Fitch Ratings has downgraded Anglian Water Services Financing Plc's senior secured class A debt rating to 'A-' from 'A' and removed it from the Rating Watch Negative (RWN).
The ratings agency has also downgraded its class B debt rating to 'BBB' from 'BBB+'. The Outlooks on both debt ratings are Stable.
Fitch has also downgraded Anglian Water’s holding company Osprey Acquisitions Ltd's (OAL) Long-Term Issuer Default Rating (IDR) to 'BB-' from 'BB'. The Outlook on the IDR is Negative.
According to the ratings specialist, the downgrades of AWF's debt ratings reflect pressure on Anglian Water Services’s financial profile from Ofwat's challenging final PR19 price determinations.
Commenting on the downgrade, Fitch said:
“We expect AWS's financial profile to be substantially outside our negative rating sensitivities for 'A'/'BBB+' in the upcoming regulatory period AMP7. Despite uncertainty around the outcome of the Competition Markets Authority (CMA) appeal, Fitch does not expect a potential increase in price settlement to be sufficient to maintain AWS's credit quality.”
In February 2020, Anglian Water refused to accept Ofwat's Final Determination and asked the regulator to refer it to the CMA. According to the water company, the Determination was incompatible with its business purpose as it did not allow it to timely address the challenges associated with climate change and population growth.
Fitch said the CMA process could run until late 2020 and could result in a redetermination of the whole price control, describing the outcome of the appeal as “highly uncertain.”
The ratings agency’s view is that the appeal unlikely to support ratings – Fitch said that its analysis indicated that, in order to keep its previous ratings, Anglian Water would require a substantial improvement of its financial profile, for example:
- equivalent to around 2%-3% of RCV
- an incremental cash inflow of £200 million
- a 50bp-60 bp WACC increase.
In Fitch's opinion, the prospect of Anglian receiving such an upside from the CMA appeal process is unlikely.
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