Thames Water hit by more rating agency downgrades as cash crunch looms

THAMES Water’s debt was further downgraded by two credit ratings agencies, as the troubled utility company faces a potential liquidity crunch. 

S&P Ratings and Moody’s, in separate statements on Wednesday (Sep 25), both slashed the UK water provider’s Class A debt – deemed the safest – by five and six notches, respectively.

They also downgraded the water and sewage company’s riskier Class B debt. S&P said that while it had previously expected the company’s liquidity to last until May 2025, Thames Water is now facing an “acute” cash shortfall in the short term. 

The downgrades come after Thames Water said it was exploring options with its creditors to delay a cash crunch, including the release of reserves. 

Under the terms of the debt, £380 million (S$653.1 million) of the cash must be held as reserves. If a majority of creditors cannot reach an agreement to release the reserves early, there will be a crunch point at the end of December, and the company enters a standstill.

Under that emergency scenario, it would gain access to the £380 million of cash, on top of an additional £550 million of credit lines.

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If the company were to enter a standstill, this would trigger an event of default under its debt documents, S&P analysts said.

Even with access to the extra facilities, Thames Water would only have sufficient liquidity resources to last until May, S&P added. The company had previously said it could reach that date without needing to access these lines. 

S&P sees a default at Thames Water as likely over the next 12 months, and a risk of a debt restructuring ahead of a potential equity injection.

In fact, the company has said that it does not expect to receive funds in the form of equity ahead of the final determination by regulator Ofwat, expected at the earliest on Dec 19. BLOOMBERG