Moody’s forecasts spending cuts as firms battle credit quality deterioration

Ahead of the publication today of Ofwat’s PR19 Final Determinations (FDs), Moody’s cautioned last week that the UK water industry could experience the largest deterioration in credit quality since privatisation.

The warning was based on the ratings agency’s predictions of:

• a 20 basis point reduction on draft determination returns;

• a large gap remaining between Ofwat’s view and companies’ views on base cost allowances; and

• looming operational performance penalties.

It said the FDs would kick in in April 2020 regardless of whether companies appeal to the Competition and Markets Authority.

Moody’s predicted companies would reduce or defer spending and focus their efforts on avoiding operational penalties as they battle with deteriorating credit quality.