Assistance-Publique Hôpitaux de Marseille (AP-HM)
Key Rating Drivers
Rating Derivation Summary: Fitch Ratings views Assistance-Publique Hôpitaux de Marseille (AP-HM) as a government-related entity (GRE) of the French state (AA/Stable) and rates it one notch below the sovereign. This reflects a score of 35 points under our GRE criteria. The standalone credit profile (SCP) is ‘bb-’ and does not affect the Issuer Default Rating (IDR).
Status, Ownership and Control - ‘Very Strong’: As with other French public hospitals, AP-HM has the special status of etablissement public adminitratif (EPA). In case of dissolution, its assets and liabilities would be transferred to the French state or to another public entity designated by the state. The French state exercises tight control over AP-HM’s finances and activities, notably through Provence-Alpes-Cote d’Azur’s regional health agency (ARS).
Support Track Record and Expectations - ‘Very Strong’: The French state exercises strong regulatory influence on AP-HM. The latter is undergoing a recovery plan agreed with the ARS to improve its financial position. As part of this process, its new loans and financial trajectory are subject to the ARS’s approval. AP-HM can also receive liquidity support from the French state, through ARS, in case of financial distress.
Socio-Political Implications of Default - ‘Strong’: AP-HM is the main hospital in the region Provence-Alpes-Cote d’Azur (AA-/Positive) and is the third-largest hospital group in France by number of stays after Assistance Publique-Hopitaux de Paris (AA/Stable) and the Hospices Civils de Lyon. AP-HM also has public missions in research and education. A default by AP-HM would have significant political consequences for the state, in Fitch’s opinion.
Financial Implications of Default - ‘Moderate’: AP-HM is a regular issuer on the financial market. Its debt is mainly made up of bank loans, bonds representing 16% of the total (EUR168 million at end-2018). Fitch believes there would be a risk of contagion for other French public hospitals and other French-state related GREs if AP-HM were to default.
‘bb-’ SCP: AP-HM’s SCP of ‘bb-’ reflects a ‘Midrange’ assessment for the revenue defensibility and operating risk rating factors, and a leverage ratio (net adjusted debt/EBITDA) that Fitch expects below 12x in its rating case scenario (2018: 12.3x).
ESG Considerations: ESG issues have a minimal impact on AP-HM’s ratings, as reflected in a score of ‘3’.
Rating Sensitivities
Change in Sovereign Rating: A rating action on the sovereign would be reflected in AP-HM’s ratings.
Weaker Support Factors: A downgrade could result from a weakening of the links between the French state and AP-HM, or a weakening of AP-HM’s importance for the French state.
Ratings
Foreign Currency
Long-Term IDR AA-
Short-Term IDR F1+
Local Currency
Long-Term IDR AA-
Short-Term IDR F1+
Outlooks
Long-Term Foreign-Currency IDR Stable Long-Term Local-Currency IDR Stable
AP-HM is a university hospital centre with 3,400 beds located in the City of Marseille (A+/Stable). AP-HM is also at the head of the department of Bouches-du-Rhone’s (AA/Stable) hospitals grouping, which includes 12 other hospitals.
Financial Data
AP-HM
(EURm) 2018 2023rc
Net adjusted debt/
EBITDA (x) 12.3 10.9
EBITDA/gross interest
(x) 2.0 2.7
Operating revenue 1,315 1,387
EBITDA 83 87
Net adjusted debt 1,020 946 rc: Fitch’s rating case scenario
Source: Fitch Ratings, AP-HM
Applicable Criteria
Government-Related Entities Rating Criteria (November 2019)
Public-Sector, Revenue-Supported Rating Criteria (November 2019)
Related Research
What Investors Want to Know: Fitch Rating Approach for French Public Hospitals (November 2018)
What Investors Want to Know: French Government’s Plan Is Credit-Positive for French Public Hospitals (November 2019)
Analysts
Nicolas Miloikovitch, CFA +33 1 44 29 91 89
nicolas.miloikovitch@fitchratings.com
Pierre Charpentier +33 1 44 29 91 45
pierre.charpentier@fitchratings.com
Rating Synopsis
Fitch views AP-HM as a GRE of the state of France and assigns a score of 35 to the hospital, according to our GRE criteria. The rating factors ‘Status, Ownership and Control’ and ‘Support Track Record and Expectations’ are assessed as ‘Very Strong’, while ‘Socio-Political Implications of Default’ is assessed as ‘Strong’ and ‘Financial Implications of Default’ as
‘Moderate’.
