Rating Action: Moody's maintains negative outlook on France's Aa1 governmentbond rating; affirms rating

Global Credit Research - 19 Sep 2014

London, 19 September 2014 -- Moody's Investors Service has today announced its decision to maintain thenegative outlook on France's government bond rating, which it has affirmed at Aa1.

The agency's decision to affirm France's Aa1 rating reflects Moody's view that, despite negative credit pressures,the country retains significant credit strengths, including the size and wealth of the economy, as well as itsaffordable debt burden despite a continuous, gradual erosion of its economic and fiscal strength. The affirmation isalso supported by renewed government commitment to accelerating the pace of structural reform, introducing amore consistent approach to economic policy, and proceeding with its budget saving plans.

That said, Moody's decision to maintain a negative rating outlook reflects the rating agency's view that theexecution risks associated with implementing the government's proposed structural reform initiatives aresignificant, given the strength of vested political interests that might oppose them and the poor track record inimplementing such reforms.

In a related rating action, Moody's has today announced its decision to maintain negative outlooks on the Aa1ratings of Société de Financement de l'Economie Française (SFEF) and of Société de Prise de Participation del'État (SPPE). The two entities' Aa1 rating are affirmed, in line with the sovereign's rating. Moody's also affirmedthe Prime-1 rating of SPPE, including its euro-denominated commercial paper programme. The senior debtinstruments issued by the two entities are backed by unconditional and irrevocable guarantees from the Frenchgovernment.

RATINGS RATIONALE

RATIONALE FOR NEGATIVE OUTOOK

The main driver informing Moody's decision to maintain the negative outlook on France's Aa1 sovereign rating isthe material possibility that the government's fiscal and economic strength will continue to erode to levels notcommensurate with an Aa1 rating. Moody's assessment of a country's economic strength rests not simply on itsstock of wealth, but on its ability to replenish and grow that stock consistently over a sustained period of time -- inother words, on its long-run growth rate.

Moody's currently expects France to record real GDP growth of only 0.4% in 2014 and 0.9% in 2015, with growthaccelerating to 1.4% by 2018. While the weak economic environment in the euro area has contributed to France'slacklustre economic performance, the country's growth rate has declined steadily in recent years, from around 2%on average in the years leading up to the global financial crisis, to just over 1% on average over the next fouryears. In Moody's view, that decline partly highlights a gradual loss of competitiveness, as reflected in its fallingexport market share over the last decade, which in turn is to some extent attributable to structural rigidities in theFrench economy that have not been addressed by successive governments.

The negative outlook also reflects the significant execution risks associated with France's structural reformprogramme. While the new government's more vigorous approach to pursuing structural reforms is a positive step,the path to actually legislating and implementing these reforms is unlikely to be straightforward. Experiencesuggests that the government will face formidable obstacles in pushing through its reform programme in the face ofvested political and economic interests. Moody's therefore expects the execution risks facing these initiatives torise with every stalled attempt at reform.

A further factor supporting the negative outlook on France's Aa1 sovereign rating is the underlying and continuedtrend of deficit overruns and weak growth, which is causing France's debt burden to increase beyond levelstargeted a few years ago. The Finance Ministry recently announced that the general government deficit wouldincrease to 4.4% of GDP in 2014 followed by a slight decline to 4.3% of GDP in 2015. Moreover, the Frenchgovernment says it will only reach the Maastricht deficit threshold of 3% of GDP in 2017, and even then the slowpace of fiscal consolidation through 2015 means that this milestone is, in Moody's view, only likely to be reached in

2018. In addition, Moody's forecasts that France's debt-to-GDP ratio will continue to rise, breaching the 100% ofGDP mark and continuing its upward momentum more gradually through to 2018, at which point it is expected toreverse.

Overall, the gradual erosion of France's economic strength has mirrored a secular decline in fiscal strength. TheFrench government's debt burden has increased gradually but materially over the past two decades, with high andrising taxation being outpaced by ever-higher levels of social and other expenditure. Both tax and expenditurelevels are high compared to France's regional and rating peers, and with taxation probably at the limit of what theFrench population is prepared to bear, successive governments have come under increasing pressure to cut thegrowth of government spending.

RATIONALE FOR RATING AFFIRMATION AT Aa1

Moody's decision to affirm France's Aa1 sovereign rating reflects its view that the country retains very significantcredit strengths, which support the high rating level. The French economy is large, productive and highlydiversified, and exhibits significant wealth in terms of GDP per capita and moderate levels of householdindebtedness. France retains strong institutions, scoring highly on World Bank Governance Indicators ofGovernment Effectiveness and Rule of Law. Fiscal metrics, though eroding, remain consistent with those of Aa1-rated peers, and the government's debt burden remains highly affordable with very low funding costs, reflecting astrong and deep investor base and a very favourable low yield environment (which is expected to dissipate onlyvery gradually over time).

The affirmation of France's Aa1 rating also reflects renewed commitment of the new government to accelerate thepace of structural reform, to introduce a more consistent approach to economic policy, and to proceed with itsbudget saving plans, which have the potential to gradually improve its fiscal position over the medium term. Thegovernment's historically weak popularity levels reflect the pressures it faces, but the recent parliamentaryconfidence vote has reaffirmed its legislative mandate to implement a range of potentially growth-enhancingreforms that could address some important rigidities in the economy if they are vigorously pursued.

