Moody's downgrades outlook for Thames Tideway parent

Ratings agency Moody's Investors Service has downgraded its outlook on Bazalgette Tunnel – the special purpose entity developing the Thames Tideway Tunnel – and Bazalgette Finance to negative from stable based on the finance arm’s recent announcement that it expects the Covid-19 pandemic to delay completion of the project by nine months and to increase total costs by £233m.


Moody's said it expected the additional costs to “exacerbate the project's over-spend against regulatory allowances”. It said forecast total costs have grown from £3.1bn to £3.7bn including the estimated Covid-19 impact as well as cost increases in 2019 and 2020. This comes despite Ofwat’s indication that it was willing to allow the company to recover part of the associated costs.

Part of the over-spend, said Moody’s, will be absorbed by Bazalgette through a log down of its regulatory capital value. But the cost increases, it said, would also mean that headroom to the £4.1bn "threshold outturn" embedded in Bazalgette's licence has been “significantly reduced” and Bazalgette could be fully responsible for cost increases above that level unless Ofwat or the Competition and Markets Authority determine otherwise. or the government provides additional equity under the terms of the Government Support Package.

Concurrently, Moody's has affirmed Bazalgette's Baa1 corporate family rating and backed Baa1 senior secured rating, and Bazalgette Finance's Baa1 senior secured and provisional Baa1 senior secured medium-term note ratings.