Moody's assigns medium investment grade rating to Bazelgette debt note

Ratings agency, Moody's Investors Service has assigned a medium investment grade

rating to £300 million debt notes issued by Bazalgette Tunnel – the company behind the Thames Tideway Tunnel (TTT) project.

Bazalgette has issued the notes to fund “general corporate purposes.”

Moody’s said it has given a Baa1 rating to Bazalgette’s 2.86% guaranteed senior secured fixed-rate notes due 28 September 2032 reflecting:

  • its credit quality as a licensed entity;

  • its highly-covenanted financing structure; and

  • the “significant” construction risk of the Thames Tideway Tunnel - with extensive tunnelling through London.

The rating reflects also five risk mitigation factors:

  • a government support package that provides additional funds in defined circumstances and

  • enhances senior debt recovery in most scenarios;

  • a strong regulatory framework that ensures ongoing revenues based on a forward-looking

  • capital expenditure forecast;

  • a financing structure that ensures that Bazalgette will maintain a prudent financial policy and its strong liquidity position; and

  • the front-loaded equity injection, which boosts senior lenders’ recovery prospects should the project fail during construction, when compensation would be payable under the government's support package.

Moody’s outlook rating is “stable” in line with Bazalgette’s “strong

resilience to downside scenarios”.

A rating upgrade was “unlikely over the construction period” said Moody’s. Upgrades could follow:

  • successful handover and acceptance of the TTT assets;

  • Bazalgette’s subsequent establishment of a successful track record in operations and financing; and

  • continuation of a predictable regulatory approach.