OREANDA-NEWS. S&P Global Ratings said today that it has taken various rating actions on U. K. project finance transactions to reflect our negative outlook revision on certain U. K. and European financial institutions (for full list, see Ratings List below).

We revised to negative from stable the outlooks on Alpha Schools (Highland) Project PLC (Alpha Schools), Aspire Defence Finance PLC, Consort Healthcare (Salford) PLC, Consort Healthcare (Tameside) PLC, and Integrated Accommodation Services PLC. We affirmed all ratings on the bonds and loans issued by these issuers. The outlook revisions reflect our view that we could lower the ratings on these transactions if the financial counterparty to which they are linked was downgraded.

Furthermore, we have affirmed the ratings on Channel Link Enterprises Finance PLC (CLEF), High Speed Rail Finance 1 PLC (HS1), and UPP Bond 1 Issuer PLC (UPP). The outlook on these transactions is stable.

RATIONALEFollowing the Brexit vote in the U. K.'s June 2016 referendum on EU membership, we revised to negative from stable our outlook on the majority of U. K. domestic banks (see "Various U. K. Bank Outlooks Revised Due To Potential Economic Deterioration Following Brexit Vote," published on July 7, 2016 on RatingsDirect). We have also revised to negative from stable the outlook on Deutsche Bank due to the difficult operating environment (see "Deutsche Bank Outlook Revised To Negative As Operating Conditions May Challenge Strategy Execution; Ratings Affirmed," published on July 19, 2016).

Counterparty risk is an important consideration in assessing the credit risk of project finance transactions and the implications of financial counterparties--including bank accounts, liquidity or credit support facilities, interest rate swaps, and currency swaps--on credit quality. Without the incorporation of replacement mechanisms, the rating on a project debt would generally be no higher than the ICR on the counterparty. This is because cash received or collected from the underlying assets is typically deposited with or held by counterparties pending interest payment dates, and interruptions to accessing that cash may impede the issuer's ability to meet its payment obligations to supported securities in full or on time. Moreover, a variety of agreements may be entered into between the issuer and counterparties to enhance or otherwise transform the nature or timing of cash flows received from the underlying assets. A counterparty's failure to perform its obligations may lead to a downgrade of, or even a payment default on, supported securities, notwithstanding the performance of the underlying assets.

ALPHA SCHOOLS (HIGHLAND) PROJECT PLCThe negative outlook on Alpha Schools reflects that on Barclays Bank PLC, the account bank provider. As the replacement language in Alpha School's documentation is not compliant with our financial counterparty criteria, we weak-link the security rating to the counterparty ICR (i. e. the cap on the rating is 'A-'). Specifically, the rating on Barclays could be revised down by one notch, all other things being equal, if we were to revise down the anchor for U. K. banks to 'bbb' from 'bbb+', as a result of prolonged uncertainty following the referendum weakening the macroeconomic outlook and economic resilience of the U. K. economy.

We could lower the issue rating if we downgraded Barclays Bank below the issue rating on the debt, and the bank was not replaced as account bank. Furthermore, the project's rating may become constrained if its financial profile weakened leading to a minimum annual debt service coverage ratio (ADSCR) below 1.2x; if the relationship between the ProjectCo and the council deteriorated as a result of operational underperformance or poor lifecycle works management; or if increasing cost-saving pressure from the council resulted in the ProjectCo being unable to recoup the savings from its facilities management operator.

We could revise the outlook back to stable if the outlook on Barclays Bank was revised to stable. The outlook could also be revised back to stable if the bank account provider is replaced with a higher rated counterparty that no longer constrains the rating on the ProjectCo.

ASPIRE DEFENCE FINANCE PLCThe negative outlook on Aspire Defence Finance reflects that on Barclays Bank, the account bank provider. As the replacement language in Aspire Defence Finance's documentation is not compliant with our financial counterparty criteria, the account bank provider cannot support ratings higher than its long-term ICR.

We could lower the issue rating if we downgraded Barclays Bank below the issue rating on the debt, and Barclays Bank was not replaced as account bank. We could also lower the rating if either the ProjectCo's relationships or operating performance weakened materially. This could occur, for example, as a result of a failure to resolve remaining issues associated with heating and hot water systems, a substantial increase in performance or availability deductions, or the impact of the Army Basing Plan on ProjectCo's risk profile. A decline in ADSCRs materially below 1.2x would also likely have a negative impact on the rating.

We could revise the outlook back to stable if the outlook on Barclays Bank was revised to stable.

The outlook could also be revised back to stable if the bank account provider is replaced with a higher rated counterparty that no longer constrains the rating on the ProjectCo.