While France's economic and fiscal strength remain, for now, at levels consistent with its current rating level, itfaces challenges in retaining that rating level. France's ability to avoid a downgrade over time and return to a stablerating outlook will rest on the government's ability to reverse the long-term erosion of the French economy'scompetitiveness, and to implement budget saving plans to bolster its eroding fiscal strength. Since FrançoisHollande was elected in May 2012, the French government has taken some steps to implement structural reformsdesigned to reverse the erosion of competitiveness and correct budget imbalances. However, the pace of reformhas remained slow, as it had been under previous administrations, and the achievements to date have not beensufficient to reverse the slowing growth trend or to achieve material improvements in fiscal metrics. If France doesnot return to its previous trend growth rate of around 2% until the end of this decade, if at all, its debt-to-GDP ratiocould continue to rise.

WHAT COULD MOVE THE RATING DOWN/ UP

Moody's would likely downgrade France's government debt rating if the rating agency's confidence in thegovernment's ability to undertake the necessary fiscal consolidation measures and structural economic reformswere to decline further over the next 12 months, or if those measures were to be delayed or diminished in scope orambition. Further deterioration in the government's fiscal metrics beyond the rating agency's current expectationswould also likely lead to a downgrade of the rating.

Moody's would consider moving the outlook to stable on France's government debt rating should the rating agencyconclude that the planned economic reforms and fiscal measures will be implemented and effective instrengthening both growth and the government's balance sheet.

GDP per capita (PPP basis, US$): 35,784 (2013 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 0.2% (2013 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 0.8% (2013 Actual)

Gen. Gov. Financial Balance/GDP: -4.3% (2013 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -1.3% (2013 Actual) (also known as External Balance)

External debt/GDP: [not available]

Level of economic development: Very High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

On 16 September 2014, a rating committee was called to discuss the rating of the France, Government of. Themain points raised during the discussion were: The issuer's economic fundamentals, including its economicstrength, have not materially changed. The issuer's fiscal or financial strength, including its debt profile, hasdecreased. Other views raised included: The issuer's institutional strength/ framework, has not materiallychanged.

The principal methodology used in these ratings was Sovereign Bond Ratings published in September 2013.Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this rating action, if applicable.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatorydisclosures in relation to each rating of a subsequently issued bond or note of the same series or category/classof debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordancewith Moody's rating practices. For ratings issued on a support provider, this announcement provides certainregulatory disclosures in relation to the rating action on the support provider and in relation to each particular ratingaction for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings,this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and inrelation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case wherethe transaction structure and terms have not changed prior to the assignment of the definitive rating in a mannerthat would have affected the rating. For further information please see the ratings tab on the issuer/entity page forthe respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this ratingaction, and whose ratings may change as a result of this rating action, the associated regulatory disclosures willbe those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable tojurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings of rated entity Government of France were initiated by Moody's and were not requested by the ratedentity.

The rated entity Government of France or its agents participated in the rating process. This rated entity or itsagent(s)provided Moody's access to the books, records and other relevant internal documents of the rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related ratingoutlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legalentity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures foreach credit rating.

Sarah CarlsonVP - Senior Credit OfficerSovereign Risk GroupMoody's Investors Service Ltd.One Canada SquareCanary WharfLondon E14 5FAUnited KingdomJOURNALISTS: 44 20 7772 5456SUBSCRIBERS: 44 20 7772 5454

Alastair WilsonMD - Sovereign RiskSovereign Risk Group

JOURNALISTS: 44 20 7772 5456SUBSCRIBERS: 44 20 7772 5454

Releasing Office:Moody's Investors Service Ltd.One Canada SquareCanary WharfLondon E14 5FAUnited KingdomJOURNALISTS: 44 20 7772 5456SUBSCRIBERS: 44 20 7772 5454

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors andaffiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES AREMOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDITCOMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCHPUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATION") MAY INCLUDE MOODY'SCURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS,OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT ANENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANYESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANYOTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICEVOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARENOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSOINCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS ORCOMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. CREDIT RATINGS AND MOODY'SPUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, ANDCREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDERECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDITRATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FORANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'SPUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITHDUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDERCONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY'S CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAILINVESTORS AND IT WOULD BE RECKLESS FOR RETAIL INVESTORS TO CONSIDER MOODY'S CREDITRATINGS OR MOODY'S PUBLICATIONS IN MAKING ANY INVESTMENT DECISION. IF IN DOUBT YOUSHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO,

COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISEREPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED,REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, INWHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSONWITHOUT MOODY'S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable.Because of the possibility of human or mechanical error as well as other factors, however, all information containedherein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that theinformation it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to bereliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor andcannot in every instance independently verify or validate information received in the rating process or in preparingthe Moody’s Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensorsand suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses ordamages whatsoever arising from or in connection with the information contained herein or the use of or inability touse any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives,licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limitedto: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financialinstrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensorsand suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity,including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liabilitythat, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond thecontrol of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers,arising from or in connection with the information contained herein or the use of or inability to use any suchinformation.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS,MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHEROPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNERWHATSOEVER.

MIS, a wholly-owned credit rating agency subsidiary of Moody’s Corporation ("MCO"), hereby discloses that mostissuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) andpreferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and ratingservices rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policiesand procedures to address the independence of MIS's ratings and rating processes. Information regarding certainaffiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings fromMIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annuallyat www.moodys.com under the heading "Shareholder Relations — Corporate Governance — Director and

Shareholder Affiliation Policy."

For Australia only: Any publication into Australia of this document is pursuant to the Australian Financial ServicesLicense of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/orMoody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intendedto be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. Bycontinuing to access this document from within Australia, you represent to MOODY'S that you are, or areaccessing the document as a representative of, a "wholesale client" and that neither you nor the entity yourepresent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning ofsection 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of adebt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available toretail clients. It would be dangerous for "retail clients" to make any investment decision based on MOODY'S creditrating. If in doubt you should contact your financial or other professional adviser.