05. May 2017 Rating news  – Sub-sovereign

Scope has affirmed the city of Quimper’s credit rating of A+ and left the Stable Outlook unchanged

Rating is supported by robust operating margins, solid revenue flexibility, low-risk contingent liabilities and a sound economic profile. Rising debt, triggered by ongoing cuts in state transfers, poses a concern; only partly offset by a growing tax base.

Scope Ratings has affirmed an Issuer Credit-Strength Rating (ICSR) of A+ for the city of Quimper (‘city’ or ‘Quimper’). The Outlook is Stable.

The city’s rating is supported by the ability to maintain a solid operating performance, with operating margins averaging 18.3% of operating revenues over the past five years in spite of significant cuts in state transfers, as well as moderate, though rising, direct debt levels and low-risk contingent liabilities. Quimper’s rating benefits from good revenue flexibility, due to the high proportion of modifiable taxes, as well as tax rates that have been unchanged for years. The city’s administration also views tax rate hikes as a last resort. Sound development of the city’s socio-economic indicators support the expansion of its tax base.

Looking forward, Scope expects Quimper’s budget balances to come under pressure due to ongoing state transfer cuts and diminishing flexibility to reduce its operating and capital expenditures, which the city has been pursuing as a policy since 2015. Scope notes that reduction in expenditures could become increasingly difficult due to Quimper’s relatively rigid operating expenditure structure and the necessity to maintain a certain level of investment. If the French central government continues its budget consolidation efforts beyond 2019, which Scope views as a likely scenario, the city must either raise its tax rates and/or increase its debt.

According to Scope’s 2016 estimates, Quimper’s direct debt levels may reach 95% of operating revenue by the end of 2016, compared to 47.8% at the end of 2009. This 2016 ratio may be overstated due to French municipalities’ tendency to underestimate revenues and overestimate expenditures.

Scope understands that, apart from potential tax rate hikes, the city’s strategy to cope with increasing revenue pressures includes outsourcing IT and HR expenditures to Quimper Bretagne Occidentale, the recently enlarged inter-municipal association which undertakes capital-intensive responsibilities on behalf of the city as well as other neighbouring municipalities.

The A+ rating could be upgraded if budget balances and debt levels stabilise. Conversely, the rating could be downgraded if Quimper’s debt were to rise significantly and exceed the self-imposed debt payback ratio of eight years.

Download the full rating report HERE.

Regulatory disclosures

This rating was prepared by Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Chief Executive Officer: Torsten Hinrichs, Chief Analytical Officer Dr Stefan Bund.
Rating prepared by: Ilona Dmitrieva, Lead Analyst
Person responsible for approval of the rating: Dr Giacomo Barisone, Committee Chair
The rating was prepared independently by Scope Ratings and was requested by the issuer. The issuer has participated in the rating process.

Rating history
The Rating for City of Quimper was issued for the first time in November 2015/The rating was last updated in May 2016.

Key sources of information for the rating
Historical figures on budget implementation, budget for the next year and multi-year budget forecasts, historical outstanding debt, debt like obligations and guarantees, list of sponsored entities, socio-economic statistics.
Scope Ratings considers the quality of the available information on the evaluated issuer to be satisfactory.

Rating committee minutes
On May 2nd 2017, the rating committee discussed the city of Quimper rating. The committee decided to affirm the rating.
Review of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to review the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that review, the rating was not modified.

The methodology applicable for this rating (Sub-Sovereign Credit Rating, June 2015) is available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Conditions of use/exclusion of liability
© 2017 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings AG, Scope Analysis GmbH, Scope Investor Services GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope cannot, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided “as is” without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or otherwise damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Credit ratings and other related credit opinions issued by Scope are, and have to be viewed by any party, as opinions on relative credit risk and not as a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings AG at Lennéstraße 5 D-10785 Berlin.

Rating issued by
Scope Ratings AG, Lennéstraße 5, 10785 Berlin


Scope Ratings AG    Phone: +49 30 27891-0
Ilona Dmitrieva    i.dmitrieva@scoperatings.com
Giacomo Barisone    g.barisone@scoperatings.com
Oliver Müller    press@scopegroup.com

Rating card