S&P: Klin Rayon Upgraded To 'CCC-/ruCCC' After Bond Repayment; CreditWatch Status Now Developing

MOSCOW (Standard & Poor's) Nov. 18, 2008--Standard & Poor's Ratings Services said today that it had raised its long-term issuer credit and Russia national scale ratings on Klin Rayon to 'CCC-/ruCCC', from 'CC/ruCC'. The ratings were kept on CreditWatch, where they were placed on Sept. 26, 2008, but we have changed the implications to developing from negative. "The upgrade follows the rayon's repayment on Nov. 14, 2008, of its Russian ruble (RUR) 300 million (about $11 million) bond, which we did not rate," said Standard & Poor's credit analyst Irina Pilman. This payment was made possible by an exceptional transfer from the Moscow Oblast (B-/Watch Neg/--), as the rayon itself did not have enough liquidity to meet the obligation. Since the repayment of this bond, Klin Rayon's short-term refinancing risks have been significantly reduced, although they remain important, with a bank loan and interbudgetary loans due by the year-end. The ratings on Klin Rayon continue to be constrained by its aggressive financial policy and high dependence on subsidies and budget loans from the Moscow Oblast. The ratings also reflect the rayon's high reliance on short-term debt and significant refinancing risk. Nevertheless, the rayon's favorable location near the City of Moscow (BBB+/Negative/--) continues to support the rating. Klin's direct debt as of Nov. 17, 2008, is RUR1.1 billion. "The ratings remain on CreditWatch, but we have changed the implications to developing from negative, indicating that we might raise or lower the rating within the next three months," said Ms. Pilman. If the rayon is able to successfully repay its RUR44 million bank loan and if the Moscow Oblast extends or refinances with subsidies the RUR270 million interbudgetary loan due by the rayon to the oblast (both obligations are due Dec. 25, 2008), we could upgrade the rayon. However, if the rayon fails to repay its bank loan--which we consider unlikely, given that refinancing has almost been finalized--we would lower the ratings to 'SD'.

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