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Fitch Affirms Department of Puy-de-Dome at 'AA-'; Stable Outlook
November 24, 2017 / 9:14 PM / 18 days ago

Fitch Affirms Department of Puy-de-Dome at 'AA-'; Stable Outlook

(The following statement was released by the rating agency) PARIS, November 24 (Fitch) Fitch Ratings has affirmed Puy-de-Dome's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'AA-' with Stable Outlook, and Short-Term Foreign Currency IDR at 'F1+'. The department's EUR500 million euro medium-term programme ratings have been affirmed at 'AA-' and 'F1+' and EUR100 million NeuCP programme rating has been affirmed at 'F1+'. Its long-term debt is affirmed at 'AA-'. The affirmation with Stable Outlook reflects Puy-de-Dome's sound budgetary performance and debt ratios, a diverse economy with high-value added activities, and strict control over expenditure. We expect budgetary performance and debt metrics to stabilise in the medium term due to progressive economic recovery. KEY RATING DRIVERS Fiscal Performance (Neutral/Stable) Operating margin is set to improve in 2017 to 11.9% (versus 11.2% in 2016), due to property tax transfer duties on the back of a buoyant real estate market. Fitch expects the operating margin to average 11% in 2017-2020. We expect modest revenue growth below 1% over 2017-2020 (versus more than 1% in 2012-2016), mostly due to declining state transfers while tax revenue continues to grow. Operating expenditure should also slow down to on average less than 1% a year (versus more than 2% in 2012-2016), due to an improving economy and cost-cutting measures. As with other French departments, Puy-de-Dome's revenue mix offers limited flexibility as 70% of operating revenue is mainly based on non-modifiable taxes and state transfers. Puy-de-Dome retains some tax leeway on the developed property tax (25% of operating revenue in 2017): raising the rate by 1 percentage point (a 5% increase) would yield an extra EUR8 million and reduce the department's direct risk payback capacity by more than half a year. Debt, Liabilities and Liquidity (Neutral/Stable) Fitch expects capital expenditure to stabilise at around EUR95 million per year (down from EUR105 million a year on average in 2012-2016). Puy-de-Dome's self-financing rate (before debt repayment) is likely to stabilise at 91% in 2017-2020 (versus 92% in 2012-2016), leading to limited recourse to debt. Direct risk (including short-term debt and fire department's debt) decreased EUR27 million in 2016 due to low capital expenditure and is likely to further decrease EUR4 million in 2017, due to dynamic tax revenue. Fitch expects direct risk to increase toward EUR465 million in 2020 (72% of current revenue), from a moderate EUR441 million at end-2016 (70%). The direct risk payback ratio is expected to be close to seven years (2016: 6.9 years), remaining compatible with Puy-de-Dome's ratings. Its debt structure is sound (60% at fixed-rate post swaps) and does not include high-risk products. Liquidity is underpinned by strong predictable cash flows and by easy access to short-term funding. The latter is based on regular issuance of CP under a EUR100 million programme, backed by adequate revolving and committed bank credit lines. Liquidity forecasts are detailed and updated regularly. Despite a high level of contingent liabilities, Fitch views contingent risk as low due to borrowers' solid credit profiles (mostly social housing institutions) and their sound debt structure. A sophisticated monitoring framework and strict eligibility guidelines implemented by the administration should limit the growth of guaranteed debt over the medium term. Management and Administration (Strength/Stable) The ability of the department to implement its budget tightening plan is underpinned by its strong governance based on a skilled administration, a stable local political environment, and a track record of prudent financial management. The administration aims to keep the department's current margin above 9% and the debt payback ratio below 10 years over the medium term. Economy (Strength/Stable) Puy-de-Dome's socio-economic indicators are slightly better than the national average with an unemployment rate of 8.1% in 2Q17 (against 9.2% for France) and a poverty rate of 12.6% in 2013 (versus 14.7% for France). Puy-de-Dome benefits from dynamic industries and hosts numerous research facilities and decisional centres. Institutional Framework (Neutral/Stable) Fitch views the institutional framework as neutral to the ratings. The department's main responsibilities include social transfers linked to unemployment, disability and old age dependence, for which policies and eligibility criteria are defined by the state. However, with effect from January 2017, French departments' main transportation competencies have been transferred to their respective regions. Fitch does not expect any significant impact from this transfer on Puy-de-Dome's budgetary performance. RATING SENSITIVITIES An upgrade could result from an improvement in fiscal performance, leading to a direct risk-to-current balance ratio below six years on a sustained basis. Deterioration of the direct risk-to-current balance ratio to above 12 years on a sustained basis could lead to a downgrade. 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 Vladimir Redkin Senior Director +7 495 956 9901 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com 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#solicitation 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. 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