Fitch Affirms Marseille Provence Metropole at 'A+'; Outlook Stable

Fri Apr 11, 2014 11:54am EDT

(The following statement was released by the rating agency) PARIS/MILAN, April 11 (Fitch) Fitch Ratings has affirmed the Urban Community of Marseille, Marseille Provence Metropole's (MPM) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'A+' and its Short-term foreign currency IDR at 'F1'. The Outlooks on the Long-term IDRs are Stable. Its senior unsecured bonds have been affirmed at 'A+'. The ratings factor in MPM's below-national average socio-economic profile, considerable debt levels and the significant costs of its public services. These challenges are mitigated by sound operating performance, skilled financial management and the benefits of the institutional framework of France (AA+/Stable). The Stable Outlook reflects Fitch's expectations that MPM will maintain its sound budgetary performance. KEY RATING DRIVERS According to preliminary results, MPM's operating margin is expected to have improved to 14.8% of operating revenue in 2013 from 12.6% in 2012, due to higher revenue and slower spending. MPM benefits from steady tax revenue growth and has expressed commitment to spending restraint. Fitch expects MPM to maintain its operating margin near 14% over the medium term, as expected tax hikes and flexibility in fees and other operating revenue are likely to mostly offset a decline in state transfers. Direct debt stands above national peers; it is estimated at EUR1.5bn at end-2013, or 130% of current revenue, leading to a debt payback ratio of 11.7 years. Direct risk, including debt incurred by non-consolidated ancillary budgets and the fully controlled public transport operator Regie des Transports Marseillais, is estimated to be 153.4% of current revenue. This leads to significant debt service, equivalent to 81% of the operating balance. However, Fitch remains confident that MPM's administration will control direct debt growth over the medium term and stabilise its debt payback ratio at close to 12 years. MPM's below average socio-economic profile is manifested in its higher unemployment rate (13.3% at 3Q13), a lower-skilled workforce and lack of high value-added industries. However, economic prospects are underpinned by sustained state support, strong private investment and the increasingly important tourism industry. MPM's strategic importance as the second major French metropolitan centre and a major harbour, and its modern administration are also positive factors. Capital expenditure is expected to have reached EUR297m in 2013, up from EUR211m in 2011. Fitch expects MPM to continue to undertake significant capital expenditure averaging EUR265m per year over the medium term. We forecast self-financing rate, after debt repayment, to average 55% of capital expenditure between 2014 and 2017. These assumptions do not factor in the recent change in executive team and a possible readjustment of the capital expenditure programme. In 2016, MPM will merge with five other inter-municipal groupings to create a wider inter-municipal body "Aix Marseille Provence Metropole" (AMP Metropole). The structure, which is set by law, is still under discussion. As a result, Fitch is not yet in a position to assess the full financial and institutional scope of the new entity. However, the agency believes it is likely to provide MPM with an enlarged economic base and generate economies of scale. MPM's liquidity is supported by predictable cash flow and tight monitoring. Short-term funding is mainly in the form of a EUR65m bank line and a EUR56m revolving loan. RATING SENSITIVITIES An improvement of operating performance, with an operating margin consistently above 15%, and strengthening of the debt payback ratio to below 10 years for more than two consecutive years could lead to an upgrade. A higher-than-expected increase in both operating and capital expenditure or a slower-than-expected growth in operating revenue, leading to weaker budgetary performance, with an operating margin below 10%, and deterioration in the debt payback ratio to 20 years could result in a downgrade. Contact: Primary Analyst Olivier Jacques Associate Director +33 1 44 29 91 89 Fitch France S.A.S. 60, rue de Monceau 75008 Paris Secondary Analyst Christophe Parisot Managing Director +33 1 44 29 91 34 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, "Tax-Supported Rating Criteria", dated 14 August 2012, "International Local and Regional Governments Rating Criteria outside United States", dated 9 April 2013 on www.fitchratings.com. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here International Local and Regional Governments Rating Criteria here Institutional Framework for French Subnationals here Interpreting the Financial Ratios in International Public Finance Reports - Amended here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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