OREANDA-NEWS. Fitch Ratings has assigned Miejskie Przedsiebiorstwo Komunikacyjne - Lodz Spolka z o.o.'s (MPK) revenue bond programme a Long-term National rating of 'A(pol)' and affirmed the Long-term secured debt rating in local currency at 'BBB-'.

The rating actions reflect the maintained sound liquidity of the revenue bond programme and our expectation that it will remain sufficient until maturity and continue to be ring-fenced from MPK's other operations.

KEY RATING DRIVERS
The revenue bond rating reflects the liquidity provided by the City of Lodz to support MPK, which is strategically important to the city due to its provision of the tram and bus service, including the Lodzki Tramwaj Regionalny (LTR) tram service.

The City of Lodz's annual payments as remuneration to MPK for the LTR tram service are essential for the revenue bond programme's liquidity. Annual inflows to the venture account (VA) significantly exceed annual obligations to bondholders. Between June 2014 and May 2015, the payments made by the City for the LTR tram service were PLN27.4m, 2.5 times exceeding the obligations to the bonds.

We project that the VA inflows will exceed the annual bond obligations by at least 1.5 times until 2020. We assume satisfactory liquidity for the revenue bond programme will prevail until maturity.

The VA ring-fences revenue from the venture assets paid to the account from MPK's other operating risks. MPK can only access the VA for purposes other than relating to the bond programme if the amount within the account exceeds 12 months of bond service.

The bondholders are legally better protected than the remaining creditors. They have first claim on revenues in the VA and also have a pledge on venture assets excluding them from the bankruptcy estate. The City of Lodz is obliged to contract LTR transport services with, and inject equity into MPK, securing two sources of servicing the revenue bonds in the long term.

MPK's transport service is relatively stable, covering about 51.5 million kilometres a year in 2013-2015, of which about 1 million kilometres is the LTR tram service. Revenue from LTR is relatively stable of around PLN23m and accounts for about 4% of MPK's total revenue.

The company's debt remains considerable (2014: PLN247.3m) and may rise in the medium term due to the planned rolling-stock replacement. The revenue bonds accounted for 48% of the company's total debt in 2014.

RATING SENSITIVITIES
MPK's revenue bonds' rating may be downgraded if the special protection of the bondholders weakens or if the liquidity of the venture account deteriorates significantly. Any weakening in the strategic importance of MPK to the City of Lodz leading to reduced willingness to support the company may cause a downgrade.

A full guarantee from the City of Lodz, which is unlikely, covering all MPK's obligations under the revenue bond programme or a strengthening of the city's credit profile could lead to an upgrade.

KEY ASSUMPTIONS
Fitch assumes unchanged links between MPK and the City of Lodz.