Fitch Affirms Metropolitan Community of Saint-Quentin-en-Yvelines at 'A+', Outlook Stable

Fri Jun 6, 2014 11:34am EDT

(The following statement was released by the rating agency) LONDON/PARIS/MOSCOW, June 06 (Fitch) Fitch Ratings has affirmed Metropolitan Community of Saint-Quentin-en-Yvelines' (CASQY) Long-term foreign and local currency Issuer Default Ratings (IDR) at 'A+', and its Short-term foreign currency IDR at 'F1'. The Outlook is Stable. The long term rating of outstanding senior bond issues has been affirmed at 'A+'. KEY RATING DRIVERS The ratings of CASQY take into account its high debt, at 209% of current revenue in 2013, which is largely inherited from its former new town status. They also reflect strong operating performance, an outstanding socio-economic profile and skilled management. The Stable Outlook reflects Fitch's view that future performance should remain consistent with the ratings despite expected negative pressure on CASQY's budget. Fitch forecasts a decline in the operating margin to about 22% by 2017, as sharp cuts in state transfers could lead to a 1.6% annual fall in revenue. The operating margin in 2013 was strong at 29.8% of operating revenue, due to sound tax base growth and control over spending. Our base case scenario forecasts moderate expenditure growth (1.3% each year), based on control of staff costs and general expenditure and a low contribution to equalisation funds. Fitch forecasts direct debt to stabilise until 2017, but an expected decline in the current balance should lead to a weakening of the debt payback ratio to about 14 years in 2017 from 8.1 years in 2013. Operating balance is large enough to cover debt service but could prove insufficient by 2017. We expect sustainable debt reduction to remain the core objective of CASQY's financial strategy. This may require CASQY to use its budgetary flexibility. We forecast a decline in capital expenditure to an average EUR39m per year over the 2014-2017 period, from EUR47.7m in 2013. This assumption is based on CASQY's policy of gradually deleveraging. CASQY's multi-annual management of capital spending should help ensure restraint on future capital outlays. Fitch expects CASQY to integrate certain neighbouring cities to reach 200,000 inhabitants by 2016, as required by law. The budgetary impact of this development remains to be assessed; however, Fitch believes this could be positive if it allows CASQY to reach a critical size and increase its budgetary resilience. Saint-Quentin-en-Yvelines is one of the main business centres in the region Ile-de-France (AA+/Stable/F1+). Its economy is well diversified and benefits from a young, highly skilled workforce. CASQY's high level of public infrastructure and transport links to Paris and Paris-Saclay academic cluster are key features of its competitiveness. Operational integration with member municipalities is growing and financial management methods are prudent. CASQY's governance is based on clear policy guidelines, among which are debt reduction and balanced economic growth. RATING SENSITIVITIES A large deterioration in operating performance and in capital expenditure self-financing rate, leading to a debt payback ratio consistently above 12 years, could result in a downgrade. High self-financing of capital expenditure leading to a debt payback ratio sustainably below nine years and debt stock below 170% of current revenue, could lead to an upgrade. Contact: Primary Analyst David Lopes Associate Director +33 1 44 29 91 45 Fitch France S.A.S. 60, rue de Monceau 75008 Paris Secondary Analyst Olivier Jacques Associate Director +33 1 44 29 91 89 Committee Chairperson Vladimir Redkin Senior Director +7 495 956 9901 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; 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", dated 23 April 2014 on www.fitchratings.com. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here International Local and Regional Governments Rating Criteria - Outside the United States 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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