With Outlook Stable, the rating actions follow publication of Fitch's new "Government-Related Entities Rating Criteria" (GRE criteria), which we have applied in our assessment of MWiK's ratings.
It views the status, ownership and control links between MWiK and the City of Bydgoszcz (BBB+/Positive) as strong.
The financial implications of MWiK's potential default would be moderate as it could increase the City of Bydgoszcz's funding costs.
We deem the socio-political implications of MWiK's potential default for the City of Bydgoszcz as moderate.
Consequently, MWiK's senior secured rating is now eligible for a single-notch uplift compared with the situation before publication of the GRE criteria.
Municipality Support Agreement: The ratings continue to reflect the security package for revenue bondholders, including a pledge over substantially all assets, 12-months of debt service liquidity being accumulated in a dedicated bank account for coupon payment, and the City of Bydgoszcz's obligation under the municipality support agreement to inject cash into MWiK should the revenue bonds' debt service coverage ratio (DSCR) fall below 1.2x.
Rain Water Activities: From 2017, MWiK has been allowed to set prices for its rain water activities.
Currently Supportive Regulatory Framework: MWiK benefits from a favourable tariff-setting mechanism in Poland in the form of a cost-plus regime with currently no efficiency targets.
MWiK's closest peers among Fitch-rated central European water utilities are Polish Aquanet (BBB+/Stable) and Czech Severomoravske vodovody a kanalizace Ostrava (SmVaK, BB+/Stable, senior unsecured at BBB-).
Rating upside is limited due to the company's size and likely negative pressure on MWiK's tariffs and profitability over time, e.g.