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Fitch Affirms Ile-de-France at 'AA+'; Outlook Stable
October 18, 2013 / 5:01 PM / 4 years ago

Fitch Affirms Ile-de-France at 'AA+'; Outlook Stable

PARIS, October 18 (Fitch) Fitch Ratings has affirmed the region of Ile-de-France's (IDF) Long-term local and foreign currency ratings at 'AA+' and its Short-term foreign currency rating at 'F1+'. The Long-term rating Outlooks are Stable. A full list of rating actions is available at the end of this document. The ratings are underpinned by IDF's strong budgetary margins, which allows the region to self-finance capex, and by its sound debt coverage ratios. They also take into account IDF's strong socio-economic profile and prudent financial management. The Stable Outlooks highlight Fitch's base case forecast of slightly weaker budgetary margins in the medium term, which are still compatible with the current ratings. KEY RATING DRIVERS IDF is France's main political, administrative and economic centre. It has 11.9 million residents, or 19% of the national population. GDP growth is above the national average and its GDP accounts for 29% of the French total. IDF's GDP per capita is 80% above the EU average and the fifth-highest among EU regions. IDF benefits from a large, well-qualified workforce and high-quality infrastructure. In Q412, unemployment was 8.8%, below the national rate of 9.9%. Despite the absence of tax leeway, IDF's current margin remained strong in 2012, at 22% compared with 24.4% in 2011. Fitch however expects weaker performance until 2015 due to the impact of economic slowdown on the tax base, increased equalisation payments and further cuts in state transfers. Nevertheless, Fitch believes IDF would be able to maintain above- average operating performance, with the current margin above 20% by 2015, due to adequate revenue resources underpinned notably by fuel tax and office creation fee. IDF has some operating expenditure flexibility. In 2012, transfers represented 72.5% of total operating expenditure, 32% of which was a statutory operating grant to the regional transport authority, Syndicat des Transports d'Ile-de-France (STIF). The end of the current administration's term in 2015 should translate into a stabilisation of capital expenditure in 2013-2014, at EUR1.6bn per year, mainly related to transportation upgrades and partly debt- funded. In 2012, IDF self-financed 77% of its capital expenditure excluding debt repayment. Fitch expects IDF will maintain its high self-financing capacity at above 75% in the medium term. Despite a rise in debt, debt coverage ratios are strong. At end-2012, direct debt accounted for 5.8 years of current balance and 127% of current revenue while the operating margin covered 5.5x interest payment. Fitch forecasts the debt payback ratio will stay below the negative rating threshold of 8 years over the medium term. Guaranteed debt is almost negligible. The region's largest satellite entity is STIF. STIF currently has low debt but is expected to take on debt in the medium term of up to EUR900m to finance the renewal and expansion of rolling stock. The region has advanced IT infrastructure, a financial management framework and exercises tight control over its multi-annual commitments. IDF's financial projections are conservative and its debt management is strong. RATING SENSITIVITIES A downgrade of Republic of France's IDR would lead to a downgrade of IDF's ratings. Inability to curtail operating spending with a current margin below projections could also put pressure on the ratings. Inadequate self-financing of capital expenditure, leading to weaker debt metrics than projected, with a debt payback ratio of above eight years would be negative for ratings. An upgrade of the sovereign rating of France may be mirrored in IDF's ratings, provided that IDF maintains a stable operating performance and debt metrics. KEY ASSUMPTIONS Our base case scenario relies on the following assumptions: - Local GDP growth slightly above that forecasted for France - State transfers cuts in 2014 and 2015 - Capital expenditure to average EUR1.6bn per year until 2015 - IDF's contributions to the national regions' CVAE equalisation fund will amount to EUR11.7m in 2013, EUR77m in 2014, EUR60m in 2015. The rating actions are as follows: - Long-term foreign and local currency ratings: affirmed at 'AA+'; Outlook Stable - Short-term rating: affirmed at F1+ - EUR5bn EMTN programme: affirmed at 'AA+'/'F1+' - EUR1bn BT programme: affirmed at 'F1+' - Senior unsecured notes: affirmed at 'AA+' Contact: Primary Analyst Christophe Parisot Managing Director + 33 1 44 29 91 34 Secondary Analyst David Lopes Associate Director + 33 1 44 29 91 45 Fitch France S.A.S. 60, rue de Monceau 75008 Paris Committee Chairperson Raffaele Carnevale Senior Director +39 02 07 90 87 203 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable criteria, "Tax-Supported Rating Criteria", dated 14 August 2012, "International Local and Regional Governments Rating Criteria outside United States", dated 9 April 2013 on 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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