(The following statement was released by the rating agency)
-- We have revised upward our estimate of the Region of Ile-de-France'sdeficits after capital accounts until 2014.
-- We are revising down to 'aa+' from 'aaa' our assessment ofIle-de-France's indicative credit level.
-- We are affirming our 'AA+/A-1+' long- and short-term ratings onIle-de-France.
-- The long-term rating now reflects the intrinsic creditworthiness ofthe region and is no longer capped by the rating on the Republic of France.
-- The negative outlook continues to reflect that on the Republic ofFrance.
Rating ActionOn Oct. 8, 2012, Standard & Poor's Ratings Services affirmed its 'AA+/A-1+'long- and short-term issuer credit ratings on the French Region ofIle-de-France. The outlook is negative.
At the same time, we affirmed our 'AA+' long-term issue rating on the region'sEUR4 billion euro medium-term note (EMTN) program and our 'A-1+' short-termissue rating on its EUR1 billion French commercial paper (CP) program.
The affirmation reflects our view of the "predictable and well-balanced"institutional framework for French regions, Ile-de-France's "very positive"financial management, and its wealthy, diversified, and resilient economy inan international context, as our criteria define these terms. We also factorinto the ratings the region's "very positive" liquidity position and its verylow contingent liabilities.
The ratings are constrained by what we view as the region's limited revenueflexibility and our estimates for higher deficits after capital accounts until2014 compared with those under our 2011 base-case scenario. Given thesehigher-than-expected deficits, the long-term rating now reflects the intrinsiccreditworthiness of the region rather than a sovereign rating cap.
We measure the region's intrinsic creditworthiness, by our assessment of itsindicative credit level, which we have revised down to 'aa+' from 'aaa'. TheICL is not a rating but a means of assessing the intrinsic creditworthiness ofa local and regional government (LRG) under the assumption that there is nosovereign rating cap. Since the 'aa+' ICL is at the same level as thelong-term rating on the Republic of France (unsolicited AA+/Negative/A-1+), weno longer apply a sovereign rating cap on the long-term rating.
Standard & Poor's views Ile-de-France's financial management as very positive.We believe the region has clear financial targets, realistic and detailedfinancial planning, prudent and sophisticated debt and liquidity management,and a strong ability to control operating expenditure. However, we believethat Ile-de-France's ability to meet its debt targets has lessened slightly.
Under our current base-case scenario, we anticipate that Ile-de-France willpost deficits after capital accounts of around 8% of total revenues over2012-2014, versus our base-case estimate in 2011 of deficits at less than 5%of total revenues. We consider that the region's strong ability to rein inoperating expenditure will be slightly weaker than we previously expected. Wenow anticipate a slightly larger increase in operating expenditure, by astill-low 1.6% per year, compared with 1% annually in our 2011 base case.Coupled with lower-than-expected growth of operating revenues due to theincreasingly unfavorable economic context, we now anticipate an operatingbalance of 23% of operating revenues by 2014, which is high in aninternational context. This is in line with our 2011 downside scenario butmarkedly lower than the 27% we had anticipated under our base case. Inaddition to the likely lower operating balance, we forecast slightly highercapital expenditure of EUR1.63 billion, compared with EUR1.61 billion in our2011base case.
Though remaining moderate, we now consider that Ile-de-France's tax-supporteddebt will exceed 60% of consolidated operating revenues by 2013, and reach 67%of consolidated operating revenues in 2014.
If Ile-de-France's operating balance decreases to below 20% of operatingrevenues by 2014, as we estimate under our downside scenario, we could revisedown the region's ICL and, ultimately, its long-term rating. Such a decreasewould likely weaken our view of its financial management and could translateinto larger deficits after capital accounts of more than 10% of totalrevenues. We believe, however, that this scenario is unlikely at this stage.
We view Ile-de-France's liquidity position as very positive under ourcriteria, thanks to the region's strong access to external liquidity and apositive debt coverage ratio. In our view, the region's liquidity alsobenefits from predictable and regular cash flows, especially state transfersand tax proceeds.
We expect the region's debt service coverage to remain solid, with averageadjusted cash and liquid assets over the next 12 months, and its availabledrawings on its revolving lines and possible liquidity lines to account formore than 120% of its next 12 months' debt service.
Moreover, we consider that Ile-de-France has strong access to liquidity,chiefly through its EUR4 billion EMTN program and its EUR1 billion French CPprogram, and in the context of France's strong banking sector. Under itsBanking Industry Country Risk Assessment (BICRA) methodology, Standard &Poor's ranks France in BICRA group '2'. BICRA scores range from '1' to '10',with the lowest-risk banking systems in group '1' and the highest-risk ingroup '10'.
We also believe that at any time the amount available under the committed banklines will cover 100% of Ile-de-France's CP outstanding.
The negative outlook reflects that on the Republic of France. We cap theoutlook on French LRGs that are rated at the same level as the Republic ofFrance based on the outlook on the sovereign.
If we were to downgrade France, we would take the same action on theIle-de-France. Conversely, if we revise our outlook on France to stable, wewould also revise the outlook on Ile-de-France to stable.
Related Criteria And Research
-- Methodology For Rating International Local And Regional Governments,Sept. 20, 2010
-- Methodology and Assumptions For Analyzing The Liquidity Of Non-U.S.Local And Regional Governments And Related Entities And For Rating TheirCommercial Paper Programs, Oct. 15, 2009
-- Methodology: Rating A Regional Or Local Government Higher Than ItsSovereign, Sept. 9, 2009
-- Institutional Framework Assessments For International Local AndRegional Governments, Dec. 19, 2011
Ratings ListRatings AffirmedIle-de-France (Region of)Issuer Credit Rating AA+/Negative/A-1+Senior Unsecured AA+Commercial Paper A-1+
(Caryn Trokie, New York Ratings Unit)