CHANNEL LINK ENTERPRISES FINANCE PLC Today's affirmation follows our review of the project's exposure to Deutsche Bank (London Branch), the issuer's euro and sterling margin basis swaps provider, and the borrower's hedge provider under the floating-rate tranches of the permanent facility (together with Goldman Sachs Group Inc. and AIG Financial Products Corp). The swap documents underpinning the transaction are compliant with our 2007 counterparty criteria, hence the notes on CLEF could be rated up to one notch higher than the ICR on Deutsche Bank.

Following the Brexit vote, we have also revised our macroeconomic base-case assumptions reflecting the latest forecasts for the U. K. and France (see "Europe's Economic Outlook After The Brexit Vote", published on July 4, 2016). Under the revised base case, the ADSCRs are still commensurate with a preliminary operations phase stand-alone credit profile (SACP) of 'a-'. In our opinion, CLEF's cash flows remain resilient to exchange rate fluctuations and are supported by its debt breakdown between sterling - and euro-denominated loans, aiming to replicate the revenue breakdown from the U. K. (in sterling) and from the continent (in euros). However, there is uncertainty regarding CLEF's future competitive position over the medium-to-long term due to the unpredictable behavior of competing transport modes between the U. K. and France, which we will monitor closely.

The stable outlook on the Standard & Poor's underlying rating (SPUR) reflects our expectation that the project will continue to deliver strong operational performance and will maintain senior debt service coverage ratios (DSCRs) under our base case of at least 1.40x and average DSCRs of at least 1.60x.

We could lower the ratings if our forecast for operational performance deteriorates. This could occur for example, if truck shuttle volumes declined by more than 18% in five consecutive years, or if Eurostar passenger numbers fell by more than 50%, in any single year. We could also lower the ratings if track access charges were reduced materially as a result of changes to the current railway usage contract or if the project's competitive position changed because of the unpredictable nature of the competing transport modes.

Although considered unlikely at this stage, we could raise the ratings if CLEF's financial profile improved, reflecting an increase in projected minimum or average DSCRs. We could also raise the ratings if operational performance improved more strongly than we currently forecast, most likely caused by a further increase in shuttle volumes and Eurostar passengers.

CONSORT HEALTHCARE (SALFORD) PLC The negative outlook on Consort Healthcare (Salford) reflects that on Deutsche Bank, the account bank provider. Since the replacement language in Consort Healthcare (Salford)'s documentation is not compliant with our financial counterparty criteria, the account bank provider cannot support ratings higher than its long-term ICR. We understand that the ProjectCo has been looking into the potential replacement of its bank account provider, however, this process has been ongoing for a few months and we have low visibility on the time it will take to be completed.

We could lower the issue rating if we lowered the ICR on Deutsche Bank below the issue rating on the debt, and Deutsche Bank was not replaced as account bank. We could also lower the rating if the bank's operational performance was weaker than we anticipated or if the minimum ADSCR fell below 1.17x, which would affect the operations phase SACP. We could also take a negative rating action if the project continues to push forward with the lifecycle underspend, thereby causing a decline in the ADSCR, or if ProjectCo decides to distribute the underspent lifecycle amounts.

We could revise the outlook back to stable if the outlook on Deutsche Bank was revised to stable. The outlook could also be revised back to stable if the bank account provider is replaced with a higher rated counterparty that no longer constrains the rating on the ProjectCo.

CONSORT HEALTHCARE (TAMESIDE) PLC The negative outlook on Consort Healthcare (Tameside) reflects that on Deutsche Bank, the account bank provider. Since the replacement language in Consort Healthcare (Tameside)'s documentation is not compliant with our financial counterparty criteria, the account bank provider cannot support ratings higher than its long-term ICR. We understand that the ProjectCo has been looking into the potential replacement of its bank account provider, however, this process has been ongoing for a few months and we have low visibility on the time it will take to be completed.

We could lower the issue rating if we lowered the ICR on Deutsche Bank below the issue rating on the debt, and Deutsche Bank was not replaced as account bank. We could also lower the rating if the bank's operational performance was weaker than we anticipated or if the minimum ADSCR fell materially below 1.20x, which would affect the operations phase SACP.

We could revise the outlook back to stable if the outlook on Deutsche Bank was revised to stable. The outlook could also be revised back to stable if the bank account provider is replaced with a higher rated counterparty that no longer constrains the rating on the ProjectCo.

HIGH SPEED RAIL FINANCE 1 PLC Today's affirmation follows our review of HS1's exposure to Lloyds Bank PLC as one of four swap counterparties, and to The Royal Bank of Scotland PLC (RBS) as account provider. We believe that the ratings on HS1 are not linked to the ratings on Lloyds because, in our opinion, the project's cash flow available to debt service, under the assumption that the swap provided by Lloyds is no longer in place, remains commensurate with the current rating. Furthermore, we understand that HS1 has committed to replacing any financial counterparty whose credit rating falls below a level that affects its ratings within a timely manner. We also note that the bank account agreement includes replacement language aligned with our criteria, supporting the delinkage between the ratings on HS1 and those on the bank account provider.

