It is now even harder and more expensive for the UK’s biggest water supplier to borrow money, as main credit rating agency Moody’s has downgraded its debt to “junk” status.
Thames Water’s parent company had already failed to pay a loan payments that make up its £16.5 billion debt pile. More pressure will be placed on its ability to meet debt obligations as a result of the rating downgrade.
The dealership is in a dangerous financial situation due to run out of money next May as it cannot attract any investment from current shareholders who described the company as “uninvestable”.
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A new problem
It now also violates its license requirements.
Water regulator Ofwat requires utilities to maintain an “investment grade” debt rating, something Thames Water no longer has.
This comes as the industry struggles with sewage discharges in waterways and investment in crumbling infrastructure, as climate change means floods and droughts become more common.
An Ofwat spokesperson said: “This downgrade reinforces our position that a comprehensive financial and operational turnaround of Thames operations is essential.”
Why the relegation?
The reduction follows Ofwat’s decision to allow bills to become more expensive, but less than Thames Water had requested.
The annual accounts must increase by £99instead of £191 Thames water sought.
It was also considered, Moody’s said, the annual financial results which the rating agency said indicates “its weakened liquidity position.”
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What does ‘trash’ mean?
A junk rating means Moody’s believes default is likely.
Moody’s is just a rating agency and reflects its opinion on the financial health of Thames Water.
What’s next?
The central issue for Thames Water remains the same – it must secure new investment to continue to exist and negotiate with the institutions to which it owes money.
Dutch bank ING and a large Chinese bank are said to be between creditors million owed by Thames Water’s parent company, Kemble Water Finance.
Plans for a special administration and effective nationalization were ongoing within the government.
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Thames Water Reaction
Thames Water said it “notes” the downgrades.
The company said it expected an announcement alerting regulator Ofwat to the possibility of potential credit rating downgrades in April and “continues to work with Ofwat to maintain the ongoing financial resilience of the business”.
“Management is engaging with investors and its lenders and remains committed to seeking new equity financing and exploring all options to broaden its liquidity runway,” a company statement read.
“Increase our financial resilience and guarantee an investment [price review] Determination is a critical priority for business. In the meantime, it will be business as usual for our customers and our teams on the ground, who will continue to provide our services and remain focused on delivering our recovery plan.”
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