OREANDA-NEWS. March 30, 2015. Fitch Ratings has affirmed the City of Pamplona's (Pamplona) Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB+' with Stable Outlook. Fitch has also affirmed the Short-term foreign currency IDR at 'F2.'

KEY RATING DRIVERS

Pamplona's ratings reflect its strong socio-economic profile, steady operating performance and decreasing and moderate level of direct debt. The ratings also reflect Fitch's expectations that the city will maintain a sound fiscal performance in the medium term.

Fitch expects the operating margin to remain in the 9%-11% range in 2016, from an estimated current margin of 9.8% at end-2014. Pamplona's current balance was EUR17.9m in 2014, higher than in 2013, thanks to the performance of the property tax and higher current transfers from Navarre. Pamplona's position as the capital of Navarre gives it special status, with steady operating revenue, as it receives a significant amount of current transfers from Navarre, representing 83% of total current transfers in 2014 (44% of operating revenues). Pamplona has maintained a low property tax rate, equivalent to EUR140.7 per capita in 2014, much lower than many provincial capital cities in Spain, giving the administration further leeway.

Fitch's base case scenario assumes direct debt will remain moderate until 2016 at 52%-55% of current revenue. There has been a moderate direct debt increase since 2009 (by EUR0.7m), as the city has used its surplus to repay debt for several years. At end 2014, direct debt represented a moderate 55.7% of current revenue, below the 2013 level (59.8%), as Pamplona has used the surplus generated in 2013 to repay part of its long-term debt. The debt repayment calendar at end-2014 indicates that a low 25% of the general administration's outstanding total debt will mature between 2015 and 2017. The stable and high cash position and low level of payables mean the city has no need to contract credit lines or apply for state funding support.

Pamplona functions as an important service centre in Navarre and is home of prestigious private health clinics and university centres helping its socio-economic indicators to be better than the regional and national average. Its regional GDP per capita in 2013 was estimated at 23.4% above the average for Spain. Despite a more pronounced share of elderly population, Pamplona and Navarre enjoy a dynamic labour market with a regional employment rate estimated at 50.3% in 2014 compared with 45.1% nationally.

RATING SENSITIVITIES
The Stable Outlook mirrors that on the sovereign's Long-term IDRs. A sovereign upgrade would likely result in an upgrade of the city's ratings, if the city continues to post a sound operating performance and healthy debt ratios.

Any negative rating action on the sovereign would be reflected by Pamplona's IDRs. Although presently considered unlikely, the ratings could be downgraded if debt repayment increases significantly above 50% of the city's current balance expected for 2016 and 2017.