Warrington Borough Council has seen its credit rating downgraded by Moody’s Investors Service partly due to its high reliance on commercial income.
Moody’s downgraded Warrington’s long-term issuer rating and senior unsecured debt rating to A3 from A2 and its baseline credit assessment to baa3 from baa2. It did, however, maintain the assessment of a “stable” outlook.
“The downgrades reflect Warrington’s significant exposure to risks arising from its high reliance on commercial income, its high and rising debt burden and ongoing budgetary pressures resulting in expected declines in reserves,” Moody’s said in a statement.
The ratings agency said that Warrington’s commercial income was around 15% of its net budget in the 2022 financial year and commercial investments accounted for a large share of debt.
The downgrades reflect Warrington’s significant exposure to risks arising from its high reliance on commercial income, its high and rising debt burden and ongoing budgetary pressures resulting in expected declines in reserves.
High risk appetite
“While this has provided a net benefit to its budget as government grants have declined in recent years, Moody’s considers this to be a high amount of risk and a higher risk appetite than is typical for the sector, exposing the council to significant levels of economic, counterparty and political risk.”
In response, a spokesperson for Warrington Borough Council told Room151: “We note Moody’s credit rating score as part of their regular review process which, particularly in the current economic environment, is still a positive outcome which reflects our stable outlook.
“We have said for some time that our commercial approach is essential to bringing in money each year, around £20m, that we use to help fund vital services for our residents. We know that no investment we make is risk-free, but the alternative to not making investments is to cut back these vital services – the impact of which would be significant for our communities.”
The spokesperson also welcomed Moody’s assessment that Warrington has “sufficient budgetary buffers, in the form of usable reserves and budgetary flexibility, to be able to mitigate expenditure and revenue volatility over the medium term”.
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