CMA appellants "remain under strain"

While viewing the recent appeal decisions by the competition watchdog on four of Ofwat’s price control final determinations as “generally positive for the networks”, credit ratings agency S&P Global has warned the three water and sewerage company appellants will “need to take other actions to maintain their credit standings.”

In a recent note: Was Appealing Ofwat's Determination Worth It? S&P anticipated the provisional findings by the Competition and Markets Authority (CMA) would “support the respective companies' credit metrics over AMP7.” But it said the ratings of Anglian Water, Northumbrian Water and Yorkshire Water “remain under strain.”

On the grounds that the CMA aims to release its final decision in December 2020. S&P forecast that the companies’ fully finalised business plans were unlikely to appear before the first quarter of 2021. So having operated for the first year of AMP7 under Ofwat's pre-CMA final decision, S&P said their ratings are on CreditWatch negative or have a negative outlook.

“In our view, these companies are operating with limited headroom or below the level we see as commensurate with their current ratings and will likely continue to do until 31 March 2021.

“Although credit metrics could improve, compared with the projections we based on inputs from Ofwat's final decision, we still expect these UK water networks to face tougher operating conditions in AMP7 than in the current regulatory period, like the rest of the sector.”