The new report, entitled "Possible Change in the Calculation of RPI Would be Credit Negative", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

Allowed revenue and the Regulatory Asset Value (RAV) are both linked to RPI, one of the main measures of inflation, under the framework for UK regulated utilities. Moody's notes that UK utilities -- including water and energy networks and Network Rail -- are also among the biggest issuers of index-linked debt, which uses RPI for calculating interest.

"A lower RPI would lead to slower revenue growth, potentially at a lower rate compared with a company's actual expenditure," says Scott Phillips, an Assistant Vice President in Moody's Infrastructure Finance Group and author of the report. "As companies are mainly financed with fixed-coupon debt, the reduction in future revenue would lead to weaker interest coverage ratios, a credit negative." Similarly, lower RAV growth could require an adjustment to dividends to keep gearing constant, potentially causing problems for any holding company debt.

"While index-linked debt could mitigate the impact of a lower RPI, a mismatch in indices would increase risk," explains Mr. Phillips. Index-linked debt has historically allowed companies to efficiently align assets and liabilities and may mitigate some of the negative effect of a lower RPI on financial ratios. However, the bonds typically have clauses that protect bondholders from adverse changes to an index, which if invoked could lead to adjustments being made to protect their value. Revenues and RAV would then be inflated using the new, lower RPI while debt would use a higher, modified value, leading to a mismatch. This would also result in a weakening of some financial ratios, a credit negative.

"Furthermore, early redemption of bonds would present a liquidity challenge," continues Mr. Phillips. "There is a low risk that some bonds will be redeemed if adjustments to the index cannot be agreed. If companies were unable to issue index-linked debt, they could then be forced to refinance with fixed-coupon debt, negatively affecting their interest coverage ratios," adds Mr. Phillips. In Moody's view, however, this is a low risk as bondholders could be sympathetic to the plight of an affected company and may seek to negotiate for the bonds to continue.

The ONS published a consultation outlining three possible changes to the calculation of RPI in October 2012.

Subscribers can access this report via this link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_147542NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London+44-20-7772-5456, New York+1-212-553-0376, Tokyo+813-5408-4110, Hong Kong+852-3758-1350, Sydney+61-2-9270-8141, Mexico City001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Scott PhillipsAsst Vice President - Analyst Infrastructure Finance Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Monica Merli MD - Infrastructure Finance Infrastructure Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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