Moody's lowers Affinity Water to negative

Moody's Investors Service said it changed the outlook to negative from stable on all ratings of Affinity Water Ltd., and the rated debt issued by its financing subsidiaries, following proposals by the Water Services Regulation Authority (Ofwat) that would give it greater influence over the water companies' capital structure and dividends.

Moody's also said it affirmed the Baa1 corporate family rating of Affinity Water, along with the backed senior secured provisional A3 and backed subordinated provisional Baa3 ratings on the medium-term note program of Affinity Water Programme Finance Ltd. and the backed senior secured A3 rating of the class A notes and the backed subordinated Baa3 rating of the class B notes issued under the program.

Also affirmed was the backed senior secured A3 ratings issued by Affinity Water Finance (2004) plc, the agency said.

Ofwat's proposed measures are aimed at bolstering companies' financial resilience and mark a change in direction for the regulator in reaction to mounting political and public pressure on the sector, Moody's explained.

If implemented, the proposals would primarily penalize highly leveraged operating companies like Thames Water, curbing their earnings in an already tough regulatory environment, the agency said.

Companies will need to demonstrate stronger financial metrics if they are to maintain credit quality in the context of less stable and predictable regulation, Moody's added.

The negative outlook also reflects Affinity Water's exposure to a likely significant cut in allowed returns from 2020 and more challenging performance targets, Moody's said.

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