Thames Water, the UK’s largest water provider, is facing increased financial difficulties as Moody’s, a leading credit ratings agency, has downgraded its debt to “junk” status. The downgrade comes as Thames Water’s parent company has defaulted on loan payments, adding more pressure on the company’s ability to meet its debt obligations.
The utility is currently facing a precarious financial position, with its £16.5bn debt pile set to run out in May next year. This has been compounded by the fact that Thames Water is unable to raise any investment from current shareholders, who have deemed the company as “uninvestable”.
Further complicating matters, Thames Water is now in breach of its licence requirements. According to water regulator Ofwat, utilities are required to maintain an “investment grade” debt ranking, which Thames Water no longer has. This downgrade highlights the urgent need for a comprehensive financial and operational turnaround in Thames Water’s operations.
The downgrade follows Ofwat’s decision to allow for a less expensive increase in bills, which Moody’s has taken into consideration. The ratings agency also noted Thames Water’s annual financial results, which indicated a weakening liquidity position.
A “junk” rating from Moody’s means there is a likelihood of default for Thames Water. However, it is important to note that Moody’s is just one rating agency and reflects its own assessment of Thames Water’s financial health.
Looking ahead, Thames Water must secure new investment and negotiate with the institutions it owes money to in order to continue to exist. Among the lenders owed millions by Thames Water’s parent company, Kemble Water Finance, are Dutch bank ING and a large Chinese bank. Plans for a special administration and effective nationalisation are currently being discussed within the government.
In response to the downgrade, Thames Water has stated that it was aware of the potential credit rating downgrades and has been working with Ofwat since April to maintain the financial resilience of the business. The company remains committed to seeking new equity funding and exploring all options to extend its liquidity runway.
In the meantime, Thames Water assures customers and its teams on the ground that it will continue to supply services and remain focused on delivering its turnaround plan. The company acknowledges the need to increase its financial resilience and secure an investible price review determination as a critical priority.
