- Top-tier debt downgraded to CCC+ – among the worst ‘junk’ ratings
- Moody’s warns liquidity could run dry by December without reserves access
Thames Water has suffered two more credit rating downgrades after the embattled utility went cap in hand to investors and creditors again last week.
S&P Global Ratings and Moody’s each downgraded their assessment on £16billion of Thames’ top-tier debt late on Wednesday following the group’s warning it could run short of liquidity if creditors do not let it access its funding reserves.
Both agencies slashed their rating to an equivalent of CCC+ – one of the lowest ranked levels of ‘junk’.
Thames, which serves 15million households in London and the South East, faces a funding crisis leaving it on the brink of emergency nationalisation as it struggles under the weight of its debt.
Downgraded: Thames Water appeals to investors and creditors amid liquidity woes
Moody’s cited a ‘significantly tighter liquidity position than expected’ in reference to Thames’ warning last week.
Similarly, S&P said the statement was ‘contrary’ to its understanding of Thames’ liquidity as it assessed the utility as ‘management and governance as negative’.
It warned this ‘indicates that the company will run out of cash by December 2024’ unless creditors consent to the group accessing its reserves, ‘rather than the company’s previously stated liquidity runway to May 2025’.
The agency, which is downgrading Thames for the second time in three months, said this would likely lead to a ‘distressed exchange’, with creditors agreeing to amend or extend terms that will result in a loss relative to the original agreement.
It added: ‘In the medium term, inability to attract new equity funding may ultimately lead to a creditor-led debt restructuring or one that is imposed as part of a special administration process, should the company meet the criteria for special administration to be called.’
When Thames lost its mandatory two investment grade credit ratings in July it became in breach of its licence.
In lieu of enforcement action, industry watchdog Ofwat said the firm could proceed with a series of ‘undertakings‘ designed to encourage ratings agencies to reinstate investment grade status.
Ofwat is also expected to publish its final tariff settlement in December 2024 or January 2025, thereby determining how much water companies will be able to charge customers.
Thames Water has pleaded with the regulator to let it hike household bills by £18.99 a month – or 52 per cent – by 2030, but Ofwat’s draft determination said it could only increase bills by 23 per cent over the five years.
While Thames Water has the option to appeal, Moody’s warned that if the final determination ‘does not move materially’ from the ‘tough’ draft, the group may struggle to bring in new investors.
Moody’s said: ‘Inability to attract new equity funding may ultimately lead to a creditor-led debt restructuring or one that is imposed as part of a special administration process, should the company meet the criteria for special administration to be called.
‘Thames Water’s outlook remains negative, reflecting the risk that any potential creditor loss following a default may be higher than embedded in current ratings.
‘An upgrade of the ratings is unlikely in the near term.’
A Thames Water spokesperson said in a statement: ‘The announcement by the credit rating agencies is consistent with our liquidity position set out in our market statement last Friday.
‘We continue to operate to the undertakings agreed with our regulator in July 2024 following the reduction in our Class A debt rating to sub-investment grade and we continue to engage with creditors to consider options for the extension of our liquidity runway.
‘Formal discussions with potential equity investors will commence in the coming weeks.’
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