Thames Water’s debt rating has been slashed to the lower levels of junk by two major credit rating agencies, piling further pressure on the UK’s biggest water company, which is rapidly running through cash and fighting to stave off renationalisation.
S&P Global Ratings and Moody’s said the utility was fast running out of money and on the brink of default. S&P cut its rating on Thames’s £15bn top-ranking debt pile by five notches to CCC+, taking it into the triple-C category that is considered very risky. Thames lost its investment-grade credit rating in July.
Moody’s also slashed the firm’s rating by five notches, to Caa1 from Ba2, saying: “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.”
Thames is scrambling to shore up its finances, and admitted last week that it faces a shortage of cash as soon as December. The company announced it was seeking fresh repayment terms from its lenders, saying it had only £1.57bn left at the end of August, including £1.15bn of cash.
The debt laden company, which serves 16 million people in and around London, is at the centre of a crisis in Britain’s water sector over repeated sewage dumping, crumbling pipe networks and water leaks.
It has already been put into special measures by the water regulator for England and Wales, Ofwat. Without a rescue plan, the watchdog and the UK government may have to put Thames into a special administration regime, a form of renationalisation.
S&P said Thames’s announcement last week about its finances was contrary to the rating agency’s previous expectation in July that liquidity would last the company until May next year.
It added: “We believe Thames Water is now facing an acute near-term liquidity shortfall, and that, without any material positive developments, the issuer will likely restructure its debt within the next 12 months, which we would likely consider a default.”
S&P lowered its ratings on class A and class B debt, to CCC+ and CCC-, from BB and B previously, and assigned a negative outlook to both. Moody’s said the utility had a “significantly tighter liquidity position than previously expected”.
Some big lenders are considering easing repayment terms as Thames fights for survival, as they worry about their loans being wiped out if the company is temporarily nationalised.
Talks with creditors would only allow for enough funds to last until spring next year. Any agreement would therefore mark just a step on the road to a potential restructuring – staving off the immediate risk of insolvency.
Thames said: “The announcement by the credit rating agencies is consistent with our liquidity position set out in our market statement last Friday. 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. Formal discussions with potential equity investors will commence in the coming weeks.”
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Separately, Pennon Group, which serves more than 4 million water users daily and owns South West Water, said the diarrhoea and vomiting outbreak in Devon in May caused by an outbreak of cryptosporidium parasites, had been resolved.
It cost the company £16m in terms of customer compensation, provision of bottled water over an eight-week period and measures to clean and filter the network. In May, it said it would pay £3.5m in compensation to affected customers.
The supplier also said there had been more sewage spills into waterways through storm overflow spills because of high rainfall – with the third wettest August to October period on record making groundwater levels “exceptionally high”.
Pennon said its water conservation campaign had led to customers using less water, which weighed on first-half revenues. It warned of continued lower customer demand at South West Water, offsetting tariff increases and new customer numbers.
