I. STATEMENT ON RATING

Slovak Rating Agency confirmed following rating to City Košice:

Long-term local currency rating	C  (positive outlook)
Long-term foreign currency rating	C- (positive outlook)
Short-term rating	NS

Rationale:

• Nowadays, Kosice is in the last phase of debt restructuring, which will complete multiyear efforts of the city at solving its bad financial situation dated from the past. Slovak Rating Agency evaluates positively running process of restructuring being seen in two levels, namely reference of the city to the external environment (bank or other creditors) as well as internal circumstances of the town council (internal system of city management and its equity participations). In the area of debt restructuring, almost all city liabilities out of maturity date have been paid due to the recovery system of the city and supervision of financing banks and state over financial resources. Based on analysis of contractual relationships, there are liabilities of the city out of maturity date, where the beneficiary is not known (the person to whom it should be paid is not known), resp. the statutory period of limitation for amortisation of liabilities has not passed yet. Within the recovery process of the city during the time period of March 2002 till January 2003, the total liabilities volume has been reduced to the value of SKK 1 632,1 million, thereof the liabilities out of maturity date made the value of SKK 138,8 million, representing 16,2 % current receipts in 2001. As of ultimo of January 2003, city liabilities represented only 11,25 % of current receipts in 2002, which was less than the statutory limit of 15 %. The recovery process has been finished as a result of this status.
  
  
• Slovak Rating Agency highly appreciates the maximum effort of the City to solve the debt, but on the other hand, the Agency considered sees the speed of realised changes within the system of internal city management with stress on strategic and financial city management and its equity participations as not effective enough. In case of non-implementation of rapid changes within procedure issues the Agency sees the risk of failure of the financial and strategic city management with negative impact on fulfilment of restructuring conditions defined by city's creditors. The city appreciates this situation and started the process of implementation of changes in the town council's organisational structure with the emphasis on linking of the strategic and financial city management and its equity participation as well as on improvement of information flows within the town council.
  
  
• Furthermore, Slovak Rating Agency appreciates the started process of changes in management business companies with equity participation of the city and municipal subsidised entities but it is necessary to continue in changes more rapidly. We see negatively the non-linkage of auditing processes of the city with the equity participation audits, where the findings and conclusions of partial audit reports are not implemented in the final audit of the city.
  
  
• Essential conditions for further development of the city have been created by the performing of steps in the area of city liabilities restructuring and by stabilisation of adverse financial situation of the city - creation of new job opportunities, reduction of unemployment rate and revival of investments. In the area of future strategic objectives of the city, the main target will be the establishing of an industrial park in the location Kosice - Peres, being favourably located - it is located close to the international airport, it has direct linkage to the superior road transport system and to the existing public transportation of the city. In addition to this location, for the establishment of the industrial park the city offers "green fields and brown fields" as well being located in the city area.

  Please don't hesitate to address your questions to autner@slovakrating.sk, or call +421 2 5464 5151.

  Slovak Rating Agency
  Bratislava, 13 May 2003