Anglian clings onto its ratings as Moody's downgrades Osprey and SES

Moody’s last week confirmed the Baa1 corporate family rating of Anglian Water Services, as well as the A3 senior secured and Baa3 subordinated debt ratings of the Class A and Class B notes issued by Anglian Water Services Financing. The outlook on the ratings is negative.

The agency said unless the CMA makes significant alterations to Anglian’s settlement, the ratings should stand as a positive outcome for the firm would still leave it with weakly positioned credit metrics consistent with the ratings, while management are expected to modify the company’s investment profile to limit the adverse impact on credit metrics if the case doesn’t go the company’s way.

At the same time, Moody’s downgraded to B1 from Ba3 the senior secured ratings of Osprey, Anglian Water's unregulated holding company. It said this reflects the likelihood of weaker cash flow at Anglian Water. “Although Osprey maintains an 18-month liquidity reserve, a persistent stoppage of dividends from Anglian Water would mean a breach of Osprey's default covenant for cash dividend cover of at least 2.0x. In addition to formal cash- trapping mechanisms, Anglian Water may be unable or unwilling to pay sufficient dividends, net of equity injections, to cover interest costs at Osprey if doing so results in unsustainable gearing increases at the operating company, although this is not current anticipated.”

Also last week, Moody’s downgraded to Baa2 from Baa1 the senior secured underlying debt rating of SES Water, with a negative outlook. This reflected anticipated pressure on the company's financial metrics – particularly interest coverage – from lower returns, lower totex than requested especially on retail, and challenging performance targets, as well as Moody's expectation that SES Water will, absent operational or financial outperformance, be unable to maintain ratios in line with guidance for the previous Baa1 rating.

The ratings agency said: “The low returns [from PR19] put particular pressure on companies like SES Water, which have expensive existing debt, and whose smaller size means that they access financial markets less frequently and are, thus, not able to benefit fully from lower interest rates today.”