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Rating Action:

Moody's has taken rating actions on 57 sub-sovereign entities after UK's sovereign action

13 Nov 2019

London, 13 November 2019 -- Moody's Public Sector Europe ("Moody's") has today taken rating actions on 57 UK sub-sovereign entities (and 39 special purpose vehicles (SPVs)) covering the following sectors: (1) local authorities (LAs); (2) universities; (3) housing associations (HAs) and public sector pool financings; (4) mass transit; and (5) non-profits.

This rating action follows the change in the outlook to negative from stable on the UK's Aa2 sovereign bond rating on 8 November. For further information on the sovereign rating action, please refer to Moody's press release published on 8 November 2019: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_396604

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_205150 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_205150 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

Principal Methodologies

RATIONALE FOR AFFIRMING THE RATINGS AND CHANGING OUTLOOK TO NEGATIVE FROM STABLE FOR LOCAL AUTHORITIES

Moody's has affirmed the ratings and changed the outlook to negative from stable on five local authorities: Aberdeen City Council, Cornwall Council, Guildford Borough Council, Lancashire County Council, and Warrington Borough Council. This reflects the following factors: (1) higher systemic risk as expressed in a potentially weaker sovereign rating; (2) higher spending pressures for local authorities within a lower growth environment, in line with the UK sovereign, particularly for social care and housing, combined with the risk of weaker business rate growth and lower returns on commercial projects; and (3) weaker sovereign institutional strength leading to the potential for further policy and legislative delays on key issues for the sector including business rates devolution and reform of the adult social care system.

The Baseline Credit Assessments (BCAs) were also affirmed. Final ratings incorporate uplifts provided by Moody's assessment of a high likelihood of support from the UK government, as per the application of Moody's Joint Default Analysis (JDA). The affirmation of the ratings reflects the strong and mature institutional framework for UK local authorities, with clear processes and facilities in place to protect liquidity, and the close monitoring and oversight of the sector by central government.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS FOR LOCAL AUTHORITIES

In Moody's assessment, environmental considerations are not material to LAs' credit profiles. Social considerations are material to LAs' credit profiles. Socially-driven policy and socio-economic issues can affect credit profiles in the sector, particularly for LAs that are responsible for funding demand-led services, such as adult and children's social care. LAs also face social and financial pressures arising from the need to provide housing to homeless people. Governance considerations are material to LAs' credit profiles. LAs' standards of governance are high. Governance surrounding capital finance is detailed by the sector's Prudential Code, which is designed to ensure capital plans are affordable, prudent and sustainable. Data transparency is very high.

WHAT COULD MOVE THE RATINGS UP/DOWN

Upward pressure could arise from: (1) an improvement in the creditworthiness of the UK sovereign; (2) a reduction in debt burden; and/or (3) a significant improvement in fiscal position, including material accumulation of usable reserves.

Downward pressure could arise from: (1) further deterioration of the creditworthiness of the UK sovereign, or any weakening of the links between central and local governments; (2) a lack of credible budgeting to prevent depletion of usable reserves; and/or (3) a significant increase in indebtedness.

RATIONALE FOR AFFIRMATION OF RATINGS ON SIX UNIVERSITIES, CHANGE OF OUTLOOK TO NEGATIVE FROM STABLE FOR FIVE UNIVERSITIES, DOWNGRADING THE UNIVERSITY OF MANCHESTER AND MAINTAINING THE NEGATIVE OUTLOOKS ON THE UNIVERSITY OF MANCHESTER AND CARDIFF UNIVERSITY

Moody's has affirmed the ratings and changed the outlooks to negative from stable for University of Leeds, University of Liverpool, University of Southampton, Keele University and De Montfort University. The change in outlook reflects Moody's expectation that universities would be negatively impacted by a weakening macroeconomic climate through revenue streams such as research funding and donations. Slower revenue growth could result in lower margins given their existing low margins driven by limited revenue flexibility and rising costs. In addition, reduced research funding could adversely impact rated universities' market positions and global competitiveness, impeding their ability to attract high-calibre international students and academic staff. Lastly, ongoing policy uncertainty around domestic, undergraduate tuition fees, a key revenue source for UK universities, is exacerbated by the weaker institutional strength of the sovereign and is also credit negative for universities.

