The financial crisis at Thames Water has deepened after two major credit agencies downgraded its debt rating again, making it even harder for the stricken utility to raise the funds it needs to survive as an independent company.
Both S&P and Moody’s cut the rating on £16 billion of debt by five notches after it warned last week that it will run out of money by the end of the year without the approval of its creditors to access £550 million of last ditch liquidity reserves.
S&P cut the rating on Thames’ highest-ranked ‘class A’ and lower level ‘class B’ debt to ‘CCC+’ and ‘CCC-’respectively, deep into “junk” territory,, from ‘BB’ and ‘B’ previously.
The agency said: “We believe Thames Water is now facing an acute near-term liquidity shortfall. We see material risk of a debt restructuring, which we would consider akin to a default.”
Thames, which supplies 16 million people in and around London, is talking to shareholders and lenders about a huge restructuring to put its finances back on an even keel, but has warned that curbs on increases on household bills proposed by regulator Ofwat make its current business plan “uninvestable.”
It is also talking to Ofwat about changes to its draft determination on bills and investment. Thames has asked for a increase in bills 59% by 2030 but Ofwat has said only a 22% bill increases to £535 is acceptable.
Without a rescue plan Thames will run out of money by May at the latest forcing the Government to put it into a so-called special administration regime (SAR), a form of renationalisation.
Another agency Moody’s also cut Thames’ ratings and delivered a similar warning, that one of the biggest defaults in British corporate history could be only months away. Thames has around £19 billion of debt in total.
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,” as it slashed Thames’s rating by a massive five notches to ‘Caa1’ from ‘Ba2’. It had been rated “investment grade” as recently as July.
Thames Water said: “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.”
Both rating agencies have kept Thames Water on a “negative” outlook, meaning that it could be on course for further downgrades.
