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Rating Action:

Moody's assigns Aa2/Prime-1 issuer ratings to Toulouse Metropole; stable outlook

 The document has been translated in other languages

10 Dec 2019

Paris, December 10, 2019 -- Moody's Public Sector Europe ("Moody's") has today assigned an Aa2 long-term issuer rating and a Prime-1 short-term issuer rating to Toulouse Métropole. The rating outlook is stable.

"Toulouse Métropole's Aa2/ Prime-1 issuer ratings reflect a strong and strengthening operating performance, a sound financial management as well as a strong economy and an attractive territory," says Matthieu Collette, Vice President in Moody's Sub-Sovereign Group and lead analyst for the intermunicipality. "The ratings also account for high but expected to decrease debt levels and high contingent liabilities although with low risk."

RATINGS RATIONALE

Today's rating action reflects Toulouse Métropole's strong operating performance and Moody's expectation that the gross operating balance (GOB) will remain solid and reach above 16% of operating revenues by 2022. Between 2017 and 2018, the intermunicipality was able to contain the growth of its operating expenditures to 1.27%, despite the pressures stemming from the demographic attractivity of its territory. Looking forward, Moody's expects Toulouse Métropole to continue to limit growth in operating expenses stemming from efficiency measures to be implemented and to comply with the 1.35% annual increase target set by the central government.

Toulouse Métropole's strong track record of fiscal performance is supported by its dynamic tax bases and leeway on rates on 3 different taxes, representing more than 40% of operating revenues as estimated for 2019. Moody's expects Toulouse Métropole's tax revenues to continue to benefit from the solid forecasted economic growth for France, including business taxes that amounted to €285.5 million in 2018 or 31% of operating revenues.

As France's historical capital city of aeronautics and now the European space industry capital city (about a quarter of European jobs), Toulouse's economy is strong. At the end of 2018, local gross domestic product (GDP) per capita represented 118% of the national GDP per capita and the territory is the only one in France meeting the Europe 2020 target for research and development intensity of 3% of GDP, a long-term economic growth factor. The area is also attractive, with a fast-growing population and high birth rates of enterprises. Consequently, local GDP growth is structurally higher than at the national level, a credit positive for a local government that benefits from a high share of taxes derived from the local economy.

The governance and management of Toulouse Métropole is sound, which is reflected in its transparent and well-defined financial strategy, shared by elected representatives, city-members and all the divisions of the administration. The intermunicipality has thus been demonstrating a strong focus on preserving financial health to allow it to meet the territory's fixed capital investment needs. The sound financial management is also rounded out by realistic long-term targets, sophisticated multi-year financial planning and well-managed debt and liquidity.

As of year-end 2019, Moody's expects Toulouse Métropole's net direct and indirect debt (NDID) to rise to €1 billion. While the NDID ratio increased from 74.5% of operating revenues in 2014 to a projected 109% in 2019, due to the more than doubling of capital expenditures (and a maximum amount of €414.9 million in 2018), Moody's expects the ratio will decrease to 96.5% of operating revenues by the end of 2022 as capital expenditures will slow to a yearly average of €270 million between 2020-22. Moody's also expects the interest burden to remain low (2.2% of operating revenues by 2022 versus 1.9% in 2019).

Not included in the NDID metrics are sizeable contingent liabilities. Toulouse Métropole guarantees amounted €2.7 billion of debt as of year-end 2018, representing 301% of operating revenues. These guarantees are almost exclusively granted to central government-subsidized social housing providers (SHPs, 90%) as a core responsibility of the intermunicipality on its territory. These guarantees pose a low risk to Toulouse Métropole as SHPs' debt is self-supporting, with revenue generation sufficient to cover debt service. The metropole also carefully monitors the credit profiles of the SHPs and Toulouse Métropole has never faced any guarantee call.

The Prime-1 short-term issuer rating reflects a sound and secure liquidity profile, supported by predictable and regular cash flows in line with other French regional and local governments (RLGs). The intermunicipality does not rely on credit lines for cash-flow management but benefits from good access to external funding, with committed facilities amounting to €203.8 million as of November 2019.

Toulouse Métropole's Aa2 rating incorporates a baseline credit assessment (BCA) of aa2 and Moody's assessment of a moderate likelihood of extraordinary support from the central government.

RATIONALE FOR THE STABLE OUTLOOK

The rating outlook is stable, reflecting Moody's expectations that Toulouse Métropole's will continue to post strong and well-anchored intrinsic fundamentals which will keep operating outcomes, debt burden and interest expense in line with current levels.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

In Moody's assessment, environmental considerations are not material to Toulouse Métropole's credit profile. Social considerations are material as the intermunicipality is a territory that experiences strong demographic growth, supporting tax revenues but also prompting the need for sustained fixed capital investment efforts. Governance considerations are material to the intermunicipality's credit profile. Standards of governance are high, in line with the other regional and local governments in France and illustrated by prudent budgetary practices, sophisticated planning and sound liquidity and debt management.

WHAT COULD CHANGE THE RATING UP/ DOWN

As Toulouse Métropole rating is on par with the sovereign rating, upward pressure would require both an upgrade to the sovereign rating in conjunction with a faster than anticipated decrease in the debt burden of Toulouse Métropole as well as increased levels of liquidity.

The rating would face downward pressure if Toulouse Métropole posted higher levels of debt than our forecast and lower-than-expected gross operating balance (GOB), or both, leading to a deterioration of the debt-to-GOB ratio.

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$): 45,893 (2018 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 1.7% (2018 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 1.9% (2018 Actual)

Gen. Gov. Financial Balance/GDP: -2.5% (2018 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -0.6% (2018 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 03 December 2019, a rating committee was called to discuss the rating of the Toulouse Metropole. 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 systemic risk in which the issuer operates.

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.

This rating action concerns a new rating for an issuer not previously publicly rated by us at the time that the sovereign release calendar was published, and is therefore being released on a date not listed in that publication.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 France SAS
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 France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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