February 7, 2014 / 4:35 PM / 3 years ago

Fitch Publishes Department of Savoie 'AA' Rating, Outlook Stable

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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 operating performance, moderate indebtedness, good governance and its robust economy. The Stable Outlook reflects Fitch's view that the expected weakening in both 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 base case forecast. This is due to weak revenue growth prospects (1.6% per year), stemming from a sluggish tax base and cuts to state transfers. Strong spending pressure (2.9% per year), notably linked to social spending, could also lead to a weaker performance. 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 current balance. This should be achieved by a gradual scaling down of capital expenditure, to 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 state-defined social spending. 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 cost-cutting plan is underpinned by its strong governance, based on a skilled administration, a stable political context, and a track record of prudent financial management. 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 coverage 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 should remain 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 entities. Dependent public sector entities are fully self-funded and well capitalised. Savoie's socio-economic indicators are generally better than the national 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 resorts. RATING SENSITIVITIES A weak operating performance leading to the debt payback ratio consistently 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 stronger debt metrics. 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 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 on www.fitchratings.com Applicable criteria, "Tax-Supported Rating Criteria", dated 14 August 2013, "International Local and Regional Governments Rating Criteria outside United States", dated 17 August 2012 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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