MALLETT PLC
Rail franchise awards by the Department for Transport are ratings neutral for FirstGroup, National Express & Stagecoach, according to Fitch Ratings. The agency says that the announcement that Stagecoach Group's (BBB/stable) 90%-owned venture with Virgin Group has won the East Coast rail franchise in the UK is marginally credit positive for the bus and rail company as Fitch did not assume a win in its rating case forecast. It says that while the new franchise is expected to be slightly cash negative for Stagecoach in FY15 when Rail cash is excluded, there is no immediate rating impact. The decision is also rating neutral for FirstGroup (BBB-/stable) as Fitch's rating case did not include a possible win after the company's bid was shortlisted. FirstGroup's operation of the ScotRail franchise ends in March 2015 after the company lost the tender in October, lowering Fitch's cash flow expectations for the company. The impact on credit metrics and ratings is mitigated by the relatively small size of this franchise. Fitch continues to expect that FirstGroup will remain a significant player in the UK rail market. Following the recent announcements on UK rail franchising and FirstGroup's 1H15 financial results announced in November, Fitch views the group's overall performance as broadly in line with expectations. National Express Group plc (BBB-/stable) was also one of the shortlisted bidders for Scotrail that failed to win the contract. However, National Express secured the award for Essex Thameside (c2c) franchise earlier in the year. As with Stagecoach and FirstGroup, Fitch did not assume a potential win in National Express's rating case forecast and hence, the franchise announcement does not impact the company's ratings. Fitch does not capitalise rolling stock leases and focuses on unrestricted net debt based credit metrics and thus working capital movements relating to franchise wins and losses do not have significant one-off impact. Story provided by StockMarketWire.
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