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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