July 16, 2014 / 2:05 PM / in 3 years

Fitch Affirms Unedic at 'AA+'; Outlook Stable

(The following statement was released by the rating agency) PARIS, July 16 (Fitch) Fitch Ratings has affirmed France-based Unedic's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'AA+' and affirmed its Short-term foreign currency rating at 'F1+'. The Outlook is Stable. Unedic's EUR20bn euro medium-term note (EMTN) programme was also affirmed at 'AA+' and 'F1+', and the senior unsecured notes were affirmed at 'AA+'. Its EUR12bn billets de tresorerie (BT) Programme was also affirmed at 'F1+'. KEY RATING DRIVERS Using a top-down approach under its public-sector entity criteria Fitch aligns Unedic's ratings with those of the Republic of France (France; AA+/Stable/F1+). The ratings reflect Unedic's mission as the sole manager of the French unemployment insurance system (UIS) under state delegation. They are underpinned by the French Labour Code regulating its financial stability, and by support from the government through its approval of the unemployment insurance agreement, renegotiated every two years. The UIS, the agreements signed between the social partners and the approval by the State are mandatory by the French Labour Code. This agreement sets the contribution rates of employers and employees affiliated to Unedic. In May 2014, a new agreement was signed for the 2014-2016 period. The State does not exercise formal control but supervises Unedic's management through the presence of a state comptroller in Unedic's governance institutions and through its approval of the unemployment insurance agreement. In the absence of approval of the insurance agreement, the State will be responsible for Unedic's debt repayment. In 2013, a persistently weak economy led to slower growth of French wages, which are the basis of unemployment contributions, of 1.1% (2012: 2.2%). Insurance allocations rose 5.2% in 2013 amid growing unemployment (which increased by 5.3%) with 2.3 million people on unemployment benefits. Over the medium term, Unedic is projecting a mild economy recovery (GDP to grow by 0.8% in 2014, 1.3% in 2015) and expects its deficit to stabilise at around EUR3.6bn in 2015 and 2016. A worsening deficit has caused net debt to rise to EUR17.7bn at end-2013 with 88% in bonds and 12% in commercial paper (CP). This figure may rise further to EUR21.4bn by end-2014 and EUR25bn at end-2015. As of end-May 2014, Unedic has issued about 70% of its targeted bond amount for the current year. Under its EUR20bn EMTN programme, Unedic benefits from a state guarantee for an overall issued amount of EUR7bn in 2014. This covers the repayment of principal due in 2014, interest and fees. This guarantee exempts Unedic from the application of the article L.213-15 of the monetary code, which obliges the association that issues bonds to restore its equity. At end-2013, all the bond issues from Unedic (EUR13.7bn) benefited from an explicit state guarantee. The EUR12bn CP programme is secured by back-up lines corresponding to 15 days of either total expenditure or CP repayments with a sufficient liquidity buffer of a minimum of EUR2bn. In case of adverse market conditions, Fitch believes that this buffer would be sufficient to meet immediate liquidity demands before the State steps in to provide financial support to Unedic. Fitch believes that support would be forthcoming in view of Unedic's strategic importance. RATING SENSITIVITIES Any rating action on the sovereign's ratings would be reflected in Unedic's ratings. Also a significant unfavourable change to UIS's characteristics would prompt a downgrade. A downgrade could also result from a weaker liquidity back-up package. 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 Arnaud Dura Associate Director +33 1 44 29 91 79 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 at www.fitchratings.com. Applicable criteria, "Tax-Supported Rating Criteria", dated August 2012, and "Rating of Public Sector Entities - Outside the United States" dated 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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