BT 2014 Annual Report Download - page 173

170 Financial statements
26. Financial instruments and risk management continued
Credit ratings
The group’s 2016 and 2030 bonds contain covenants which have required the group to pay higher rates of interest once the group ceased to be
rated at least A3 in the case of Moody’s or at least A– in the case of Standard & Poor’s (S&P). Additional interest of 0.25% per year accrues for each
ratings category downgrade by each agency below those levels from the next coupon date following a downgrade. Based on the total notional value
of debt outstanding of £2.3bn at 31 March 2014, the group’s nance expense would increase/decrease by approximately £12m a year if BT’s credit
rating were to be downgraded/upgraded, respectively, by one credit rating category by both agencies from the current ratings.
The group’s €600m 2014 bond attracts an additional 1.25% for a downgrade by one credit rating below Baa3/BBB– by either or both Moody’s and
S&P, respectively. This would result in an additional nance expense of approximately £6m per year.
The group’s credit ratings were as detailed below
2014 2013
At 31 March Rating Outlook Rating Outlook
Rating agency
Standard & Poor’s BBB Stable BBB Stable
Moody’s Baa2 Positive Baa2 Positive
The group is targeting a BBB/Baa1 credit rating over the medium term.
Liquidity risk management
Management policy
The group ensures its liquidity is maintained by entering into short, medium and long-term nancial instruments to support operational and other
funding requirements. The group determines its liquidity requirements by the use of both short and long-term cash forecasts. These forecasts are
supplemented by a nancial headroom analysis which is used to assess funding adequacy for at least a 12-month period. On at least an annual basis
the Board reviews and approves the maximum long-term funding of the group and on an ongoing basis considers any related matters. Renancing
risk is managed by limiting the amount of borrowing that matures within any specied period and having appropriate strategies in place to manage
renancing needs as they arise. The maturity prole of the group’s loans and borrowings at 31 March 2014 is disclosed in note 24. The group has
term debt maturities of £1.2bn in 2014/15.
Short and medium-term requirements are regularly reviewed and managed by the treasury operation within the parameters of the policies set by
theBoard. During 2013/14 and 2012/13 the group issued commercial paper and held cash, cash equivalents and current investments in order to
manage short-term liquidity requirements. At 31 March 2014 the group has undrawn committed borrowing facilities of £1.5bn (2012/13 £1.5bn)
maturing in March 2016.