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Correct: Fitch Maintains Region of Midi Pyrenees on Rating Watch Negative
December 8, 2014 / 1:57 PM / 3 years ago

Correct: Fitch Maintains Region of Midi Pyrenees on Rating Watch Negative

(The following statement was released by the rating agency) PARIS/FRANKFURT, December 08 (Fitch) This announcement replaces the version published on 5 December 2014. The rating action on the Short-term foreign currency IDR and commercial paper should be affirmation, and not maintained on Rating Watch Negative as previously stated. Fitch Ratings has maintained the Region of Midi Pyrenees on Rating Watch Negative. The Long-term local and foreign currency Issuer Default Ratings (IDRs) are at 'AA+' and its Short-term foreign currency IDR has been affirmed at 'F1+'. Its EUR100m commercial paper has also been affirmed at 'F1+'. KEY RATING DRIVERS The Rating Watch Negative reflects that on France's IDRs (AA+/RWN/F1+) since 14 October 2014 as the region's ratings are capped by the sovereign's. The ratings of the Region of Midi-Pyrenees reflect its track record of sound operating performance, low indebtedness, good governance and a robust economy. Midi Pyrenees will be merged with the Region of Languedoc-Roussillon, expanding the budgetary profile of the regions over the medium term through a broadening of their competencies. Fitch will monitor developments in respect of this and assess their impact on the budgetary profile and how the region's debt will be legally treated. Despite a likely moderate weakening, we expect the region's performance and debt metrics to remain compatible with 'AA+' peers. The region aims to keep its debt payback ratio below three years through to 2017. We expect that the region would be able to respect its commitments, with a debt payback ratio of 2.4 years compared with an estimated one year at end-2014. This is below the region's average debt maturity of 10 years as of 1 January 2014. Compared with its international peers, Midi-Pyrenees has a low level of debt. We forecast total debt would reach EUR285m or 29% of current revenue at end-2014, versus 27% in 2013. In 2014, despite a large funding requirement, the region has been able to limit new borrowings following a drawdown on its treasury of funds. In Fitch's view, this underlines the administration's prudent financial management. Debt is prudently managed, as 52% is fixed-rate and does not include high-risk products. Fitch expects the region's operating margin to ease to 21% in 2017, mainly due to sluggish revenue following expected cuts in state transfers, and despite strong control of operating expenditure. At end-2014, we estimate Midi-Pyrenees would continue to report a strong operating margin of 30%, compared with 29% at end-2013. Despite an erosion of the current margin, we expect the region's self-financing rate of investment should remain sound at 84% (compared with an expected 95% at end-2014), assuming a high level of annual capital expenditure of EUR407m until 2017. Fitch estimates that the region has some leeway in capex as about 70% corresponds to capital transfers (subsidies for regional projects). The region's liquidity is underpinned by predictable cash flows and diverse credit lines. Midi-Pyrenees' liquidity management policy has broadened to include the issue of French commercial paper (EUR100m). The region also has sufficient bank loans and revolving credit lines. Midi Pyrenees is one of most attractive French business destinations, given its dynamic economy driven by investments in research and development. With regional GDP growth exceeding the national average in recent years, Midi-Pyrenees ranks eighth among France's regions in contribution to national GDP. In 2Q14, regional unemployment (10.1%) was slightly higher than the national average (9.7%). Fitch considers the region's financial management highly efficient, notably in its forecasting ability, which allows Midi-Pyrenees to control its annual commitments in budgetary performance and debt. RATING SENSITIVITIES The resolution of the RWN is dependent on the outcome of the RWN on the French sovereign's IDR. The next review is scheduled on 12 December 2014, according to the CRA3 calendar. Therefore, any rating action taken on the French sovereign would be reflected in the ratings of the Region of Midi-Pyrenees. A downgrade could also result from Midi-Pyrenees' inability to control its operating expenditure and adjust its capital expenditure to its self-financing capacity, resulting in a debt payback ratio of over four years. Contact: Primary Analyst Arnaud Dura Associate 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 Guido Bach Senior Director +49 69 768076 111 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, "Tax-Supported Rating Criteria", dated 14 August 2012, "International Local and Regional Governments Rating Criteria outside United States", dated 23 April 2014 on www.fitchratings.com. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here International Local and Regional Governments Rating Criteria - Outside the United States here Additional Disclosure Solicitation Status 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 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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