Northumbrian wins stable outlook and affirmed investment grade credit rating from Moody's

Moody's Investors Service (Moody's) has assigned Northumbrian Water and Northumbrian Water Finance a stable outlook from negative and affirmed the water firm’s Baa1 (investment grade) long-term issuer rating and Northumbrian Water Finance's Baa1 backed senior unsecured debt ratings.

This rating action followed publication of the redetermination – on appeal to the Competition and Markets Authority (CMA) – of Northumbrian Water's allowed revenue for AMP7. The action also followed the conversion of £1bn of shareholder loans at Northumbrian Water's parent company, Northumbrian Water Group, to equity in December 2020.

Moody’s said its rationale for its actions reflected the CMA's redetermination, which included an increase in allowed wholesale return and a modest increase in wholesale total expenditure allowance above Ofwat's allowance.

Following the conversion of shareholder loans to equity Moody's expected NWG to achieve an Annual Interest Cover Ratio (AICR) of around 1.8x over the last four years of AMP7. Moody's expects net debt to remain

at around 70% of Regulatory Capital Value at Northumbrian Water and 73% in NWG.

Moody’s said the ratings remain supported by:

• Northumbrian Water's low business risk profile as the monopoly provider of essential water and

• sewerage services;

• its relatively stable and predictable cash flow generation under a well-established and transparent regulatory framework; its track record of strong operational performance; and

• its flexible dividend policy aiming at maintaining operating company gearing at or below 70%, excluding Moody's adjustments.

The stable outlook, Moody's said reflects its expectation that Northumbrian Water and NWG will achieve an AICR above the minimum guidance for the current rating, 1.5x and 1.3x respectively, on average over AMP7.