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Fitch Affirms French Department of Essonne at 'AA-'; Outlook Stable
March 10, 2017 / 5:14 PM / 9 months ago

Fitch Affirms French Department of Essonne at 'AA-'; Outlook Stable

(The following statement was released by the rating agency) PARIS, March 10 (Fitch) Fitch Ratings has affirmed the French Department of Essonne's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'AA-' and Short-Term Foreign Currency IDR at 'F1+'. The Outlook is Stable. Essonne's long-term issues have also been affirmed at 'AA-'. The department's short-term issues have been affirmed at F1+, including a EUR160 million commercial paper programme. The ratings reflect Essonne's solid economy, sound and improving operating performance, and comfortable debt repayment capacity, despite a high level of debt relative to other French departments. The Stable Outlook reflects Fitch's view that Essonne will be able to maintain financial and debt metrics compatible with the ratings in the medium term. KEY RATING DRIVERS Essonne's operating margin improved to an estimated 12.6% in 2016 from 9.7% in 2015 as a result of a large tax hike implemented last year. According to Fitch's base case scenario, it should range between 10% and 11% in the coming years. We expect operating revenue to decline by around 3% in 2017, mainly due to cuts in state transfers, before slightly increasing in the following years. The evolution of operating revenue will notably depend on property transfer duties, which have proved to be volatile. Essonne is currently reimbursing accumulated unpaid bills (EUR44 million repayments made in 2016 out of an estimated EUR100.8 million at end-2015) and most of the bills should be repaid by 2019. We therefore expect the department's operating expenditure to decline between 2016 and 2019, although at a slower pace than operating revenue. Capital expenditure declined to an estimated EUR153.4 million in 2016, from EUR165.5 million in 2015. According to the recently adopted multi-year capex programme, capital expenditure should represent around EUR200 million a year in the coming years. Accordingly, we expect Essonne's self-financing capacity (before debt repayments) to decline on average to 70% in 2017-2019, from a high 111.9% estimated in 2016, leading to an increase in debt. According to our base case scenario, Essonne's direct debt is likely to approach EUR1.1 billion at end-2019, around 90% of current revenue, from EUR922 million at end-2016 (76.7% of estimated current revenue). We expect the direct risk payback ratio to deteriorate to nine to 10 years over the medium term, from an estimated 7.1 years in 2016, but this would still be compatible with the ratings. Fitch believes Essonne's contingent liabilities are low. The department's debt guarantees totalled EUR231 million at end-2016, representing a moderate 19% of estimated current revenue. Almost half the guarantees were granted to low-risk social housing institutions. Essonne's economy is diversified and dynamic, benefiting from the robustness of Greater Paris. The department's unemployment has increased in recent years but remains low at 7.6% in 2Q16, compared with 9.6% for Metropolitan France. The department's economy is supported by a strong and dynamic research and development sector and a higher education sector, with a concentration of the country's top-ranking higher education institutions as well as public and private research centres. RATING SENSITIVITIES An operating margin weakening below 8% or the direct risk-to-current balance ratio deteriorating towards 13 years could lead to a downgrade. An upgrade could be triggered by the direct risk-to-current balance falling below six years on a sustained basis. Contact: Primary Analyst Pierre Charpentier Analyst +33 1 44 29 91 45 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 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 _id=1020405 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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