Standard & Poor’s ratings agency has said that following the appeal by four U.K. water companies against Ofwat’s final determination for PR19 2020-2025, it considers the Competition and Markets Authority (CMA) provisional findings as generally credit positive.
Standard & Poor’s ratings agency has said that following the appeal by four U.K. water companies against Ofwat’s final determination for PR19 2020-2025, it considers the Competition and Markets Authority (CMA) provisional findings as generally credit positive.
S & P said it will review its ratings in early 2021, after it has reviewed the CMA's final decision and the plans from the three rated companies.
Currently all S & P ratings on the utilities that appealed to the CMA are either on CreditWatch with negative implications, or have a negative outlook.
According to the ratings agency, the main element of the CMA's provisional determination is the substantial increase in allowed return, to 3.50% from 2.96%. S & P anticipate the increase in WACC will lead to a rise in annual revenue of £25 million to £45 million over AMP7 on average for Anglian, Northumbrian, and Yorkshire Water.
However, the ratings agency is cautioning that it “remains aware” that the findings are still provisional.
“As a result, their ratings are on CreditWatch negative or have a negative outlook. Although credit metrics could improve, compared with the projections we based on inputs from Ofwat's FD, we still expect these U.K. water networks to face tougher operating conditions in AMP7 than in the current regulatory period, like the rest of the sector. The ratings remain under strain.”
The ratings agency said that once it has reviewed the CMA's FD in detail and discussed any potential mitigating plans with the companies that appealed, it will be in a better position to assess the credit impact on the companies.
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