Moody’s puts UK infrastructure on negative watch

Rating agency Moody’s has put government-backed UK rail infrastructure on negative watch - raising questions for pension schemes under pressure to invest in the country’s transport network.

The agency, which downgraded the UK's sovereign rating from stable to negative on Monday, has changed its outlook for Network Rail Infrastructure Finance and London & Continental Railway Finance from stable to negative in light of the sovereign downgrade.

NRIF, a special purpose vehicle which issues medium term notes and commercial paper backed by the UK government, is used to fund the UK's rail infrastructure. LCR is a UK government owned company which invests in rail infrastructure. Both are tied to the UK's sovereign rating.

Moody's said: "The rating of the NRIF MTN programme and the CP programme will follow that of the UK. Hence, any downgrade in the rating of the UK would result in a downgrade of the rating of the MTN programme and /or CP programme."

The development is bad timing for the UK government, who will next month give more details about its plans to get UK pension funds to invest in UK infrastructure, announced in last year's Autumn Statement.

The Treasury's National Infrastructure Plan included a £1.4bn allocation to develop rail infrastructure and commuter links.

Groups including the National Association of Pension Fund and the Pension Protection Fund are currently seeking ways to develop a vehicle to help pension schemes invest in UK infrastructure.

Redington investment consulting director Jeremy Lee said the outlook change made sense as NRIF was government backed debt but added it was unlikely to have a direct impact on pension scheme allocations.

He said: "On a relative basis it's still a secure credit. The view would be about government rather than specific project risk. If the government got downgraded then those discussions would take place but this development seems quite natural."