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Rating Action:

Moody's changes Ile-de-France Mobilités' and RATP's outlooks to negative; Aa2/P-1 ratings affirmed

 The document has been translated in other languages

03 Jul 2020

NOTE: On September 28, 2020, the press release was corrected as follows: In the ninth paragraph of the Regulatory Disclosures section, the contact number for Client Services was added. Revised release follows.

Paris, July 03, 2020 -- Moody's Investors Service ("Moody's") has today changed Ile-de-France Mobilités' (IdFM) and Régie Autonome des Transports Parisiens' (RATP) outlooks to negative from stable. At the same time, IdFM's Aa2 long-term issuer and senior unsecured ratings and its (P)Aa2 Euro Medium Term Note (EMTN) programme ratings as well as its Prime-1 short-term issuer ratings and Prime-1 Negotiable European Commercial Paper (NEU-CP) programme ratings have been affirmed. RATP's Aa2 senior unsecured ratings, (P)Aa2 long-term EMTN's rating, Prime-1 NEU-CP programme rating have also been affirmed. IdFM's and RATP's baseline credit assessments (BCAs) have been downgraded to a1 from aa3 and a2 from a1 respectively.

"The negative outlooks reflect the significant negative pressures on the funding model of public transportation in the Ile-de-France area, resulting from the coronavirus pandemic, leading to unprecedented decreases in passenger revenues and tax revenues" says Matthieu Collette, Vice President -- Senior Analyst at Moody's and lead analyst for IdFM and RATP. "The shock will test IdFM's and RATP's capacity to adjust to a potentially prolonged period of depressed ridership and may challenge established support mechanisms from the French government."

The coronavirus outbreak is creating a severe and extensive credit shock across many sectors, regions and markets. Moody's regards the coronavirus outbreak as a social risk under its ESG (Environmental, Social, Governance) framework, given the substantial implications for public health and safety. IdFM and RATP are highly exposed to the economic and social impacts of the coronavirus outbreak, as containment measures cut demand for mass transit considerably in the short term and as potential medium to long-term behavioural shifts may prevent a return to pre-shock trends.

The affirmation of the ratings reflects underlying credit strengths for IdFM and RATP which are likely to be resilient to this shock, including the key role that they play in a high-income region with robust growth potential, strong liquidity and for IdFM some budgetary flexibility.

RATINGS RATIONALE

RATIONALE FOR THE NEGATIVE OUTLOOKS AND THE DOWNGRADE OF THE BCAs

The negative outlooks for IdFM and RATP reflect the impact of the coronavirus crisis on transport system utilization as well as on the regional economy. In our baseline scenario, passenger revenues -- that accounted for 38% of the funding of public transportation in the Ile-de-France area in 2018 -- will suffer a contraction of around 30% in 2020 compared to 2019. With tight containment measures in place during the two-month lockdown (from mid-March to mid-May), passenger numbers on the Ile-de-France's network were down 90%-95% while the network has been running around 30% of its capacity. Although passenger numbers are increasing slowly as some parts of the economy re-open, a return to normal capacity utilization is unlikely in the next few months and Moody's expects supply to still exceed ridership until at least the end of 2020.

Even if the pandemic eases later this year, willingness and capacity to travel, and with them passenger revenues, are likely to be impaired for some time. While the shock materializes differently for the two entities, it will ultimately have similar impacts on their credit profiles, given their close interconnection and common challenge posed to the funding model of their core businesses, public transportation.

For IdFM, the revenue loss mainly stems from lower tax revenues. In 2018, about three quarters of IdFM's operating revenues, and 44% of total revenues, came from tax revenues --nearly all of it from the mobility tax, based on the regional salary base. Moody's estimates that IdFM's tax revenues will decrease by 8.5% in its baseline scenario for 2020 compared to 2019, due to the loss in economic activity. In line with Moody's expectation that the economic recovery will be long and bumpy, mobility tax proceeds will not recover their pre-level crisis before 2022. For RATP, the immediate revenue loss will be buffered by the established risk-sharing mechanism that caps the fare revenue loss at 10% of budgeted amounts. Over time, the long-lasting depressing impact of the shock on utilization rates may challenge this existing mechanism. Moreover, compared to pre-crisis expectations of steady increases in revenue, RATP faces a persistent revenue shortfall.

Overall, IdFM's and RATP's operating margins would drastically decrease at least in 2020 and debt ratios to revenues would increase more rapidly than previously anticipated.

Moody's notes that the Government of France (Aa2 stable) is currently preparing a financial support package for IdFM with the third amended-financing law for 2020 and that a partial compensation for mobility tax losses -- a €425 million advance payment, based on the 2017-2019 average of proceeds -- is being discussed in Parliament in the coming weeks, in line with what the central government has designed for other local governments responsible for public transportation. Moody's expects that the discussions related to passenger revenues losses and the underlying contracts between IdFM and the state-owned operators, RATP and SNCF S.A. (Aa3 stable), will continue. At this stage, the overall costs and allocation of losses between different stakeholders, including IdFM and RATP, has not been outlined. Moody's will continue to monitor any new material development, including a potential fourth-amended financing law for 2020 and the 2021 financing law.

