OREANDA-NEWS. Fitch Ratings has affirmed Network Rail Infrastructure Finance Plc's (NRIF) GBP40bn multi-currency note issuance programme and GBP4bn short-term commercial paper notes at 'AA+' and 'F1+', respectively. The Outlook on the note issuance programme is Stable.

KEY RATING DRIVERS
NRIF's ratings are linked to the UK's ratings (AA+/Stable/F1+) due to the Financial Indemnity from the Secretary of State for Transport (SoS), whose liabilities are sovereign obligations of the UK. The Financial Indemnity is an unlimited, irrevocable and unconditional obligation terminating on 3 October, 2052.

Under the Financial Indemnity, the SoS has up to 20 business days to meet a claim relating to a note principal repayment, and up to five business days to meet a claim relating to a note interest payment or, following the side letter implemented on 19 March 2012, a CP principal payment. The Financial Indemnity states that should NRIF have insufficient cash to cover an upcoming note or CP-related obligation, either the programme administrator or security trustee is required to submit a claim to the SoS 21 business days or six business days prior to the obligation arising for principal and interest obligations, respectively. As such, Fitch is comfortable that the structural support provided by the SoS is sufficient to ensure full alignment of NRIF's ratings with those of the UK sovereign.

In order to reduce financial counterparty risk related to the account bank, HSBC Bank plc (HSBC, AA-/Stable/F1+), NRIF enters into repurchasing agreements with the bank. Under these agreements, prefunded bond redemption amounts deposited by NRIF with HSBC are secured by high quality, liquid government/supra-national debt security collateral posted by the bank, such as UK Gilts or US Treasury bonds. The posted collateral is marked-to-market on a daily basis. Fitch considers that this mechanism would significantly reduce counterparty risk if HSBC's creditworthiness deteriorates in the future.

Following the reclassification as a Central Government body, Network Rail Infrastructure Limited's (NRIL) financing requirements (including the funds needed to repay maturing NRIF obligations as they fall due) for the period to March 2019 are covered by a GBP30.175bn loan facility provided by the United Kingdom Department for Transport (DfT). Therefore, NRIF is not expected to raise additional debt under the note programme or the CP programme, unless the loan facility provided by the DfT is withdrawn or the DfT fails to send funds as and when due. In addition, the Framework Agreement between Network Rail and the DfT says that the DfT will make a decision as to whether to extend the Loan Facility Agreement by April 2017.

RATING SENSITIVITIES
Given that the SoS irrevocably and unconditionally guarantees the full discharge of NRIF's debt service commitments, any change in the United Kingdom's rating or Outlook would lead to a corresponding change in the notes' ratings or Outlook.