Ofwat has agreed to Sutton and East Surrey Water’s (SES Water) request to extend a time-limited derogation granted by Ofwat on 25 May 2023 to maintain investment grade Issuer Credit Ratings with a single Credit Rating Agency rather than two.

Ofwat said that its consideration of the request for further consent had relied on the information contained in the Consent Request Letter provided by SES Water and in their previous response provided on 16 May 2023.

The credit rating requirement for SES Water states:

“The Appointee must ensure that it or any Associated Company which issues corporate debt on its behalf maintains, at all times, two Issuer Credit Ratings which are Investment Grade Ratings from two different Credit Rating Agencies, other than where Ofwat provides its written agreement for the Appointee to maintain only one Issuer Credit Rating which is an Investment Grade Rating.”

In the time since the original consent was granted and following a strategic review, SES Water, together with the wider East Surrey Holdings has been acquired by the Pennon Group plc.

The acquisition is currently subject to a further review by the Competition and Markets Authority (CMA).

SES Water explained in its Consent Request Letter to Ofwat that the expected completion of the CMA review could be up to 12 months from the acquisition date. Once the acquisition has been approved by the CMA, the ESH Group – including SES Water – will form part of the overall Pennon Group.

It is expected that the business of SES Water will then be transferred to South West Water operating under a single licence and that following this, SES Water’s existing Appointment will be terminated.

SES Water has therefore requested that Ofwat provide an extension to its current time-limited consent to maintain one Issuer Credit Rating until the CMA confirm approval of the transaction and the subsequent merger of the SES Water business into South West Water is completed.

Given the ongoing process, SES Water has requested an extension to 31 March 2025 which Ofwat has agreed, subject to the following conditions:

• SES Water maintains regular engagement with Ofwat through to 31 March 2025 (when the derogation expires);
• there is no material change in SES Water’s financial standing or operational performance.
• there is no material change in the rating methodology, as determined by Ofwat, of rating analysis provided by the Credit Rating Agency from which the company has procured its sole Issuer Credit Rating.

SES Water is required to notify Ofwat in writing of any material change in its financial standing or operational performance as soon as possible as part of its ongoing engagement with the regulator.