Rating agency affirms credit score and ups outlook for Affinity Water

Moody's Investors Service has affirmed its credit rating on Affinity Water and changed its outlook to stable from negative.

Moody’s said Affinity’s measures “create financial flexibility in the face of challenging performance targets over

the AMP7 period.”

Moody's said recent measures indicated that Affinity Water “will maintain financial ratios in line with guidance for its current ratings.” It went on to forecast that lower allowed returns and challenging regulatory targets under AMP7 will weigh on financial metrics. But interest cover ratios will, Moody’s said, be supported by an increase in the proportion of the company's inflation-linked debt as a result of new derivative transactions executed over the past year with a notional value of £250m and interest rates linked to the consumer prices index (CPI).

The company's derivatives portfolio links to its underlying debt structure and better aligns its debt service with an inflation-linked cash flow stream under the regulatory tariff setting model. Moody's expects Affinity Water's

adjusted interest coverage ratio (AICR) to average around 1.5x and gearing to remain just under 80% over AMP7.

The stable outlook reflects Moody's expectation that Affinity Water's metrics will remain in line with the rating agency's guidance for a Baa1 corporate family rating over the current regulatory period

including RCV-gearing no higher than 80% and an AICR of at least 1.3x.