Link to Fitch Ratings' Report: Savoie, Department of - Rating
Action ReportPARIS/LONDON, February 07 (Fitch) Fitch Ratings has published
the Department of
Savoie Long-term foreign and local currency Issuer Default
Ratings (IDR) of 'AA'
with Stable Outlooks and a Short-term IDR of 'F1+'.
KEY RATING DRIVERS
The ratings are underpinned by Savoie's track record of sound
performance, moderate indebtedness, good governance and its
robust economy. The
Stable Outlook reflects Fitch's view that the expected weakening
performance and debt metrics are compatible with the ratings.
The operating margin is comfortable at 18% of operating revenue
on average since
2009, but is expected to weaken to about 14% in 2016 in Fitch's
forecast. This is due to weak revenue growth prospects (1.6% per
from a sluggish tax base and cuts to state transfers. Strong
(2.9% per year), notably linked to social spending, could also
lead to a weaker
Despite its high level of capital expenditure, Savoie has
achieved an average
net self-financing rate (after debt repayment) of 67% since
2009. We expect this
to remain stable until 2016, despite our forecast of a lower
This should be achieved by a gradual scaling down of capital
about EUR90m per year on average.
Savoie's budget shows limited flexibility, as operating revenue
is mostly based
on non-modifiable taxes and state transfers, and operating
expenditure is driven
by rigid items such as staff costs, mandatory transfers and
However, there is some budgetary flexibility stemming from
Savoie's direct tax
leeway and its ability to scale down non-mandatory policies and
cut costs. We
believe the department's ability to implement its comprehensive
plan is underpinned by its strong governance, based on a skilled
a stable political context, and a track record of prudent
Debt is moderate, estimated at 61% of current revenue at
end-2013, and is
expected to remain below 65% of current revenue until 2016. Debt
metrics are comfortable with an estimated debt payback ratio of
3.8 years at
end-2013 and strong debt service coverage. Debt payback is
forecasted to weaken
to about five years in 2016 due to lower current balance, but it
below average debt maturity.
Debt guarantees are high, estimated at EUR443m at end-2013.
However, they are
mostly for the benefit of low-risk regulated social housing
public sector entities are fully self-funded and well
Savoie's socio-economic indicators are generally better than the
average, with notably lower unemployment and slightly higher
average wealth. It
benefits from a dynamic tourism industry, driven by some of
Europe's leading ski
A weak operating performance leading to the debt payback ratio
above 10 years could lead to a downgrade.
Although Fitch considers it unlikely, an upgrade could result
from a sustained
improvement in the operating performance leading to considerably
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Applicable criteria, "Tax-Supported Rating Criteria", dated 14
"International Local and Regional Governments Rating Criteria
States", dated 17 August 2012 on www.fitchratings.com.
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