United Utilities shares fall amid S&P downgrade

Shares of Warrington-based United Utilities, the UK’s largest listed water company, fell more than 3% on Tuesday amid a downgrade of its credit ratings from S&P Global Ratings.

United Utilities shares fell 3.1% to about £10 a share to give the company a current stock market value of around £7 billion.

“United Utilities notes the decision of S&P Global Ratings to downgrade United Utilities PLC’s (UU’s) and United Utilities Water Limited’s (UUW’s) credit ratings one notch which was announced on 25 February 2020,” said the Warrington firm.

“Following the announcement, S&P’s long-term issuer credit ratings for UUW and UU have been downgraded from A- to BBB+ (stable outlook) and BBB+ to BBB (stable outlook), respectively, and for Notes issued by UUW and UU have been downgraded from A- to BBB+ and BBB to BBB-, respectively.”

United Utilities Group chief financial officer Russ Houlden said: “On 29 January 2020, when we announced acceptance of the Final Determination in respect of Ofwat’s PR19 price review, we also announced the group’s dividend policy, capital structure and credit ratings targets for the AMP7 regulatory period.

“We have consistently maintained a robust capital structure, with UUG gearing, measured as group net debt to regulatory capital value (RCV), remaining stable over the last ten years and comfortably within our target range of 55 to 65 percent. 

“We confirmed that we would retain this target range over AMP7 in order to maintain efficient access to debt capital markets throughout the economic cycle.

“With regard to credit ratings targets, we announced that assuming no significant changes to existing ratings agency methodologies or sector risk assessments, the group aims to maintain a long-term issuer credit rating for UUW of at least A3 with Moody’s, a senior unsecured debt rating for UUW of at least A- with Fitch, and a long-term issuer credit rating for UUW of at least BBB+ with S&P. 

“We also said that we expected S&P to resolve its negative outlook on the group’s ratings (that was assigned in August 2019) during February 2020. 

“Both Moody’s and Fitch use net debt to RCV along with an interest cover ratio as their primary credit metrics. 

“In taking its ratings action today, we recognise that S&P has considered the likely impact of the PR19 Final Determination on its primary credit metric – adjusted funds from operations (FFO) to net debt – and has concluded that FFO to debt is likely to be sustained at a level commensurate with assigning a BBB+ rating for UUW, which is in line with our target. 

“It is differences in the respective ratings agency methodologies which gives rise to us targeting an A3 rating with Moody’s, a senior unsecured debt rating of A- with Fitch, and a rating of BBB+ with S&P for UUW. 

“This package of credit ratings means that UUW is one of the highest rated companies in the UK water sector, highlighting our robust credit quality, which should secure continuing efficient access to funding in the debt capital markets.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.