S&P Global Ratings has lowered its issue ratings on Thames Water Utilities Finance PLC’s debt, owing to operational performance issues, high leverage, a heavy investment plan, and the current high inflationary environment.
The ratings agency has lowered its class A debt rating to 'BBB' from 'BBB+', and its class B ratings to 'BB+' from 'BBB-', according to its latest research update.
However, while S&P expects the impact of the investment plan and high inflation to weigh on the water company’s financial metrics until the end of AMP7 in March 2025, both are expected to be beneficial to Thames Water over the medium term.
S&P’s stable outlook for the company is based on the expectation that metrics will gradually improve through the regulatory period ending March 2025.
S&P says in the update:
“Thames Water Utilities Finance PLC's financial resilience has been significantly affected by legacy operational performance issues, high leverage, a heavy investment plan, and the current high inflationary environment.”
According to S&P, any near-term improvement in Thames Water's credit metrics will “ultimately depend on any potential further measures by its owners to shore up financial resilience.”
The U.K.'s largest water and sewerage company is owned by a consortium of institutional shareholders, predominantly pension funds - the consortium has not taken any dividends for the past five years.
In June 2022 Thames Water committed to spend roughly around £2 billion above its Ofwat-permitted total expenditure for AMP7, taking its investment to £11.5 billion during the current regulatory period. In June the consortium approved a £500 million equity contribution to fund additional investments to speed up improvements in the water networks as well as committing an addition £1 billion in equity support.
The S&P research update states:
“Although there is broad shareholder commitment in this regard, the timing and amount of any further support remains uncertain. In the longer term, we could see improved leverage metrics once current investments materialize, delivering a stronger asset base and better operating performance for the company.”
Thames’ large investment plan coupled with high inflation has caused a significant increase in debt, according to S&P. Contrasted with a regulatory capital value of £16.6 billion in March 2022, the combination of capex and inflation led to an increase in net debt of £900 million between March 2021 and March 2022 to £13.7 billion.
Thames Water is currently in year two of the eight-year transformation plan it launched in March 2021. In S&P’s view, the scale of the eight-year transformation plan “highlights the extent of the operational issues facing the company.”
Click here for further information about S&P GlobalRatings
Want to know more about Anglian Water’s AMP7 investment plans? Winning new business with the water companies in England and Wales in AMP7 and AMP8 between now and 2030?
Our report Complete AMP7 Contracts Tier 1 Alliances and Tier 1 Contractors April 2020 - 2025 contains details of the companies, key investment drivers, the alliances, the contracts they’re already working on in the UK water sector, together with hundreds of key named contacts. Click here for more information and details of how to order.
Sulzer has launched a new global Center of Excellence (CoE) for Water Treatment Solutions - the CoE consolidates Sulzer’s wastewater treatment expertise in a unified and global manner.
“SAS (Surplus Activated Sludge) is a bit weird and 
Owen Mace has taken over as Director of the British Plastics Federation (BPF) Plastic Pipes Group on the retirement of Caroline Ayres. He was previously Standards and Technical Manager for the group.
PureTec Separations, the Ledbury-based water treatment engineering firm, has appointed Dan Norman as its new Sales Manager – Water Process Systems, supporting the company’s continued growth in the UK and international markets.
Hear how Scottish Water has completed its £235 million Ayrshire Glasgow Resilience Project - customers across Greater Glasgow, Ayrshire and East Renfrewshire will now benefit from a more secure and resilient water supply.
Hear how United Utilities is accelerating its investment to reduce spills from storm overflows across the Northwest.
Find out more about the remarkable career opportunities on offer at WSP - scroll down to watch the inspirational video.