Moody’s downgrades two PFI deals

Ratings agency Moody’s has downgraded two PFI deals, while affirming the ratings on seven others.

The firm has downgraded the underlying rating of Baglan Moor Healthcare to A3 from A2 and maintained a negative outlook. Baglan Moor Healthcare is the special purpose vehicle delivering the 270-bed Neath Port Talbot Hospital in South Wales.

Moody’s said it had taken the step following the “trend of increased service failure points and deductions”.

It added: “ProjectCo's performance deterioration with respect to the buildings and maintenance service emerged over the course of 2022, and has not materially improved following the facilities management contractor's (Kier Facilities Services) termination of its sub-contractor (Veolia) and decision to bring the FM service in house with effect from November 2022.”

The report said total deductions from the unitary payment have increased - but added that the authority is not looking to terminate the deal and is working with the PFI partner to agree a settlement and performance improvement plan.

Meanwhile, Moody’s also downgraded to A3 from A2 the debt ratings of Discovery Education, the vehicle delivering six primary and two secondary schools with Dundee City Council. However, the rationale for this change is down to the council’s credit quality, with Moody’s saying that this has “weakened”.

Moody’s added that this project has enjoyed a “strong operational performance…with minimal deductions”.

Moody’s has also affirmed the A2 underlying debt ratings of five other UK PFI hospital project issuers: Criterion Healthcare; Endeavour SCH; Hospital Company (Swindon and Marlborough); HpC King's College Hospital; and Worcestershire Hospital SPC. 

Plus, the ratings agency affirmed the A1 underlying debt ratings of two UK PFI accommodation project issuers: Exchequer Partnership (No.2); and Integrated Accommodation Services.