September 15, 2017 / 9:27 PM / in a year

Fitch Affirms City of Pamplona at 'BBB+'; Outlook Positive

(The following statement was released by the rating agency) BARCELONA/PARIS/LONDON, September 15 (Fitch) Fitch Ratings has affirmed the City of Pamplona's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB+' with Positive Outlook. Fitch has also affirmed the Short-Term Foreign Currency IDR at 'F2'. The affirmation reflects Pamplona's strong operating performance in 2016 plus moderate and reduced direct debt. The affirmation also reflects the city's strong economy. The Positive Outlook reflects that of the Spanish sovereign (BBB+). KEY RATING DRIVERS Strong Economy Pamplona is the capital of the Autonomous Community of Navarre and the city represents a high 31% of the region's population. Pamplona's economy is wealthy and the city functions as an important administrative, political and economic centre in Navarre. Pamplona is also a major service centre in the region with its high-quality private health clinics and university centres contributing to the dynamism of the local economy. Pamplona's economy also benefits from being a hub for the automobile industry due to Volkswagen's Landaben plant being located in the city. The plant has 4,500 employees and expected increasing sales of the new "Polo" model could raise this number by 200 in 2017, with also an indirect impact on the local labour market. Its strong economy is demonstrated by a regional GDP per capita that was 24.4% above the Spanish average in 2016 and a higher-than-average regional employment rate of 53.3% in 2Q17 (48.7% in Spain). After large losses during 2008-2013, the labour market is recovering, with job creation in the region expanding 9.4% between 4Q13 and 2Q17. Improved Budgetary Performance Pamplona's steady and sound operating revenue is largely driven by significant and predictable current transfers from Navarre (44% of operating revenue in the 2017 draft budget), in part due to the city's special status as the capital of Navarre. Many of the services provided in Pamplona are effectively delivered via the inter-municipal structure (MCP) with satisfactory financial accounts. Pamplona approved the 2017 budget with majority support. Fitch expects Pamplona's operating margin will remain strong at 13%-15% for 2017-2018 (14.1% at end-2016). Operating revenue is expected to grow 2%-3% due to a 1.3% yoy increase in current transfers from the government of Navarre, in line with expected inflation in the region. Moreover, Pamplona initiated a partial valuation of the real estate stock in the municipality, which should lead to a projected property tax collection increase of 1% yoy in 2017. Operating expenditure is expected to grow by a slower 1%-2% in 2017, largely on social spending and staff costs (50% of operating spending in the 2017 draft budget). Reduced Direct Debt Direct debt declined in 2016 to 44% of current revenue or EUR86.1 million from EUR93.9 million in 2015 (50%) as the city used its budget surplus to repay debt. Fitch expects such debt repayment to continue in 2017 and 2018, taking direct debt lower to 30%-44% of current revenue. Pressure on debt servicing is fairly moderate, particularly with EUR26.3 million debt maturing over the next three years, or 31% of outstanding direct debt at end-2016. Pamplona's liquidity is stable and ample, as available cash represented 63% of the city's outstanding direct debt at end-2016, meaning that no short-term credit lines were necessary. RATING SENSITIVITIES Pamplona's IDRs are constrained by the sovereign IDRs and are therefore sensitive to changes in the latter. Contact: Primary Analyst Julia Carner Analyst +34 93 323 8401 Fitch Ratings Espana, S.A.U. Av. Diagonal, 601, Barcelona 08028 Secondary Analyst Guilhem Costes Senior Director +34 93 323 8410 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:; Pilar Perez, Barcelona, Tel: +34 93 323 8414, Email: Additional information is available on Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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