December 15, 2017 / 9:16 PM / a year ago

Fitch Affirms Centre-Val-de-Loire at 'AA'; Outlook Stable

(The following statement was released by the rating agency) PARIS, December 15 (Fitch) Fitch Ratings has affirmed the French Region of Centre-Val-de-Loire's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'AA' with Stable Outlook. The region's Short-Term Foreign-Currency IDR has been affirmed at 'F1+'. Fitch has also affirmed the region's short-term EUR160 million NeuCP programme at 'F1+'. The ratings reflect the region's track record of strong budgetary performance, high debt, prudent management and a favourable socio-economic profile. Fitch also takes into account the expected weakening of the region's fiscal performance which should, however, remain consistent with the current ratings. KEY RATING DRIVERS Fiscal Performance (Strength/Negative) Fitch expects the region's operating performance to remain sound in the medium term, with an operating balance averaging 17% of operating revenue (18% estimated for 2017). Its operating balance is expected to weaken from 2018 onwards, due to a EUR16 million state transfer being withheld next year and to the transfer of the management of intercity trains to the region from the state and whose operating deficit will only be partially offset by a dedicated state transfer. Tax revenue is, however, expected to be boosted by regions being attributed a share of the value added tax by the Budget Law 2018. As of 2018, 45% of the region's operating revenue will be directly linked to GDP growth (value added tax and corporate value added tax), as compared with only 16% in 2016. National nominal GDP is expected to grow on average 2.5% per year in 2018-2020. Centre Val-de-Loire's flexibility on operating revenue is limited to the vehicle registration tax, which represents less than 10% of operating revenue in 2017. The region retains some leeway in expenditure through greater spending restraint and a trade-off between different budget spending items. We expect spending control to at least partially offset the growth of spending in rigid items (train services, professional training). Fitch expects Centre-Val-de-Loire's capex to reach on average EUR360 million a year (26% of total expenditure) in 2017-2020 (including pass-through EU funds and intercity trains capex fully funded by the state), due to the region's commitment to maintain and improve public services. We expect self-financing (before debt repayment) to average 88% in 2017-2020 (2016: 86%), leading to a steady increase in debt. Debt, Liabilities and Liquidity (Neutral/Stable) The region's long-term direct risk (including two financial leases) is expected to reach EUR974 million at end-2017, representing 91% of current revenue or 5.5 years of current balance. We expect direct risk to grow over the medium term towards EUR1.1 billion, or 7.1 years of current balance. We expect debt service coverage by operating balance to weaken slightly but to remain sound on average at 45% until 2020, versus 39% in 2016. Liquidity is underpinned by predictable cash flows and the regular use of the region's EUR160 million NeuCP programme. Additionally, the programme has a back-up facility consisting of committed bank lines for a total of EUR160 million, providing a sound financial safeguard. Economy (Strength/Stable) The region of Centre-Val de Loire is a large territory (6% of the French metropolitan territory) characterised by low density (66 inhabitants per square km versus a national average of 104). Its 2.6 million inhabitants are distributed across several dynamic economic centres rather than concentrated in its capital, Orleans (110,000 inhabitants). With an estimated EUR70 billion GDP Centre-Val-de-Loire's socio-economic profile is balanced (4% of French population, 3% of French GDP), despite the region's small size compared with other French regions. This is due to the region's resilient local industry (cosmetics and pharmaceuticals) and robust agricultural and tourism sectors. The region's socio-economic indicators are comparable with the national average. The region's unemployment rate was 8.9% at end-2Q17, below France's 9.2%. Management and Administration (Strength/Stable) Centre-Val de Loire, along with the Region of Bretagne, is the only French region that has not merged with another region and whose political majority has not shifted during the 2015 elections. They therefore benefit from political and administrative stability. Centre-Val de Loire also benefits from sophisticated financial management with multi-year planning, specific budget targets and a track record of reliable budgetary forecasts. Institutional Framework (Neutral/Stable) The solvency of French subnationals is underpinned by the quality of their financial and administrative framework, which makes debt servicing one of their highest spending priorities. French regions' fiscal autonomy is lower than that of departments and municipalities as their rate-setting power is limited to the vehicle registration certificates (9% of their expected current revenue in 2017; 9% in Centre-Val de Loire). On the expenditure side, Fitch believes that unlike departments, the regions have autonomy in the implementation of public policies as most of their expertise is in areas that are not decided at the state level. RATING SENSITIVITIES A sharper-than-expected deterioration in Centre-Val de Loire's budgetary performance or a faster-than-expected increase in debt, leading to direct risk of eight years (2016: 5.4) or more on a sustained basis, could lead to a downgrade. Positive rating action may result from an upgrade of the French sovereign rating (AA/Stable/F1+), provided that the region's direct risk payback is below four years and direct debt-to-current revenue below 70% (2016: 82%). Contact: Primary Analyst Nicolas Miloikovitch Analyst +33 1 44 29 91 89 Fitch France S.A.S. 60, rue de Monceau 75008 Paris Secondary Analyst Pierre Charpentier Analyst +33 1 44 29 91 45 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 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 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 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. 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