The score of 35 leads to the application of a top-down approach with a one-notch differential with the sovereign’s. AP-HM’s SCP is ‘bb-’, or 10 notches away from the French state, and does not affect AP-HM’s IDR.
Issuer Profile
AP-HM is one of the 32 regional university hospital centres in France. It is the third largest hospital in France behind the Assistance Publique-Hopitaux de Paris and the Hospices Civils de Lyon, and it is the largest hospital centre in the region Provence-Alpes-Cote d’Azur. At end- 2019 the hospitals accounted for 3,400 beds and 12,000 employees.
AP-HM’s activity is spread over five sites in the city of Marseille: the Timone (for children and adults), the Conception, the Hopital Nord and the hospitals Sainte Marguerite and Salvator.
Assessment of the Support – GRE
AP-HM – Assessment of the Support
Status, ownership, and control
Support, track record and expectations
Socio-political implications of default
Financial implications of
default GRE score
Very strong Very strong Strong Moderate 35
Source: Fitch Ratings
Status, Ownership and Control: Very Strong
AP-HM has the special status of EPA, like other French public hospitals. In case of dissolution, AP-HM’s assets and liabilities would be transferred to the French state or to another public entity designated by the state.
Rating History
Date
Long-Term Foreign- Currency IDR
Long-Term Local-Currency IDR
6 Feb 20 AA- AA-
Notching Guideline Table
SCP of GRE vs. Rating of
government/overall support score
Equal or more
than Between Between Between Between Equal or
less than
45 35 42.5 27.5 32.5 20 25 15 17.5 12.5 10
Same or above Standalone or
constrained Standalone or
constrained Standalone or
constrained Standalone or
constrained Standalone or
constrained Standalone or
constrained Standalone or constrained Up to three notches away from
government Equalised Equalised Equalised Top-down
minus 1a Bottom up + 1 capped at government minus 1
Bottom up + 1 capped at government minus 1
Standalone
Four notches away Equalised Top down minus 1
Top down minus 1
Top down minus 2
Bottom up + 1 Bottom up + 1 Standalone More than four notches away
from government or standalone not derived/
not meaningfulc
Equalised Top down minus
1 Top down minus
2 Top down minus
3 Bottom up + 2
or +3 capped at government minus 3b
Bottom up + 1b Standaloneb
a If the SCP of the GRE is one notch below the government and the credit drivers of the GRE are largely independent from those of the government, a one-notch uplift to the same rating as the government can also be considered
b When the standalone is not assigned or not meaningful, entities for which the notching approach is bottom up or standalone would not be rated
c The SCP may be ‘not meaningful’ when it the issuer cannot be effectively de-linked from the government - notably when the GRE primarily acts on behalf of the government to perform a policy driven mission and does not generate its own cash flows or because of very tight operational and fina ncial links with the government
Source: Fitch Ratings
The French state exercises tight control over AP-HM’s finances and activities through the ARS of the region Provence-Alpes-Cote d’Azur. Hospitals’ CEOs are appointed and dismissed by the state: AP-HM’s current CEO, Jean-Olvier Arnaud, was appointed by a state decree dated 29 April 2017. The hospital is also subject to the control of the French state’s supervisory bodies, such as the Regional Court of Accounts.
The last report by the Regional Court of Accounts was published in June 2018 and covers 2010-2015.
The day-to-day control of hospitals is done through the ARS, created in 2009 and directly monitored by the Ministry of Health. They are in charge of monitoring the financial situation of hospitals and issuing authorizations for them to carry out certain medical activities.
The state also exercises its control through the annual vote by parliament on the National Ceiling for Health Insurance Expenditures (ONDAM), which limits the sector’s total expenses.
AP-HM is also subject to regular controls by the state through the Interministerial Committee on the Performance and Modernisation of Healthcare (COPERMO) on its financial trajectory and the respect of its commitments, to annual controls through the Investment Project Review (whose outcome conditions the payment of dedicated subsidies) and to the Project- Performance Review.
Support Track Record and Expectations: Very Strong
The French state exercises strong regulatory influence on AP-HM. The latter is implementing a recovery plan agreed with the ARS to improve its financial position. As part of this process, its new loans and financial trajectory are subject to the ARS’s approval. The ARS gave AP-HM’s budget for 2019 a qualified approval in its letter dated 29 April 2019.
