Fitch Ratings – Warsaw – 21 May 2021: Fitch Ratings has affirmed the Ukrainian City of Lviv’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of ‘B’ with Stable Outlook.

The affirmation reflects Fitch’s unchanged view that Lviv’s operating performance and debt ratios will remain in line with ‘B’ rated peers’ over the medium term, despite the economic downturn triggered by the coronavirus pandemic. The city’s Standalone Credit Profile (SCP) has been assessed at ‘b+’ and the city’s ratings remain capped by the Ukrainian sovereign IDRs (B/Stable).

Lviv’s IDRs are currently constrained by the sovereign ratings. Therefore, positive rating action on the sovereign could lead to positive rating action on Lviv’s IDR.

Lviv’s ‘b+’ SCP reflects a combination of a Vulnerable risk profile and a ‘aa’ debt sustainability assessment. The SCP also factors in national peer comparison. The city’s IDRs are not affected by any other rating factors, but are constrained by the sovereign’s IDRs.

Lviv’s ability to generate additional revenue in response to possible economic downturns is limited, like all other Fitch-rated Ukrainian cities. The city has formal tax-setting authority over several local taxes and fees, revenue from which accounted for about 23% of total revenue in 2020. However, the affordability of additional taxation is low, as it is constrained by the low income of residents and high socio-political sensitivity to tax increases.

The city has an ESG Relevance Score of ‘4’ for ‘Political Stability and Rights’ due to its exposure to the impact of political pressure or instability on operations and a tendency towards unpredictable policy shifts, which in combination with other factors, affects the rating.

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