(The following statement was released by the rating agency)
Oct 01 - Fitch Ratings has affirmed the City of Paris's (Paris) Long-term local and foreign currency ratings at 'AAA' and Short-term foreign currency rating at 'F1+'. The Outlooks are Negative. Fitch has also affirmed Paris' EUR4bn EMTN programme at 'AAA' and its EUR800m Billets de tresorerie programme at 'F1+'.
The ratings are supported by Paris's strong economy, sound budgetary performance and skilled management. They factor in Paris's still significant fiscal leeway and moderate debt. The Negative Outlooks reflects France's ('AAA'/Negative/'F1+') Outlook.
A downgrade could result from a lasting weakening of the operating balance below 8% of operating revenue, combined with a debt-payback ratio persistently above nine years. A downgrade of France would be mirrored in Paris' ratings.
Paris is France's capital city and accounts for 11% of French GDP. It benefits from a highly skilled workforce and consistently attracts significant foreign investments.. It benefits from dynamic business services, a strong tourism industry and outstanding infrastructure.
Although the recent fiscal reform reduced Paris' fiscal leeway, revenue raising potential remains strong due to its moderate tax burden and dynamic tax bases. For example, Paris would have received an extra EUR185m household tax proceeds if it had raised rates by one percentage point in 2011. This should allow Paris to adjust revenue to operating expenditure, which is largely made of low-flexibility items such as staff costs, social spending, mandatory grants and equalisation payments. The latter are expected to grow in the medium term.
Operating margin decreased to 11.9% of operating revenue in 2011, from 12.8% in 2010, as operating expenditure growth was mostly fuelled by social spending and new equalisation payments. If the new equalisation mechanism was neutralised, the operating margin would have grown slightly, at 13.5%. Fitch expects revenue growth, with stable tax rates, to be outpaced by operating spending growth. Current margin may weaken to 7.4% in 2015 due to rising interest charges.
Paris self-financed, after debt repayment, 75.7% of its EUR1,550m capital expenditure in 2011, in line with the 2007-2010 average self-financing rate (78%). Fitch expects capital spending to grow to EUR1,600m on average in 2012-2013 as the city will accelerate its investment programs before the 2014 elections. The city's self-financing rate should remain at a high 73% average rate from 2012 to 2015.
Debt reached EUR2,892m in 2011 or 37% of current revenue, which is moderate relative to peers. Fitch expects debt to rise to about 44% of current revenue in 2015, and the debt payback ratio to weaken to 6 years in 2015 from 3.4 years in 2011. Debt structure is conservative and does not include risky structured products.
Paris has strong access to external liquidity through EUR425m long term revolving loans, a EUR800m commercial paper (BT) programme, and a EUR150m committed credit line. Cash flows are predictable and liquidity management is conservative.
Dependent public sector entities are closely monitored and play a key role in implementing municipal policies. The high level of debt guarantees (EUR7,461m at end 2011) mostly benefit low-risk, state regulated social housing entities.
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