OREANDA-NEWS. Fitch Ratings has affirmed SNCF Mobilites' (previously Societe Nationale des Chemins de Fer Francais) Long- and Short-term Issuer Default Ratings (IDR) at 'AA' and 'F1+', respectively. The Outlook is Stable. A full list of rating actions is available at the end of this commentary.

The ratings are credit-linked and aligned with those of the French State (AA/Stable), based on a top-down rating approach under Fitch's Public Sector Entities outside the United States Criteria. The ratings reflect very strong expected support, in case of need, from the State, due to SNCF Mobilies' 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 of France.

KEY RATING DRIVERS
The affirmation reflects the unchanged strong links between SNCF Mobilites and the French State over the last 12 months,

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' EPIC status was reaffirmed in 2014 and Fitch does not expect any change in status in the medium term.

SNCF Mobilites carries strategic importance for the French public sector. Public orders (EUR10.4bn in 2014 from the State, regions and SNCF Reseau) typically represent 30% of SNCF Mobilites' annual consolidated turnover. The group also received operating grants (EUR1.2bn in 2014) and investment support in the form of third-party financing (from regional transport authorities, mostly for rolling stock, EUR1.1bn in 2014).

The group's net debt - net of cash and marketable securities and financial receivables - increased slightly to EUR7.1bn. Eighty-nine per cent of the group's debt was incurred at the EPIC level as of end-2014. SNCF Mobilites has sufficient available cash resources to meet liquidity needs, debt service obligations and any negative net free cash flow (FCF). The source of this liquidity buffer is mainly EUR5.4bn cash and cash equivalent and EUR1.7bn receivables held by SNCF in Caisse de la Dette Publique (CDP), a fund whose liabilities are legally binding obligations of the State). At end-2014, the liquidity buffer covered 2015 debt service (excluding repayments of cash borrowing) by at least 3x.

SNCF Mobilites' liquidity profile is also underpinned by EUR1.3bn receivables held in SNCF Reseau (AA/Stable) and available committed bank lines, totalling EUR780m as of end-June 2015.

The ratings take into account on-going market liberalisation, which may challenge the timeliness of state support. 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.

SNCF Mobilites in 2014 recorded stable consolidated revenue of EUR27.2bn, despite a downward trend in domestic freight and high-speed passenger volumes amid fierce competition. EBITDA (as calculated by Fitch) fell to EUR3.4bn in 2014 from EUR3.5bn in 2013 while expenditure, mostly infrastructure fees and high VAT charges, increased. Foreign activities are expanding rapidly through growing subsidiaries. SNCF Mobilites recorded a positive net result of EUR605m in 2014, after a net loss of EUR180m in 2013, due to exceptional large impairment losses. In the medium term, profitability is likely to be further challenged, and others write-downs of assets are likely to affect the net result.

France's rail reform came into force on 1 July 2015. A new public rail group was created under the reform, with SNCF Mobilites as operator and SNCF Reseau (formerly RFF) as infrastructure manager. The latter includes the former SNCF Infra business unit transferred from SNCF Mobilites. Both SNCF Mobilites and SNCF Reseau had their EPIC status confirmed with the placement of both entities under the supervision of a third EPIC called SNCF. The impact of the reform is neutral on SNCF Mobilites' ratings.

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

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

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+'