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Rating Action:

Moody's lowers TSA rating to Aa1; outlook remains negative

Global Credit Research - 20 Nov 2012

New York, November 20, 2012 -- Moody's Investors Service downgraded the long-term issuer rating for TSA to Aa1 from Aaa. The rating outlook remains negative. TSA is a holding company of the French government, the largest holding within which is a 27.56% ownership stake (36.8% voting rights) in Thales (A2 negative), a defense electronics contractor with strategic importance to the French State. The downgrade follows the weakening of the French government's credit profile, as captured by Moody's recent downgrade of France's government bond rating to Aa1 from Aaa, with a continued negative outlook. For more details, please refer to Moody's press release (http://www.moodys.com/EUSovereign).

RATINGS RATIONALE

TSA's Aa1 issuer rating reflects application of Moody's Government-Related Issuers (GRI) rating methodology, specifically incorporating its baa2 baseline credit assessment (BCA) equivalent to the BCA of its main holding Thales (GRI-rating A2 negative), the Aa1 rating of the Government of France, and a deemed very high level of support from and very high default dependence with the French government.

TSA has a very modest amount of debt (EUR21 million at 31 December 2011, mostly composed of Titres Participatifs, a preferred stock with no voting rights) and very substantial implicit asset coverage through its investment in Thales (about EUR1.4 billion at 16 November 2012). Moreover, the government of France is incented and is expected to ensure that TSA continues to meet its (modest) financial obligations in order to protect its voting rights and golden share in Thales, whose surveillance and detection products are also deemed strategically important to the government. Despite the absence of an explicit guaranty, Moody's expects the French government will manage TSA in a manner that enables TSA to meet its financial obligations.

Cash is about equal to debt and we expect at least an approximation of this relationship to continue. Debt service is supported by cash flow in the form of a dividend from Thales and modest investment returns on the cash balances. Notwithstanding reductions approximating 45% to 50% in Thales dividends paid to TSA over the 2010-2011 timeframe (as restructuring activities and cash conservation have taken on added importance at Thales), requisite debt service payments have still been comfortably satisfied. The primary asset of TSA is a 27.56% ownership interest (36.8% voting rights) in Thales (including Sofivision), with a publicly traded market value of about EUR 1.4 billion. Excess cash flow from the Thales dividend, after debt service, is distributed to the French state via dividend outflows.

Default dependence is very high. Although TSA maintains cash roughly equal to debt and the value of its assets substantially exceeds its liabilities, there are no explicit restrictions on cash usage or the sale of assets.

Support from the government is very high. We anticipate the French government will act to ensure that TSA will continue to meet its financial obligations. In addition to reputational risk, France is incented to protect its voting rights and golden share in Thales as the surveillance and detection products developed therein are strategically important to the government.

The negative rating outlook is in line with that for the government of France due to the very high level of deemed default dependence.

The issuer rating would come under pressure if the sovereign rating for the government of France is lowered further, or if our view of the support factors underlying the GRI methodological approach to assigning this rating changed in any way. Alternatively, the issuer rating could be raised (and/or the outlook could be stabilized) if the sovereign rating for the government of France is upgraded (and/or stabilized). Any upgrade and/or stabilization of the outlook would be based on the expectation that there would be no change in either the purpose of TSA or the government's ownership.

The principal methodology used in rating TSA was the Global Aerospace and Defense Industry Methodology published in June 2010. Other methodologies used include the Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

TSA, headquartered in Paris, France, is wholly-owned by the French government for the principal purpose of holding investments in Thales and Technicolor (formerly Thomson s.a.).

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU is endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. 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.

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.

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

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating 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.

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 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.

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.

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 lowers TSA rating to Aa1; outlook remains negative
No Related Data.

 

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