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Rating Action:

Moody's Public Sector Europe (MPSE) assigns Aa2/Prime-1 issuer ratings and positive outlook to Ile-de-France Mobilites

 The document has been translated in other languages

29 Jun 2018

London, 29 June 2018 -- Moody's Public Sector Europe has today assigned a Aa2 long-term issuer rating and a Prime-1 short-term issuer rating to Ile-de-France Mobilites. The rating outlook is positive.

"The Aa2/Prime-1 ratings of Ile-de-France Mobilites reflect its strong economy and financial performance, its resilience to shocks thanks to good budgetary flexibility and its key role in the French economy," says Matthieu Collette, Vice President in Moody's Sub-Sovereign Group and the lead analyst for Ile-de-France Mobilites. "The ratings also take in account the rapidly increasing debt and the medium-to-long term challenges Ile-de-France Mobilites will have to face, in particular managing and operating Grand Paris Express."

RATINGS RATIONALE

Today's rating actions reflect Ile-de-France Mobilites' strong operating environment. Situated in the largest and wealthiest region in France, with a GDP per capita of EUR56,000 or 1.7x the national average, Ile-de-France Mobilites benefits from the region's dynamic business climate, as reflected in the high rate of company creation and high research and development (R&D) expenditure.

The strong regional economy has a positive effect on Ile-de-France Mobilites' financials, through the "versement transport." This tax, which represents around 70% of Ile-de-France Mobilites' operating revenues, is paid by employers domiciled in the Ile-de-France region and evolves depending on their total payroll. Through a combination of increases in the aggregate payroll and tax rate rises, "versement transport" revenues have increased by 26% since 2013. Ile-de-France Mobilites' operating expenditures are mainly comprised of contributions to the transit operators -- RATP (Aa2, positive), SNCF Mobilites (Aa3, stable) and Optile -- at EUR4.97 billion in 2017, they represented 90% of the entity's total operating costs. At year-end 2017, Ile-France Mobilites posted a gross operating balance (GOB) of EUR593 million, or 9.9% of their operating revenues and since 2013 the GOB has risen by a Compound Annual Growth Rate (CAGR) of 14.1%. As Moody's expects regional economic growth to remain strong through 2020, Ile-de-France Mobilites' financial performance will also remain strong with an expected average GOB-to-operating revenues ratio of 9% in the 2018-2020 period.

Thanks to a good budgetary flexibility, Ile-de-France Mobilites is a resilient entity and the ratings take into account its proven resistance to shocks. After the flat fare decision in 2015, which was detrimental to its finances, Ile-de-France Mobilites was able to increase fares and to leverage its impact on the national economy to obtain increases in tax resources and new perpetual revenues. Ile-de-France Mobilites has also the ability to adapt its services as well as its capital expenditure.

With 10 million people using Ile-de-France Mobilites' transportation each day, at the core of France's highly centralised network, the ratings capture the key role Ile-de-France Mobilites plays within the French economy, as severe disruptions would weigh on the national economy. Moreover, Ile-de-France Mobilites is one of the key stakeholders in helping France achieve the European Union's 2020 greenhouse gas emissions target. As such, Moody's considers that Ile-de-France Mobilites has a high degree of support from the French central government (Aa2, positive).

Ile-de-France Mobilites' ratings also take into account the increasing debt. At the end of 2017, Ile-de-France Mobilites' debt was EUR1.7 billion or 29% of its operating revenue, up from 5% in 2013. Due to an ambitious fixed capital investment plan, debt is due to reach EUR3.6 billion or 55% of its operating revenue in 2020. Even if rapidly growing, Moody's expects Ile-de-France Mobilites' debt to remain sustainable as capital expenditure is dedicated to improve and expand transport services and rolling stock to remain attractive and competitive.

Over the medium-to-long term, Ile-de-France Mobilites will face two challenges: 1/ the take-over of the Grand Paris Express, the 200 kilometres fully automated metro, currently under construction by Societe du Grand Paris (Aa2, positive) and 2/ a gradual opening up of its operating contracts to competition. While acknowledging that Ile-de-France Mobilites' executive is already proactively working on these issues, Moody's will closely monitor developments around them, in particular considering Ile-de-France Mobilites' financial resources.

The Prime-1 short term rating reflects Ile-de-France Mobilites' secure liquidity position. The entity, like all the French regional and local governments, benefits from regular and predictable cash-flows, in particular monthly tax revenue. Ile-de-France Mobilites also has good access to external financing -- EUR400 million of committed bank facilities as of June 2018 -- and plans to issue commercial paper by the end of 2018 to benefit from negative interest rates.

WHAT COULD MOVE THE RATING UP/DOWN

Since Ile-de-France Mobilites' rating is on par with the sovereign, a rating upgrade would require a sovereign upgrade.

A downward revision of France's rating would likely have negative implications for the rating of Ile-de-France Mobilites.

Additionally, a deterioration of Ile-de-France Mobilites' operating margin and/or an uncontrolled increase in debt would also weigh on the rating.

Ile-de-France Mobilites is the French local government organizing public transportation and mobilities in Ile-de-France Region, serving a population of 12.0 million.

The specific economic indicators, as required by EU regulation, are not available for this entity. The following national economic indicators are relevant to the sovereign rating, which was used as an input to this credit rating action.

Sovereign Issuer: France, Government of

GDP per capita (PPP basis, US$): 43,761 (2017 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 1.8% (2017 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 1.2% (2017 Actual)

Gen. Gov. Financial Balance/GDP: -2.6% (2017 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -0.8% (2017 Actual) (also known as External Balance)

External debt/GDP: [not available]

Level of economic development: Very High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

SUMMARY OF MINUTES FROM RATING COMMITTEE

On 21 June 2018, a rating committee was called to discuss the rating of the Ile-de-France Mobilites. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength; the issuer's institutional strength/ framework; the issuer's governance and/or management; the issuer's fiscal or financial strength, including its debt profile; the systemic risk in which the issuer operates and the assessment of extraordinary support.

The principal methodology used in these ratings was Regional and Local Governments published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

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Matthieu Collette
Vice President - Senior Analyst
Sub-Sovereign Group
Moody's Investors Service EMEA Limited France Branch
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

David Rubinoff
MD - Sub Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
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JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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