Moody’s, the main credit ratings agency in the United Kingdom, has downgraded the debt of the largest water supplier in the country to the “junk” level, making it even more difficult and expensive for the institution to borrow money.
The parent business of Thames Water had already failed on certain loan payments, which contributed to the corporation’s total debt load of £16.5 billion. As a consequence of the downgrade, the company’s capacity to fulfill its debt commitments will be subjected to increased pressure.
Due to the fact that the utility is unable to obtain any investment from its existing owners, who have referred to the firm as “uninvestable,” the utility is in a precarious financial position. It is expected to run out of money in May of next year.
Keeping a “investment grade” debt ranking is something that the water regulator Ofwat expects utilities to do, although Thames Water does not have this status anymore.
At a time when the industry is grappling with sewage discharges into rivers and investments in deteriorating infrastructure, the news comes at a time when the sector is experiencing issues. This occurs as a result of the fact that climate change is increasing the likelihood that both drought and rainfall will occur.
A spokesman from Ofwat commented, “This downgrade reinforces our position that a comprehensive financial and operational turnaround in Thames’ operations is essential.” This statement was made in reference to the previous sentence.
Can you please explain the rationale for the downgrade?
The write-down was brought about as a result of Ofwat’s decision to permit a little increase in bills, but it was not more than what Thames Water had first asked. Thames Water had proposed a higher rise, but this one is just slightly higher.
As opposed to the £191 that Thames Water had requested, the yearly cost rise is going to be £99, which is a huge drop from what they had requested.
Additionally, Moody’s took into consideration the annual financial results of Thames Water, which, according to the ratings agency, revealed a decrease in the company’s liquidity status throughout the course of the annual period.
What is the definition of ‘junk’?
Moody’s assessment of a junk rating indicates a potential risk of default.
Moody’s rating is just one perspective and represents their assessment of Thames Water’s financial condition.
What’s the next step?
The major worry for Thames Water has not changed; it is necessary for the company to get new finance in order to continue its operations and to engage in conversations with the organizations to which it is obligated financially.
Kemble Water Finance, the parent company of Thames Water, is owed millions of dollars by a number of lenders, including ING, a Dutch bank, and a significant Chinese bank, according to information that has been reported.
Within the government, there have been continuous talks over the plans for a special administration and the effective nationalization of the company.
Response from Thames Water
Thames Water acknowledged the downgrades.
The company stated that it had anticipated an announcement after informing regulator Ofwat about the potential credit rating downgrades in April. They are currently collaborating with Ofwat to ensure the ongoing financial resilience of the business.
“Management is actively communicating with investors and creditors and is dedicated to securing new equity funding and exploring all available options to extend its liquidity runway,” stated the company.
“Enhancing our financial resilience and obtaining a favorable determination for investment is of utmost importance for the company. For now, our customers and our teams on the ground will carry on with their work, providing our services, and staying dedicated to our turnaround plan.