For University of Leeds, University of Liverpool, University of Southampton, Keele University and De Montfort University, the BCAs were also affirmed. Final ratings incorporate uplifts provided by Moody's assessment of a high likelihood of support from the UK government, as per the application of Moody's Joint Default Analysis (JDA). The affirmation reflects the strong balance sheets of the issuers, with manageable and stable debt levels and strong liquidity. Moody's also considers that the adverse demographics that have fueled competition for domestic undergraduates will affect rated universities to a lesser extent than the sector as a whole, due to their higher quality and continued high levels of demand.

Moody's has downgraded the final rating of the University of Manchester, to Aa3 from Aa2, and lowered its Baseline Credit Assessment (BCA) to a1 from aa3, to reflect its weakening idiosyncratic credit profile driven by slow revenue growth and weak operating performance, which make it more vulnerable to macroeconomic risks. The university was unable to meet its surplus target in fiscal 2018 and forecasts an operating deficit (Moody's-adjusted calculation) for fiscal 2019. Manchester is particularly vulnerable to a decline in research income given its high share of the university's total income and the strategic importance of research in maintaining the university's global reputation and appeal. Maintaining the negative outlook reflects that we expect these revenue and cost pressures to continue amid a slower growth environment in the UK.

Moody's has affirmed Cardiff University's final rating of Aa3 and lowered its BCA to a2 from a1 to reflect the university's weaker idiosyncratic profile compared to peers, especially its high staff costs and weak profitability which make it more susceptible to slower revenue growth. The university has forecasted a deficit for fiscal year 2019. In addition, it has underperformed on targets for research and philanthropic income, which may be more difficult to achieve in weaker economic conditions. Maintaining the negative outlook reflects our expectation that the twin pressures of growing costs and slower revenue growth will continue to negatively impact the university's operating performance over the medium term.

WHAT COULD MOVE THE RATINGS UP/DOWN

Upward pressure could arise from: (1) an improvement in the creditworthiness of the UK sovereign; (2) material improvement in operating performance including sustained strong revenue growth and improved operating cash flow margin; (3) outperformance of strategic objectives for donations leading to higher wealth and liquidity; and/or (4) a strengthened market position resulting in higher student demand.

Downward pressure could arise from: (1) further deterioration of the creditworthiness of the UK sovereign, or a dilution of support for the higher education sector; (2) weaker than expected operating performance driven by an inability to reach income targets combined with higher than expected cost growth; and/or (3) a material deterioration in market position leading to lower student demand and tuition fee income.

RATIONALE FOR AFFIRMING THE RATINGS AND CHANGING OUTLOOK TO NEGATIVE FROM STABLE FOR UNIVERSITY OF CAMBRIDGE AND UNIVERSITY OF OXFORD

Moody's has affirmed the ratings and changed the outlooks to negative from stable for University of Oxford (Oxford) and University of Cambridge (Cambridge). The BCAs were also affirmed. The change in outlook reflects the negative outlook on the UK sovereign rating and the channels through which the government influences Oxford and Cambridge's credit quality including policy determining tuition fees, immigration, teaching funding, research funding and priorities, and regulation. Moreover, the receipt of public funds shapes governance obligations at the universities, and makes them susceptible to social risks, such as public perception of accessibility to these institutions.

Both universities retain final ratings two notches above the sovereign which reflects their very strong standalone credit profiles and higher autonomy than UK peers. The high autonomy is driven by both universities' very diverse global revenues including from Oxford University Press and Cambridge Press and Assessment Services, which are established, profitable global businesses, in addition to non-UK research funding and revenue from international students. In addition, their exceptional global market profiles ensure continued student demand from both domestic and international students. Lastly, their very strong balance sheets with high levels of cash and investments, strong geographic diversification of those investments, and ease of fundraising limits their dependence on UK financial markets.

