OREANDA-NEWS.  Fitch Ratings has affirmed Caisse d'Amortissement de la Dette Sociale's (CADES) Long-term Issuer Default Rating (IDR) and local currency Long-term IDR at 'AA' and Short-term IDR at 'F1+'. The Outlook is Stable, mirroring that on France's sovereign IDR (AA/Stable/F1+; last affirmed on 12 June 2015). A full list of rating actions is at the end of this comment.

The affirmation reflects the unchanged link between CADES and the French state since our last review, including a strong probability of support from the state given CADES' status as public agency (Etablissement public national a caractere administratif; EPA) and its strategic importance to the country. This status reflects the ultimate responsibility of the French state for CADES' solvency and liquidity, together with strong monitoring and control. CADES' ratings also factor in its secure revenue sources and sound debt and liquidity management.

KEY RATING DRIVERS
CADES is a specialised state agency whose objective is to refinance and amortise, through a ring-fenced structure, debt arising from accumulated past deficits of France's social security system.

Thanks to its EPA status, CADES would benefit from very strong state support in case of need. As a purely administrative body in charge of a mandatory social responsibility, CADES is not subject to EU regulation on state aid. There is no threat of any pressure on CADES' status nor any risk of the state's support being qualified or considered as an unlawful state aid.

Since its inception in 1996, CADES has taken additional debt transfers from the French social security system several times. There was a major debt transfer in 2011 when CADES assumed a total EUR62bn of new debt. In 2014, CADES assumed an additional EUR10bn debt. At end-2014, CADES' gross debt amounted EUR143.6bn and the entity amortised EUR12.7bn during the same year. According to the 2015 social security financing bill, CADES will amortise EUR13.1bn and receive EUR10bn in 2015.

CADES' solvency is strongly underpinned by its revenue structure. A recurrent tax (CRDS), paid on almost all types of revenue, is specifically earmarked for CADES' debt amortisation. Since 2009, CADES also receives a share of the CSG, another activity-related tax. According to a 2005 organic law, any new debt transfers to CADES from the French state have to be offset by sufficient new resources. Consequently, since 2011 and to compensate the significant debt transfer which took place during that year, CADES has also benefited from a 1.3% deduction on capital income (EUR1.5bn in 2014) and an annual transfer of EUR2.1bn from the reserve fund for French retirees.

CADES faces liquidity risk due to the nature of its activities. This is mitigated by the diversity and quality of the agency's short-term funding programmes as well as sufficient back-up lines and liquidity facilities. In the event of an extreme liquidity shortfall, thanks to its status, CADES would also have immediate access to state liquidity support mechanisms.

CADES' liquidity, counterparty, debt risk management processes and contingency policies show a high level of security and all significant decisions are closely monitored by the French state. CADES is able to tightly monitor its medium and long-term debt repayment targets through a varied set of interest rates, inflation and revenue growth scenarios.

RATING SENSITIVITIES
Any action on France's sovereign ratings would be reflected by CADES' ratings.

Although unlikely, an adverse change in CADES' legal framework could also trigger a downgrade.

The rating actions are as follows:

- Long-term IDR: affirmed at 'AA', Outlook Stable
- Short-term IDR: affirmed at 'F1+'
- Commercial paper programmes (French BT, ECP and USCP): affirmed at 'F1+'
- Senior unsecured BMTN programme: affirmed at 'AA'
- Senior unsecured debt issuance programmes (Long-term): affirmed at 'AA'
- Senior unsecured debt issuance programmes (Short-term): affirmed at 'F1+'