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Rating Action:

Moody's downgrades 7 French sub-sovereign joint notes

28 Mar 2013

London, 28 March 2013 -- Moody's Investors Service has today downgraded the ratings of seven joint notes issued by French sub-sovereigns and has not assigned an outlook to the ratings. Today's rating actions were prompted by Moody's downward revision of the credit assessments of some of the pool participants due to their persistent liquidity pressures and the structural characteristics of these deals.

The following ratings have been downgraded:

(1) regional and local governments' joint notes, namely: (i) Communautes Urbaines de France No 1 to A3 from A1; (ii) Communautes Urbaines de France No 2 to A3 from A1; (iii) Communautes Urbaines de France No 3 to A3 from A1; (iv) Communautes Urbaines de France No 4 to A3 from A1; (v) Collectivités Territoriales de France No1 (CTF No1) to Baa1 from A2; and

(2) public hospitals' joint notes, namely: (vi) CHU Joint Issuance to A3 from A1; and (vii) Centres Hospitaliers Regionaux Universitaires de France No.1 (CHRU No1) to Baa2 from Baa1.

In addition, the Baa1 rating of the joint note CTF No1 remains on review for further downgrade. With this exception, today's rating actions conclude the review for downgrade initiated in July 2012.

A full list of the issuers participating in these transactions can be found at the end of this press release.

RATINGS RATIONALE

OVERALL RATIONALE FOR DOWNGRADES OF JOINT ISSUANCES

Today's rating actions were prompted by (1) Moody's downward revision of the credit assessments of some of the pool participants due to their persistent liquidity pressures; and (2) the structural characteristics of these deals. Moody's decision not to assign an outlook reflects the absence of outlooks on the pool participants' credit estimates.

--ENTITIES' LIQUIDITY PRESSURES

Moody's believes that some pool participants face substantial liquidity pressures, as reflected in their extensive use of credit line facilities and very limited or no cash-on-hand in Q4 2012, as well as relatively large, albeit stable, debt-service payments. This assessment includes considerations of recent policy measures, including additional sector financing from the recently created Société de Financement Local (SFIL, Aa2 negative), the Caisse des Dépôts et Consignations (CDC, Aa1 negative) and La Banque Postale (LBP, unrated).

Because only one of the joint notes' borrowers is publicly rated (Intermunicipality of Cergy-Pontoise, Aa3 negative), Moody's assigns individual credit estimates to the other borrowers participating in these transactions. Credit estimates, unlike public monitored ratings, are private, point-in-time opinions of the approximate credit quality of individual pool borrowers.

--STRUCTURAL CHARACTERISTICS OF THE DEALS

For all joint issuances, each borrower is only responsible for the repayment of its share of the joint note. The joint notes are not enhanced by a debt-service reserve fund, overcollateralisation or a step-up provision by other borrowers in case one issuer fails to pay. Moody's assessment includes considerations of the strong oversight of the public hospital sector by the French government (through the Ministry of Health) as well as the close monitoring exercised by the central government over the hospitals' joint notes.

Group-specific rationales for (1) regional and local governments and (2) public hospitals are provided below.

1.) RATINGS RATIONALE FOR REGIONAL AND LOCAL GOVERNMENTS' JOINT NOTES

Moody's decision to downgrade these ratings by two notches reflects a downward revision of the individual credit assessments of some of the pool participants following analysis of their liquidity profiles. While some of the regional and local governments (RLGs) in the pools record solid financial performances and sound liquidity positions, the weak results recorded by some other RLGs have negatively affected the ratings of the transactions; this is reflected in their relatively high debt levels (direct debt exceeding 100% of operating revenue) and relatively poor liquidity positions (limited or no cash-on-hand, extensive use of credit line facilities). Given the deals' unenhanced characteristics, this has led to a downgrade of the ratings of the RLGs' transactions.

2.) RATINGS RATIONALE FOR PUBLIC HOSPITALS' JOINT NOTES

The downgrade of these ratings reflects the poor liquidity positions of some of the participating hospitals, as recent policy measures take time to ease liquidity pressures. Whilst Moody's acknowledges that the introduction in October 2012 of enhanced liquidity oversight by the Direction Générale de l'Offre de Soins should enable the French government to better detect at an early stage acute liquidity pressures faced by some hospitals and, if deemed necessary, provide some support, its effectiveness needs to be confirmed in the next 12-to-24 months.

Moody's will continue to monitor developments in the sector -- such as the potential establishment of commercial paper programmes for public hospitals or the potential access to credit lines from SFIL/ LBP in the second half of 2013 -- to assess their impact on these transactions' ratings.

RATIONALE FOR REVIEW FOR FURTHER DOWNGRADE OF CTF No1's RATING

The Baa1 rating of the joint notes CTF No1 remains on review for further downgrade, pending further review of the underlying credit strength of specific pool participants, namely the City of Levallois-Perret and the City of Saint-Etienne. During the review, Moody's will assess whether the additional information on cash flows and multi-year budgetary planning that is anticipated to be received from these two cities is sufficient to maintain the ratings on the transaction. One possible outcome of the review is the withdrawal of the transaction's rating due to insufficient information. Moody's will conclude its review within the next six weeks.

WHAT COULD MOVE THE RATING DOWN/UP

The downward revision of credit estimates assigned to individual borrowers could exert negative pressure on the joint notes' ratings. Such a revision could be prompted by (1) a substantial deterioration in the borrowers' liquidity profiles; (2) a weakening of their operating performance, leading to a decrease in self-financing capacity and hence an increase in a recourse to debt; and (3) indications that the level of oversight from the central government is not as efficient as currently estimated.

The ratings of the joint notes could be upgraded if the French sub-sovereigns participating in these transactions record (1) significant improvements in their liquidity profiles; and (2) substantial improvements in their financial performances, as reflected in stronger operating results and lower debt metrics.

