UK (Business Emerge), July 25: Thames Water, the UK’s largest water supplier, has encountered a significant setback in its efforts to avert renationalisation. Moody’s has downgraded the company’s corporate family rating (CFR) and its highest quality debt to junk status.
This highly leveraged utility is at the heart of a sector-wide crisis in Britain, marked by issues related to excessive sewage discharge into water bodies and deteriorating pipeline infrastructure.
Moody’s has reduced Thames Water’s CFR from Baa3, an investment-grade rating, to Ba2, which falls within junk status. Additionally, its most secure debt category, known as senior secured “Class A” bonds, has been downgraded to Ba1, one step into junk territory. The riskier “Class B” bonds have suffered a more severe cut, falling five notches to B3.
The rating agency’s decision followed a preliminary ruling from the British regulator Ofwat, which has restricted Thames Water’s ability to increase prices to the extent it had proposed. The downgrade also reflects the company’s deteriorating liquidity position.
Thames Water, which serves about a quarter of British households and is burdened with approximately £18 billion ($23.25 billion) of debt, stated that it is actively engaging with Ofwat and seeking new equity to stabilize its financial standing.
“Increasing our financial resilience and achieving a favorable PR24 (price increase) determination remains a top priority for the business,” the company commented. It also assured that operations continue as usual during this period.
However, analysts suggest that intervention by the new government might be inevitable. “It’s highly probable that the company will face special administration,” noted Seaport credit analyst Satish Pulle, emphasizing that the downgrade was anticipated.