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TEXT-S&P summary: Caisse d'Amortissement de la Dette Sociale

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Oct 12 - =============================================================================== Summary analysis -- Caisse d'Amortissement de la Dette Sociale ---- 12-Oct-2012 =============================================================================== CREDIT RATING: AA+/Negative/A-1+ Country: France Primary SIC: Finance, taxation, & monetary policy Mult. CUSIP6: 128004 Mult. CUSIP6: 12802D Mult. CUSIP6: 12802N Mult. CUSIP6: 1280A0 Mult. CUSIP6: 1280A1 Mult. CUSIP6: 1280A4 =============================================================================== Credit Rating History: Local currency Foreign currency 17-Jan-2012 AA+/A-1+ AA+/A-1+ 26-Apr-1996 AAA/A-1+ AAA/A-1+ =============================================================================== Rationale

Standard & Poor's Ratings Services equalizes its ratings on CADES, a fund dedicated to theamortization of France's social security debt, with its sovereign ratings on the Republic ofFrance (unsolicited ratings AA+/Negative/A-1+). This reflects our view that there is an "almostcertain" likelihood that the French state would provide timely and sufficient extraordinaryfinancial support to CADES if needed. That said, we currently view financial distress at CADESas very unlikely.

We consider CADES to be a government-related entity (GRE). Under our GRE criteria, we baseour rating approach on CADES':

-- "Critical" role in refinancing and paying off the accumulated debt of France's socialsecurity scheme. In our opinion, this mission ensures it would receive adequate and timely statesupport if needed; and

-- "Integral" link with the French state, because CADES is integrated into the government'spolicy and social security framework and is subject to close state supervision and control.

The state does not explicitly guarantee CADES' debt. However, owing to its status as a statepublic agency ("Etablissement Public Administratif de l'Etat;" EPA), the French government isultimately responsible for CADES' solvency. We consider that in case of need, CADES would haveaccess to emergency funding from the French treasury, and that the treasury would ease CADES'funding needs directly, by buying commercial paper (CP) issued by CADES, or using its debtamortization fund ("Caisse de la Dette Publique") to buy CADES' bonds or CP issues.

The state established CADES in 1996 for the sole purpose of refinancing and paying off theaccumulated debt of France's social security scheme. CADES' mission is complementary to that ofAgence Centrale des Organismes de Securite Sociale (ACOSS;--/--/A-1+), which is incharge of managing the social security scheme's annual cash flows. Since 1996, the debt passedby ACOSS to CADES on behalf of social security institutions has been primarily serviced fromproceeds from a specifically earmarked social security levy, the "Contribution au Remboursementde la Dette Sociale" (CRDS), and since 2009 also from a share of another social security levy,the "Contribution Sociale Generalisee" (CSG). Once all the transferred debt is paid off, CADESwill be closed and the CRDS will be abolished.

CADES' mission has been extended on several occasions over the past decade. Accordingly, itsnet liability position has increased significantly over time, to EUR142.8 billion on Dec. 31,2011, from just under EUR30 billion in 2003.

In 2010, the French government decided on massive new debt transfers of up to EUR130 billionto CADES from 2011, EUR65.3 billion of which is to cover ACOSS' accumulated deficits for 2009,2010, and 2011. Under France's November 2010 pension law, up to EUR62 billion of additional debtwill also be passed to CADES between 2012 and 2018. This corresponds to the planned deficits ofCaisse Nationale d'Assurance Vieillesse (CNAV), a social security fund dedicated to pensionpayments, from 2011 until 2018. The French government projects that CNAV will achieve balancedaccounts in 2018. We note that, excepting CNAV, the social security system's potentialadditional deficits from 2013--especially for the fund for health Caisse Nationale del'Assurance Maladie des Travailleurs Salaries (CNAM)--may require additional debt transfers toCADES, depending on the funding scheme decided by the state to cover such deficits.

CADES received an additional EUR2.5 billion in debt at the end of 2011 to cover the 2009 and2010 deficits of French farmers' special pension fund (CCMSA). To amortize this debt CADES wasentitled to receive an additional EUR220 million in 2012 from an extension of the CRDS and CSGbases and specific revenues from former tax exemptions.

The legal, financial, and oversight frameworks underpinning CADES' creditworthiness remainunchanged. We continue to view these as adequate to secure full and prompt sovereign financialbacking for all of CADES' outstanding and upcoming obligations. The December 2010 socialsecurity finance law extended CADES' lifespan by four years to 2025, transferred up to EUR130billion of new debt to CADES from 2011, earmarked an increasing share of the CSG for CADES from2011, and allocated CADES an additional tax and transfers from a social security reserve funddedicated to pensions, the "Fonds de Reserves des Retraites" (FRR). In our view, this shouldenable full funding of CADES' debt service and repayment, including the massive debt transfersfrom 2011. CADES' debt service will continue to be mainly financed through the CRDS and anincreasing share of the CSG from 2011, together with an additional tax and transfers from theFRR.

Liquidity

CADES' liquidity position is very predictable, in our view. It has excellent access tointernational capital markets including a EUR15 billion French CP program ("billets detresorerie"), a EUR5 billion French Medium-Term Note (BMTN) program, and a EUR60 billion globalCP program. As of Sept. 19, 2012, CADES' drawings on these short-term programs had reachedEUR23.3 billion. The programs are backed by confirmed bank lines, amounting to EUR0.7 billion,and a confirmed EUR2 billion European short-term commercial paper (ECP) notes purchase agreementwith an international bank.

In case of need, we understand that CADES would have prompt access to ample funding from theFrench treasury which may, as stated in the Finance Law, directly buy CADES' CP issues. CADES iseligible for this emergency funding mechanism based on its EPA status. We understand that theFrench treasury may also use the state's debt amortization fund to buy CADES' bonds or CPissues, if needed.

Outlook

The negative outlook mirrors that on France and reflects our expectation that CADES willretain its critical role to and integral link with the French state. CADES' ability to pay itsoutstanding obligations depends wholly on its legal status and on the French government'swillingness to assign earmarked tax-like revenue sources to CADES. In turn, these enableadequate and timely debt coverage, either internally from CADES' cash flows, or externallythanks to excellent access to international capital markets.

We expect the ratings on CADES to move in line with those on France. Any indication of aweakening of the government's resolve to secure sufficient funding for CADES to service its debtwould likely lead to a negative rating action on CADES. However, we currently believe that sucha change in government strategy is highly unlikely.

Related Criteria And Research

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

-- Sovereigns and Equalized GREs Commercial Paper Rating Methodology, March 29, 2012

((Bangalore Ratings Team, Hotline: +91 80 4135 5898swati.ray@thomsonreuters.com,Group id:BangaloreRatings@thomsonreuters.com,Reuters Messaging:swati.ray.thomsonreuters.com@reuters.net))