OREANDA-NEWS. Fitch Ratings has affirmed Assistance Publique - Hopitaux de Paris' (AP-HP) Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'AA' and Short-Term IDR at 'F1+'. The Outlook is Stable. AP-HP's EUR2bn euro medium-term programme and the senior unsecured notes have been also affirmed at 'AA' and 'F1+'. Fitch has also affirmed AP-HP's EUR300m French commercial paper (billets de tresorerie) programme at 'F1+'.

Fitch classifies AP-HP as a credit-linked entity under its public-sector entity rating criteria, due to AP-HP's status as a public hospital establishment (PHE), its 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 credit-linked, and equalised with those of France.

KEY RATING DRIVERS

As a PHE, Fitch expects that AP-HP would benefit from very strong state support in case of need. The French government does not explicitly guarantee AP-HP's debt, but Fitch assumes that the state would have the willingness to provide timely support in case of need. By virtue of its status, AP-HP's assets and liabilities cannot be liquidated or transferred to entities other than the French state.

The Council of Ministers appoints AP-HP's director. As AP-HP continues to improve its budgetary performance, Fitch considers that AP-HP will not need approval of new borrowing at end-2016. However, Fitch believes that the strength of the state's financial supervision helps prevent potential budgetary tension through approval by the regional health agency of AP-HP's multi-year funding framework and its estimated revenues and expenditures.

AP-HP performs an essential public service, notably in the Ile-de-France region (AA/Stable/F1+), 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.

Thanks to the continued implementation of revenue optimisation and efficiency efforts, AP-HP aims to reach a positive result for the main budget. Although the main budget remained negative at EUR38.7m in 2015, AP-HP met its objective with a consolidated positive net result at EUR39.7m. Fitch expects AP-HP will improve its gross cash flow, which will edge up towards EUR330m in 2020 from an expected EUR291m at end-2016.

AP-HP will face significant investment needs of an average EUR470m per year during 2016-2020 compared with EUR376.7m at end-2015. This will be mostly self-funded thanks to an expected improvement in its budgetary performance and some asset disposals. AP-HP's long-term debt will hover around EUR2.2bn expected at end-2016. The debt to consolidated operating revenue ratio should remain below AP-HP's objectives (30%) at 29.6 % in 2020. AP-HP has a low risk appetite, and a smooth debt amortisation profile.

AP-HP benefits from diversified sources of funding, limiting its refinancing risk. AP-HP's funding is underpinned by the eligibility of its securities for the European Central Bank's (ECB) public-sector purchase programme. In June 2016, the ECB decided to add AP-HP to the list of issuers classified as agencies in haircut category II.

AP-HP benefits from a predictable cash flow as the main treasury inflows are set by law. Fitch considers AP-HP's liquidity arrangements are sufficient for meeting debt service requirements, covering debt service by a stable 1.3x at end-2015. AP-HP is one of the main French hospitals allowed to issue a French commercial paper programme, for EUR300m.

RATING SENSITIVITIES

Rating action on the French sovereign would lead to similar action on AP-HP. A downgrade of AP-HP could also result from a failure to maintain a balanced consolidated income statement, a significant weakening of budgetary and financial support from the state, or adverse changes to its liquidity back-stop. An adverse change to AP-HP's status could also result in a downgrade, although Fitch considers such a change unlikely at present.