PARIS, March 14 (Fitch) Fitch Ratings has affirmed Department of
Long-term Foreign and Local Currency Issuer Default Ratings
(IDRs) of 'AA-' and
its Short-term foreign currency IDR at 'F1+'. The Outlook is
KEY RATING DRIVERS
La Manche's ratings reflect its sound budgetary performance, in
line with 2012's
levels, and its moderate debt. The Stable Outlook reflects that
moderate weakening in both its performance and debt metrics,
these ratios would
remain compatible with the current ratings, due to financial
leeway, notably in
La Manche's current margin remained comfortable in 2013 at 15.7
%, based on
higher-than- expected revenue and operating expenditure
restraint. Fitch expects
the department's operating performance to weaken, with the
dropping to about 13% in 2016 due to sluggish revenue and rising
expenditure, particularly in social spending. Over the medium
aim is to improve the match between operating revenue and
with a minimum operating balance of EUR60m.
La Manche's budget shows limited flexibility, as operating
revenue is mostly
based on non-modifiable taxes and state transfers, and operating
driven by rigid items such as staff costs, mandatory transfers
social spending. However, there is some budgetary flexibility
Manche's direct tax leeway - even if department is committed to
rates unchanged - and from possible shrinkage in current
allowing La Manche to concentrate on its core competencies.
At end-2013, La Manche's self-financing capacity (SFC; current
capital revenue) remained stable at about 98% of capital
expenditure. With an
average annual capital expenditure of EUR83m, Fitch expects SFC
to decline to
about 83% in 2016. Fitch believes La Manche has some leeway in
capex as about
20% is still in arbitration.
Direct debt was moderate in 2013 at EUR332.6m with an average
maturity of seven
years and a debt payback ratio of 5.4 years. Debt is actively
managed as 74% is fixed-rate. The department aims to keep the
debt payback ratio
below six years through to 2016. However, Fitch estimates that
the debt payback
ratio could reach a maximum of nine years in 2016, which will
put the rating
Although the structure of the local economy is less sensitive to
economic fluctuations than other regions, it does not generate
The population's wealth is below the national average while the
wealth of the
elderly population is slightly above it. In 3Q13, the
unemployment rate (9.1%)
was lower than the national average (10.4%). This should result
social spending for the department compared with others.
Although the amount of guaranteed debt is high in absolute terms
Fitch considers risk related to guaranteed debt as low as they
are mostly for
the benefit of low-risk regulated social housing entities.
A downgrade could result from La Manche's inability to control
expenditure and adjust its capital expenditure to its SFC, which
will result in
a debt payback ratio above 10 years.
An improvement or stabilisation of the current margin for
years, leading to solid debt coverage ratios, combined with
expenditure, could lead to an upgrade.
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Additional information is available on www.fitchratings.com.
Applicable criteria, "Tax-Supported Rating Criteria", dated 14
"International Local and Regional Governments Rating Criteria
States", dated 9 April 2013 on www.fitchratings.com.
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