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Announcement:

Moody's announces impact on French corporate government-related issuers following France's sovereign outlook change

15 Feb 2012

New York, February 15, 2012 -- Moody's Investors Service has today changed to negative from stable the rating outlook on the following government-related issuers in France:

- Soci?t? Nationale des Chemins de Fer Fran?ais (SNCF), rated Aa1 (long-term issuer and senior unsecured ratings) and P-1 (short-term and CP ratings)

- R?seau Ferr? de France (RFF), rated Aaa (long-term senior unsecured ratings) and P-1 (short-term and CP ratings)

- TSA, rated Aaa (long-term issuer rating)

- Thales, rated A2 (long-term issuer and senior unsecured ratings) and P-1 (short-term and CP ratings)

These actions follow Moody's recent decision to change the rating outlook of the Government of France to negative from stable, as announced on 13 February 2012. For full details, please refer to the webpage containing all of Moody's related announcements http://www.moodys.com/EUSovereign.

RATINGS RATIONALE

- SNCF

In accordance with Moody's rating methodology for government-related issuers (GRIs), SNCF's Aa1 issuer rating reflects the following inputs: (i) a baseline credit assessment (BCA) of 8, which is a measure of the company's standalone financial strength without the assumed benefit of government support (on a scale of 1 to 21, where 1 represents lowest credit risk and 8 equates to Baa1); (ii) the Aaa local-currency rating of the Government of France; (iii) a very high probability of government support; and (iv) a very high level of dependence.

Government support for SNCF is currently at a very high level, and Moody's expects this to remain the case as long as the current ownership and legal structure remain unchanged. Any weakening in the expected support would most likely have a negative impact on the rating, while the rating would not necessarily change because of a change in the level of dependence. The BCA could come under pressure if, inter alia, SNCF's EBITA margin were to deteriorate towards 2.5%, its debt/EBITDA ratio were to remain at or above 7x, and its RCF/net debt ratio were to fall below 10%. Any significant deterioration of the BCA and/or liquidity could potentially impact the final rating. Moreover, SNCF's rating would likely be affected by a change in France's sovereign creditworthiness.

A stabilisation of the outlook of SNCF could be considered if the rating of the Government of France were to be stabilised.

In view of the negative outlook, Moody's does not expect any positive pressure on SNCF's rating in the near term. The level of the BCA could be increased if SNCF's EBITA margin were to increase to above 5%, its debt/EBITDA ratio were to fall to below 6x, and its RCF/net debt ratio approached the mid-teens.

- RFF

RFF's Aaa rating reflects (i) a BCA of 10 (equivalent to Baa3), (ii) the Aaa rating of the Government of France, (iii) very high support and (iv) very high dependence. The rating and outlook of RFF are in line with those of the Government of France due to the very high level of dependence and support based on RFF's special legal status as an EPIC (Etablissement Public ? Caract?re Industriel et Commercial) and the importance of RFF as an instrument of France's public policy.

A downgrade of the rating of RFF could occur if the rating of the Government of France were to be downgraded, or if the levels of support and/or dependence were to diminish. The rating could also be downgraded if the EPIC status of RFF were to be lost or RFF's liquidity profile were to weaken.

Moody's would consider stabilising the outlook of RFF if the sovereign rating of the Government of France were to be stabilised.

- TSA

TSA's Aaa rating reflects (i) a BCA of 9 (Baa2 equivalent), (ii) the Aaa rating of the Government of France, (iii) very high support and (iv) very high dependence. The rating and outlook of TSA are in line with those of the Government of France due to the very high level of dependence and support. TSA has very modest debt and the measure of asset coverage to debt is very high, as there is considerable cushion in the value of TSA's investment in Thales (over 30x at this time). Moreover, we anticipate that the Government of France will act to ensure that TSA continues to meet its financial obligations in the near term, principally given its perceived desire to protect its voting rights and its golden share in Thales, whose surveillance and detection products are deemed strategically important to the government.

A downgrade of the rating of TSA could occur if the rating of the Government of France were to be downgraded, or if the levels of support and/or dependence were to diminish because of a shift in the strategic importance of Thales to the French State. Substantial deterioration of the cushion in asset coverage to debt could also cause negative rating pressure.

While the rating (at Aaa) cannot go higher, Moody's would consider stabilising the rating outlook of TSA if the sovereign rating of the Government of France were to be stabilised. Any stabilisation of the outlook would be based on the expectation that there will be no change in either the purpose of TSA or the government's ownership.

- Thales

Thales' A2 rating reflects (i) a BCA of 9 (Baa2 equivalent), (ii) the Aaa rating of the Government of France, (iii) high support and (iv) moderate dependence. Thales is effectively controlled by the French State. Over half of Thales' shares are owned by France (indirectly through companies wholly owned by the French State -- TSA and Sofivision) and Dassault (unrated), both of which are party to a shareholders' agreement.

