Fitch lowers outlook on UK water utilities to 'negative'

29th Jan 2014 14:23

Ratings agency Fitch has today lowered its outlook on the credit rating of UK water companies to 'negative' from 'stable' following the release of public regulator Ofwat's price review for the fiscal years running from 2015 to 2020 earlier this week. In the firm's opinion, Ofwat's more flexible approach to price controls, alongside guidance for a so-called 'plain vanilla' weighted average cost of capital (WACC) of 3.85% "will not allow some UK water companies to maintain credit metrics commensurate with existing ratings".As the adviser to Ofwat, PricewaterhouseCoopers, pointed out, the companies' credit ratings should not be the main factor behind the returns on capital allowed by the regulator. Rather, it is a firm's responsibility to put in place a financing structure that will allow it to maintain its investment grade ratings. For Fitch, the move to lower its outlook encapsulates a significant change from the underlying criteria applied in the previous price review. AB