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Rating Action:

Moody's assigns Aa3/Prime-1 issuer ratings to Collectivité Européenne d'Alsace

 The document has been translated in other languages

10 Feb 2021

Paris, February 10, 2021 -- Moody's Investors Service ("Moody's") has today assigned Aa3/Prime-1 issuer ratings to Collectivité Européenne d'Alsace (CEA), the entity created following the merger of département du Bas-Rhin (DBR) and département du Haut-Rhin (DHR). The outlook is stable. Moody's also assigned (P)Aa3/ Prime-1 debt ratings to the EMTN and NEU CP programs previously set up by DBR, which are now assumed by CEA. Concurrently, Moody's has withdrawn the corresponding issuer ratings (Aa3/Prime-1) of DBR and its stable outlook, as well as its debt program ratings ((P)Aa3/Prime-1), while affirming the Aa3 ratings of the debt previously issued by DBR under its EMTN program.

RATINGS RATIONALE

The Aa3/Prime-1 issuer ratings reflect Moody's expectation that the solid budgetary performances of the previous two departments will be maintained in the medium to long-term. While the coronavirus pandemic has weakened operating balances in 2020 and will continue to do so in the next two to three years, both DBR and DHR benefited from a relatively low debt burden and from a sound liquidity profile pre-pandemic, which gives CEA some shock absorption capacity. The Aa3/Prime-1 issuer ratings also reflect our view that CEA will maintain prudent budget management practices in line with the previous two departments' practices. The ratings also reflect CEA's limited financial autonomy as well as a moderate likelihood of support from the Government of France (Aa2, stable) in case of need.

As of 1st January 2021, département du Bas-Rhin (DBR) and département du Haut-Rhin (DHR) merged to form the new local government Collectivité Européenne D'Alsace (CEA). While CEA has a slightly broader scope of responsibilities compared to the two previous departments, its overall financial flexibility will continue to be limited, in line with other French departments. Additional revenue related to new responsibilities, mainly derived from the management of non-concessionary roads and highways, will represent a small portion of its 2021 forecasted revenue.

The two departments forming CEA have very similar economic profiles, with 40% to 45% of employees in the service industry in 2019 and unemployment rate at par or below the national average. Both were also characterized by prudent governance and management practices, as evidenced by realised revenues consistently exceeding initial budgets. While the coronavirus will weigh on operating revenues in the medium-term and social spending will grow at a faster pace, CEA's gross operating balance is expected to represent 8% of its operating revenue in 2021 according to our forecasts (against 8.2% estimated in 2020). Prudent budgeting and frequent spending reviews should help maintaining sound GOB levels going forward, in excess of 8% over the 2022-2023 period.

Prior to the merger, both DBR and DHR had significantly reduced their debt (-38% on a combined basis between 2014 and 2019). CEA's Net Debt and Indirect Debt (NDID) -- which includes the direct debt and the guarantees to non-self-supporting entities of DBR and DHR -- amounted to €825 million or a moderate 52% of its operating revenues at year-end 2020. While the NDID ratio will grow to approximately 55% due to additional capital spending incurred in 2021, it will still compare favourably with CEA's rated peers. We expect CEA's NDID ratio to stabilise in 2022 and 2023 as the effects of the pandemic should recede and tight control is maintained on spending. CEA's debt is secure with a stable mix of plain vanilla fixed (70%) and floating (30%) instruments and a well-diversified pool of lenders with loans from banks and private placements. While CEA has significant exposure to social housing providers through the guarantees it granted, Moody's believes that this poses limited risk.

CEA's Aa3 long-term issuer rating incorporates a Baseline Credit Assessment (BCA) of aa3 and Moody's assessment of a moderate likelihood of extraordinary support from the central government.

The Prime-1 short-term issuer rating reflects CEA's strong liquidity position and its well-managed treasury. CEA benefits from predictable and regular cash flows. In addition, both DHR and DBR consistently retained a high level of cash (13% of the combined operating expenses or 1.8x the debt annuity in 2020) and CEA will continue to maintain cash levels covering at least its debt annuity. CEA also benefits from €54 million of unused credit lines and can also issue through its EMTN and NEU CP programs.

The issuer's outlook is stable, reflecting Moody's expectation of continued robust financial performance while its debt burden will remain moderate in the coming years. It also reflects the stable outlook on the sovereign rating.

The debt ratings of (P)Aa3/Prime-1 assigned respectively to the EMTN program and to the Neu CP program initially set up by DBR reflect that CEA is now responsible for those two programs. The affirmation of the Aa3 ratings of the debt already issued by DBR under its EMTN program, reflects that previous debt of DBR and DHR is assumed by the CEA since 1st January 2021.

The withdrawal of DBR's issuer and debt program ratings reflects that CEA is the sole running entity following the merger of DBR and DHR.

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$): 49,799 (2019 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 1.5% (2019 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 1.6% (2019 Actual)

Gen. Gov. Financial Balance/GDP: -3% (2019 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -0.7% (2019 Actual) (also known as External Balance)

External debt/GDP: [not available]

Economic resiliency: aa3

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

SUMMARY OF MINUTES FROM RATING COMMITTEE

On 5 February 2021, a rating committee was called to discuss the ratings of the Collectivité Européenne d'Alsace. 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.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Should CEA's debt ratios be significantly lower than currently forecasted in combination with strong operating performance and considerably greater financial flexibility, there could be upward pressure on the rating.

The rating would come under downward pressure if CEA's fiscal position were to structurally weaken over the medium-term, as illustrated by a persistently lowered GOB-to-operating revenue ratio and an increasing debt-to-operating revenue ratio. A weakening in CEA's liquidity position would also put downward pressures on the rating. A downgrade of France's sovereign rating, indicating a weaker systemic environment, would be likely to have negative rating implications for CEA.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

In Moody's assessment, environmental considerations are not material to CEA's credit profile.

Social considerations are material to Collectivité Européenne d'Alsace's credit profile as social spending is the primary expenses of the CEA impacting operating expenditures and investments, as well as tax revenues. We also regard the coronavirus pandemic as a social risk under our ESG framework, given the substantial implications for public health and safety. For CEA, the shock transmits mainly through a significant increase in operating expenses.

Governance considerations are material to Collectivité Européenne d'Alsace's credit profile. We assess CEA's governance as sound, as illustrated by its prudent and robust budgetary practices, and its cautious financial and debt management.

The principal methodology used in these ratings was Regional and Local Governments published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091595. Alternatively, 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.

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

For département du Bas-Rhin: The withdrawal of DBR's ratings required the publication of this credit rating action on a date that deviates from the previously scheduled release date in the sovereign release calendar, published on www.moodys.com.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

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

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Elise Savoye
Vice President - Senior Analyst
Sub-Sovereign
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Marie Diron
MD - Sovereign Risk
Sovereign
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

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