March 20 -
Summary analysis -- Network Rail Infrastructure Finance PLC ------- 20-Mar-2012
CREDIT RATING: None. Please see issue list. Country: United Kingdom
Primary SIC: Railroads
Mult. CUSIP6: 64125Q
Mult. CUSIP6: 64127W
The ‘AAA’ long-term ratings on the GBP35 billion debt program issued by Network Rail Infrastructure Finance PLC (NRIF), and the ‘A-1+’ short-term rating on NRIF’s GBP4 billion multicurrency commercial paper (CP) program, are based on Standard & Poor’s Ratings Services’ view of the credit support from the U.K. (unsolicited AAA/Stable/A-1+) via the Secretary of State for Transport (SoST). The financial indemnity provided by the SoST is a direct sovereign obligation of the crown. It is unconditional, irrevocable, and explicit, and is designed to ensure unlimited and timely payment of the obligation.
Network Rail Ltd. (NRL) has adopted a financial structure whereby all debt is issued by a special-purpose vehicle (NRIF) and the proceeds are onlent to Network Rail Infrastructure Ltd. (NRIL) under an intercompany loan agreement. NRIL is the owner and operator of the U.K.’s rail infrastructure network. NRL, a company limited by guarantee, wholly owns NRIL through its subsidiary Network Rail HoldCo Ltd.
There is a subordinated counterindemnity on NRIF, which obliges it to reimburse an equivalent cost or expenses amount to the SoST if the SoST is required to make a payment under the financial indemnity. The obligation to reimburse the SoST is subordinated to NRIF’s obligations to all other secured creditors. In turn, the intercompany loan agreements between the operating company (NRIL) and NRIF require NRIL to reimburse NRIF for all costs incurred on its behalf associated with these borrowings.
NRIF classifies as pre-funded all of its long- and short-term debt issuance (pre-funded between six to 21 business days before it comes due). This pre-funded debt is indemnified debt that is identified as such by NRIF in writing to the security trustee, which is HSBC Trustee.
For NRIF’s long-term debt, issued under the multicurrency note (MCN) program, if sufficient funds for interest and principal payment are not placed with HSBC Bank plc (AA-/Stable/A-1+), six and 21 business days, respectively, prior to the debt falling due, then the U.K. government guarantee will be called. Under the Financial Indemnity arrangement, the U.K. government commits to pay the sums due within five and 20 business days, respectively, of the guarantee being called. In our view, the U.K. government’s guarantee in relation to NRIF’s long-term debt issuance meets our criteria for credit substitution as we expect payment to be within five business days of the due date for payment (see related criteria and research). We have affirmed the ‘AAA’ long-term ratings on debt issued under NRIF’s GBP35 billion MCN program. The outlook on the long-term ratings is stable.
Regarding short-term debt, our criteria requires that, absent a stated grace period, payment should be made on the due date. As of March 2012, NRIF has started to classify debt under its multicurrency Commercial Paper (CP) program as prefunded debt, ensuring that if sufficient funds for payment are not placed with HSBC Bank plc six business days prior to the debt falling due, then the U.K. government guarantee will be called. This mechanism applies to both principal and interest payments. As the U.K. has committed to paying the sum due within five business days following receipt of the claim, this ensures that full payment will be made by the due date. We have affirmed the ‘A-1+’ short-term issue rating..
The stable outlook on the notes reflects the outlook on the U.K. and will be revised with any changes to the outlook on the sovereign.
Related Criteria And Research
-- Network Rail Infrastructure Finance PLC ‘AAA/A-1+’ Issue Ratings Affirmed; Short-Term Rating Off Watch; Outlook Stable, Feb. 17, 2012.
-- Timeliness of Payments: Grace Periods, Guarantees, And Use Of ‘D’ and ‘SD’ Ratings, Dec. 23, 2010
-- Understanding Standard & Poor’s Rating Definitions, June 3, 2009
-- Rating Sovereign-Guaranteed Debt, April 6, 2009