Fitch Affirms Municipality of La Plata, Argentina at 'CCC'

MONTERREY, Mexico--()--Fitch Ratings has affirmed Municipality of La Plata's (MLP) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'CCC'.

The ratings are capped by Argentina's Country Ceiling, which Fitch last downgraded on July 31, 2014 to 'CCC' from 'B-'.

KEY RATING DRIVERS

The affirmation of MLP's ratings considers its adequate fiscal and budgetary performance, generating sound operating margins over the last years despite the pressures on operating expenditures; it also considers its political and academic relevance. La Plata maintains adequate financial flexibility, low leverage and high sustainability ratios. Inflationary and wage pressures, its high infrastructure needs, as well as Argentina's country ceiling, all constrain the rating.

Historically, MLP has recorded sound operating margins. In the last two years, due to higher expenses as a consequence of floods, inflationary pressure on wages and other administration projects, the operating margin has decreased. Nevertheless, it remains at an adequate level at 12.7%. Fitch expects a good budgetary performance in 2015; however, the operating margin is expected to be below the budget (26.4%), and remain around 16%.

Fitch also views MLP's adequate budgetary flexibility favorably. The incidence of MLP's third-party-sourced revenue in relation to its total operating revenue averaged 44.1% during the 2010-2014 period, which indicates the low exposure of MLP's income to federal and provincial transfers. Moreover, MLP's personnel costs during this period represented only 31.5% on average of its operating revenue, which makes its budget performance less vulnerable to current pressure from wage hikes than other municipalities in the country.

Regarding debt, at year-end 2014, MLP's direct debt was ARS41.8 million, representing a decrease of 17.1% against 2013, maintaining very low short-term obligations. MLP's indebtedness is very low at 2% of the operating revenues and equivalent to 0.2x of the current balance. The municipal administration does not plan to take on more debt in 2015; however, Fitch believes - based on MLP's present level and sustainability of indebtedness - that MLP still has margin in the event it decides to incur additional debt in the future.

In the first quarter of 2015, MLP's direct debt was ARS43.4 million, showing a slight increase in short-term debt against 2014. In terms of short-term pressure, the good budget performance has allowed the MLP to have an adequate liquidity position and significantly reduce exposure to short-term consolidated debt.

As to MLP's solvency, their debt profile is sustainable, although it is affected at the end of each year due to floating debt payments, which have been higher in the last two years.

The city of La Plata is the Province of Buenos Aires' capital city and seat of the provincial government as well as home of the National University of La Plata (one of the country's leading universities). These academic and political strengths imply a significant floating population which puts pressure on the demand for municipal services.

RATING SENSITIVITIES

Any change in Argentina's Country Ceiling would result in movement of MLP's ratings in the same direction.

Additional information is available on www.fitchratings.com

Applicable Criteria

International Local and Regional Governments Rating Criteria (pub. 18 May 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865254

Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=988432

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988432

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Martha Gonzalez, +52 81 83999132
Associate Director
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, N.L.
or
Secondary Analyst
Humberto Panti, +52 81 83999152
Senior Director
or
Committee Chairperson
Carlos Ramirez, +571-326-9999
Senior Director
or
Media Relations, New York
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Martha Gonzalez, +52 81 83999132
Associate Director
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, N.L.
or
Secondary Analyst
Humberto Panti, +52 81 83999152
Senior Director
or
Committee Chairperson
Carlos Ramirez, +571-326-9999
Senior Director
or
Media Relations, New York
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com