Need for Infrastructure Investment Will Remain Despite Ratings Downgrade

17 February 2012 (PLANSPONSOREurope.com) - The UK’s requirement for investment in infrastructure will remain regardless of Moody’s downgrade of Network Rail Infrastructure Finance and LCR Finance, Jeremy Lee, Director of investment consulting at Redington, has told PLANSPONSOR Europe. 

This week Moody's Investors Service changed to negative from stable the rating outlook on both Network Rail Infrastructure Finance and LCR Finance. In November the UK’s National Association of Pension Funds (NAPF) and the Pension Protection Fund (PPF) signed a Memorandum of Understanding with the UK government to develop a new pension infrastructure platform to assist pension funds invest more in infrastructure.

Network Rail attributes the downgrade to the credit warning the UK received earlier in the week.

A spokesperson for Network Rail told PLANSPONSOR Europe: “Network Rail's debt is guaranteed by the UK government which means its rating follows that of the UK sovereign. Moody’s put the UK on negative outlook earlier this week and as a result Network Rail Infrastructure Finance was also put on negative outlook. Network Rail has an on-going debt issuance programme which is proven to be attractive to institutional investors and sovereign funds.”

And Lee told PLANSPONSOR Europe that given the government guarantee implicit in these particular bonds, it is unsurprising to see Moody’s place them on negative watch following similar action on the sovereign. 

“Further action is highly dependent on the path of UK’s credit rating, which is in relatively better shape than many of its peers.  Should the UK lose its AAA status, as we have seen in the United States, an actual downgrade may not necessarily translate into higher yields.
“It should also be noted that Network Rail Infrastructure Finance (NRIF) and London & Continental Railway Finance (LCR) bonds comprise only a small portion of the infrastructure investment opportunity and are often held within a high quality/supranational fixed income mandate, rather than standalone “infrastructure”.  There remains a much wider variety of infrastructure opportunities which continue to attract attention from schemes.

“The effect on the UK’s National Infrastructure Plan is difficult to predict until we receive further official details.  The National Association of Pension Funds (NAPF) and Pension Protection Fund (PPF) are working closely with government to turn infrastructure into an investible asset class in order to meet the country’s growing needs.  One thing that is certain, the need for funding will remain irrespective of a rating agency’s outlook.”

See the upcoming spring edition of PLANSPONSOR Europe for our feature on infrastructure investment.
 

PLANSPONSOREurope Staff
editors@plansponsoreurope.com