PR19: credit ratings continue to tumble

There were a clutch of ratings actions last week, as agencies digested the impact of Ofwat’s PR19 final determinations on water companies.

• Yorkshire Water – Moody's confirmed the Baa2 corporate rating of Yorkshire Water, but downgraded to Baa2 from Baa1 the senior secured rating of the Class A notes issued by Yorkshire Water Services Finance and Yorkshire Water Finance. Other ratings of Yorkshire Water Services Finance and Yorkshire Water Finance remained unchanged. The outlook on the ratings was negative. The agency explained the downgrade of the Class A notes “reflects the persistently high and growing mark-to-market loss on Yorkshire Water's derivative portfolio.”

• Northumbrian Water – Moody’s extended its review for downgrade on the Baa1 issuer

rating of Northumbrian Water and senior unsecured debt ratings of Northumbrian Water Finance. It said this reflected Northumbrian's “exposure to the significant cut in allowed returns from 2020 and more challenging targets, and Moody's expectation that, absent a more favourable determination by the CMA, measures to strengthen its balance sheet and/or significant outperformance, key ratios will fall below Moody's guidance for the current rating category. It also takes into account that the company will not have certainty over its revenues and investment programme for a further six to 12 months and that the eventual determination may not result in a material improvement from Ofwat's final determination.”

• Bristol Water – Moody’s downgraded to Baa2 from Baa1 the backed senior secured debt rating of Bristol Water, with a negative outlook. It explained: “Specifically, the downgrade to Baa2 reflects Moody's view that Bristol Water will be unable to maintain financial ratios in line with guidance for the previous Baa1 rating. Ofwat's final determination presents a range of challenges and whilst the CMA appeal may result in a more favourable settlement, the rating agency does not expect any increase in allowances will be enough to restore Bristol Water's credit quality. In addition, the negative outlook considers the uncertainty and delay associated with the appeal and risk that absent material outperformance, a better re-determination and/or balance-sheet strengthening measures, financial metrics could also fall outside of the boundaries for the Baa2 rating.”

• South East Water – Moody’s affirmed the Baa2 senior secured debt ratings of South East Water

(Finance) Limited, whose issuance is guaranteed by South East Water. The rating outlook is stable. It said the company had adequate financial flexibility to accommodate Ofwat's final

determination while maintaining financial metrics in line with guidance for the current rating.

• Wessex Water – Fitch Ratings downgraded Wessex Water’s long term issue default rating (IDR) to BBB from BBB+; holding company Wessex Water Limited's Long-Term IDR to BBB- from BBB; and WWSL’s senior unsecured rating to BBB+ from A-. The outlooks are stable.