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Rating Action:

Moody's Public Sector Europe assigns A1/Prime-1 issuer ratings to the Departement de la Meuse; outlook stable

 The document has been translated in other languages

26 Jan 2018

NOTE: On February 1, 2018, the press release was corrected as follows: In the “WHAT COULD MOVE THE RATING UP/DOWN” section, the following was added as the fourth paragraph: “The specific economic indicators, as required by EU regulation, are not available for Meuse, Departement de la. The following national economic indicators are relevant to the sovereign rating, which was used as an input to this credit rating action.” Revised release follows.

London, 26 January 2018 -- Moody's Public Sector Europe (MPSE) has today assigned an A1 long-term issuer rating and a Prime-1 short-term issuer rating to the Département de la Meuse (DLM). The outlook is stable. MPSE also assigned a Prime-1 rating to the EUR40 million NEU CP (Negotiable European Commercial Paper) programme of the Départment.

"Département de la Meuse A1/Prime-1 issuer ratings reflect its stabilized financial performance, benefiting from France's stronger economic growth," says Matthieu Collette, Vice President in Moody's Sub-Sovereign Group and the lead analyst for Département de la Meuse. "The ratings also take into account a moderate direct debt burden, a well-managed debt and treasury as well as the fragile economy of the Département."

RATINGS RATIONALE

Today's rating action reflects Département de la Meuse's stabilized budgetary performance despite a challenging environment for French départements in general. After reaching 14.1% of its operating revenues in 2012, the Département's gross operating balance (GOB) has weakened to 7.9% in 2017 under the impact of the central government's transfer cuts and increasing mandatory social expenses. MSPE expects that DLM's GOB will stabilize to around 10% of its operating revenue by 2020 mainly due to the country's stronger economic growth. In line with DLM's projections, MPSE forecasts an acceleration in the Département's tax revenue (compound annual growth rate (CAGR) of +2.3%) and a slowdown in its social spending (CAGR of +1.4%). Moreover, the Département's budgetary position shall be strengthened as the central government will introduce in 2018 binding agreements with a number of regional and local governments to control their operational expenditures, including DLM. While the final conditions are still to be decided, MPSE considers that respecting the terms of the agreement will be credit positive for DLM.

The A1 issuer rating also reflects Département de la Meuse's moderate direct debt burden. The direct debt is estimated at EUR150.2 million or 69.2% of its operating revenues as at the end of 2017 down from 84.6% in 2012. The Net Debt and Indirect Debt (NDID) -- which includes guarantees granted by DLM to non-self-supporting entities -- amounted to EUR345.9 million or a high 159.3% of operating revenues at YE2017. This is mainly due to the recovery plan set up for the Département's social housing provider, Office public de l'habitat de la Meuse, which runs until 2019. MPSE expects the overall debt burden to decline to around at around 144% with a payback ratio (direct debt-to-gross operating balance) of 6.3 years by 2020.

The Prime-1 short-term ratings reflect the Département's secure liquidity position and its well-managed treasury. The Département benefits from predictable and regular cash flows, especially the central government transfers and tax revenues collection. DLM has access to credit lines and revolver facilities amounting to EUR43.7 million as of January 2018. We also expect DLM to continue benefiting from negative interest rates through 2018 on its EUR40 million NEU CP programme. The Département's good financial management is evidenced by its clear internal policies, including limits on the direct debt stock and debt costs.

While Département de la Meuse will benefit from the national radioactive waste storage project in the city of Bure (in particular through a new special tax resource starting in 2021), the ratings take into account the fragility of the Département's economy, as evidenced by its relatively low GDP per capita at 84% of the national value.

WHAT COULD MOVE THE RATING UP/DOWN

Upward pressure on Département de la Meuse's rating could arise from an upgrade of the Government of France. Should Département de la Meuse post better than expected operating results and/or decreasing debt ratios, this would exert upward pressure on the rating.

A weakening of the French government's credit profile, reflected in a downgrade of the sovereign rating could negatively affect Département de la Meuse's rating. Negative rating pressure would also apply if DLM will fail to achieve the spending objectives set by the central government in 2018, which would lower the transfers from the central government thus directly impacting the Département's financial position.

DLM is a French département of about 190,000 inhabitants and is situated in Grand Est region of France.

The specific economic indicators, as required by EU regulation, are not available for Meuse, Departement de la. 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$): 42,336 (2016 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 1.2% (2016 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 0.6% (2016 Actual)

Gen. Gov. Financial Balance/GDP: -3.4% (2016 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -0.9% (2016 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 26 January 2018, a rating committee was called to discuss the rating of the Meuse, Departement de la. 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 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.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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:
Moody's Investors Service EMEA Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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