AP-HM has agreed with the ARS four different recovery plans since 2009 due to its weak financial profile. The most recent report from the Regional Court of Accounts noted that these plans have not enabled AP-HM’s financial profile to improve. The current recovery plan covering 2016-2020 was signed in 2015 and approved by the COPERMO.
French public hospitals can also receive liquidity support from the French state, through the ARS, in case of financial distress. AP-HM received EUR20 million in 2018 and another EUR20 million in 2019 of liquidity support. ARS monitors AP-HM’s liquidity through a dedicated control mechanism (“veille active du suivi de la trésorerie”).
ARS is also responsible for checking whether the hospital complies with three prudential ratios:
Financial independence ratio (debt / [equity + debt], warning sign above 50%)
Net debt/cash flow from operations ratio (warning sign above 10 years)
Debt/total revenue ratio (warning sign above 30%)
If at least two of these ratios are breached, ARS approval is required to borrow. At end-2019 AP-HM breached all three ratios, making new borrowings subject to the ARS’ approval.
In Fitch’s view, the law of 16 July 1980 makes the French state liable for the debt of its EPAs, including French public hospitals. We do not see the law as tantamount to a guarantee1, but we consider it as another form of support for public hospitals.
Socio-Political Implications of Default: Strong
The assessment of the rating factor depends on the hospital’s missions and its market share.
AP-HM is a university hospital, which means it has also research and education roles alongside with its medical one. AP-HM has a solid reputation and ranks among the best hospitals in France for some medical specialties, such as the treatment of bone cancer for children, epilepsy for adults and lung cancer.
1 What Investors Want to Know: The Status of EPs Is not Tantamount to a Guarantee (February 2018)
AP-HM is the main hospital centre in region Provence-Alpes-Cote d’Azur, and is the third largest in France. In its catchment area2, AP-HM represents about 20% of hospital stays according to the Ministry of Health’s figures. AP-HM has 3,400 beds and about 12,000 employees. Its main competitors are private hospitals: the hospital Saint Joseph and the European Hospital.
AP-HM is also at the head of the public hospitals grouping for the department of Bouches -du- Rhone, which structures the public health policy for the department. In particular it is responsible for planning and for the public hospitals’ buying strategy. As the largest public hospital on its territory, AP-HM is where the most complex cases are referred to, which in Fitch’s view reinforces its strategic importance.
Financial Implications of Default: Moderate
AP-HM’s adjusted debt was EUR1.0 billion at end-2018, including EUR168 million of bonds and EUR73 million of debt related to a public-private partnership. AP-HM is also part of the EUR228 million joint-bond issue by several French hospitals, maturing in 2023 (French Public Hospitals 3, ‘A+’).
Fitch considers that the financial implications for the state of a default by AP-HM would be limited, as for other French hospitals. However, Fitch considers that there would be a risk of contagion not only for other French public hospitals, but also for the cost of funding of other large French GREs if AP-HM were to default on its market debt.
Overall GRE Assessment
The assessment of AP-HM’s rating factors lead to a score of 35 under our GRE criteria.
2 “Zone de recrutement” defined by the ministry as the municipalities representing 80% of the patients who have been to this hospital.
Standalone Credit Profile Assessment
AP-HM’s SCP is ‘bb-’, which reflects a ‘Midrange’ assessment of both ‘Revenue Defensibility’
and ‘Operating Risk’ rating factors, as for other French public hospitals.
It also reflects a leverage ratio (net debt/EBITDA) that Fitch expects to be below 12x in the medium term in its rating case scenario, and a coverage ratio (EBITDA/debt service) above 1x.
The financial analysis is based on the hospital’s annual accounts. The latest available annual accounts refer to 2018 and were received an unqualified opinion by Deloitte.
Summary
Revenue
defensibility Operating risk Leverage ratio
(x), (year)rc Negative impact of
liquidity profile Asymmetric
risks SCP
Midrange Midrange 10.9 No No bb-
rc: Fitch’s rating case scenario Source: Fitch Ratings
Revenue Defensibility: Midrange
Attributes related to demand are ‘Strong’ as Fitch considers that the risk that revenue contracts in a structural way is limited, whereas pricing characteristics are ‘Weak’ as French hospitals cannot increase their tariffs if needed.