Final ratings for Oxford and Cambridge incorporate Moody's assessment of a very high likelihood of support from the UK government, as per the application of Moody's Joint Default Analysis (JDA).

WHAT COULD STABILISE THE RATINGS / MOVE THE RATINGS DOWN

The rating would be stabilised by: (1) an improvement in the creditworthiness of the UK sovereign.

Downward pressure could arise from: (1) further deterioration of the creditworthiness of the UK sovereign; (2) material deterioration in market position impacting the ability to recruit high-calibre students and staff; and/or (3) a significant deterioration in wealth and liquidity.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS FOR UNIVERSITIES

In Moody's assessment, environmental considerations are not material to rated universities' credit profiles. Social risks are material to rated universities' credit profiles. The most significant of these risks are demographics and socially-driven government policy. The fall in the university-age population through 2021/22 in the UK will increase competition among universities for a smaller pool of domestic undergraduate students, who account for the largest share of enrolments (nearly 70% in 2018). In addition, universities are susceptible to government policy on tuition fees, and immigration policy which influences demand from international students. Governance considerations are material to rated universities' credit profiles. Effective execution of strategy is assessed as part of the Strategic Positioning factor as per the Moody's methodology. In addition, UK universities benefit from the regulatory framework governing the sector under the Office for Students in England and the Higher Education Funding Council for Wales in Wales, which monitor financial viability.

RATIONALE FOR AFFIRMING RATINGS ON HOUSING ASSOCIATIONS

Moody's has affirmed the ratings on 39 housing associations and 38 associated special purpose vehicles (SPVs). Outlooks remain unchanged.

Moody's expects that the rated HA sector will be resilient to the risks facing the UK sovereign. The weakening of the UK's institutional strength is likely to have a limited impact on the rated sector. There are no material changes planned to the legislative or policy framework for HAs, and the regulatory framework remains stable. Moody's also considers that HAs face limited risks from a weakening in the fiscal strength of the UK. HAs have adjusted to lower levels of capital grant since 2010 and, in the past year, capital grants have increased in the form of multi-year strategic partnerships supporting long-term planning. Social rent policy is returning to inflation-linked growth from fiscal 2021: credit positive for the sector's financial performance. Although a lower growth environment is credit negative, Moody's expects the rated sector to remain resilient. Moody's considered the following factors in this analysis: (1) rated HAs continue to have a strong core counter-cyclical business, with social rents accounting for the majority of turnover; although this has shifted in recent years, market sales accounted for less than 20% of turnover in fiscal 2019; (2) liquidity levels tend to be strong with a median liquidity cover ratio of 1.6x for the rated sector, which would provide a sufficient cash buffer in the event of a market downturn; (3) the rated sector has generally proved itself resilient and responsive to adverse financial events due to strong financial and debt and investment management. In the event of a severe market downturn, although short-term pressures would emerge, Moody's expects the majority of issuers would pull back on market sales development and liquidity would be sufficient to counteract the reduction in cash flows.

The Baseline Credit Assessments (BCAs) were also affirmed. Final ratings incorporate uplifts provided by Moody's assessment of a strong likelihood of support from the UK government, as per the application of Moody's Joint Default Analysis (JDA).

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS FOR HOUSING ASSOCIATIONS

In Moody's assessment, environmental considerations are not material to HAs' credit profiles. Social considerations are material to HAs' credit profiles. In particular, the sector is exposed to risks stemming from socially-driven policy agendas and the impact of demographic trends and customer relations on demand. These factors are captured in Moody's assessment of the operating environment. Customer relations and product quality can also have an impact on housing associations. The Grenfell Tower tragedy in June 2017 has encouraged higher health and safety standards and led many housing associations to increase spending on the quality of their existing stock. Governance considerations are material to HAs' credit profiles. HAs typically have strong governance and management, with policies and practices that are aligned to their business plans.

