UK’s Thames Water’s troubles grow as credit rating downgraded to junk
Simon Dawson | Bloomberg | Getty Images
Britain’s biggest water supplier Thames Water suffered a blow in its battle to avoid renationalisation on Wednesday when ratings agency Moody’s downgraded its corporate family rating (CFR) and safest debt to junk status.
The heavily indebted utility is at the centre of a crisis in Britain’s water sector involving sewage dumped into rivers and seas and a deteriorating pipeline network.
Moody’s has downgraded Thames Water’s CFR rating to Ba2 – down two notches to “junk” – from Baa3, which is an investment grade rating and the level that water companies must maintain as part of their licensing requirements.
The safest debt, known as senior secured “Grade A” bonds, was downgraded to Ba1, one notch below junk, while riskier “Grade B” bonds were downgraded five notches to B3.
Moody’s said the downgrade followed an interim ruling this month from UK regulator Ofwat that Thames would not be allowed to raise prices as much as requested and due to the bank’s “weakened liquidity position”.
In a statement, Thames, which supplies water to about one in five British households and has about £18 billion ($23.25 billion) in debt, said it was still working with regulator Ofwat and seeking new equity to shore up its finances.
“Enhancing financial resilience and ensuring the PR24 price increase is investable is a key priority for the business,” the company said, adding that all business operations remain business as usual during this time.
However, analysts increasingly believe that the new government will have to step in.
“This will almost certainly mean the company will be placed into special administration,” said Seaport credit analyst Satish Pulle, adding that the downgrade was not unexpected.