A Solid Demand
AP-HM’s patient base is diversified and is unlikely to shrink in an economic slowdown. The steady increase expected for the department of Bouches-du-Rhone’s population (+0.4% a year in 2011-2016) should have a positive impact on the hospital’s demand base over the medium term.
Pricing characteristics are ‘Weak’ due to the rigidity of AP-HM’s revenue from the social security system. The hospital cannot increase the tariffs on its own, as they are decided every year by the parliament. Like all French hospitals, AP-HM has been exposed to the reduction in hospital tariffs introduced in recent years to slow the increase in medical expenses. Tariffs increased on 1 March 2019 for the first time in 10 years. We also expect them to continue increasing in the coming years, which should have a positive impact on AP-HM’s operating income.3
A Very Competitive Environment
AP-HM is located in a territory where competitive intensity is very high. This is particularly reflected by its market share in its catchment area, which is below 20% (more than 33% for Assistance Publique-Hopitaux de Paris and 22% for Hospice Civils de Lyon, the two largest public hospitals in France).
3 What Investors Want to Know: French Government’s Plan is Credit-Positive for French Public Hospitals, November 2019
-3 -2 -1 0 1 2 3 4 5
2014 2015 2016 2017 2018
Annual Change in the Number of Stays
ONDAM Operating revenue Stays in catchment area
Source: Fitch Ratings, ATIH, AP-HM (%)
Revenue Breakdown (Excl. Non Cash Items), 2018
(EURm) (%) Medical activities 1,166 89 Transfers and grants from
public sector 68 5
Other 81 6
Operating revenue 1,315 100
Memo
Financial revenue 11 -
Capital revenue 17 -
Sales of assets - -
Source: Fitch Ratings, AP-HM
AP-HM is leader in its catchment area for medicine, with a market share of 32% (23% for the two largest private hospitals combined), and in obstetrics with a market share of 34% (36%), but has a lower market share in surgery, below 18% (21%).
Fewer than 4% of Bouche-du-Rhone’s residents went to another department for treatment, as compared with 45% of the residents of the department of Alpes-de-Haute-Provence for instance. In Fitch’s view this reflects the diversity and the quality of healthcare provided in the department and, indirectly by AP-HM which is central for this territory’s healthcare system.
AP-HM’s main asset is that, as a large university hospital, it covers almost all medical specialties and activities (proximity and referral). AP-HM achieves solid scores in several public hospital rankings on quality of the care .
AP-HM’s main competitors are two private not-for-profit hospitals (Saint Joseph and the European Hospital). The latter is brand new, having opened in 2013. In contrast, AP-HM has a dilapidation rate (average share of assets already amortised) for building s of 51% and for equipment of 75%, according to Hospi Diag.
Difficulties to Optimise Revenue
AP-HM’s operating revenue reached EUR1,315 million at end-2018 and is composed as follows:
43% tariffs linked to activity: each medical act is codified and reimbursed accordingly by the social security system, which is a sovereign risk.
42% other public subsidies to finance its research and education missions and cover its central costs. They also include the extraordinary liquidity subsidies received by AP - HM (EUR20 million in 2018 and 2019).
16% other operating income, including the sale of pharmaceutical products and revenue from stays not covered by the social security.
Overall, more than 80% of AP-HM’s revenue comes from the state through the ARS and the social security system, which in Fitch’s view considerably reduces counterparty risk.
AP-HM’s operating income increased by 1.6% a year on average in 2014-2018, driven mostly by public subsidies. Public subsidies to cover its public service mission have been increasing by 3% a year, which highlights the public sector support to the hospital.
The 1.6% increase is slightly lower than the ONDAM (2.1% a year on average) which underlines the hospital’s difficulties in optimising its revenue. The Regional Court of Accounts, in its 2018 report, reiterated the hospital’s weakness regarding the billing process, leading to a high risk of unpaid-for medical procedures.
In 2018, Fitch estimates that AP-HM received about EUR1,800 per stay of tariffs linked to activities, 10% below the EUR2,000 median for French hospitals rated by Fitch. Other revenue and public subsidies did not reduce the gap, which reached 11% (EUR4,300 of operating income for AP-HM against a median of EUR4,900).
Fitch considers that the hospital’s capacity to optimise its revenue will be key for the improvement of its financial profile
Operating Risk: Midrange
Our assessment reflects both the limited volatility of the main cost drivers, and limited flexibility to adjust them.
