December 1, 2017 / 9:09 PM / in 15 days

Fitch Affirms Metropolis of Aix Marseille Provence at 'A+'; Outlook Stable

(The following statement was released by the rating agency) PARIS, December 01 (Fitch) Fitch Ratings has affirmed the Metropolis of Aix Marseille Provence's (AMP) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A+' with Stable Outlooks and Short-Term Foreign-Currency IDR at 'F1'. We have also affirmed AMP's EUR400 million EMTN programme and senior unsecured bonds' ratings at 'A+'/'F1'. The ratings of AMP reflect its sound operating margin, which we expect to remain around 18% in the medium term. This strength is somewhat moderated by its large stock of debt and its below-national average socio-economic profile. We expect an increase in consolidated debt due to sizeable capital expenditure in the medium term, but the Stable Outlook reflects Fitch's view that the direct risk payback ratio will reach around 12 years in the medium term, which we see as being compatible with AMP's ratings. KEY RATING DRIVERS According to Fitch's base case scenario (at constant scope of competencies), AMP's operating margin will slightly weaken but remain compatible with the current ratings, at around 18% over 2017-2021 (20.5% at end-2016). Sharp cuts in state grants will mainly be offset by steady growth in tax and the implementation of tax optimisation and cost-cutting measures. Fitch views AMP's fiscal leeway as limited by the high absolute levels of its tax rates and overall tax pressure within the territory. Over 2017-2021, we expect capital spending to remain sizeable at an average of EUR552.8 million annually compared with EUR579 million at end-2016. Fitch sees limited flexibility on capital spending, due to large transport investment programmes and the need for enhanced infrastructure within the metropolitan area. Fitch estimates AMP's consolidated debt (consolidating its main budget and ancillary budgets) will remain high and increase to around EUR3.2 billion (around 173% of current revenue) 2021, compared with EUR2.5 billion (150%; and including the debt of fully owned transport operator RTM of EUR229.5 million) at end-2016. According to our baseline scenario, considering the expected stabilisation of self-financing capacity and the resulting consolidated debt increase, AMP's consolidated debt payback ratio is likely to be around 12 years in 2021 (8.7 years at end-2016). AMP's debt profile is sound and bullet repayments are provisioned for. AMP's liquidity is supported by predictable cash flow and efficient, tight monitoring of liquidity. Short-term funding is mainly in the form of bank lines totalling EUR150 million and several revolving loans totalling EUR27 million. AMP's socio-economic profile is below the French average, manifested in its higher-than- average unemployment rate and low-skilled workforce in some business sectors. These weaknesses are partly offset by the strategic importance of AMP as the first metropolitan centre and port in France. Fitch believes further economic prospects are underpinned by sustained public support, strong private investment and the increasingly important tourism industry. Fitch views AMP's financial management as sophisticated and prudent, particularly in terms of the metropolitan area's forecasting ability, which allows AMP to control its annual budget and debt commitments. Debt and liquidity management is conservative. RATING SENSITIVITIES An improvement in debt metrics, with a lower debt payback ratio, to below 10 years, could lead to an upgrade. Higher-than-expected increases in both operating and capital expenditure or slower-than- expected growth in operating revenue leading to sustained deterioration in the debt payback ratio towards 20 years could result in a downgrade. Contact: Primary Analyst Arnaud Dura Director +33 1 44 29 91 79 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 Raffaele Carnevale Senior Director +39 02 87 90 87 203 Fitch has made a number of adjustments to make LRGs internationally comparable for analytical purposes. For AMP, these adjustments include: - Main budget and ancillary budgets have been consolidated on the operating and capital sides; - Transfers to other municipalities have been deduced from the current transfers received; - Main budget's debt has been classified as direct debt, while the ancillary budget's debt has been restated as "other Fitch-classified debt". 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 International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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