The main rating factors

The revenue bonds rating reflects the stable income from the project’s revenues guaranteed by the agreement between MPK – Łódź Spółka z o.o. (Issuer) and the City of Łódź (the main recipient of services), the issuer’s high ability to finance investments from its own funds, the current liquidity situation of the City’s budget, as well as the Issuer’s liquidity – factors being a component of the securities’ credit risk assessment. The rating also takes into account the issue agreement guaranteeing the security of payments to the Bondholders.
The Issuer’s debt policy is implemented in a safe manner and guarantees its correct service and timely repayment in subsequent periods. Liabili-ties planned by the Issuer in subsequent periods should not significantly affect its ability to settle long-term liabilities resulting from revenue bonds.
The rating reflects the stable liquidity of the revenue bonds program, which in our opinion remain sufficient and well-protected until bonds’ maturity. We also expect that the program will still be separated from other operations of the Issuer. The City of Łódź and its debt program are included in this assessment according to the INC Rating’s methodology of the municipal companies sector’s assessment in Poland.
The City of Łódź regulates its obligations, resulting from contracts for the provision of transport services under the Łódzki Tramwaj Regionalny (ŁTR) project, towards the Issuer without delay. Both the project and the Issuer are strongly connected at the legal, strategic level, control and integration with the structures of the City of Łódź (the City owns 100% shares of the Issuer). At the end of May 2019 (the last bond redemption date), the value of remaining bonds to be bought back amounted to PLN 79,6 million (from PLN 166 million of primary issue), which accounted for 41.24% of the Issuer’s liabilities (as at December 31, 2018, less the value of bond redemption in May 2019).

The main factors of the rating change

Both the Issuer and its sole shareholder (the City of Łódź) have a stable financial base. The trend of generating an operational surplus by the City of Łódź is stable, and the operating income of the Issuer covers its current liabilities. The Issuer correctly sets up provisions for future or potential expenses.
Liabilities planned by the Issuer in subsequent periods should not significantly affect its ability to settle long-term liabilities.
Factors determining the upgrade of the rating: The full guarantee from the City of Łódź covering all liabilities of MPK – Łódź Spółka z o.o. resulting from the revenue bonds program or upgrade of the credit rating of the City of Łódź may lead to an upgrade of the rating.
Factors determining the downgrade of the rating: The revenues bonds rating may be downgraded if the protection of bondholders decreases or the Issuer’s liquidity deteriorates significantly. Any weakening of the strategic importance of MPK – Łódź Spółka z o.o. towards the City of Łódź leading to a reduced willingness to support the company may cause a downgrade. The downgrade may also result from weaker fiscal efficiency or higher indebtedness of the City of Łódź, leading to deterioration of the internal assessment of creditworthiness by the Bondholders.


Krzysztof Grybionko
Lead Analyst
+48 61/851 38 83

Research Report – MPK Łódź