DBRS Morningstar Assigns AA (high) Rating to Caisse d’amortissement de la dette sociale (CADES), Stable Trend

DBRS Rating GmbH (DBRS Morningstar) has assigned the Long-Term Issuer Rating of AA (high) and the Short-Term Issuer Rating of R-1 (high) to Caisse d'amortissement de la dette sociale (CADES). The trend on all ratings is Stable.

KEY RATING CONSIDERATIONS
CADES ratings are aligned with those of the Republic of France (AA (high), Stable). CADES' ratings are underpinned by (1) the ultimate responsibility of France to ensure the solvency and the liquidity of CADES, a national public agency ("établissement public national à caractère administratif" - EPA) created by the French State by ordinance dated 24 January 1996; (2) the essential role of CADES for France and its social security system; CADES benefits from a specific pledge of resources and is explicitly authorised to borrow in order to ensure the long-term funding of the cumulated deficits of the French social security system; and (3) the ability of France to support CADES in a timely manner if ever needed, primarily through the French Treasury Agency ("Agence France Trésor" - AFT) but also potentially through the State government debt fund ("Caisse de la dette publique" - CDP).

RATING DRIVERS
CADES' long-term rating could be upgraded if France's long-term rating is upgraded.

CADES' ratings could be downgraded if any or a combination of the following occur: (1) the French sovereign rating is downgraded; or (2) a change in the status of CADES translates into a weakening of the ultimate responsibility of the French State regarding its solvency and liquidity.

RATING RATIONALE
CADES, Pillar of the French Social Protection System, has seen its Essential Role for the State Revived by the COVID-19 Outbreak

The financing of the French social protection system, partly through a recourse to the financial markets, is notably organised around three large entities: Agence centrale des organismes de sécurité sociale (ACOSS) and CADES regarding the social security per se and Unedic which manages the unemployment insurance scheme. ACOSS is principally in charge of ensuring the centralised treasury management of the national funds in charge of the social security's general scheme (SSGS), by covering the short-term funding needs of the system. CADES' mission is therefore to refinance long-term and repay the debt accumulated by the SSGS and the Elderly Solidarity Fund ("Fonds de Solidarité Vieillesse" - FSV). This debt is transferred to CADES by ACOSS following the French State's decisions. This critical role of CADES has been confirmed and strengthened by the sharp increase of the financing needs of the French social security in 2020 and 2021 due to the Coronavirus Disease (COVID-19) outbreak. Indeed, the balance of the SSGS and FSV reached its highest historical deficit in 2020 at EUR 38.7 billion and is expected to remain close to that level at EUR 38 billion in 2021. Prior to the COVID-19 pandemic, it was on a strong downward trend in the last decade, reaching almost balance in 2018 and 2019.

The State is Ultimately Responsible for CADES' Solvency and Liquidity

Given the EPA status of CADES, DBRS Morningstar considers that France is ultimately responsible for its solvency. In case of dissolution, CADES' assets and liabilities would revert back to the French State or another government-related entity. On top of the common framework applicable to national public agencies, CADES benefits from a supplementary legal protection which ensures it a complementary commitment from the State, as per the article 7 of the ordinance of 24 January 1996. If CADES was not able to honor all its commitments, it would be granted new resources, probably with a tax base as resilient as the one benefiting to its current resources. Moreover, DBRS Morningstar considers that France would intervene in a timely manner to support CADES in order to avoid any reputational risk for other EPAs and its own creditworthiness.

CADES is under Central Government Supervision and Benefits from a Dynamic and Diversified Debt and Liquidity Management

CADES' governance is under central government's supervision via the Ministry of Economy, Finance and Recovery as well as the Ministry of Solidarity and Health. CADES' borrowings are subject to the approval of the Ministry in charge of Economy and Finance. For 2021 and 2022, CADES is planning an annual medium- and long-term borrowing program of EUR 40 billion, which would be an historical peak. DBRS Morningstar believes that CADES' access to diversified sources of funding, including through its social bond framework put in place in 2020, but also the pooling of its operational services with those of AFT, allow for a dynamic and diversified debt and liquidity management. This should help CADES cover its significant funding needs in the best financial conditions. Moreover, CADES' issuances are eligible for the European Central Bank's (ECB) Public Sector Purchase Programme (PSPP) and Pandemic Emergency Purchase Programme (PEPP), which strengthens investors' interest further.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

DBRS Morningstar notes that this Press Release was amended on 26 January 2022 to incorporate the disclosure for a newly rated issuer.

Notes:
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883

All figures are in euros (EUR) unless otherwise noted.

The principal methodology is the Global Methodology for Government Related Entities https://www.dbrsmorningstar.com/research/374948/global-methodology-for-government-related-entities (March 8, 2021). Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (February 3, 2021).

The sources of information used for this rating include the presentation and other analytical information provided by CADES, CADES’ 2019 and 2020 annual reports, Social Security Accounts for 2011-2020, Social Security Financing Draft Bill for 2021 and the June 2021 report of the Social Security Commission . DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

The rating concerns a newly rated issuer. This is the first DBRS Morningstar rating on this issuer.

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/381968.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Mehdi Fadli, Vice President, Global Sovereign Ratings
Rating Committee Chair: Nichola James; Managing Director, Co-Head Global Sovereign Ratings
Initial Rating Date: July 23, 2021
Last Rating Date: Not applicable as no last rating date.

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