These negative pressures on IdFM's and RATP's credit profiles are also reflected in the downgrade of their respective baseline credit assessments (BCAs) to a1 from aa3 and to a2 from a1. IdFM's final rating incorporates a two-notch uplift based on Moody's assessment of a high likelihood of support from the French government, as per the application of Moody's Joint Default Analysis (JDA). RATP's final rating benefits from a three-notch uplift based on Moody's assessment of a very high likelihood of support from the sovereign.

RATIONALE FOR THE AFFIRMATION OF RATINGS

The affirmation of IdFM's and RATP's ratings reflects ongoing credit strengths. Paris and the Ile-de-France area retain a central role both nationally and at the European level. With 10 million daily users, IdFM, as the entity that organises transportation in the capital region, and RATP, as the main operator and the fifth-largest urban transport operator in the world, play a key role in the national economy. This role is exemplified by the continuity of public transportation during the coronavirus lockdown.

The two entities also benefit from the strong regional economy and supportive demographics. The Ile-de-France area represent 30% of national GDP or 4% of the GDP of the European Union, a larger share than for Greater London (United Kingdom) or Lombardy (Italy). GDP per capita is high, at 1.7x the national average as of year-end 2018. With 12.2 million inhabitants, Ile-de-France also has 19% of France's metropolitan population, which is younger than the national average. Other socio-economic indicators of the region such as employment, median income or company creation are also well above the national averages, providing resilience to the ratings.

The ratings also take into account the fact that, as the local authority organizing and managing public transportation in the Ile-de-France area, IdFM has some room of maneuver, including potential increases in tariffs and adjustments on capital expenditures. By contrast, relatively high fixed costs (including maintenance requirements and large staffing of state-owned operators) make cut to operating expenditure difficult to implement in the short run.

Liquidity is also a support to the ratings. While, in the short-run, the shock has led IdFM and RATP to rely more heavily on short-term debt -- as of mid-June, IdFM's and RATP's outstanding NEU-CP amount were respectively €405 million and €2.7 billion -- the two entities benefit from very strong access to short-term funding, including access to the ECB's Pandemic Asset Purchase Programme and committed credit lines from highly rated French banks, as well as to long-term funding, including a €6 billion Euro Medium Term Note (EMTN) programme for RATP and a €5 billion EMTN programme and access to European Investment Bank (Aaa stable) funding for IdFM.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS FOR IdFM

In Moody's assessment, environmental risks are not material to IdFM's credit profile. Like many regional and local governments in France, IdFM is exposed to flooding. Extreme flooding can disrupt transit services and damage transportation infrastructure. IdFM would also be affected by heatwaves, as extreme heat affects train tracks and services could be disrupted. These risks are mitigated by IdFM's operator contracts, if services are disrupted, IdFM will decrease consequently its contributions to its operators.

Social considerations are material to IdFM's credit profile. Ridership is strongly correlated with the health of the Ile-de-France area's economy and demographic trends, including population growth. Moody's also regards the coronavirus outbreak as a social risk under its ESG framework. For IdFM, passenger demand is impacted by the epidemic and the measures that have been implemented to respond to it.

Governance considerations are material to IdFM's rating. As for other French regional and local governments, standards of governance and management are high as well as data transparency is.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS FOR RATP

In Moody's view, environmental risks are not material to RATP's credit profile. While RATP is exposed to environmental risks that might disrupt services, such as flooding or extreme heat, these risks are not material for the rating as it is 100%-state owned. In line with other advanced economies, environmental risks for France's credit profile are low despite the multiplication of extreme climatic events over the past several years.

Social considerations are material to RATP's credit profile as Moody's regards the coronavirus outbreak as a social risk under its ESG framework. For RATP, passenger demand is impacted by the epidemic and represent a challenge for the funding model of public transportation in the Ile-de-France area.

Governance considerations are material to RATP's rating. The governance framework is intrinsically intertwined with the supporting government, which exerts strong oversight and ultimately takes key decisions.

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

Upgrades of IdFM's and RATP's ratings are unlikely in the near term considering the negative outlooks.

The outlooks could be stabilized if IdFM and/ or RATP would succeed in implementing measures that strengthened their financial position even in an environment of ridership remaining below pre-crisis trends for some time. Further significant and sustained financial support from the central government could also lead Moody's to return the outlooks to stable if it indicated that IdFM and/ or RATP would be likely to be able to maintain their financials, including operating margins and debt metrics, consistent with their current Aa2 ratings.

Downward pressure on the ratings could result from increasing evidence that support measures from the central government and/or either entities' adjustment measures will only partially offset a persistent revenue shortfall in the medium term, likely leading to eroded operating margins and to a higher debt burden.

The principal methodologies used in rating Regie Autonome des Transports Parisiens were Mass Transit Enterprises Methodology published in December 2017 and available at available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1105431, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. The principal methodology used in rating Ile-de-France Mobilites 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 these methodologies.

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_1133569.

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

The person who approved Ile-de-France Mobilites credit ratings is Marie Diron, Managing Director -Sovereign/Sub Sovereign, Sovereign/Sub Sovereign, +44-20-7772-5456, +44-20 7772-5454. The person who approved Regie Autonome des Transports Parisiens credit ratings is Mauro Crisafulli,, Associate Managing Director- Sovereign/Sub Sovereign, Sub Sovereign, +44-20-7772-5456, +44-20 7772-5454.

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

Marie Diron
MD-Sovereign/Sub Sovereign
Sub-Sovereign Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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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