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RPT - Fitch affirms Department of Guadeloupe
October 7, 2013 / 3:42 PM / 4 years ago

RPT - Fitch affirms Department of Guadeloupe

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.


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.


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.


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

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