Moody’s reviews Yorkshire Water for cut

Moody’s Investors Service said it placed on review for downgrade the Baa2 corporate family rating of Yorkshire Water Services Ltd., as well as the Baa1 senior secured and Ba1 subordinated debt ratings of the Class A and Class B notes issued by Yorkshire Water Services Finance Ltd. and Yorkshire Water Finance plc and the Baa1 senior secured debt ratings of Yorkshire Water Services Finance. The A2 rating of those bonds that are subject to a financial guarantee by Assured Guaranty (Europe) plc (A2 stable) of timely payments of scheduled interest and principal will continue to reflect the insurance financial strength rating of the guarantor.

The rating action follows publication by the Water Services Regulation Authority (Ofwat), the economic regulator for water companies in England and Wales, of its final determination for the forthcoming regulatory period. The determination includes a significant cut in allowed returns, challenging performance targets and a gap between the expenditure that Ofwat has allowed and what the company believes is necessary to deliver required outputs.

In combination with Yorkshire Water’s high borrowing costs relative to regulatory assumptions, Moody’s expects the determination to result in a downgrade to the CFR unless the company takes significant mitigating action or chooses to appeal and can obtain a more favorable redetermination.

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