Fitch Rates Stichting Elisabeth-TweeSteden Ziekenhuis 'A'; Outlook Stable
Fitch applies its not-for profit hospital criteria to determine the standalone ratings of ETZ and its public-sector entities criteria to add a single-notch uplift to the standalone credit profile. The standalone assessment takes into account several factors such as ETZ's organisation, strategy, governance, service area, quality and patient's safety as well as the hospital's financial profile with respect to liquidity and debt.
The one-notch uplift reflects our assessment of the limited probability of substitution as ETZ is one of the largest hospitals in the Province of Noord-Brabant and functions as a reference hospital in southern Holland in neurology or traumatology. Fitch has therefore assessed this attribute as stronger.
KEY RATING DRIVERS
The ratings reflect the strong market position of ETZ and high per capita income of its catchment area. ETZ is a major top clinic hospital in the Netherlands, with currently about 6,500 total employees, including 4,000 full-time employees, as ETZ decided to maintain a high level of part-timers to maximise employee satisfaction. Located in the City of Tilburg, ETZ has a dominant market position in Midden Brabant, one of the four divisions of the Province of Noord-Brabant.
With a GDP estimated at EUR100bn, Noord-Brabant is viewed as a wealthy province with a GDP per capita 34% above the EU average. Its unemployment rate was 6.5% in 2015, below the Netherlands' 6.9%. The City of Tilburg had a total population of 210 thousands inhabitants. Including surrounding cities the population was estimated at 300 thousands inhabitants, and grew about 6.2% between 2000 and 2013, which is a positive rating factor. Additionally, its ageing population ensures demand for hospital services.
Another factor supporting the ratings is the stability of ETZ's revenue. ETZ is the merger of two large hospitals located both in the City of Tilburg and a smaller hospital in Waalwijk. Together, operating revenue almost reached EUR500m in 2015. The bulk of its revenues stem from insurance companies although 79% is sourced from only two insurance companies, resulting in concentration. All Dutch citizens must have healthcare insurance and Fitch assumes insurance companies are in a sound financial position to meet payment claims.
The ratings also take into account ETZ's financial performance. ETZ reported an EBITDA at 10.9% of its operating revenue in 2015, despite extra costs related to the merger that took place in 2015. Around 95% of its revenue comes from swift payments from insurance companies, thus relieving ETZ of the need to maintain a high level of cash. ETZ's debt has been declining to an estimated EUR181m at end-2015 while debt-to-EBITDA was only 3.3x. Debt may increase to fund a new IT system but Fitch does not project significant deterioration in the hospital's debt metrics. ETZ is well-capitalised, with equity and reserves accounting for about 30.7% of assets.
Given the size of the hospital and the absence of alternative hospitals in its catchment area, the possibility of having the services transferred to other hospitals is considered as remote and therefore Fitch has assessed this attribute as stronger.
An upgrade could result from:
-An improvement of the financial profile resulting from, in particular, an accumulation of substantial cash reserves representing 40% of debt servicing, or from an increase in operating margins.
- A reassessment of regulatory support leading to an increase in the rating uplift.
A downgrade could result from:
- An increase of operating expenditure not compensated by insurance fees combined with a structural increase of debt.
- A reassessment of regulatory support leading to a removal of the rating uplift.