Monitor is reviewing its controversial proposals to require key service providers to receive external credit ratings or have limits placed on their debts.

The regulator suggested in January that organisations providing a service that commissioners designated as mandatory should be required to secure an “investment-grade” credit rating from one of the three major agencies – Standard and Poor’s, Moody’s and Fitch.

Monitor said these “commissioner-requested services” could be defined as those “where there is limited alternative provision because of clinical, geographic and other market constraints”.

Monitor ran an informal pre-consultation exercise on the conditions which should be included in the licences it will grant to providers of NHS-funded services. The exercise saw the credit rating idea criticised as expensive. Respondents also said many providers would find “investment grade” difficult to achieve.

One respondent in the consultation feedback document released by Monitor last week said: “There are certainly NHS trusts who because of financial challenges would not be able to achieve [the securing of a credit rating of an appropriate grade]”.

“Investment grade” is a middle level on a ratings agency’s spectrum of assessment. Monitor proposed to use the rating as a licence condition, stressing a provider’s “intrinsic financial strength”.

In February the NHS Confederation said getting an initial financial rating could cost a trust £200,000. It added it was “extremely unlikely that most existing providers of NHS-funded services would be able to achieve the proposed rating”.

In response to the feedback, Monitor said: “Although we can see benefits to an external credit rating we have taken very careful note of the feedback and concerns raised and continue to consider the costs and benefits of our proposals.

“We have commissioned further research which looks at, among other things, whether or how a transition could be made to a system of external credit ratings over time.”

The response document also said Monitor had commissioned research on applying a limit on the amount of debt a provider of CRS would be allowed.

After the problems at care home firm Southern Cross last year, ensuring continuity of service has been a concern for policy makers.

Monitor said: “The research will look at whether it is possible to set such a cap in a comparable and fair way across the range of providers.”

One respondent to the consultation said: “For structural and regulatory reasons (including Care Quality Commission registration) it is not possible for us to move our NHS business into a separate legal entity that could act as an NHS licensee”.

Another said: “Placing a condition on indebtedness and restricting the movement of money between businesses in a group structure would restrict the operations of the entity and may require expensive refinancing.”