debt-to-operating revenue, and actual debt-servicing coverage ratio, support this assessment. This leads to the city's overall debt sustainability assessment at 'aaa'.

Factors that may, individually or collectively, lead to negative rating action/downgrade include a downgrade of Armenia's IDRs or a negative rating action on Outlook; and a multiple-notch revision of the city's SCP below 'bb-', which could be driven by material deterioration of Yerevan's debt metrics, particularly a debt payback sustainably above 5x accompanied by fiscal debt burden overshooting 50% under Fitch's rating case.

Factors that may, individually or collectively, lead to positive rating action/upgrade, include an upgrade of Armenia's IDRs. -0-

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