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Fitch Affirms City of Marseille at 'A+'; Outlook Stable
September 30, 2016 / 4:06 PM / a year ago

Fitch Affirms City of Marseille at 'A+'; Outlook Stable

(The following statement was released by the rating agency) PARIS, September 30 (Fitch) Fitch Ratings has affirmed the French City of Marseille's Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'A+' and Short-Term Foreign Currency IDR at 'F1' The Outlook is Stable. Fitch has also affirmed Marseille's EUR700m euro medium-term programme at 'A+' and EUR200m French commercial paper (Titres de Creances Negociables; TCN) programme at 'F1'. KEY RATING DRIVERS The ratings reflect the sound budgetary performance of Marseille and its national importance as the second-largest French city with its major harbour. These strengths are somewhat offset by a large stock of debt. The affirmation with Stable Outlook reflects Fitch's unchanged expectations that the city will be able and willing to maintain its financial metrics at levels compatible with its current ratings. Marseille's IDRs reflect the following key rating drivers: Fiscal Performance Fitch's base case scenario forecasts the city's current margin to slightly weaken but remain compatible with the current ratings at around 10% in 2018 compared with an average of 11.8% over 2011-2015. Despite pressure on operating revenue due to significant cuts in state transfers, Fitch is confident in the administration's ability to take appropriate actions to ensure healthy fiscal performance in the medium term. Fitch views Marseille's fiscal leeway as limited after the city increased its tax rates in 2015. In 2016, Marseille's housing tax rate (28.56%) and developed property tax rate (24.02%) are respectively above the average of French metropolitan cities (19.02% and 17.32% respectively). Fitch will monitor Marseille's ability to curb operating spending through a series of reforms the city is implementing (as stated in our base case scenario) Fitch considers fiscal performance as Neutral for the City of Marseille. Debt and Liquidity As Marseille scales down its multi-year investment programme, we expect capital expenditure to decline progressively to about EUR177.2m on average per year in 2016-2018 (from EUR223m on average per year over 2011-2015). The decline of capital expenditure may not be sufficient to offset the city's shrinking self-financing capacity. Fitch expects Marseille's tax rate to remain unchanged and direct risk payback to edge towards 15 years from an average of 12.6 years over 2011-2015. The city's liquidity is underpinned by predictable cash flows. Short-term liquidity needs are covered by several revolving credit lines, committed bank lines, and regular use of the EUR200m TCN programme. Fitch considers debt and liquidity as Weakness for Marseille. Institutional Framework Under the French "Metropolis" law, Marseille is affected by the gradual transfer of certain competencies over the period of 2016 to 2020 to Metropolis of Aix-Marseille-Provence (AMP; A+/Stable/F1). Fitch considers these transfers will not have a major impact on the city's financial metrics as the amount of expenditures being transferred (EUR23.8m) will be offset by a decline of an equivalent amount of operating transfers received from AMP. Fitch considers institutional framework as Neutral for Marseille. Economy Marseille is differentiated from other major French metropolitan cities by its high unemployment, a low-skilled workforce and a lack of high value-added industries. However, Marseille's position as the second-most populated French city means economic prospects are underpinned by sustained state support, increasing private investment and tourism development. Fitch considers economy as Neutral for Marseille. Management and Administration Fitch views Marseille's financial management as sophisticated and prudent, particularly in terms of the city's forecasting ability, which allows Marseille to control its annual budget and debt commitments. Debt and liquidity management is conservative. Fitch considers management and administration as Strength for Marseille. RATING SENSITIVITIES A current margin consistently below 10%, combined with a direct risk payback ratio consistently above 17 years (2015:14.4 years) and failure to stabilise direct risk stock, could lead to a downgrade. An upgrade - unlikely at present - would require a current margin consistently above 20% and sustained reduction of the city's direct risk stock. 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 Pierre Charpentier Analyst +33 1 44 29 91 45 Committee Chairperson Raffaele Carnevale Senior Director +39 028 79 08 72 03 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 at 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=1012473 Solicitation Status here Endorsement Policy here ail=31 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. 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. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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