OREANDA-NEWS. Fitch Ratings has assigned High Speed Rail Finance (1) PLC's GBP96.5m additional tap of their index-linked bonds a final 'A-' rating with a Stable Outlook. The agency has also affirmed the issuer's following ratings:

GBP5bn Multicurrency Note Issuance Programme: affirmed at 'A-', Outlook Stable
GBP610m fixed rate bonds, maturing November 2038: affirmed at 'A-'; Outlook Stable
GBP150m index-linked bonds, maturing November 2038: affirmed at 'A-'; Outlook Stable

The additional tap will be consolidated, and form a single series with the existing Series 1 GBP150m 1.566% index-linked instalment bonds due 2038 under High Speed Rail Finance (1) PLC's multicurrency bond programme. The new issuance in part refinances HS1 Limited's existing bank debt.

KEY RATING DRIVERS
Revenue Risk: Stronger
Although HS1 Limited is a unique asset, it shares some characteristics with operational availability-based PFI and transportation project finance. Approximately 60% of total revenue can be attributed to availability risk (underpinned from 2014 by the UK government), while the remaining revenues are exposed to demand risk, consisting primarily of international train paths, although there is some retail and car parking revenue. The demand risk profile is well-established and understood.

Price risk is low, as the concession agreement is based on a detailed regulatory framework that allows recovery of investment through an RPI-linked investment recovery charge (IRC) and an operations and maintenance recovery charge (OMRC). HS1 Limited's first periodic regulatory review of OMRC charges was completed in May 2014 - with no objections from the regulator.

Operation Risk: Stronger
The majority of O&M risk has been outsourced to a subsidiary of Network Rail (AA+/Stable), the leading rail infrastructure operator in the UK. This provides an experienced operator and substantial pass-through of liabilities. While the concession and operating agreements are not strictly 100% back-to-back, this risk has been reduced as part of the recent operating agreement market testing process, although Fitch notes that there is a limited universe of replacement operators.

Infrastructure Development & Renewal Risk: Stronger
Forward-looking escrow arrangements in respect of track and station capex provide high visibility of O&M and renewal costs. Renewal risk is partly mitigated by HS1 Limited 's modern assets, the UK's history of privatisations and HS1 Limited's close working relationship with regulators (UK Transport Secretary and the Office of Rail Regulation; ORR). HS1 Limited's five-year asset management plan was accepted by the ORR.

Debt Structure: Midrange
The medium-term debt profile is consistent with a concession-based PFI deal, with many of the standard features that we typically observe in this type of financing (fully amortising, 21 month tail). The use and treatment of both legacy and newer swaps is fairly transparent and overall debt has been sized for a flat 1.4x debt service coverage ratio (DSCR) under a low inflation environment (1% RPI), resulting in a Fitch adjusted debt amortisation profile close to an annuity. Dedicated 12-month liquidity facilities at both the issuer and HS1 level also support debt service.

Financial Performance
The 2014/15 DSCR was above our rating case expectations. The strong performance was driven primarily by indexation on IRC and OMRC and the new retail space.

RATING SENSITIVITIES
Positive rating action may result from a continuation of HS1 Limited's stable operating performance, particularly in relation to non-underpinned and commercial revenues and unrecoverable costs. As the project is considered a quasi-availability project, significant and sustained outperformance of Fitch's rating case resulting in an average debt life coverage ratio (DLCR) well in excess of 1.6x may justify an upgrade.

Conversely revenue deterioration that leads to material underperformance of the rating case, resulting in an average DLCR consistently below 1.50x could trigger negative rating action.