OREANDA-NEWS. Fitch Ratings has affirmed SNCF Mobilites' Long - and Short-Term Issuer Default Ratings (IDR) at 'AA' and 'F1+', respectively. The Outlook is Stable. A full list of rating actions is at the end of this commentary.

The affirmation reflects the unchanged links between SNCF Mobilites and the French state (AA/Stable/F1+) over the last 12 months.

Fitch classifies SNCF Mobilites as credit-linked to France under its 'Rating of Public Sector Entities - Outside the United States' criteria top down-approach, in light of the very strong expected extraordinary support from the state, as allowed for under its Etablissement Public Industriel et Commercial (EPIC) status. The ratings also reflect strong oversight from the French government and SNCF Mobilites' strategic role in government policy. The Stable Outlook reflects that on France's ratings.

KEY RATING DRIVERS

Given its EPIC legal status, Fitch considers SNCF Mobilites would benefit from very strong state support in case of need. Although the French government has no legal obligation to prevent a default (but to ultimately cover its liabilities), Fitch assumes that it is highly motivated and has the means to enable SNCF Mobilites (but not its subsidiaries) to service its debt on time.

SNCF Mobilites has strategic importance for the French public sector. It is France's main passenger and freight rail transport operator. It also controls several subsidiaries active in road and sea transport, logistics, and special types of railway transport. Public service orders contracted with the state, the French regions and SNCF Reseau (AA/Stable/F1+), amounted to EUR8.0bn in 2015, and typically represent 30% of SNCF Mobilites' annual consolidated turnover. The group also received operating grants and investment support in the form of third-party financing (from regional transport authorities, mostly for rolling stock, EUR1.4bn in 2015).

The group's net debt - net of cash and marketable securities and financial receivables - increased to EUR7.7bn (2014: EUR7.1bn). SNCF Mobilites estimates that around 84% of the group's debt was incurred at the EPIC level as of end-2015. Fitch considers SNCF Mobilites has sufficient available cash resources to meet debt service obligations and any negative net free cash flow (FCF) over the medium term. SNCF Mobilites' liquidity buffer comes mainly from EUR4.0bn cash and cash equivalents and EUR1.6bn receivables owed to SNCF Mobilites by Caisse de la Dette Publique (CDP, a fund whose liabilities are legally binding obligations of the state) and EUR0.5bn receivables held by SNCF Group holding EPIC. At end-2015, the liquidity buffer covered the 2016 and 2017 debt service by more than 1.5x.

SNCF Mobilites' liquidity profile is also underpinned by EUR860m receivables held in SNCF Reseau at year-end 2015 and available committed bank lines, totalling EUR780m (subscribed by the EPIC) as of end-June 2016.

The ratings take into account the on-going market liberalisation (from 2020 and 2023 for domestic passenger and regional lines, respectively), which may challenge the timeliness of state support in the medium term. This is because extraordinary liquidity support could be viewed as unlawful state aid under EU regulations if it is used to support competitive businesses. However, SNCF Mobilites has adapted its funding policy to avoid a breach of state aid regulation. Debt raised at the EPIC level for competitive businesses within the SNCF Mobilites group is charged at market prices to these business segments. Although Fitch considers the probability of a state bail-in in the medium term as low, it also considers SNCF Mobilites relies on a sufficient buffer of available cash resources to ensure its debt service for the next two years. This appears reasonably long enough for a state liquidity support to be extended, if needed.

In 2015, SNCF Mobilites recorded stable consolidated revenue of EUR29.3bn (+2% at a constant perimeter), in a context of sluggish domestic passenger activity amid fierce intermodal competition. EBITDA (calculated by Fitch) fell to EUR2.7bn in 2015 from EUR2.9bn in 2014 while expenditure, mostly infrastructure fees and staff costs increased. Foreign activities are expanding rapidly through growing subsidiaries. However, including exceptional large impairment losses due to a EUR2.7bn write-down of its assets (mostly TGV high-speed trains), SNCF Mobilites recorded a net loss of EUR2.2bn in 2015, compared with a EUR623m profit in 2014.

RATING SENSITIVITIES

A change in France's sovereign ratings would be mirrored by SNCF Mobilites' ratings. An adverse change in the EPIC status with weaker state support would also trigger a rating review.

SNCF Mobilites' ratings could be downgraded if its liquidity reserves declined to below levels of two years of debt service.

The rating actions are as follows:

Long-Term IDR: affirmed at 'AA', Stable Outlook

Short-Term IDR: affirmed at 'F1+'

Senior unsecured notes: affirmed at 'AA'

EUR12bn EMTN programme: affirmed at 'AA'/'F1+'

EUR3.048bn commercial paper (billets de tresorerie) programme: affirmed at 'F1+'

EUR2bn euro commercial paper (ECP) programme: affirmed at 'F1+'