Below average-expenses
AP-HM’s operating expenses reached EUR1,232 million in 2018 and are mostly made up of staff costs (66%, in line with the national average), of pharmaceutical products purchase (26%) and of other miscellaneous expenses (8%). They increased by 1.1% a year on average in 2014- 2018, slower than operating revenue, driven mostly by staff costs. In 2018 AP-HM spent about EUR4,000 per stay, 12% less than other French hospitals rated by Fitch.
Staff costs are a rigid expenditure item, which is hard to reduce when revenue declines. Staff is mostly made up of civil servants, whose salaries are determined by a national framework and
follow an index set at the national level. AP-HM’s staff-stays ratio is 37% below the median, with about 22 stays per employee compared with 16 for Fitch-rated French hospitals.
However, absenteeism is well below the national average, with a direct impact on expenses.
The purchase of pharmaceutical products is a rigid expenditure item for hospitals. However, it is directly linked to activity, so it may be reduced when activity declines.
AP-HM’s weak liquidity means it is used to paying its providers late, which can result in them increasing their tariffs or endangering AP-HM’s supply chain. At end-2019, 48% of AP-HM’s unpaid bills were over the 50-day regulatory delay for hospitals.
Fitch considers that AP-HM has little flexibility on its operating expenditures, with the various operating expenditures ratios already below the sector’s medians. Due to AP-HM’s worsened financial situation, Fitch considers that strict control of its spending is essential for the hospital’s credit quality.
Large Capex Needs
As for other French hospitals, Fitch assesses AP-HM’s ‘Resource Management Risks’ as
‘Moderate’, whereas ‘Capital Planning and Management’ is ‘Neutral’. AP-HM’s capex is quite limited, representing only 3% of its operating expenses compared with 5% for the median of hospitals rated by Fitch. The Regional Court of Accounts noted in its 2018 report that a lot of investments were required, notably for the maternity wards and the safety updates at the sites of Timone and Nord.
In 2018 AP-HM presented its modernisation plan to the COPERMO, which declared it eligible for public co-funding and approved it on 29 January 2020. This project has two parts:
A plan to reorganise the hospital, called “Avenir AP-HM”, steered by a Transformation Directorate and aiming at optimising revenue and reducing costs. The plan includes the reorganisation of technical platforms and hospitalisation units, and the optimisation of the patients’ path.
A restructuring of existing buildings with the construction of a new building at Timone to bring together the maternity and paediatric services, and the disposal of several buildings and land. AP-HM’s capacity in terms of beds should slightly decline, in line with the shift towards outpatient care taken by French hospitals.
In its financial forecasts, AP-HM plans a significant increase in capex, which should reach EUR80 million a year on average in 2020-2023 (6% of operating expenses) against EUR50 million a year until 2019. Total capex include projects approved and 50% co-financed by COPERMO (EUR343 million in 2019-2029), and recurring and other investments (EUR159 million in 2019-2029).
Capex includes the renovation of hospitalisation units, the creation of ambulatory surgery units, the construction of a new maternity ward, safety work on several buildings, and the creation of a “genopole” (merger of 18 existing laboratories with economies of scale expected).
Total capex should be 30% funded by subsidies and 15% by income from asset disposal (about EUR60 million of asset disposals estimated over 2020-2029).
Improving Debt Ratios
Our rating case scenario includes a slowdown in the improvement of EBITDA over the next few years, due to inflationary pressure on operating expenses. Fitch’s capex assumptions are in line with the hospital’s. Fitch expects AP-HM’s net debt-to-EBITDA ratio to improve to below 12 years by 2023.
Expenses Breakdown (Excl.
Non Cash Items), 2018
(EURm) (%)
Staff costs 808 66
Goods and services 407 33
Other 18 1
Operating expenses 1,232 100
Memo
Financial expenses 41 -
Capital expenses 41 -
Source: Fitch Ratings, AP-HM
Our rating case scenario is based on the following assumptions:
Fitch’s Base and Rating Cases Main Assumptions
2014-2018
CAGR
2019-2023 CAGR
Base case Rating case
National nominal GDP growth (Fitch’s assumptions)a 2.4 3.0 -
Operating revenue growth (%) 1.6 1.3 1.1
Central government primary balance/GDP (%)a -1.5 -1.5 -
Transfers received growth (%) 2.2 1.0 1.0
GPD deflator Francea 0.8 1.6 -
Operating expenditure growth (%) 1.1 1.0 1.0
Net capital expenditure (average per year; EURm) -27 -39 -39
French Government, OAT 10 years (end-October 2019)a 0.08 - -
Apparent cost of debt (%), 2018 3.9 3.3 3.3
a Macro assumptions reflect Fitch’s sovereign assumptions Source: Fitch Ratings
AP-HM’s debt ratios are historically high: net debt represents 12x the EBITDA in 2018, a sharp improvement on 29x in 2016 thanks to public subsidies received. The coverage ratio is weak, the EBITDA being insufficient to fully cover the debt service.
