In addition to affirming some existing ratings, Moody’s last week downgraded to Baa1 negative outlook, from A3, the corporate family rating of Anglian Water Services Ltd. This is not just a result of the challenging regulatory environment, but a company-specific view “that the benefit of credit-enhancing features in Anglian Water's financing structure has reduced. This is because in an environment where companies will have to invest more and potentially incur larger penalties, the amount of cash flow that may be locked up during a trigger event is diminished. In addition, any potential longer-term distribution block will likely deter future equity injections.”
Moody’s also downgraded Dwr Cymru’s long-term Corporate Family Rating (CFR) and Dwr Cymru (Financing) UK Plc's senior secured, backed senior secured and underlying senior secured debt ratings to Baa1 from A3.
Moody’s has concerns about penalties the company might incur. Ofwat rejected Welsh Water's request for a bespoke, harm-based storm overflows Outcome Delivery Incentive – instead mandating a spills-based measure. Moody’s expects the company to incur a £16m penalty on this measure, which could worsen towards the maximum £60m penalty if performance does not improve from 2023-24 levels.
In addition, Welsh Water's expected performance under the mains bursts ODI (used as a proxy for asset health) has deteriorated since the draft determination, with the company now expecting to complete more work to achieve its leakage target. Moody’s expects Welsh Water to incur a penalty of around £25m on this incentive, close to the maximum of £32m.
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