WHAT COULD MOVE THE RATINGS UP/DOWN

Upward pressure could arise from: (1) an improvement in the creditworthiness of the UK sovereign; (2) a reduction in debt burden; and/or (3) a significant improvement in interest coverage levels.

Downward pressure could arise from: (1) dilution in support for the sector from the UK sovereign or demonstrated weakening of the links between the sovereign and UK housing associations; (2) significant worsening of debt metrics; (3) significant weakening in interest coverage metrics; and/or (4) and a material deterioration in liquidity.

RATIONALE FOR AFFIRMING RATINGS ON BLEND FUNDING

Moody's has affirmed the ratings on bLEND Funding plc -- a debt aggregator for the housing association sector -- as the underlying participants, UK housing associations, have very limited exposure to market sales and Moody's therefore expects them to have limited exposure to the downside risks of a weaker UK economy. The outlook remains stable.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

ESG considerations for bLEND Funding plc are the same as for the UK housing association sector, detailed earlier in this press release.

WHAT COULD MOVE THE RATINGS UP/DOWN

Upward pressure on the rating could arise from: (1) an improvement in the credit quality of one or more of the underlying pool participants; or (2) a different pool composition, including the addition or removal of pool participants, and adjustments in the proportion of borrowing between pool participants that results in a stronger borrowing pool.

Downward pressure on the rating could arise from: (1) an erosion of the credit quality of one or more of the underlying pool participants; and/or (2) a different pool composition, including the addition or removal of pool participants, and adjustments in the proportion of borrowing between pool participants that results in a weaker borrowing pool.

RATIONALE FOR AFFIRMING RATINGS ON TRANSPORT FOR LONDON

Moody's has affirmed the long-term and short-term ratings on Transport for London. The outlook remains stable. Moody's expects the weakening institutional strength of the UK sovereign to have limited impacts on TfL. Moody's also considers that TfL does not face significant increased risks from a weakening in the UK's fiscal strength. TfL has already adjusted to a material reduction in operating grant, and its capital programme is now predominantly funded through business rates passed through the Greater London Authority (GLA). Moody's considers that the main risk to TfL from a lower growth environment is through negative impacts on ridership and passenger revenues. TfL has revised downwards its ridership growth in recent years and expects the majority of new passenger revenues to come from additional capacity on the network, including the Elizabeth line. In addition, Moody's also considers that TfL has considerable flexibility in its operating budget and capital programme and can adjust future spending if ridership is not as strong as expected.

The BCA of a2 was also affirmed. The final rating of Aa3 incorporates a two notch uplift based on Moody's assessment of a very high likelihood of support from the UK government, as per the application of Moody's Joint Default Analysis (JDA).

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS FOR TRANSPORT FOR LONDON

In Moody's assessment, environmental considerations are material to TfL's credit profile. TfL is central to the London Mayor's carbon reduction and air quality targets. This involves significant expenditure within TfL's capital programme. TfL's services can also be affected by flooding and other weather-related events, but these would not have a material impact on the issuer's finances. Social considerations are material to TfL's credit profile. Socially-driven policy can have a material impact on TfL's credit profile. In addition, TfL's ridership is strongly correlated with the health of London's economy and demographic trends; ridership growth on London Underground in particular has weakened in recent years due to a slowdown in London's economy. Governance considerations are material to TfL's credit profile. TfL has high standards of financial management and governance, and has a number of internal committees that review investment and spending decisions in addition to an external body providing independent assurance and expert advice.

WHAT COULD MOVE THE RATINGS UP/DOWN

Upward pressure on the rating could result from an upgrade of the UK sovereign rating.

Downward pressure on the rating could result from: (1) TfL's underperformance in meeting operational or financial goals, specifically if passenger revenue growth is materially slower than projected levels, new revenue sources fail to contribute to the operating account gap or planned expenditure savings do not materialize; and/or (2) the UK government was to signal a clear dilution of its support for TfL's capital programme.

