Fitch Ratings agency has published a new report on Kemble Water Finance Ltd - whose operating company (opco) is Thames Water – Kemble is expected to be the most vulnerable Fitch-rated holding company in the UK water sector.

The report Spotlight: Kemble Water provides insights about the different scenarios Thames Water and Kemble may face, including trigger events and standstill. It also considers the options of a special administration regime and re-nationalisation.

Fitch believes a key rating driver is shareholders’ propensity to provide equity, with visibility over the current £750 million conditional equity package. The report focuses on Thames Water’s ability to pay dividends and support the debt servicing at Kemble – the holding company is ultimately dependent on operating company Thames Water dividend to service its debt.

Fitch commented:

“We believe shareholder support depends mainly on a business plan that underpins a turnaround, together with appropriate risk-and- return for AMP8 (the five-year price control period ending March 2030). These will be key discussion points between the senior management, the board, recently appointed chair, shareholders, government representatives, and the regulator.

As Thames Water continues to struggle operationally and is reliant on sizeable equity injections to keep a balanced financial structure to avoid documentary and regulatory lock-ups, risk for Kemble increases.”

However, Fitch added that currently it is not forecasting lock-ups or trigger events for the struggling water company and expect the dividend stream from Thames to Kemble to continue.