OREANDA-NEWS. Fitch Ratings has published University Hospital of Rennes' (CHU of Rennes) Long-Term Local Currency Issuer Default Rating (IDR) of 'AA' and assigned Long-and Short-Term Foreign Currency IDRs of 'AA' and 'F1+', respectively. The Outlook is Stable.

Fitch rates CHU of Rennes on a top-down basis under its public-sector entity rating criteria, due to its 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 CHU of Rennes are credit-linked to, and equalised with, those of France.

KEY RATING DRIVERS

As a PHE, Fitch expects that CHU of Rennes to benefit from very strong state support in case of need. The French government does not explicitly guarantee CHU of Rennes' debt, but Fitch assumes that the State would have the willingness to provide timely support in case of need. By virtue of its status, the assets and liabilities of CHU of Rennes cannot be liquidated or transferred to entities other than the French State. Moreover, as a PHE, the debt of CHU of Rennes is included in social security debt, which is accounted as general government debt under the Maastricht Treaty.

CHU of Rennes' Director is appointed by a presidential decree. Fitch expects CHU of Rennes will continue to require approval from the regional health agency (ARS) of its new borrowings for 2016. The agency also believes that the State's strong financial supervision through ARS on CHU of Rennes' multi-year funding and revenue and expenditure will help keep the PHE's budget in check.

CHU of Rennes performs an essential public service through its provision of healthcare services, medical teaching and research, and represents 32% of the supply of hospital care within a 50km radius of its geographical area, while its private hospitals represent another 16%. CHU of Rennes' revenues are highly dependent on the State's decisions on tariff-setting and on general grants to finance the entity's public health responsibilities.

Fitch expects CHU of Rennes to achieve its gross margin target (without subsidies) of 5.8% in 2020 with a consolidated positive net result of EUR8.6m, following implementation of efficiency measures. For 2016 Fitch expects CHU of Rennes' gross self-financing capacity (SFC; EUR30.3m) will be sufficient to cover debt repayment of EUR21m. This will represent an improvement on 2015 when a significant debt burden resulted in CHU of Rennes' financial metrics being only in line with 'BBB+' rated peers.

Fitch expects long-term debt to decrease to EUR195.3m in 2020 from an estimated EUR243.3m at end-2016 (2015: EUR254.2m), driven by improved budgetary performance. Fitch assumes annual capital expenditure of EUR35.4m over 2016-2020, up from EUR29.7m at end-2015. Active debt management means CHU of Rennes does not hold any high-risk derivative products.

CHU of Rennes benefits from predictable cash flow as its main treasury inflows from the State are set by law. Fitch views CHU of Rennes' liquidity arrangements as sufficient for covering debt service (stable at 1.4x at end-2015).

RATING SENSITIVITIES

A downgrade of CHU of Rennes could result from a significant weakening of budgetary and financial support from the State, or adverse changes to its liquidity back-stop provided by the French State. An adverse change to CHU of Rennes' status could also result in a downgrade, although Fitch considers such a change unlikely at present. Rating action on the French sovereign would lead to a corresponding action on CHU of Rennes.