OREANDA-NEWS. Fitch Ratings has affirmed Agence Centrale des Organismes de Securite Sociale's (ACOSS) EUR20bn Euro Commercial Paper (CP) programme and EUR25bn French CP programme Short-term local and foreign currency ratings at 'F1+'.

KEY RATING DRIVERS
The CP and Euro Commercial Paper Programmes' Short-term ratings reflect ACOSS's status as a public agency, its strategic importance to the government and its tight control by the French state (AA/Stable/F1+). In line with Fitch's public-sector entity rating criteria and applying a top-down approach, the programme ratings are equalised with and credit-linked to France.

Although the French government has no legal obligation to prevent a default, Fitch assumes that it is highly motivated to provide support and has the legal and financial means to enable ACOSS to meet its debt service obligations on time. As a public agency, ACOSS is eligible for last-resort emergency funding from the state. ACOSS's debt is fully consolidated into French general government debt.

ACOSS has a strategic importance for the French social security system as it manages cash flows for most social security institutions (SSIs) and collects social security, pension and unemployment contributions.

The state exerts strong administrative, legal and financial oversight over ACOSS. The state defines its strategy and monitors its management through the 2014-2017 plan. The French parliament sets ACOSS's revenues, expenditures, and an annual upper limit on ACOSS's access to external short-term funding (EUR36.3bn in 2015). ACOSS's accounts are audited annually by the national court of accounts and reported to parliament.

Social security cash flows are highly predictable as shown by ACOSS's track record of accurate liquidity forecasts. Predictability is underpinned by the sizeable proportion of cash flows constrained by contractual payment schedules and the low short-term financial impact of macroeconomic trends or social security reforms. Day-to-day predictability is high as ACOSS tightly controls payment operations while contribution collection is mostly dematerialised.

As mandated by law, funding is exclusively short term. It is well diversified and mainly relies on a EUR25bn French Commercial Paper (CP) programme and a EUR20bn Euro CP programme. In accordance with their interests, the state, some SSIs and Caisse d'Amortissement de la Dette Sociale (CADES; AA/Stable/F1+) routinely purchase ACOSS's commercial paper to mutualise and optimise available public cash.

Liquidity risk management is sophisticated, in line with financial institution standards. ACOSS maintains excess liquidity buffers and aims to keep a liquidity coverage ratio of 100% over 30 days. Caisse des Depots et Consignations (AA/Stable/F1+) provides short-term loans and back-up lines up to EUR1.5bn.

ACOSS's debt reflects accrued social security deficits, which are regularly taken over by CADES, the state agency in charge of amortising French social debt. In accordance with the law, CADES can take over up to EUR10bn every year until 2017. As a result of CADES' support, Fitch expects ACOSS's financing needs will reach EUR27.4bn on average in 2015 with an estimated low point of EUR31.5bn, well below the borrowing cap (EUR36.3bn).