Following the Brexit vote, we have also revised our macroeconomic base-case assumptions reflecting the latest forecasts for the U. K. (see "Europe's Economic Outlook After The Brexit Vote", published on July 4, 2016). Under the revised base case, the ADSCRs are still commensurate with a preliminary operations phase SACP of 'a-'.

The stable outlook reflects our view that HS1 will continue to deliver strong operational performance and benefit from a supportive and stable regulatory regime. The outlook also factors in the project's strong competitive position as operator of the sole high-speed train route connecting the U. K. to continental Europe, as well as our view that the minimum average DSCR of at least 1.4x under our base case is sustainable.

We could take a negative rating action if the project's financial profile weakened, for example, as a result of operational underperformance or reduced demand for international train paths, causing the minimum average DSCR to fall below 1.4x. We could also lower the rating if we consider that the project's resilience to our downside scenario has declined. Furthermore, a negative rating action could arise if HS1 becomes exposed to additional counterparty risk as a result of the ratings on swap counterparties being lowered or if the project incurs additional exchange-rate risk due to the issuance of a further tranche of foreign currency-denominated debt with a lower-rated swap counterparty. The account bank counterparty must be rated at least 'BBB' so as not to constrain our current 'A' rating on the project.

A positive rating action is unlikely over the medium term, in our view, without a further significant improvement in our base-case projection of the minimum average DSCR.

INTEGRATED ACCOMMODATION SERVICES PLC The negative outlook on Integrated Accommodation Service's SPUR reflects that on Lloyds Bank, the account bank provider. As the replacement language in Integrated Accommodation Service's documentation is not compliant with our financial counterparty criteria, the account bank provider cannot support ratings higher than its long-term ICR. At the same time, we continue to expect the project to deliver steady operational performance, and that the senior ADSCRs, calculated in accordance with our criteria, will be maintained at 1.20x or above.

The stable outlook on the monoline-insured debt rating reflects that on Assured Guaranty (Europe) Ltd. (AGE) and will move in line with the outlook on our rating on AGE.

We could lower the SPUR if we lowered the ICR on Lloyds Bank below the issue rating on the debt, and Lloyds Bank was not replaced as account bank. We could also take negative rating action if the project's financial profile weakens such that the minimum ADSCR falls below 1.15x, or if we believe that the project's liquidity has weakened, affecting its ability to perform under stress conditions. Additionally, we could lower the SPUR if the project's exposure to operational risks increases, or if the relationship between the parties weakens which could occur as a result of an increase in variations or cost savings by the Financial Conduct Authority.

We could revise the outlook back to stable if the outlook on Lloyd's Bank was revised to stable. The outlook could also be revised back to stable if the bank account provider is replaced with a higher rated counterparty that no longer constrains the ProjectCo's SPUR.

UPP BOND 1 ISSUER PLCToday's affirmation follows our review of UPP's exposure to Barclays Bank. Barclays is currently UPP's account bank provider and the replacement language is not aligned with our counterparty criteria. However, we understand that UPP is proactively looking at a plan to address this potential credit constraint and we expect this process to be completed by the end of 2016.

Barclays Bank was also counterparty under the retail price index (RPI) swap. On June 29, 2016, the swap was novated to Royal Bank of Canada, London Branch, and included all the rights, liabilities, duties, and obligations of the SWAP agreement. Royal Bank of Canada was already one of the three previous RPI swap counterparties. The third counterparty is Mitsubishi UFJ Securities International PLC (MUSI; not rated). The obligation of MUSI under the swap contract is guaranteed by Bank of Tokyo-Mitsubishi UFJ Ltd. (A+/Negative/A-1). The guarantee contract meets our criteria, enabling rating substitution (see "Guarantee Criteria--Structured Finance," published on May 7, 2013).

The stable outlook on UPP reflects our view that demand for the accommodation in the portfolio, its operational and financial performance, and the relationship between the participating universities and the project company will remain strong. The stable outlook also reflects our expectation that the ProjectCo will address this potential credit constraint by the end of 2016.

We could lower the rating by one notch if the ADSCR were to fall below 1.25x. We could also lower our rating if the relationship between the parties were to weaken and lead to material operational underperformance and financial penalties, or the increased possibility of termination of the concession agreement. In addition, under our current counterparty criteria, if any counterparty's credit quality deteriorated below the rating on the project, this could constrain our rating on the issue.

We could raise the rating following a material improvement in the project's financial risk profile, leading to forecast minimum ADSCRs above 1.35x, and if there were no longer any financial counterparty constraints on the transaction.