RPT-Fitch Affirms Assistance Publique - Hopitaux de Paris at 'AA+'; Outlook Stable

Fri Jul 11, 2014 8:57am EDT

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July 11 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Assistance Publique - Hopitaux de Paris' (AP-HP) Long-term foreign and local currency Issuer Default Ratings (IDR) at 'AA+' and its Short-term foreign currency IDR at 'F1+'. The Outlook is Stable.

Its EUR2bn euro medium-term programme has been also affirmed at 'AA+' and 'F1+'.

KEY RATING DRIVERS

Fitch rates AP-HP on a top-down basis under its public-sector entity rating criteria, due to its status as a public hospital establishment (PHE), tight control by the French State (AA+/Stable/F1+) and its strategic importance to the government. As a result, the ratings of AP-HP are equalised with those of and credit-linked to France.

As a PHE, Fitch expects that AP-HP would benefit from very strong state support, in case of need. Although the French government has no legal obligation to prevent a default, Fitch assumes that it is highly motivated to provide support and that it has the legal and financial resources to enable AP-HP to meet its debt service obligations on time. By virtue of its status, AP-HP's assets and liabilities cannot be liquidated or transferred to entities other than to the French State.

AP-HP is subject to tight supervision by the State. The Council of Minister appoints AP-HP's Director. Borrowings are subject to approval by the State if AP-HP exceeds certain budgetary ratios. AP-HP was not subject to this approval for 2013. Fitch believes that the strength of the State's financial supervision helps prevent potential budgetary tension.

AP-HP performs essential public service through its provision of healthcare services, medical teaching and research. AP-HP's revenues are highly dependent on the State's decisions on tariff-setting and on general grants to finance AP-HP's public health responsibilities.

AP-HP's aim is to balance its consolidation account (EUR1m) in 2015 and 2016 for the main budget. The delivery of this aim is subject to realising efficiency gains and asset disposals averaging EUR40m per year. Although AP-HP's net result at end-2013 remained negative at EUR7.5m, it was an improvement on previous years due to operating expenditure growing below the national trend, and a rationalisation of its real estate portfolio (EUR50m of disposals in 2013).

AP-HP's long-term debt (EUR2.2bn) reached 31.3 % of operating revenue at end-2013, close to its target of 30%. While its amortisation profile is less than smooth, its debt profile does not represent a risk as repayment would be sufficiently covered by current cash flow. Fitch estimates the net cash flow would on average be EUR180m per year over 2015-2020. AP-HP has a qualified team which prudently manages its debt given management's lack of appetite for risk.

Fitch considers AP-HP's liquidity arrangements as sufficient in meeting debt-service requirements. Following the setting up of two rounds of consultation for credit line renewals in 2014, Fitch considers that AP-HP is less exposed to the risk of non-renewal, which would limit the costs associated with these credit lines.

RATING SENSITIVITIES

A rating action on the sovereign's rating would lead to a similar action on AP-HP. A downgrade could result from a failure to balance its budget, a significant weakening of budgetary and financial support from the State, or adverse changes to its liquidity back-stop. A downgrade could also result from an adverse change to AP-HP's status, which Fitch considers unlikely at present

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