Moody's ups outlook on Bazalgette to stable

Moody's Investors Service has changed its outlook on Thames Tideway Tunnel developer and finance, Bazalgette to stable from negative.

Moody’s said the rating action "reflects a provisional agreement reached between

Bazalgette and Ofwat, its regulator, to limit the negative impact of

prevailing low interest rates and coronavirus-related costs on the

company's allowed revenue.”

Under the agreement, revenue declines under an interest rate-related mechanism were fixed at £18.5m a year for ten years. Moody’s estimated that, left unamended, the mechanism would have wiped £50m a year form the company’s revenues.

Moody’s reported that Ofwat has also provisionally agreed that Bazalgette will bear only 15% of

coronavirus-related costs incurred before July 2020 and 20% of costs

incurred between July 2020 and June 2021, compared to the standard rate

of 40% currently prescribed by its licence.

The ratings agency calculated that were Ofwat to ultimately agree

with Bazalgette's £184mi estimate of coronavirus-related costs,

That would boost Bazalgette's Regulatory Capital Value by £43-44m compared to the status quo. The RCV, plus an allowed return, will be recovered from customers over the life of the project.

Moody’s said the rating action also reflected “continued progress in delivery of the

Tideway project, which was 70% complete as of September 2021, including

76% of primary tunneling”