Anglian Water's Bond Issue Rtd 'AA' by S&P.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 7/23/98-- Standard & Poor's today assigned its double-'A' long-term rating to Anglian Water PLC's UK200 million bond issue guaranteed by Anglian Water Services Ltd. (Anglian, double-'A'/Stable/--). The outlook is stable.

The rating on Anglian reflects its strong core utility business, predictable cash flows from a regulated environment, and a robust financial profile, despite a large capital spending program and the imposition of a one-off windfall tax in 1997.

Anglian is the largest of the 10 U.K. water and sewerage companies, and serves one of the country's fastest-growing regions, characterized by higher-than-average population growth and income per capita. The household growth rate is about 1% per year, and almost two-thirds of Anglian water sales are to domestic consumers.

Although Anglian is well placed to cope with what will become a harsher regulatory environment over the next few years, regulatory uncertainty remains a key risk factor. Cash flows should remain very predictable at least up until 2000 because the regulator has set permitted rate increases at inflation plus 1.5%. Beyond that, price increases will remain predictable, but perhaps less generous to the water companies; the regulator has signaled the possibility of a lower annual increase and a one-time cut in prices. An indication of how harsh the regulator will act over the next review period is expected in October 1998.

Anglian operates a cost-efficient and relatively new distribution asset base, and has the best leakage record in the sector at 11.8%, compared with a sector average of 30%. The good condition of the system is reflected in the company's high level of compliance with regulatory standards.

Since the completion of Anglian's restructuring process in the core business, the company is forecasting significant savings in the operational and capital expenditure base. Base capital expenditures in the current regulatory period are expected to be slightly less than the UK1.4 billion (US$2.24 billion) allowed, and mainly will focus on further improving water and wastewater quality in line with European and national standards.

Anglian expects to finance about two-thirds of its investment program from internally generated funds. Though borrowings will rise, debt-service coverage is forecast to remain robust because of stable cash flows from the utility business. Funds from operations  interest coverage has been strong in recent years (1997: 6.4 times (x), 1998: 4.8x, and 5.7x windfall tax adjusted), but is expected to weaken during the next few years given the impact of harsher regulatory review and ongoing capital expenditure. However, until details of the regulatory review are made known, it is difficult to assess the impact on Anglian's financial profile. Anglian's international operations remain in a loss position, but have not been a significant drain on group funds.

OUTLOOK: STABLE The outlook reflects Standard & Poor's view that Anglian and

other U.K. water and sewerage companies should be able to mitigate the expected negative effects of the forthcoming regulatory review by increasing operational efficiency, improving environmental compliance, and modest annual increases in charges. However, if the regulatory review is harsher than Standard & Poor's expects, the rating on Anglian could be affected, as after the recent windfall tax and UK208 million share buyback the company has limited rating flexibility. -- CreditWire

   CONTACT:  Ana Nogales, London, (44) 171-826-3619
              Michael Wilkins, London, (44) 171-826-3528