Fitch Affirms EPIC Bpifrance at 'AA'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed EPIC Bpifrance's (EPIC) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'AA' with a Stable Outlook, and Short-term foreign currency IDR at 'F1+'.
Fitch has also affirmed Bpifrance Financement's EUR4bn certificate of deposit programme, EUR20bn euro medium-term notes programme and EUR4bn negotiable medium-term notes at Long-term 'AA' and Short-term 'F1+'. The bonds issued under these programmes benefit from an unconditional and irrevocable first-call guarantee from EPIC Bpifrance
Fitch rates the holding company EPIC, but not Bpifrance SA or its subsidiaries (including Bpifrance Financement) represented by Bpifrance Group.
Fitch rates EPIC on a top-down basis under its public-sector entity rating criteria, due to EPIC's status as a public agency, its tight control by the French State (AA/Stable/F1+) and, to a lesser extent, its strategic importance for the government. As a result, the ratings of EPIC are equalised with those of, and credit-linked to, France.
KEY RATING DRIVERS
EPIC benefits from very strong state support in case of need. Although the French government has no legal obligation to prevent a default, Fitch assumes that it is highly motivated to provide support on a long- or short-term basis and that it has the legal and financial means to enable EPIC to meet its debt service obligations on time. By virtue of its status, EPIC's assets and liabilities cannot be liquidated or transferred to entities other than the French State.
EPIC is 100%-owned by the French government and its missions are carried out through Bpifrance SA and its subsidiaries that make up Bpifrance Group. Bpifrance Group is subject to strong administrative, legal and financial oversight by the French State, which defines its missions. As part of public policy, Bpifrance Group's commitments are monitored by parliament through annual performance reports.
Bpifrance Group is a strategic tool for implementing the French economic policy through co-lending (through joint financing transaction in the form of medium- and long-term loans and lease operations with commercial banks) for small and medium-sized enterprises (SMEs) and mid-caps. Beyond its core business, its public missions will be reinforced in 2016 with the transfer of Coface SA's (A+/Stable/F1) state-guaranteed portfolio and dedicated team from the insurer to Bpifrance Group to foster the international development of French SMEs.
Underpinned by the absence of high fixed costs as it has no significant branch network, Bpifrance Group continues to post a sound cost/income ratio on its different activities. Under its 2015-2018 strategic plan, Bpifrance Group expects to continue to post sound budgetary performance, with a low cost of risk and positive gross operating income of EUR974m in 2018 (2015: EUR827m).
Bpifrance Group benefits from diversified sources of funding, through EPIC's debt financing subsidiary (Bpifrance Financement), limiting its refinancing risk. Its funding is underpinned by the eligibility of Bpifrance Financement's securities for the public-sector purchase programme of the European Central Bank (ECB). In January 2016, ECB decided to add Bpifrance Financement to the list of issuers classified as agencies in haircut category II (equivalent to LRGs' debt instruments).
Bpifrance Financement has a solid and safe liquidity profile, with liquid reserves stable at EUR9.4bn at end-2015 (of which EUR5.3bn is deposits with the French Treasury agency), representing one year of business activity. This translates into a solid liquidity coverage ratio (LCR) under Basel III regulations (349% at end-2015).
BPifrance Group's exposures is diversified by product, sector and the number of counterparties. The group has a strict policy on large exposures, thereby limiting high individual exposure and favouring portfolio diversification.
A positive or negative rating action on the sovereign would result in a similar rating action on EPIC.
Changes to EPIC's legal status weakening potential support from the State could also lead to a downgrade.
Changes to the ratings of EPIC would affect the ratings of guaranteed bonds issued by Bpifrance Financement.