Fitch’s calculated EBITDA reached EUR83 million in 2018, a sharp improvement compared with 2017 (EUR72 million) and 2016 (EUR72 million), thanks to public subsidies and the strict management of operating expenses.
Net debt decreased slightly from EUR1,116 million in 2014 to EUR1,020 million in 2018.
AP-HM aims at improving its financial profile in the coming years, as prescribed by its recovery plan with the ARS. AP-HM’s main financial objective is to keep deleveraging.
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
0 5 10 15 20 25 30 35
Historical Base case Rating case
Net Adjusted Debt/EBITDA - Fitch's Base and Rating Case Scenarios
(x)
Source: Fitch Ratings, Issuer
-100 -50 0 50 100
2014 2015 2016 2017 2018
T2A Other public transfers Other revenue Staff costs
Medical products Other opex EBITDA
Source: Fitch Ratings, AP-HM
Annual Changes in EBITDA and Components (EURm)
Financial Profile Ratios
Leverage: net adjusted debt / EBITDA (x)
Gross Interest Coverage: EBITDA / Gross Interest (x)
Fitch’s Rating-Case Scenario The rating case is a through-the-cycle scenario that incorporates a combination of revenue, cost or financial risk stresses.
Liquidity Profile – ‘Weaker’: Structural Feature of the Sector
French public hospitals’ liquidity is generally tight, which is a structural feature of the sector.
Cash must be deposited with the central treasury and cannot earn interest, so there is no incentive to accumulate large amounts of liquidity, and some hospitals apply a “zero cash”
policy. Fitch therefore applies a low weight to French public hospitals’ liquidity profile in the final SCP assessment. At end-2019 AP-HM’s cash reserves were negligible, whereas it represented about nine days of operating expenses for the median of hospitals rated by Fitch in 2018.
This weak liquidity is also constrained by the hospital’s negative working capital estimated at EUR50 million at end-2019, leading the hospital to use credit facilities with commercial banks that it has to pay for.
At end-2019 AP-HM has EUR50 million of credit facility available with the Caisse d’Epargne CEPAC (A+/Stable), covering 15 days of operating expenses. The credit facility is available until November 2020.
To bridge the gap between when the medical acts are carried out and when the hospitals get paid by the social security, AP-HM has entered into a factoring contract with La Banque Postale (A-/Stable) in May 2018.This acts as a cash advance with an annual amount limited to EUR690.5 million. It enables the hospital to smooth its liquidity needs over the year.
AP-HM’s liquidity is also supported by the diversity of its funding sources, which include commercial banks (its main lender, SFIL CAFFIL, only represents 20% of its outstanding debt) and bonds.
Asymmetric Risks: Neutral
AP-HM’s debt structure is sound. At end-2019, 70% of the debt was fixed rate and 93% was considered risk-free by national legislation (plain vanilla). About 4% of the debt (EUR40 million) is considered risky, but EUR11 million are covered by a swap contract, reducing the risky part to EUR29 million. Fitch considers the risk to be bearable for the hospital.
The debt includes a public-private partnership signed in 2010 for a logistics platform, with EUR69 million remaining to be paid at end-2019.
The risk of weak governance and management remains limited due to the tight monitoring by the ARS. ARS may even place a public hospital under provisional administration in case of financial difficulties.
Asymmetric Risks Assessment
Debt structure and
contingent liabilities Management and
governance Legal and
regulatory Information
quality Country Ceiling and legal regime
Neutral Neutral Neutral Neutral Neutral
Source: Fitch Ratings
Peer Analysis
AP-HM’s ‘bb-’ SCP is below that of Assistance Publique-Hopitaux de Paris, whose debt ratios are slightly better in Fitch’s rating case scenario. AP-HM’s SCP is at the same level as that of Nancy hospital, whose debt ratios are slightly higher than AP-HM’s.
