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Fitch Affirms City of Paris at 'AA+'; Outlook Stable
February 7, 2014 / 4:35 PM / 4 years ago

Fitch Affirms City of Paris at 'AA+'; Outlook Stable

PARIS/LONDON, February 07 (Fitch) Fitch Ratings has affirmed the City of Paris's Long-term local and foreign currency Issuer Default Ratings (IDR) at 'AA+' with Stable Outlooks and Short-term foreign currency IDR at 'F1+'. A full list of rating actions is below. The ratings are underpinned by Paris's sound budgetary performance, comfortable fiscal flexibility, moderate debt and key position as the political and economic capital of France (AA+/Stable/F1+). The Stable Outlooks highlight Fitch's base case forecast of lower budgetary margins in the medium term, still compatible with the current ratings. KEY RATING DRIVERS Paris's revenue flexibility is underpinned by moderate household tax pressure compared with major French cities. Tax base growth is also supported by the strength of the local economy. This potential revenue flexibility mitigates the risks linked to cuts in transfers from the state and the relative rigidity of many operating spending items (staff, equalisation contributions, social spending). Fitch expects weaker budgetary performance in 2013, as operating revenue is estimated to have stalled due to a significant drop in real estate transfers duty. We estimate operating expenditure growth remained moderate (2.5%), as control of staff costs and social spending helped mitigate the significant rise in payments to equalisation funds. The current margin is expected to have declined to 7.4% of current revenue, from 9.6% in 2012. Assuming a strong rise in equalisation payments by the city and cuts in transfers from the state, operating spending could outpace revenue in the medium term. Based on a stable fiscal and policy framework, we believe this could result in a current margin below 5% by 2016. However, the outcome of the 2014 municipal election and the evolution of local authorities' institutional framework will be taken into account when we update our forecast in 2014. Capital expenditure self-financing is high, estimated at 60.4% in 2013 after debt repayment. We expect it to stabilise in our base case forecast, notably due to a steady level of asset sales, at an average of EUR200m per year until 2016. We believe Paris's large portfolio of disposable assets is a key credit strength, as it could help limit debt financing in the future. Debt is moderate relative to peers, although we estimate it rose to 45% of current revenue in 2013 due to a peak in capital expenditure at EUR1.7bn. Assuming average annual capital expenditure of EUR1.4bn from 2014 to 2016, we believe debt could account for about 55% of current revenue in 2016. The debt payback ratio is sound but could deteriorate according to our forecast, rising from an estimated 6.2 years in 2013 to above ten years in 2016. Liquidity is strong thanks to reliable and well-diversified funding sources, predictable cash flows and prudent debt management. Guaranteed debt is high at 107% of current revenue. We consider it low risk as it essentially relates to long-term regulated loans taken on by state-monitored social housing entities. Paris also has numerous dependent entities, which are tightly supervised and mostly self-funded. Paris is one of the wealthiest and most productive cities in Europe. Its economy structurally performs better than the French economy, which is expected to grow slowly in the medium term. Paris has the largest and one of the most sophisticated local administrations in France. We consider that its advanced management and control framework underpins its capacity to effectively implement its financial strategy. RATING SENSITIVITIES A downgrade of France or a debt payback ratio consistently above 10 years would result in negative rating action. Positive rating action on France's sovereign rating could be mirrored by Paris's ratings, provided that Paris maintains a stable operating performance and debt metrics. The rating actions are as follows: - Long-term foreign and local currency IDR: affirmed at 'AA+'; Outlook Stable - Short-term IDR: affirmed at 'F1+' - EUR4bn EMTN programme: affirmed at 'AA+'/'F1+' - EUR800m billets de tresorerie programme: affirmed at 'F1+' - Senior unsecured notes: affirmed at 'AA+' 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 Christophe Parisot Managing Director +33 1 44 29 91 34 Committee Chairperson Raffaele Carnevale Senior Director +39 02 07 90 87 203 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 outside United States", dated 9 April 2013 on www.fitchratings.com. Applicable Criteria andALL 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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