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Standard and Poor's affirms Budapest ratings, negative outlook

Standard and Poor's said it affirmed its 'BBB-' long-term and 'A-3' short-term local and foreign currency issuer credit ratings on the City of Budapest at BBB-/Negative/A-3. The outlook remained negative.

Budapest's liquidity is positive for the rating and the new city administration is committed to continuing the previous administration's prudent budgetary policies and keeping debt levels limited, the agency said in a statement.

The ratings are capped by the 'BBB-/A-3' foreign currency sovereign credit ratings on Hungary, and they would most likely change in line with the agency's ratings on Hungary, S&P said. The outlook is negative because the outlook on Hungary is negative.

"The ratings on Budapest reflect its strong economic profile well above the Hungarian national average; its positive liquidity profile with free available cash far in excess of annual debt service requirements; continuously solid financial performances; and commitment of Budapest's new administration to limit 2014 nominal debt at the end-2010 level."

Constrains to Budapest's indicative credit profile include continued pressure from the public transport company Budapest transport company (BKV), and the decreasing predictability of Hungary's institutional framework for local and regional governments, which is currently undergoing reform and grants only limited budgetary flexibility to local governments, S&P said.

BKV's poor financial standing has long been a credit concern, and the credit rating agency expects the company to continue to pressure Budapest's financials.

If Budapest's currently solid financials and liquidity position do not deteriorate, the ratings or outlook on the city could improve (or worsen) in line with those on the sovereign, the statement said.

A negative rating action on Budapest could also result from the city's significantly weaker financial performance, together with lower-than-expected liquidity reserves and faster-than-expected debt accumulation triggered by a sudden change in the city's policies or an unfavorable revision of the institutional framework, S&P said adding it did not expect this in the foreseeable future.