Liquidity Cushion Calculation
(EURm) 2019rc
Available cash, 2019rc 0.1
Unrestricted cash, 2019rc 0.1 Liquid Investments, 2019rc 0 Undrawn committed credit lines 50
EBITDA, 2020rc 80
Debt service, 2020rc -107
Cash operating expenditure,
2020rc -1,262
Liquidity cushion (x) 0.0 rc: Rating case scenario
Source: Fitch Ratings, AP-HM
Debt Analysis
End-2019 Fixed rate (% of adjusted debt) 70 Short-term debt (% of adjusted
debt) 3
Average cost (%) 3.00
Average maturity (years) 8.5 Source: Fitch Ratings, AP-HM
Peers
French hospitals Sponsor GRE
Score Leverage,
2023rc SCP IDR Rating approach
AP-HM French state 35 10.9 bb- AA- Top-down, -1
Assistance Publique-
Hopitaux de Paris French state 50 10.4 bb AA Ratings equalisation
Nancy, CHU French state 35 14.9 bb- AA- Top-down, -1
Rennes, CHU French state 35 4.8 bbb+ AA- Top-down, -1
Roubaix, CH French state 25 3.8 bbb+ A Top-down, -3
Strasbourg, CHU French state 35 7.0 bb+ AA- Top-down, -1
International peers
Erasmus MC Netherlands 35 6.4 aa cat AAA Ratings equalisation Elizabeth-
TweeSteden Ziekenhuis
Netherlands 12.5 3.4 a- A Bottom-up, +1
Stichting Noordwest
Ziekenhuisgroep Netherlands 17.5 3.6 a- A+ Bottom-up, +2 Source: Fitch Ratings
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3 – ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.
For more information on our ESG Relevance Scores, visit:
https://www.fitchratings.com/site/esg.
Appendix A
(EURm) 2014 2015 2016 2017 2018
Income statement
Turnover 1,069.3 1,090.5 1,112.2 1,142.0 1,165.9
Staff expenses -766.5 -781.5 -797.0 -801.8 -808.1
Depreciation -71.3 -68.8 -68.8 -72.8 -67.6
Other operating revenues and
expenditure -309.9 -318.6 -311.7 -316.7 -320.1
Operating balance before grants and subsidies
-78.4 -78.4 -65.2 -49.3 -29.9
Revenue from public sector 62.5 57.3 73.4 59.9 68.1
Operating balance after revenue from public sector
-15.9 -21.1 8.2 10.6 38.3
Interest revenue 12.8 5.0 0.4 0.4 10.7
Interest expenditure -47.7 -36.2 -33.9 -32.4 -40.6
Operating balance after financing -50.7 -52.3 -25.3 -21.5 8.3
Surplus on disposal of fixed assets 0.0 10.0 2.3 1.0 2.2
Non-operating revenue and expenditure 10.3 -18.9 -18.1 9.0 0.6
Profit (loss) before taxation -40.4 -61.3 -41.0 -11.5 11.1
Taxation 0.0 0.0 0.0 0.0 0.0
Profit (loss) after tax -40.4 -61.3 -41.0 -11.5 11.1
Balance sheet Assets
Tangible assets 1,020.7 990.6 931.4 904.8 877.4
Intangible assets 17.6 13.4 14.1 14.1 14.3
Other long-term assets 1.3 1.7 0.9 0.9 0.9
Long-term investments
Stock 12.0 13.1 16.7 17.2 17.3
Trade debtors 237.1 240.3 168.1 164.5 169.5
Other current assets 33.6 27.9 38.1 30.7 55.7
Cash and liquid investments 6.4 1.1 1.2 5.5 0.1
Total assets 1,328.4 1,288.0 1,170.6 1,137.7 1,135.3
Liabilities and equity
Long-term liabilities 192.3 204.5 223.1 195.4 184.5
Pension
Long-term debt 921.1 915.8 914.1 911.5 914.2
Trade creditors 130.0 161.8 196.1 185.7 215.6
Other short-term liabilities 31.1 34.6 43.4 46.4 54.2
Short-term debt 106.3 78.9 68.6 74.4 33.1
Equity 199.6 199.5 199.6 203.4 204.8
Reserves -252.1 -307.0 -474.3 -479.2 -471.1
