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Moody’s has changed its outlook on four British water companies to negative.
The international ratings agency announced today it was changing its outlook on Affinity Water, Anglian Water, Thames Water and Wessex Water following proposals published last month by Ofwat to give it greater influence over the firm’s capital structure and dividends.
At the same time, Moody’s has affirmed the ratings.
In a statement, Moody’s said the regulator’s proposed changes could “penalise highly-leveraged firms” and curb their earnings in an “already tough regulatory environment”.
The ratings agency warned the companies will also need to demonstrate “stronger financial metrics” in order to maintain credit quality.
In April, Ofwat published a consultation on proposals for business plan submissions for PR19, which includes plans to bolter financial resilience and restrictions on dividend payments.
“We see moves by Ofwat to discourage gearing above the regulator’s national capital structure and the proposed further oversight of equity distributions as departures from long-standing regulatory practice,’ said vice-president credit officer, Stefanie Voelz.
“We also see heightened risk of future political interference in the design of the regulatory framework and are changing our assessment of the stability and predictability of the UK water regulatory regime under our methodology from Aa to Aaa,” added Voelz.
“To reflect the increasing business risk we have also tightened our generic ratio guidance for the sector.”
The international ratings agency changed its outlook on five other water companies and one holding company in December to negative.
It now holds a negative outlook on almost two thirds (60%) of the rated water companies, as well as the sector as a whole.
An Affinity Water spokesperson said: “We remain committed to delivering our current business plan, whilst preparing an efficient and innovative plan for 2020-2025, to maximise benefits for customers, stakeholders and investors.”
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