Projects backed by UK Guarantees will benefit from state credit rating, says Moody's

A new report by Moody's said that the terms of the guarantee scheme appeared to support its 'credit substitution' rating method, where it can equalise the rating of an issuer of a debt instrument with that of a guarantor. To do so, the guarantee must address "certain core principles, which HM Treasury's template substantially does", Moody's said.

Ratings for specific projects backed by a UK Guarantee would depend on "how consistent the guarantee proposed for a transaction is with the template", Moody's said. The agency will also review each project's "broader documentation" to ensure that it does not "conflict with or undermine" the credit substitution arrangement, it said.

Announced in July 2012, the UK Guarantees scheme was designed to benefit up to £40 billion worth of major infrastructure projects which are struggling to obtain funding. It is open to financial credible, nationally significant infrastructure projects, provided that work can begin on those projects within 12 months of the guarantee being given.

The scheme was initially due to end in 2014. However, as part of a speech on the UK's infrastructure priorities earlier this month, Chief Secretary to the Treasury Danny Alexander announced that the scheme would now run until the end of 2016.

The conversion of a coal-fired power station operated by energy company Drax to biomass has already obtained a £75m guarantee under the scheme, while a guarantee has also been provided to developers of the Northern Line Extension. The Government will also shortly finalise a "multi-billion pound" guarantee to advance the new nuclear power station at Hinkley Point, and a guarantee of up to £500m to support investment in the Mersey Gateway Bridge, according to Alexander.