Minority interests
Liabilities and equity 1,328.4 1,288.0 1,170.6 1,137.7 1,135.3 Debt statement
Short term debt 106.3 78.9 68.6 74.4 33.1
(EURm) 2014 2015 2016 2017 2018
Long term debt 921.1 915.8 914.1 911.5 914.2
Finance leases 88.1 84.5 80.7 76.7 72.7
Total debt 1,115.6 1,079.1 1,063.4 1,062.6 1,020.0
Other Fitch classified debt 0.0 0.0 0.0 0.0 0.0
Adjusted debt 1,115.6 1,079.1 1,063.4 1,062.6 1,020.0
Cash, liquid deposits and sinking fund 6.4 1.1 1.2 5.5 0.1
Net adjusted debt 1,109.2 1,078.0 1,062.2 1,057.2 1,019.8
Contingent liabilities 0.0 0.0 0.0 0.0 0.0
Net overall adjusted debt 1,109.2 1,078.0 1,062.2 1,057.2 1,019.8
- - -
% debt in foreign currency - - - - -
% issued debt 8.3 8.5 12.6 15.3 17.7
% debt at fixed interest rate 68
(EURm)
Cash flow statement
EBITDA 53.5 43.5 36.9 71.9 82.9
Cash flow from operations 13.5 -2.3 -20.1 26.3 38.6
Net capital expenditure -41.3 -24.2 -23.5 -23.2 -24.6
Cash flow before financing -27.8 -26.4 -43.6 3.1 14.0
New borrowing 53.9 33.0 41.5 39.6 47.7
Other cash financing 46.6 40.5 57.3 18.0 -7.7
Debt repayment -67.5 -52.4 -55.0 -56.5 -59.4
Cash flow after financing 5.2 -5.3 0.1 4.3 -5.4
Source: Fitch Ratings, AP-HM
Appendix B
Ratio analysis 2014 2015 2016 2017 2018
Profitability ratios
Personnel costs/operating revenue (%) 64.9 65.2 64.3 66.0 65.6 Revenue from the public sector/operating
revenue (%) 34.4 34.0 33.1 33.3 33.0
EBITDA/operating revenue (excl. non-cash items) (%)
4.3 3.5 2.9 5.6 6.3
Balance sheet ratios
Current assets/total assets (%) 22 22 19 19 21
Current assets/total debt 26 26 21 21 24
Return on equity (%) 77 57 15 4 -4
Return on assets (%) -3 -5 -4 -1 1
Debt ratios
Net adjusted debt/EBITDA (x) 20.7 24.8 28.8 14.7 12.3
EBITDA/gross interest coverage (x) 1.1 1.2 1.1 2.2 2.0
Net adjusted debt/operating revenue
(excluding non-cash items) (%) 90 87 83 83 78
Total debt/total assets (%) 84 84 91 93 90
Liquidity ratios
Liquidity cushion (x) - -0.08 -0.06 0.02 0.02
Coverage ratio (ST rating criteria) (x) - 0.0 0.0 0.0 1.8
Source: Fitch Ratings, AP-HM
Appendix C
(EURm) 2018 2019rc 2020rc 2021rc 2022rc 2023rc
Fitch’s rating case scenario
Operating revenue (excluding non-cash items)
1,315 1,327 1,342 1,357 1,372 1,387 Operating expenditure (excluding non-
cash items) 1,232 1,249 1,262 1,274 1,287 1,300
EBITDA 82.9 77.5 79.8 82.2 84.6 87.1
Interest revenue 11 0 0 0 0 0
Interest expenditure 41 32 32 32 32 32
Financial balance -30 -32 -32 -32 -32 -32
Net capital expenditure -25 -43 -45 -36 -34 -35
Other cash-items - - - -
Change in net cash-flow 28,4 2,9 2,4 13,9 18,2 19,3
Adjusted debt 1,020 1,012 1,002 979 948 914
Unrestricted cash 0 0 0 0 0 0
Net adjusted debt 1,020 1,013 1,007 990 968 946
Financial and liquidity ratios
Net adjusted debt/EBITDA (x) 12.3 13.1 12.6 12.0 11.4 10.9
EBITDA/gross interest coverage (x) 2.0 2.4 2.5 2.5 2.6 2.7
Liquidity cushion (x) 0 0 - - - -
Coverage ratio (ST rating criteria) (x) 1,8 3,1 - - - -
rc: Fitch’s Rating Case Scenario Source: Fitch Ratings
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