October 7, 2013 / 3:37 PM / 4 years ago

Fitch Affirms Department of Guadeloupe at 'AA-', Outlook Stable

PARIS, October 07 (Fitch) Fitch Ratings has affirmed the Department of Guadeloupe's Long-term local and foreign currency ratings at 'AA-' and its Short-term foreign currency rating at 'F1+'. The Outlook is Stable. KEY RATING DRIVERS Guadeloupe's ratings reflect low direct debt and strong debt coverage ratios which are further supported by a strong cash position. The ratings also take into account persistent pressure on social spending in light of its weak socio-economic profile. The Stable Outlook reflects Fitch's expectation that the department will contain deterioration of its operating margin and limit debt growth in line with its peers, notably due to its strong positive cash balance. Compared with its peers, Guadeloupe posted a low debt at EUR109.2m in 2012 with an average maturity of six years and 10 months and a debt payback ratio of 2.6 years. When Guadeloupe's cash balance is taken into account, its net direct risk is reduced to EUR14m. Over the medium term, the department plans to draw down on its reserves with the aim to keep its debt payback ratio below four years. Without taking into account the possibility of a draw-down on its reserves, Fitch estimates that debt payback could reach a maximum of five years in 2016, which will be negative for the ratings. Even if Guadeloupe suffers of its remoteness and insularity, the department benefits from a special status of 'outermost region', which allows it to receive special grants. Due to Guadeloupe's focus on social welfare, a large part of its spending is correlated with the economic cycle. Its lower-than-average socio-economic profile means higher social expenditure than other departments, limiting Guadeloupe's operating expenditure flexibility. In Q212, despite a slight stabilisation, unemployment (22.9%) for Guadeloupe remained higher than the national average (10%). In 2012, budgetary performance was affected by the consolidation of the departmental insertion agency (ADI) into Guadeloupe's accounts. The result was the payment by the department of EUR17.8m of exceptional expenditure and the integration of the net positive result (EUR57.8m) of ADI in department's account. Fitch considers that the consolidation should allow for some efficiency gains and a consistent policy on its territory over the medium term. At end-2012, Guadeloupe's operating margin declined to 7.9 % and its operating balance to EUR48.9m, from 10.8 % and EUR66.7m, excluding exceptional expenditure. Fitch expects operating performance to weaken to about 5% by 2016, due to sluggish revenue and high operating expenditure. Fitch considers that flexibility in operating expenditure is underpinned by the possible diminishing of current transfers made allowing it to concentrate on its core competencies. Capital expenditures increased by reached EUR121m in 2012. With planned annual investments of an average of EUR103m, self-financing would decline to about 76% in 2016 from an average of 107.5% over 2008-2012. Fitch believes the department has headroom to scale down capex, particularly in subsidies, which represent about 20% of annual capital expenditure. RATING SENSITIVITIES A deterioration of the department's debt payback ratio to above five years or a decline of the operating margin below 5% would trigger a negative rating action. An improvement or stabilisation of the current margin for several consecutive years as well as sustaining strong debt coverage ratios through prudent capital spending would by rating- positive. KEY ASSUMPTIONS Our base case scenario relies on the following assumptions: -Tax rates will remain stable, with slight variations to the tax base -The French State's transfers will slightly decline in nominal terms -Operating expenditure will remain controlled, with a maximum of 1.8 % per year increase on average over 2012-2016 -Capital expenditure would average around EUR100m per year over the medium term 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: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@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 9 April 2013 on www.fitchratings.com. Applicable Criteria andALL 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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