Thames Water’s key bond has been downgraded to junk status due to concerns over its ability to avoid collapse.
Moody’s, a credit rating agency, reduced the senior secured debt of Thames Water to Ba1 status and also downgraded other bonds, indicating a negative credit outlook for the company.
According to Moody’s, Ofwat’s proposals to limit bill increases will make it more challenging for Thames Water to attract the £2.5 billion in new equity it needs to remain operational.
Thames Water is striving to avoid special administration after warning earlier this month that it could run out of cash within a year due to its rising debt. However, an imminent collapse is not expected.
The utility company is also facing potential fines in the hundreds of millions of pounds for various issues, including unauthorized dividend payments, sewage dumping, and failure to meet basic performance targets.
Thames Water acknowledged the possibility of its debt being downgraded to junk status after shareholders described its business plan as “uninvestable.”
Despite this, the company is still seeking new equity investment and aims to improve its liquidity after reporting its first pre-tax profit in four years, although its net debt increased to £15.3 billion in the year ending March.
An Ofwat spokesman commented, “This downgrade reinforces our position that a comprehensive financial and operational turnaround in Thames’ operations is essential.”
