Thames Water Receives ‘Junk’ Status Rating from S&P due to Financial Struggles

August 1, 2024 TruthUSA

Thames Water is engaging in ongoing discussions with Ofwat regarding its operating license status, as it has failed to maintain two investment-grade ratings.

S&P Global Ratings has downgraded the credit rating of Thames Water, the UK’s largest water supplier, to a “junk” status. The agency also expressed concerns about the company’s liquidity problems not improving in the near future.

Moody’s Ratings recently downgraded Thames Water’s credit rating, making it more difficult and costly for the company to obtain loans.

S&P’s recent announcement raised doubts about Thames Water’s ability to meet its liquidity needs by the autumn of 2024.

With a debt of £15.2 billion by March, Thames Water experienced difficulties after missing £500 million in interest payments, resulting in debt defaults and concerns about its viability.

Ofwat, the water industry regulator, announced plans to implement a “turnaround oversight regime” for Thames Water and opposed the utility firm’s proposed 44% increase in consumer bills over the next five years.

Despite the company’s belief in a possible turnaround, S&P does not anticipate an improvement in Thames Water’s liquidity position in the near future. The credit agency also suggests that this may not occur before Ofwat’s final determination in December.

“Consequently, we have revised our issue ratings for the class A and class B debt to ‘BB’ and ‘B,’ respectively, from their previous ratings of ‘BBB-‘ and ‘BB,'” stated S&P.

The ‘BB’ rating is below investment grade, placing Thames Water in a ‘junk’ status.

License and Nationalisation

The agency highlighted that Thames Water has breached its operating license by failing to maintain investment-grade ratings from two rating agencies, as required by Ofwat. Discussions on this issue with the regulator are ongoing.

In response to S&P’s ratings downgrade, Thames Water acknowledged the downgrades and their negative implications.

The company affirmed its commitment to collaborating with Ofwat to ensure financial stability and is actively engaging with investors and creditors to secure new equity funding.

“For now, our operations continue as usual for our customers and our dedicated teams on the ground, who remain focused on implementing our turnaround strategy,” Thames Water assured.

Moody’s has cautioned that under the current business plan, Thames Water may encounter challenges in meeting an equity requirement of at least £2.5 billion.

In the event of Thames Water’s insolvency, contingency plans outlined by the previous government, known as “Project Timber,” could involve nationalizing the company. However, the current Labour leadership has stated that there are no plans for the nationalization of the water industry.

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