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Fitch Affirms Societe de Financement Local at 'AA', Outlook Stable
June 12, 2014 / 2:21 PM / 3 years ago

Fitch Affirms Societe de Financement Local at 'AA', Outlook Stable

(The following statement was released by the rating agency) PARIS/FRANKFURT, June 12 (Fitch) Fitch Ratings has affirmed Societe de Financement Local (SFIL) Long-term local and foreign currency Issuer Default Ratings (IDR) at 'AA' and its Short-term foreign currency IDR at 'F1+'. The Outlooks are Stable. KEY RATING DRIVERS The ratings reflect strong support by the French State (AA+/Stable/F1+) for Societe de Financement Local (SFIL) as its majority and reference shareholder (75% of capital) and SFIL's importance as a key funding source for the French public sector. The Stable Outlook mirrors that of France's ratings. SFIL is considered as a development bank by the European Commission (EC) since it addresses the funding needs of the French local public sector. Given the political and economic importance of the French local authorities, Fitch believes SFIL is a strategic state asset. The State has pledged its support to SFIL and its 100%-owned subsidiary Caisse Francaise de Financement Local (CAFFIL), a covered bond issuer. The State's ability to provide support is underpinned by SFIL's status as a development bank, which allows direct state capital intervention under European state aid regulations. We believe it is highly likely that the State will provide the necessary support to prevent a resolution of SFIL. Fitch considers that the State is the only entity able and willing to ensure the viability of SFIL's business model and its capital needs, notably to cover potential losses stemming from CAFFIL's existing loan portfolio. We therefore consider SFIL a state-dependent entity but notch down its ratings from the sovereign's as there is no first-demand guarantee and also to reflect timeliness issues related to potential support. The ratings apply solely to SFIL as CAFFIL is separately rated by Fitch. SFIL is restructuring the portfolio of structured loans included in CAFFIL's cover pool, having reduced it by EUR0.9bn in 2013 to EUR7.6bn. SFIL benefits from state help through a national support fund aimed at compensating local authorities for part of the loans' restructuring costs. The State also intends to introduce legal measures aimed at reducing litigation risks regarding those loans. In 2013, EUR3bn (20% market share) loans to local authorities were originated through SFIL's partnership with La Banque Postale (LBP, A+/Stable/F1). SFIL's loans must comply with the terms agreed with the EC, notably in pricing. SFIL's Tier 1 regulatory capital ratio, consolidated with CAFFIL, was 30% at end-2013. It was only marginally affected by SFIL's negative net results (negative EUR69m in 2013). SFIL's funding is based on a EUR12.5bn credit line from shareholder Caisse des depots et consignations (CDC, AA+/Stable/F1+) and a EUR1.1bn credit line from LBP. Around EUR43.5bn of CAFFIL's assets are eligible for central bank repo. RATING SENSITIVITIES The ratings could be downgraded if there is a perceived weakening of potential state support. A downgrade of France would also be reflected in SFIL's ratings. The ratings could be upgraded if the State provides an unconditional, first-demand guarantee on SFIL's liabilities. SFIL's ratings would also be upgraded upon a similar rating action on France. 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 Guido Bach Senior Director +49 69 768076 111 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, "Rating of Public Sector Entities - Outside the United States", dated 4 March 2014 are available on www.fitchratings.com. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here Rating of Public-Sector Entities - Outside the United States 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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