RATIONALE FOR AFFIRMING RATINGS ON WELLCOME TRUST

Moody's has affirmed the ratings on Wellcome Trust and Wellcome Trust Finance plc. The outlook remains stable. Moody's considers that the issuer is insulated from the risks facing the UK sovereign due to the fact that a substantial majority of its cash flows are derived from outside the country, it has no reliance on domestic funding sources or ties to the UK sovereign, it is able to maintain its global profile in the event of sovereign distress, and is insulated from any liquidity stress in the UK. 80% of Wellcome Trust's investment assets, the source of its operating cash flows, are non-sterling denominated. It is fully self-funded and receives no funding from the UK government and has exceptional spending flexibility. It also has exceptional liquidity levels, with over 20 years' liquidity as of 30 September 2018. The latter provides a significant cushion in the event of any sovereign-imposed capital controls.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS FOR WELLCOME TRUST

In Moody's assessment, environmental considerations are not material to Wellcome Trust's credit profile. Its operations have limited exposure to environmental risk, and its investment portfolio is well-diversified minimising the materiality of the impact of any environmental risks on its assets. Social considerations are not material to Wellcome Trust's credit profile. Although social trends affect why and where it may provide grant funding, they do not materially affect its investment portfolio or policy which is the main driver of its credit profile. Governance considerations are material to Wellcome Trust's credit profile and are reflected in its high scores for financial strategy.

WHAT COULD MOVE THE RATINGS DOWN

Downward pressure on the ratings could result from a significant and sustained deterioration in the value of the investment assets, a significant increase in leverage, or an increase in exposure to the UK sovereign environment through an increase in investment assets domiciled in the UK or allocated in the UK pound.

RATIONALE FOR ASSIGNING NEGATIVE OUTLOOK TO PRS FINANCE Plc

The affirmation of the rating and assignment of a negative outlook for the senior secured debt rating assigned to the PRS Finance Plc Guaranteed Secured Bond Programme reflects the negative outlook on the UK sovereign rating, as the rating is based solely on the unconditional and irrevocable guarantee provided by the UK Ministry for Housing, Communities and Local Government. As such, any movement in the UK sovereign rating will affect PRS Finance's rating.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS FOR PRS FINANCE

Moody's considers that ESG considerations reflect those of its guarantor, the Government of the United Kingdom. ESG considerations are not material to PRS Finance's rating, which is based on the guarantee.

WHAT COULD MOVE THE RATINGS UP/DOWN

The guaranteed senior debt rating is linked to that of the UK. Any change in the rating of the Government of the United Kingdom would be expected to translate into a rating change on the bonds.

PUBLICATION OF RATING ACTIONS ON LOCAL AUTHORITIES

The change of outlook to negative from stable to the UK's sovereign rating prompted the publication of this credit rating action on Cornwall Council, Guildford Borough Council, Lancashire County Council, Aberdeen City Council and Warrington Borough Council on a date that deviates from the previously scheduled release date in the sovereign release calendar, published on www.moodys.com.

The specific economic indicators, as required by EU regulation, are not available for these entities. The following national economic indicators are relevant to the sovereign rating which was used as an input to this credit rating action.

Sovereign Issuer: United Kingdom, Government of

GDP per capita (PPP basis, US$): 45,741 (2018 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 1.4% (2018 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 2% (2018 Actual)

Gen. Gov. Financial Balance/GDP: -2.3% (2018 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -4.3% (2018 Actual) (also known as External Balance)

External debt/GDP: [not available]

Level of economic development: Very High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

SUMMARY OF MINUTES FROM RATING COMMITTEE

On 08 November 2019, a rating committee was called to discuss the rating of the Cornwall Council, Guildford Borough Council, Lancashire County Council, Aberdeen City Council, and Warrington Borough Council. The main points raised during the discussion were: The issuer's fiscal or financial strength, including its debt profile, has materially decreased. The systemic risk in which the issuer operates has materially increased.

The weight of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_205150 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Person Approving the Credit Rating

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Zoe Jankel
Vice President - Senior Analyst
Sub-Sovereign Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

David Rubinoff
MD - Sub Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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