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Klin Rayon On Watch Neg Due To Rising Refinancing Risks; 'B-/ruBBB' Ratings Affirmed

September 29, 2008
MOSCOW (Standard & Poor's) Sept. 26, 2008--Standard & Poor's Ratings Services said today that it had affirmed and then placed on CreditWatch with negative implications its 'B- 'long-term issuer credit rating and 'ruBBB' Russia national scale rating on Russian Klin Rayon. Klin is located in the Moscow Oblast (BB/Watch Neg/--; Russia national scale ruAA/Watch Neg/--).
"The CreditWatch placement reflects potentially higher risks posed by the rayon's weak liquidity in the currently fragile Russian credit markets," said Standard & Poor's credit analyst Irina Pilman.
By year-end 2008, Klin's refinancing needs will account for Russian ruble (RUR) 834 million (about $33.4 million), which is approximately 24% of the rayon's total expected revenues until the end of the year. Free cash flow-–currently only 4.2% of total revenues--provides no significant cushion. The rayon plans to obtain bank loans to repay its RUR300 million bond due Nov. 13, 2008, and two bank loans due Dec. 25, 2008, totaling RUR264 million. Because of uncertainties in the Russian credit market, prospects for obtaining this refinancing appear more uncertain that we had previously assumed.
"We will resolve the CreditWatch after we obtain more certainty on the rayon's ability to receive the refinancing to meet debt obligations--fully and on time;" said Ms. Pilman.
If the rayon receives the necessary refinancing, we will affirm the rating and revise the outlook to stable. However, if the rayon is unable to obtain funding, we would likely lower the ratings.
In either case, the ratings will continue to be constrained by the rayon's dependence on decisions of the federal government and the Moscow Oblast decisions. These decisions result in high exposure to short-term debt, low revenue and expenditures flexibility, and volatile performance.
Company — Klin District
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