TEXT-Fitch revises Picardy's outlook to negative; affirms at 'AA-'

Tue Dec 18, 2012 8:24am EST

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(The following statement was released by the rating agency)

Dec 18 - Fitch Ratings has revised the Region of Picardy's rating Outlook to Negative from Stable and affirmed the Long-term local and foreign currency ratings at 'AA-' and Short-term foreign currency rating at 'F1+'.

The Region of Picardy's ratings reflect its sound budgetary performance and debt level in line with its peers. The ratings also take into account the region's weak socio-economic profile. The Negative Outlook reflects the prospects for subdued economic growth in the medium term notably due to the potential abandoning of structuring projects such as Canal Seine Nord Europe.

Given Picardy's declined financial flexibility and the region's reduced ability to control operating expenditure, a downgrade could result from a weaker budgetary performance and failure to maintain its operating margin, resulting from a deterioration of its socio-economic profile. Any negative rating action on France's ratings and a reduced ability to provide sufficient support to its regions will also have a negative impact on Picardy's ratings.

The region has a lower-than-average socio-economic profile. The population's wealth is below the national average and GDP per capita accounts for about 77% of the national average of EUR29,574 in 2009. In the inter-regional context, Picardy also has a higher share of people with a professional qualification level below the national average, which means it has above average expenditure needs for professional training compared to other regions. In Q212, the unemployment rate (11.8%) was higher than the national average (9.7%).

Picardy should report an operating balance of EUR123m at end-2012 or 17% of operating revenue compared to EUR119m at end-2011. Following the fiscal reform, the region lost a large proportion of its direct tax leeway and the state transfers will be frozen over the period 2011-2014. Despite the aim of the region to reduce its operating expenditure, Fitch expects Picardy's current balance to decline to EUR85m in 2015 (with an increase of operating expenditure to an average of 1.5 % per year).

Under the combined effect of an increase of capital revenue (mainly due to a delay on the payment of subsidies) and a decrease in investment, the self-financing capacity (SFC; current balance plus capital revenue) improved to 100 % of capital expenditure at end-2011. With an average annual amount of capital expenditure of about EUR225m with EUR256m expected in 2013, Fitch expects the SFC to decline to about 85% in 2015.

According to the issuer direct debt should amount to EUR583m (78% of current revenue and five years of the current balance) at end-2012. Although Fitch expects debt to increase to about EUR644m (86.5% of current revenue) until 2015, the debt payback ratio should remain below 7.5 years. Picardy does not hold any high-risk derivative products.

Short-term liquidity needs are covered by several revolving credit lines and by four committed bank lines. Fitch considers liquidity management to be sound and that there will be sufficient liquidity coverage for the forthcoming commercial paper issues of EUR60m.

Picardy's contingent liabilities are low. Guaranteed debt totaled EUR0.4m at end-2011, and the participation in majority-owned companies does not bear any risk.

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