S&P affirms RBKC’s A-1+ short-term rating: outlook negative

Ratings agency Standard & Poor’s has maintained its top credit ratings for Royal Borough of Kensington and Chelsea, but gave the council a negative outlook, due to its reliance on the UK government for much of its funding.
The agency this week said that it would affirm its AAA long term and A-1+ short term issuer credit ratings on the borough.
But it added that the negative outlook reflects that of its long-term sovereign credit rating on the UK.
A statement released by the agency said: “We would lower the rating on Kensington and Chelsea if we were to lower the rating on the UK.
“In our view, the borough’s economy and finances are not sufficiently robust to withstand country-specific stresses. It depends heavily on the sovereign as the majority of its revenues are linked to the UK.”
In addition, it said it would downgrade its assessment if its deficits deteriorated due to weaker operating performance and cost overruns on capital spending.
It said: “Under this scenario, we assume that the borough is not using its flexibility to cut spending to absorb lower revenues, and we factor this into our assessment of its budgetary flexibility.”
But it added that, “given the borough’s current strong commitment to fiscal consolidation and good track record of prudent fiscal policies” it considered this unlikely.
It praised the council for demonstrating its capability and willingness to cut operating spending in the face of significant cuts in central government grant funding.
The agency’s report said that its positive ratings reflect the predictable and supportive institutional framework, along with a strong and diverse local economy, plus “very positive” financial management.
It said: “The interim Chief Executive has held the position of Town Clerk and Executive Director of Finance at Kensington and  Chelsea for five years and is well acquainted with the design and  implementation of the borough’s flagship initiatives.”
S&P assessed the borough’s overall liquidity as very positive, with a moderate debt burden and limited exposure to contingent liabilities.
The borough has significant free cash and short-term investments totalling around £223 million in March 2014, the agency said.
“This level of liquidity comfortably covers debt service for the next 12 months,” S&P concluded.