Price control drives Fitch downgrades on Yorkshire Water debt
Fitch Ratings has downgraded Yorkshire Water's senior, secured debt rating to A- from A, and subordinated debt rating to BBB from BBB+ in light of PR19 determinations. All ratings have been removed from Rating Watch Negative and all Outlooks are Stable.
The downgrades, according to Fitch, “reflect pressure on Yorkshire Water's (financial profile from Ofwat's challenging final price determinations.” Fitch said it expected Yorkshire’s financial profile to be below its negative rating threshold 'A'/'BBB+' in the next regulatory period.
Fitch said the stable outlooks reflect the possibility of credit-negative and -positive events, including the outcome of Yorkshire’s Competition Markets Authority (CMA) appeal, potential balance-sheet strengthening and the ultimate coronavirus impact.
The Covid pandemic will, Fitch forecast, affect Yorkshire’s revenue “marginally” because
the projected fall in non-household (NHH) “will likely be offset by an increase in households use.
“We expect revenue collection to suffer from the lockdown, with a potential increase in bad debts of around £10m over full years 2021 and 2022,” said Fitch. The rating firm foresaw “limited” impact on Yorkshire’s NHH revenue because some 85% of it comes from “financially sound” Business Stream. The remaining 15% is exposed to a maximum monthly wholesaler charge of £3 million-£4 million.
Fitch estimated that bad debt would increase to 1% of revenue – about £7million.