The same factors imposing a negative bias on the French sovereign rating are expected to weigh on Thales' business results over the medium term, particularly as the company derives about one quarter of its sales from French customers and a substantial portion are defence-related, with the Government of France being a key customer. Compounding in-country headwinds is Thales' heavy exposure to defence spending levels for the whole of continental Europe and the UK more broadly, which are also experiencing downward pressures. These pressures are beginning to be evidenced by recently reported sales which have modestly lagged expectations, with higher commercial aerospace activity not fully compensating for significant declines in defence-related activities.

Moreover, Moody's believes that targeted operating performance improvements under Thales' Probasis program may continue to be slow in coming. Even with more substantial gains as expected in fiscal 2012 and 2013, key credit metrics are expected to remain comparatively weak for the rating category. The rating agency does note, however, that Thales is also a major supplier to Airbus' commercial airplane programmes. This business has been on an upswing and Moody's expects it to continue to perform strongly, which could help cushion some of the defence-related decline that, in the rating agency's opinion, still largely remains to be felt.

A downgrade of the rating of Thales could occur if the rating of the Government of France were to be downgraded, or if the levels of support and/or dependence were to diminish because of a shift in the strategic importance of Thales to the French State. Thales' rating could also come under downward pressure if operational improvements fall short of anticipated targets in the medium-term, as evidenced by a lack of progress towards an operating margin in the mid-to-high single-digit range and a RCF/Debt ratio approaching the 20% level. Substantial declines in the company's backlog and/or a deteriorating liquidity profile (evidenced by a Cash/Debt ratio below 50%) could also exert downward rating pressure.

Moody's would consider stabilising the rating outlook of Thales if the sovereign rating of the Government of France were to be stabilised.

Please refer to the credit opinion page of each of the above companies on www.moodys.com for further details.

PRINCIPAL METHODOLOGIES

The principal methodology used in rating SNCF was the Global Passenger Railway Companies Industry Methodology published in December 2008. Other methodologies used include the Government-Related Issuers methodology published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

The principal methodology used in rating RFF was the Government Owned Rail Network Operators methodology, published in April 2009. Other methodologies used include the Government-Related Issuers methodology published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

The principal methodology used in rating TSA was the Global Aerospace and Defence methodology, published in June 2010. Other methodologies used include the Government-Related Issuers methodology published in July 2010.

The principal methodology used in rating Thales was the Global Aerospace and Defence methodology, published in June 2010. Other methodologies used include the Government-Related Issuers methodology published in July 2010.

SNCF is France's national railway operator and the manager of the country's railway infrastructure on behalf of RFF, the owner. SNCF is a 100% state-owned French public entity with autonomous management and the special status of an EPIC. As of the end of June 2011, SNCF and its subsidiaries employed 243,020 staff, and had a turnover of approximately EUR31.8 billion on a last-12-months basis.

RFF is 100%-owned by the Government of France. It was created in 1997 as an EPIC and given full ownership of the French rail infrastructure. RFF's purpose is to manage the railway property of about 30,000 km of lines. RFF had a turnover of EUR4.8 billion in the last 12 months to June 2011.

TSA is a limited purpose company that holds the French government's investment in Thales, a defence electronics contractor with strategic importance to the French State. The primary asset is a 27.51% ownership in Thales (including Sofivision), equating to a market value approximating EUR1.5 billion.

Thales is a key global provider of integrated solutions and equipment to meet security requirements of government, institutional and private customers in the aerospace, defence and security markets. Thales had a turnover of EUR13.1 billion in the last 12 months to June 2011.

REGULATORY DISCLOSURES

Although the following credit ratings have been issued in a non-EU country which has not been recognized as endorsable at this date, these credit ratings are deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

Thales

TSA

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

The ratings have been disclosed to the rated entities or its designated agent(s) and issued with/with no amendment resulting from that disclosure.

Information sources used to prepare the ratings for RFF and SNCF are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Information sources used to prepare the ratings for TSA and Thales are the following : parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see for each issuer the ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

The below contact information is provided for information purposes only. Please see the issuer page on www.moodys.com for Moody's regulatory disclosure of the name of the lead analyst and the office that has issued the credit rating.

The person approving the credit rating for each issuer is as follows:

SNCF and RFF: Eric de Bodard, MD -- Corporate Finance

JOURNALISTS: 44 20 7772 5456

SUBSCRIBERS: 44 20 7772 5454.

TSA and Thales: Michael J. Mulvaney , MD -- Corporate Finance, JOURNALISTS: 212-553-0376

SUBSCRIBERS: 212-553-1653.

The relevant Releasing Office for each rating is identified under the Debt/Tranche List section on the Ratings tab of each issuer/entity page on moodys.com

Russell Solomon
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's announces impact on French corporate government-related issuers following France's sovereign outlook change
No Related Data.
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