Moreover, the outlooks of two regional and local governments, the Intermunicipality of Cergy-Pontoise and the Region de La Reunion (rated Aa3 and A1, respectively), have been changed to negative from stable.
Today's rating actions were prompted by 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/research/Moodys-downgrades-Frances-government-bond-rating-to-Aa1-from-Aaa--PR_260071. This has direct implications for sub-sovereigns issuing these notes given the macroeconomic and financial linkages between French regional and local governments and the central government and the unique structure of these joint notes.
For additional information on Sovereign ratings, please refer to the webpage containing Moody's related announcements http://www.moodys.com/eusovereign.
RATINGS RATIONALE
RATIONALE FOR DOWNGRADES OF JOINT ISSUANCES
Today's rating action results from the weakening of the French government's credit profile, which has direct implications for the credit estimates of sub-sovereigns issuing these joint notes given their financial and macroeconomic linkages. In addition, Moody's believes that further fiscal consolidation is likely to lead to a decrease in state transfers to French sub-sovereigns, which had remained flat in recent years. Because only one of these borrowers is publicly rated (Intermunicipality of Cergy-Pontoise), 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.The joint issuances are unenhanced pooled financings, in which each borrower is responsible for repayment of its share of the joint note. They are not secured by a debt-service reserve fund, overcollateralisation or a step-up provision by borrowers in case one borrower fails to pay. As a result, the weakening of the credit profile of some sub-sovereigns participating in these joint issuances impacts the overall credit quality of the transactions.
RATIONALE FOR REVIEW FOR FURTHER DOWNGRADE
The ratings of the joint issuances remain on review for downgrade in order to assess the liquidity tensions that French sub-sovereigns participating in these joint notes are currently facing, which indicates that the rating of the transactions may be downgraded further. In the case of CTF No 1, the rating is more susceptible to a multi-notch rating change given the already weak credit profile of some borrowers.
In addition, by the end of the review period, Moody's will assess whether the information received from the sub-sovereigns participating in these joint issuances is sufficient to maintain the ratings on these transactions. Hence, one possible outcome of the review is withdrawal of the transaction rating due to insufficient information. The rating agency will conclude its review by the end of the year.
RATIONALE FOR THE NEGATIVE OUTLOOK ON REGIONAL AND LOCAL GOVERNMENTS
The change in outlook on the Aa3 rating of the Intermunicipality of Cergy-Pontoise and the A1 rating of Region de la Reunion to negative from stable reflects the financial and economic linkages between the sovereign and sub-sovereign governments. Moody's considers that the sound liquidity profile and robust performance of both issuers enable them to absorb the one-notch downgrade of the sovereign without any impact on their existing ratings. However, any further potential downgrade of the sovereign would likely lead to a downgrade of these two RLGs. As a result, the rating outlook for the RLGs is negative.
WHAT COULD MOVE THE RATING UP/DOWN
A further weakening of the French government's credit profile as reflected by a further downgrade of the sovereign rating would likely translate into a downgrade of the French sub-sovereign issuers' ratings. Similarly, a stabilisation of the sovereign rating outlooks would likely lead to a parallel change in the sub-sovereign issuers' outlook.
For each joint issuance, a lower credit estimate assigned to an individual issuer throughout the review period could exert negative pressure on the transaction's rating.
PRINCIPAL METHODOLOGIES
The principal methodology used in the 5 joint notes was Public Sector Pool Financings published in July 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
The methodologies used in the ratings of the Intermunicipality of Cergy-Pontoise and the Region de La Reunion were Regional and Local Governments Outside the US published in May 2008, and The Application of Joint-Default Analysis to Regional and Local Governments published in December 2008. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
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.
The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.
Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.
Moody's adopts all necessary measures so that the information it uses in assigning the ratings 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.
Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.
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.
Nicolas Fintzel Analyst Sub-Sovereigns Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 David Rubinoff MD - Sub-Sovereigns Sub-Sovereigns Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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