Moody’s downgrades TfL’s debt, says pandemic damage ‘unlikely to be reversed’
Credit agency Moody’s has this evening downgraded Transport for London’s (TfL) debt, saying that the transport network’s finances have “been durably and materially weakened by the pandemic”.
The ratings agency said that the government’s unwillingness to provide “clarity” on the operator’s long-term finances meant that “this erosion in its financial strength is unlikely to be reversed”.
TfL’s long-term senior unsecured debt was downgraded from A3 from A1, with Moody’s ascribing it a “negative” outlook.
“TfL’s adjustment to a weaker, less supportive operating environment will be challenging and may
involve significant cuts to operating and capital expenditures that undermine the value of its service and hence its revenue base and that raise costs in the longer term.
“In most scenarios, TfL’s financial strength will be diminished”, it said.
At the beginning of the month the government gave TfL a fresh six-month bailout worth £1.08bn, despite pleas for a multi-year settlement from City Hall.
It takes the amount of emergency funding ministers have given the body over the last 12 months to nearly £5bn.
TfL has suggested it may have to cut services in order to find new savings worth £900m, on top of the £1bn in savings it has delivered over the previous four years.
“There is no clarity on how TfL will raise an additional £500-600m from its existing revenue sources from full year 2024 or make further cuts to its inflexible operating cost base, or how its large capital programme will be funded”, Moody’s said.
A TfL spokesperson said: “Moody’s decision reflects a number of factors, including the impact of the coronavirus pandemic, their assessment of the financial support provided by Government and the current absence of a longer-term funding agreement.
“We continue to rebuild revenue with nearly 60 per cent of pre-pandemic ridership already travelling again.
We will work hard to protect front line services and look forward to reaching a longer-term settlement with Government so that we can plan effectively for London’s future, make progress on decarbonisation, improve air quality and promote active travel.”
Richard Burge, chief executive of London Chamber of Commerce and Industry (LCCI), said the downgrade was yet more evidence that the a multi-year deal was needed.
“This rating downgrade is further evidence that the government must agree a longer-term settlement with Transport for London – giving certainty about the network’s viability and funding model during a continually uncertain time.”