Going forward, Moody's will review its credit assessments of unrated RLGs and public hospitals participating in the pools at least on a semi-annual basis. Moody's will request liquidity information at the end of June and December of each year as well as forward-looking information on their liquidity and overall financial performance. Moody's believes that the provision of timely information on liquidity and budgetary planning remains critical in maintaining the ratings of these joint notes. Should participating issuers fail to provide timely information going forward, the rating agency may decide to withdraw the ratings of the affected transactions due to insufficient information.

PRINCIPAL METHODOLOGY

The principal methodology used in rating the 7 joint notes was Public Sector Pool Financings, published in July 2012. In the case of the 5 RLG pools, Moody's also used the Regional and Local Governments methodology published in January 2013. Finally, some factors of the Not-for-Profit Healthcare Rating Methodology, published in March 2012, were considered in the ratings of the two hospital pools. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

RATINGS AFFECTED

-- COMMUNAUTES URBAINES DE FRANCE NO 1--

Rating on the EUR106 million of notes issued in 2004 downgraded to A3 from A1

Issuers participating in the transaction:

Communauté Urbaine (CU) d'Arras, CU de Bordeaux, CU de Cherbourg, CU Creusot-Montceau, CU de Dunkerque, CU de Lille, CU de Lyon, CU du Mans, CU de Nancy, CU de Nantes, CU de Strasbourg.

-- COMMUNAUTES URBAINES DE FRANCE NO 2--

Rating on the EUR103 million of notes issued in 2005 downgraded to A3 from A1

Issuers participating in the transaction:

Communauté Urbaine (CU) d'Alençon, CU d'Arras, CU de Bordeaux, CU de Brest, CU de Cherbourg, CU Creusot-Montceau, CU de Dunkerque, CU de Lille, CU de Lyon, CU du Mans, CU de Marseille, CU de Nancy, CU de Nantes, CU de Strasbourg.

-- COMMUNAUTES URBAINES DE FRANCE NO 3--

Rating on the EUR103.6 million of notes issued in 2006 downgraded to A3 from A1

Issuers participating in the transaction:

Communauté Urbaine (CU) d'Alençon, CU d'Arras, CU de Bordeaux, CU de Cherbourg, CU Creusot-Montceau, CU de Dunkerque, CU de Lille, CU de Lyon, CU du Mans, CU de Marseille, CU de Nancy, CU de Nantes, CU de Strasbourg.

-- COMMUNAUTES URBAINES DE FRANCE NO 4--

Rating on the EUR89.1 million of notes issued in 2007 downgraded to A3 from A1

Issuers participating in the transaction:

Communauté Urbaine (CU) d'Alençon, CU de Bordeaux, Communauté d'Agglomération de Cergy-Pontoise, CU Creusot-Montceau, CU de Dunkerque, CU de Lille, CU de Lyon, CU du Mans, CU de Marseille, CU de Nancy, CU de Nantes, CU de Strasbourg.

-- COLLECTIVITES TERRITORIALES DE FRANCE NO. 1--

Rating on the EUR120 million of notes issued in 2008 downgraded to Baa1 from A2, the rating remains on review for downgrade

Issuers participating in the transaction:

Communauté Urbaine (CU) d'Alençon, CU de Bordeaux, Communauté d'Agglomération (CA) de Cergy-Pontoise, CU Creusot-Montceau, CA Dijonnaise, CU de Dunkerque, CU de Lyon, CU de Marseille, CA de Maubeuge Val de Sambre, CU de Nantes, CA Plaine-Commune, CA Rouennaise, CU de Strasbourg, Département de la Meuse, Région Pays de la Loire, Région Picardie, Région Rhône-Alpes, Ville de Clichy-sous-Bois, Ville de Dunkerque, Ville du Havre, Ville de Levallois-Perret, Ville de Saint-Etienne.

--JOINT NOTES OF CENTRES HOSPITALIERS REGIONAUX UNIVERSITAIRES DE FRANCE NO.1--

Rating on the EUR270 million of notes issued in 2009 downgraded to Baa2 from Baa1

Issuers participating in the transaction:

CHU Amiens, CHU Angers, CHU Besançon, CHU Bordeaux, CHU Brest, CHU Clermont-Ferrand, CHU Dijon, CHU Fort-de-France, CHU Grenoble, CHU Lille, CHU Limoges, Hospices Civils of Lyon, Assistance Publique Hôpitaux of Marseille, CHR Metz-Thionville, CHU Montpellier, CHU Nancy, CHU Nice, CHU Nîmes, CHU Poitiers, CHU Reims, CHU Rennes, CHU Rouen, CHU Saint-Etienne, CHU Tours.

-- CHU JOINT ISSUANCE--

Rating on the EUR167 million of notes issued in 2010 downgraded to A3 from A1

Issuers participating in the transaction:

CHU Amiens, CHU Angers, CHU Besançon, CHU Bordeaux, CHU Brest, CHU Clermont-Ferrand, CHU Dijon, CHU Grenoble, CH Lagny Marne-la-Vallée, CHU Limoges, Assistance Publique Hôpitaux of Marseille, CHR Metz-Thionville, CHU Montpellier, CHU Nancy, CHU Nice, CHU Nîmes, CHU Reims, CH Sainte-Anne, CH Felix-Guyon of Saint-Denis-de-la Reunion, CHU Saint-Etienne, CH Sud Francilien, Groupe Hospitalier Sud Reunion, CHU Tours.

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 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 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 rating action, and whose ratings may change as a result of this 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.

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.

Nicolas Fintzel
Analyst
Sub-Sovereign Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

David Rubinoff
MD - Sub-Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Moody's downgrades 7 French sub-sovereign joint notes
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