Fitch Affirms Network Rail Infrastructure Finance plc's Notes at 'AA+'; Outlook Stable

LONDON--()--Fitch Ratings has affirmed Network Rail Infrastructure Finance Plc's (NRIF) GBP40billion multi-currency note issuance program and GBP4.0billion Short-Term Commercial Paper notes at 'AA+' and 'F1+', respectively. The Outlook for the note issuance program is Stable.

KEY RATING DRIVERS

NRIF's ratings are linked to the UK's (rated 'AA+' with a Stable Outlook by Fitch) ratings due to the Financial Indemnity (FI) from the Secretary of State for Transport (SoS), whose liabilities are sovereign obligations of the UK. The FI is an unlimited, irrevocable and unconditional obligation terminating on Oct. 3, 2052.

Under the FI, the SoS has up to 20 days to meet a claim relating to a note principal repayment, and up to five days to meet a claim relating to a note interest payment or, following the side letter implemented on 19 March 2012, a CP principal payment. The FI states that should NRIF have insufficient cash to cover an upcoming note or CP-related obligation, either the program administrator or security trustee is required to submit a claim under the FI to the SoS 21 days or six days prior to the obligation arising for principal and interest obligations, respectively. As such, Fitch is comfortable that the structural support provided by the SoS is sufficient to ensure full alignment of NRIF's ratings with those of the UK sovereign.

In order to reduce financial counterparty risk related to the account bank, HSBC Bank plc (HSBC, 'AA-'/Stable/'F1+'), NRIF enters into repurchasing agreements with the bank. Under these agreements, prefunded bond redemption amounts deposited by NRIF with HSBC are secured by high quality, liquid government/supra-national debt security collateral posted by the bank, such as UK Gilts or US Treasury Bonds, and posted collateral is marked-to-market on a daily basis. Fitch considers that this mechanism would significantly reduce counterparty risk if HSBC's creditworthiness deteriorates in the future.

Following the reclassification as a Central Government body, financing requirements for the period to March 2019 are covered by a GBP30.3 billion loan facility provided by the United Kingdom Department for Transport (DfT). Therefore, NRIF is not expected to raise additional indebtedness under the note program or the CP program, unless the loan facility provided by the DfT is withdrawn or the DfT fails to send funds as and when due. In addition, Fitch Ratings understands that NRIF's financing structure will be reviewed with the Government of the United Kingdom by April 2017.

RATING SENSITIVITIES

Given that the SoS irrevocably and unconditionally guarantees the full discharge of NRIF's debt service commitments, any change in the United Kingdom's rating or Outlook would lead to a corresponding change in the notes' ratings or Outlook.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981224

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Contacts

Fitch Ratings
Primary Analyst:
Sean Rutter, +44 20 3530 1679
Associate Director
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
or
Secondary Analyst:
Ana Relanzon Camino, +44 203 530 1158
Analyst
or
Committee Chairperson:
Olivier Delfour, +33 1 44 29 91 21
Managing Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Sean Rutter, +44 20 3530 1679
Associate Director
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
or
Secondary Analyst:
Ana Relanzon Camino, +44 203 530 1158
Analyst
or
Committee Chairperson:
Olivier Delfour, +33 1 44 29 91 21
Managing Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com