Transport for London debt downgraded by ratings agency due to “uncertain” financial future

A MAJOR ratings agency has downgraded Transport for London’s (TfL) debt due to the “uncertainty” of its long-term funding, in a further sign of the financial difficulty the operator finds itself in.

Moody’s announced it had downgraded TfL’s long-term debt as a result of weaker economic growth and higher inflation delaying the service’s return to higher passenger numbers alongside a lack of clarity over capital funding.

TfL and the Mayor of London, Sadiq Khan, have been lobbying central government for a long-term funding settlement since the beginning of the pandemic, when passenger revenues crashed.

However the network has only been able to secure four short-term settlements from Whitehall, which TfL has warned risks ‘managed decline’ on the network.

The four bailouts so far have come attached with numerous conditions, including severe cost-cutting. Moody’s warned in its downgrade note that though TfL has “a strong track record of cost savings… we view further efficiencies as challenging especially in a high-inflation environment.”

TfL has already cancelled a number of capital projects and put more expensive improvements, including the extension of the Bakerloo Line, on the back-burner.

A spokesperson for the Mayor of London, said: “TfL has a critical role to play in driving the economic recovery in both the capital and the rest of the country – TfL contracts contribute around £7bn to the UK economy and support tens of thousands of jobs around the country. 

“That is why it is time for the Government to realise that a properly-funded transport network in London is an issue of great national importance, and to commit to a long-term funding deal that will protect London’s transport network – for the sake of the capital and the whole country.”

The ratings agency – which downgraded the network’s long-term unsecured debt from an A3 rating to Baa1 – also warned that additional government funding is likely to be accompanied by further “cumbersome” conditions and that service level reductions on the Tube and bus network would “prove detrimental to TfL’s long-term financial sustainability.”

The agency said weaker economic growth would also slow the return of passenger revenues to pre-pandemic levels, as would higher inflation. The firm downgraded its forecast of passenger revenue for the 2023 fiscal year to £4.3bn, down from £4.7bn.

A Transport for London (TfL) spokesperson said: “Moody’s decision to amend our long-term rating by one notch, as well as upgrade our outlook to ‘stable’ reflects a number of factors, including concerns that operating performance will be weaker than expected due to weaker economic growth and higher inflation, as well as the ongoing uncertainty around TfL’s long-term funding framework, especially for capital funding.

“We continue to rebuild ridership on all our services – with the Tube now seeing more than two thirds of ridership on weekdays compared to pre-pandemic levels and buses consistently being 75-80 per cent of pre-pandemic levels. With the forthcoming opening of the Elizabeth line, the completion of the Bank station capacity upgrade and delivery of more UK-built zero-emission buses across the city, public transport will continue to make a vital contribution to the economic recovery of London and the wider country. To ensure this recovery is successful, it is crucial that a longer-term settlement with Government is confirmed. Our discussions with Government on this continue.”