Strike action and TfL switcheroo unlikely to hit UK train ratings, Fitch says

13th Dec 2016 15:23

(ShareCast News) - With UK train companies' debt coming under the investor microscope, ratings agency Fitch Ratings said the current uncertainty in the rail market and various industrial strikes were unlikely to have an effect on their credit ratings.Incumbent rail operators rated by Fitch include, indirectly through their subsidiaries and joint ventures, Deutsche Bahn, Stagecoach Group, FirstGroup and National Express Group, Fitch did not mention Go-Ahead Group, which runs the Southern franchise under the Govia joint venture.UK rail franchises all now contain high levels of off-balance sheet risk capital that operators must pledge to the government, which the ratings agencies can count as debt and, some analysts have recently pointed out, means while operators are comfortably financed right now, they might not be able to afford many more large guarantees in future. Southern and East Coast franchises have been affected by industrial action in recent months, though while Southern services have been hampered the East Coast franchise, which is run by Stagecoach, has broadly been able to maintain its schedules.Fitch said it did not expect the industrial action to materially impact Stagecoach's credit profile.Furthermore, after recent announcements from the Department for Transport's (DfT) have implied the government has decided to reverse the plan to hand control of suburban rail services in London to TfL when franchises come up for renewal, Fitch said it viewed this decision as "mildly positive for train operators" in the future.It added that the likely decision "avoids uncertainty surrounding how these new London operations would be awarded and the potential complications that could arise" for train operators dealing with the TfL and Department for Transport.The DfT has also announced its intention to have greater integration between TOCs and infrastructure teams, which will be applied to new franchises starting with the South Eastern and East Midlands franchises, which are both due in 2018, so will not impact existing train operation contracts."There is a lack of clarity on the structure of the integrated functioning, but Fitch views this change as neutral on the assumption that it will not expose TOCs' balance sheets to infrastructure risk."We note that Stagecoach's alliance with Network Rail on South West Trains was mutually dissolved after three years in 2015 due to its complexity."