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Bulletin: GLA Has Capacity To Absorb Additional Debt For Crossrail; TfL Still On CreditWatch Negative

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Bulletin: GLA Has Capacity To Absorb Additional Debt For Crossrail; TfL Still On CreditWatch Negative


LONDON (S&P Global Ratings) Dec. 13, 2018--S&P Global Ratings said today that 
the Greater London Authority's expected £1.4 billion cash boost to the delayed 
Crossrail project will not materially impact its creditworthiness. As such, 
the ratings on Greater London Authority (GLA; AA/Negative/A-1+) are not 
immediately affected by additional debt to be contracted. 

Our ratings on Transport for London (TfL) remain on CreditWatch with negative 
implications, where they were placed on on Sept. 5, 2018 (see "Transport for 
London 'AA-/A-1+' Ratings On CreditWatch Negative On Delayed Opening Of The 
Elizabeth Line").

The U.K. government, the Mayor of London, and TfL have agreed a financial 
package to cover additional capital costs related to the delayed opening of 
the central section of the Elizabeth line. The Crossrail project is currently 
Europe's largest infrastructure program. 

We see this as a material development for GLA because it implies that the 
Mayor of London will have to contribute substantially more to the Crossrail 
project than initially anticipated. Although the terms of this additional 
contribution need to be finalized between the government and the Mayor, the 
package will most likely imply a £1.4 billion increase in GLA's contribution 
to the Crossrail project, on top of the £2.9 billion outstanding debt (as of 
March 2018, end of the financial year [FY2018]) already raised by GLA for this 
purpose. GLA's contribution would be financed by additional borrowing from the 
Department for Transport (DfT) by GLA for £1.3 billion as well a £100 million 
cash contribution from GLA. 

As the final costs of the Crossrail project are yet to be confirmed, a 
contingency arrangement has also been agreed between TfL and the DfT. We 
understand the department will loan TfL up to £750 million if further 
financing is required for the project.

This financing package supersedes £350 million interim financing offered by 
the DfT in October 2018.

GLA's debt burden, which stood at £3.8 billion as of end-FY2018, could 
therefore exceed £5 billion by end-FY2020.

Nevertheless, these additional borrowings do not materially weaken our current 
opinion of GLA's creditworthiness. This remains supported by its sound 
budgetary performance, exceptional liquidity position, and London's strong 
economy, despite the slowdown expected as a consequence of Brexit. Two schemes 
were set up to fund Crossrail--the Business Rates Supplement and the Mayor 
Community Infrastructure Levy. We understand these two sources of additional 
tax revenue should be sufficient to amortize GLA's additional debt related to 
the overspending on the Crossrail project.

We expect to resolve the CreditWatch negative on TfL within the coming weeks. 
We will focus on evaluating the cost implications from the Elizabeth Line 
delay, both operationally due to lost revenues, and from cost overruns on the 
project. 

This report does not constitute a rating action.

Primary Credit Analyst:Jean-Baptiste Legrand, London (44) 20-7176-3609;
jb.legrand@spglobal.com
Secondary Contact:Ines Olondriz, Madrid (34) 91-788-7202;
ines.olondriz@spglobal.com
Additional Contact:EMEA Sovereign and IPF;
SovereignIPF@spglobal.com

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