Performance and funding concerns have led credit ratings agency Moody’s to turn a baleful eye on the Metronet ventures with PPP concessions to deliver infrastructure upgrades on nine lines of the London tube network.
Moody’s has downgraded some debt ratings of the financing conduit vehicles – Metronet Rail BCV Finance plc and Metronet Rail SSL Finance plc – a few notches, from Baa3 to Ba1, concerning their senior secure un-guaranteed debts. The ratings under review for further possible downgrade, it added.
Last September its outlook on the funders shifted from stable to negative, and now it has taken a ratings action affecting just over US$3.95bn (£2bn) of un-guaranteed debts. However, it noted that other debts, which are Aaa guaranteed, are unchanged.
Each of the Metronet financing conduit vehicles loan money to their respective infrastructure companies – Metronet Rail BCV Ltd and Metronet Rail SSL Ltd – to carry out the capital programmes. The 30-year concessions run to 2033 and the first fiscal review milestone is 2010, but already the formal judge on performance – the PPP arbiter – has found delivery less than required.
The concessionaires, working on four deep and five sub-surface tube lines, have been criticised for the rate of work, especially on station upgrades. As a result of criticism and pressure, and as the delivery companies settle further into managing the large volume of work, they have been making increased efforts to improve performance, which has been noted by the PPP arbiter.
However, those efforts are coming at a cost. The levels of spending are running higher than initially envisaged but payments remain at steady levels from London Underground, owned by Transport for London.
Looking at the financial pinch, and also raising concern over the future ability to obtain further debt, Moody’s ratings move echoes concern by its peer, Standard & Poor’s. Both realise that some comfort may come from an Emergency Review of the fiscal set-up by the PPP arbiter, which is an untried official process.
With more money needed and concerns over sources, the shareholders have had to dig into their pockets. The equity partners in the concessions are Atkins, Balfour Beatty, Bombardier Transportation, EDF Energy and Thames Water. In a trading update last month, Atkins said it was not only expecting to book an exceptional loss of US$71M (£36M) over the difficulties on the concessions and uncertainty over recovering money, it said it had pumped more cash into the Metronet businesses and more was likely.
