Rating Action Commentary
ֳ Revises City of Tallinn's Outlook to Negative on Sovereign Rating Action; Affirms at 'AA-'
Fri 26 Aug, 2022 - 5:05 PM ET
ֳ - Warsaw - 26 Aug 2022: ֳ has revised the Outlook on the City of Tallinn's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at 'AA-'.
A full list of rating actions is at the end of this rating action commentary.
Under applicable credit rating agency (CRA) regulations, the publication of the local and regional government reviews is subject to restrictions and must take place according to a published schedule, except where it is necessary for CRAs to deviate from the schedule in order to comply with the CRAs' obligation to issue credit ratings based on all available and relevant information and disclose credit ratings in a timely manner.
ֳ interprets this provision as allowing us to publish a rating review in situations where there is a material change in the creditworthiness of the issuer that we believe makes it inappropriate for us to wait until the next scheduled review date to update the rating or Outlook/Watch status. The next schedule review date for ֳ's rating on Tallinn is 16 September 2022, but ֳ believes the developments for the issuer warrant such a deviation from the calendar and our rationale for this is set out in the first part (High weight factors) of the Key Rating Drivers section below.
Key Rating Drivers
High weight factors:
The rating action follows the recent similar rating action on the Estonian sovereign on 19 August 2022 (see ֳ Revises Estonia's Outlook to Negative; Affirms at 'AA-'), as the city's ratings are at the same level as the sovereign ratings.
The Risk Profile remains 'Midrange' as it is not affected by the rating action and no changes have been applied to the city's Debt Sustainability score, which remains 'aaa'. The derivation of the Standalone Credit Profile (SCP) is unaffected by the rating action. For individual key rating drivers see the latest published rating action commentary dated 18 March 2022 at .
Derivation Summary
We assess Tallinn's SCP at 'aa-', reflecting the combination of a 'Midrange' risk profile and debt sustainability metrics assessed in the 'aaa' category under our rating case. The IDRs are not affected by any asymmetric risk or extraordinary support from the central government of Estonia and they are equal to the city's SCP.
Key Assumptions
Qualitative assumptions and assessments and their respective change since the last review on 18 March 2022 and weight in the rating decision:
Risk Profile: 'Midrange'/unchanged with low weight
Revenue Robustness: 'Midrange'/unchanged with low weight
Revenue Adjustability: 'Weaker'/unchanged with low weight
Expenditure Sustainability: 'Stronger'/unchanged low weight
Expenditure Adjustability: 'Midrange'/unchanged with low weight
Liabilities and Liquidity Robustness: 'Stronger'/unchanged with low weight
Liabilities and Liquidity Flexibility: 'Midrange'/unchanged with low weight
Debt sustainability: 'aaa' category /unchanged with low weight
Budget Loans or Ad-Hoc Support: N/A, unchanged with low weight
Asymmetric Risk: N/A, unchanged with low weight
Sovereign Cap: 'AA-', lowered with high weight
Rating Floor: N/A, unchanged with low weight
Quantitative assumptions - issuer-specific: unchanged with low weight
ֳ's rating case is a "through-the-cycle" scenario, which incorporates a combination of revenue, cost and financial risk stresses. It is based on 2017-2021 figures (2021 is preliminary) and 2022-2026 projected ratios. For the quantitative assumptions see the latest published rating action commentary dated 18 March 2022 at .
Quantitative assumptions - sovereign-related (note that no weights and changes since the last review are included as none of these assumptions were material to the rating action):
Figures as per ֳ's sovereign data for 2021 and forecast for 2024, respectively:
- GDP per capita (US dollar, market exchange rate): 27,206; 30,428
- Real GDP growth (%): 8.2; 2.9
- Consumer prices (annual average % change): 4.5; 2.5
- General government balance (% of GDP): -2.4; -3.0
- General government debt (% of GDP): 18.1; 23.2
- Current account balance plus net FDI (% of GDP): -2.5; 1.8
- Net external debt (% of GDP): -45.2; -57.6
- IMF Development Classification: DM (developed market)
- CDS market implied rating: A-
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
- A revision of the Outlook on the sovereign to Stable from Negative.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
- A downgrade of Estonia's IDRs would lead to a downgrade of Tallinn's IDRs
For individual rating sensitivities see the latest published rating action commentary on Tallinn at .
COMMITTEE MINUTE SUMMARY
Committee date: 24 August 2022
There was an appropriate quorum at the committee and the members confirmed that they were free from recusal. It was agreed that the data was sufficiently robust relative to its materiality. During the committee no material issues were raised that were not in the original committee package. The main rating factors under the relevant criteria were discussed by the committee members. The rating decision as discussed in this rating action commentary reflects the committee discussion.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.
Issuer Profile
Tallinn is the capital of Estonia (445 002 inhabitants as at 1 January 2021). The city is service-oriented and its wealthy economy results in high tax revenue. The unemployment rate moves in line with the national one (Estonia at end-2020: 6.8%).
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on ֳ's ESG Relevance Scores, visit
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| Tallinn, City of | EU Issued, UK Endorsed |