United Utilities US$1.5B ECP Prog Rtd 'A-1' by S&P

Business Wire, March 17, 1998

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 3/17/98-- Standard & Poor's today assigned its 'A-1' short-term rating to United Utilities PLC's (United) US$1.5 billion multi-issuer Euro Commercial Paper (ECP) Program. Issuance under the program by United Utilities operating subsidiaries North West Water Finance PLC, which is guaranteed by North West Water Limited, and by Norweb PLC, will be rated 'A-1'-plus.

The rating on United is underpinned by its 100% ownership of two regulated U.K. utilities, North West Water Ltd. and Norweb PLC, both of which operate monopoly franchises within a supportive regulatory environment and generate stable cash flows from a diversified base of 2.8 million water and 2.2 million electricity customers in the north west of England. As a multi-utility, United also benefits by having greater business and regulatory diversity.

Risks in the rating include higher leverage following the acquisition of Norweb in November 1995, a large capital expenditure program in the water business, deregulation in the electricity supply business, and the expectation of a harsher regulatory environment post-2000 when a fundamental price review is due to be completed for the core water business.

United has been relatively successful since the Norweb acquisition in implementing significant cost savings as well as disposing of nonregulated businesses. The in-house facilities management division, Vertex, has also succeeded in winning some important outside business, although so far on a small scale. While United still remains exposed to other higher risk diversified activities such as gas marketing and international water operations, businesses such as process engineering, independent power generation, and electrical appliance retailing have largely been exited on a profitable basis.

While the impact of the recent UK415 million windfall tax has been somewhat mitigated by better-than-expected cost savings and disposal proceeds, United's financial profile over the next few years will deteriorate as borrowings rise to fund not only the windfall tax but also large capital expenditures in the water utility. Funds from operations (FFO) interest coverage will still remain strong at around four times, while total debt to capital will not exceed 55% over the next few years the forecast period. However, Standard & Poor's expects FFO to average total debt will fall to fall to just over 20% at the group level, reflecting a significantly higher debt burden going forward. United Utilities has stated that no individual company issuing under the rated ECP program will do so in excess of liquid resources it has available at the time of issuance, Standard & Poor's said. -- CreditWire

CONTACT: Michael Wilkins, London (44) 171-826-3528

Marc Watton, London (44) 171-826-3641

For more information on criteria or subscriptions:

http://www.ratings.standardpoor.com