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TEXT-S&P afrms French Social Security Agency ACOSS at 'A-1+'
May 30, 2012 / 9:53 AM / 5 years ago

TEXT-S&P afrms French Social Security Agency ACOSS at 'A-1+'

ACOSS was created in 1967 as a state public agency of administrative nature (“Etablissement Public a Caractere Administratif d‘Etat”; EPA). Owing to this status, we view the state as ultimately responsible for ACOSS’ solvency.

While the French population’s right to receive social protection is enshrined in France’s constitutional laws, we consider ACOSS’ role for the French government to be “critical,” since it primarily consists of supervising and centralizing the collection of French Social Security General Scheme contributions and ensuring their redistribution. General Scheme expenditures accounted for 16% of national GDP in 2011.

ACOSS’ status, mission, and funding are precisely framed by law, which, in our opinion, creates an integral link between the agency and the French state. ACOSS is under strong and broad state supervision through two ministries--the Ministry of the Budget and the Ministry of Social Security. ACOSS’ director is appointed by decree and reports directly to the ministries. The director’s main mandate is to strictly implement the central government’s decisions and policies on the social security system. Since 1996, ACOSS has signed multiyear contracts with the state laying out its objectives.

As part of the tight framework regulating ACOSS’ activities, the French parliament sets ACOSS’ external funding ceiling in its Social Security Funding Laws. For 2012, ACOSS’ external funding ceiling is set at EUR22 billion. In 2011, this ceiling was set at EUR58 billion for the period from Jan. 1 to May 31, EUR20 billion from June 1 to July 28, and EUR18 billion from July 29 to Dec. 31. This gradual decrease of the ceiling was mainly possible because of EUR65.3 billion in transfers of social security debt held by ACOSS--of which EUR55 billion was in the first half of 2011--to Caisse d‘Amortissement de la Dette Sociale (CADES; AA+/Negative/A-1+), a fund dedicated to the amortization of France’s social security system debt. This debt consists of the General Scheme’s debt and the Solidarity Pension Fund’s (FSV) debt. The decrease in the ceiling also reflected higher-than-anticipated revenues for ACOSS. At the end of 2011 ACOSS’ short-term cash requirement amounted to EUR4.7 billion, compared with an exceptionally high EUR49 billion at the end of 2010.

ACOSS has so far been repeatedly able to pass on its past deficits to CADES, though not on a yearly basis, as demonstrated in 2010 when there were no debt transfers. Since 1996, CADES has received EUR162.4 billion of the General Scheme’s debt. Some EUR3.1 billion of General Scheme debt transfers to CADES are planned in 2012. Moreover, EUR3.6 billion of FSV’s debt held by ACOSS will also be transferred to CADES. Unlike CADES, ACOSS covers social security deficits only by accessing short-term funding.


We expect ACOSS’ cash gap to increase again to reach about EUR20 billion by the end of 2012, compared with EUR4.7 billion at the end of 2011. However, we estimate that daily average short-term funding needs will fall to about EUR10 billion from EUR14.4 billion in 2011.

ACOSS is prohibited by law from issuing medium- and long-term debt with maturities beyond one year. To cover its short-term funding needs in 2012, ACOSS will mainly rely on its capital market instruments--its EUR20 billion Euro commercial paper (CP) program and its EUR25 billion French CP program. However, this reliance is mitigated by ACOSS’ historically excellent access to the short-term capital markets and the large purchase of ACOSS’ French CP by French public entities. ACOSS has also already secured EUR3.5 billion in short-term loans for 2012 with Caisse des Depots et Consignations (CDC; AA+/Negative/A-1+), one of the French state’s financial arms. Ultimately, in case of need, we estimate that ACOSS has about EUR2.2 billion backup liquidity at its disposal through its EUR1.5 billion available cash advances from CDC that act as a backup line, and two backup accounts at Banque de France (EUR200 million) and CDC (EUR500 million). Moreover, ACOSS’ overfunding strategy allows for a further liquidity cushion in case of need.

It is very unlikely, in our opinion, that ACOSS will face liquidity stress, since its cash outflows and inflows are highly predictable. Moreover, ACOSS secures its short-term funding in advance of necessary payments. In addition, we consider some of ACOSS’ payments to be deferrable for a short period, if necessary, notably some health insurance benefits. We would not expect any deferral of pensions.

We believe that, as a last resort, ACOSS would have prompt access to emergency funding from the French Treasury, either through purchases of CP issues, as allowed for EPAs under French finance law, or through funding from the state’s Public Debt Fund (“Caisse de la Dette Publique”). We also believe that any need for a further extension of ACOSS’ borrowing ceiling would be anticipated well in advance and obtained swiftly, as was the case most recently in July 2009.

Related Criteria And Research

-- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010

Ratings List

Ratings Affirmed

Agence Centrale des Organismes de Securite Sociale (ACOSS)

Issuer Credit Rating --/--/A-1+

Agence Centrale des Organismes de Securite Sociale (ACOSS)

Commercial Paper A-1+

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