(The following statement was released by the rating agency)
Jan 24 -
Fitch Ratings has affirmed Assistance Publique - Hopitaux de Paris’ (AP-HP) Long-term foreign and local currency ratings at ‘AAA’ with Negative Outlooks. The Negative Outlook reflects delays in bringing the income statement in balance, as well as the Negative Outlook on the Republic of France’s Issuer Default Rating (IDR). Fitch has also affirmed AP-HP’s Short-term foreign currency rating at ‘F1+’ and its EUR2bn EMTN programme rating at ‘AAA’ and ‘F1+'.
AP-HP’s ratings are aligned with those of the French state (‘AAA’/Negative/‘F1+'). Under its public hospital establishment (PHE) status, APHP cannot be subject to liquidation. Its ratings are also underpinned by the expected strong support it would receive from the state if it was in financial distress, and the crucial medical and teaching roles it plays in Ile-de-France (‘AAA’/Negative/‘F1+') and France’s health care systems.
APHP is under the direct supervision of state bodies (Ministry of Health, Ministry of Finance and Ile-de-France Regional Health Agency). The state is therefore considered AP-HP’s public sponsor under Fitch’s public-sector entity approach. Due to the state’s role in financing and supervising AP-HP, as for all PHEs, integration with and control from the sponsor are strong. The strength of this financial supervision and control should prevent AP-HP from experiencing severe budgetary tensions.
AP-HP is of strategic importance in the provision of health care services, medical teaching and research. It also often plays an advisory role to the French state in the definition of national health care policy.
The strategic plan for 2010-2014 has allowed the consolidation of its 37 hospitals into 12 hospital groups. Combined with the preparation of certification of accounts in 2014, these measures allowed an improvement process to be implemented concerning the reliability of the accounts and efficiency gains. Fitch estimates that APHP is likely to be able to achieve its objective of balancing the account in 2014.
At end-2012, with a forecast negative result - at minus EUR38m compared with minus EUR71.7m in 2011 - which continues to diminish, the self-financing capacity (EUR243m) was sufficient to cover debt capital repayment (EUR134m). In the medium term, Fitch believes that any improvement in budgetary performance is subject to the realisation of efficiency gains and the asset rationalisation plan with an average of EUR50m per year of disposals.
Long-term debt (excluding revolving loans) accounted for 31.3% of consolidated operating revenue and 49.2% of permanent capital in 2012. In the medium term, Fitch expects these will increase to about 30.6% and 47.8%, respectively. AP-HP aims to maintain a debt ratio (long-term debt/operating revenue) close to 30%. Debt is managed actively and securely. AP-HP does not hold any risky derivative products and its liquidity needs are sufficiently covered.
A downgrade could result from a downgrade of the sovereign rating, a change in AP-HP’s status - which Fitch considers unlikely at present - a failure to restore a balanced income statement, as committed to doing in the 2010-2014 recovery plan, which would suggest weaker budgetary and financial support from the state, or a deterioration in its liquidity back-up package.
Like other French hospitals, AP-HP is sensitive to the national ceiling for health insurance expenditure (ONDAM) which is set by the French parliament through the annual social security budget bill (Social Security Financing Act). For 2013, the social security financincg act forecasts an ONDAM at 2.7 %. Fitch also assumes that the issuer will show declining losses from 2012.
The rating actions are as follows:
- Long-term rating: affirmed at ‘AAA’; Outlook Negative
- Short-term rating: affirmed at ‘F1+’
- EUR2bn EMTN programme: affirmed at ‘AAA’/‘F1+’
- Senior unsecured notes: affirmed at ‘AAA’