Moody's Ratings has today downgraded to Ba2 from Baa3 the long-term corporate family rating (CFR) of Thames Water Utilities Ltd.

The ratings agency has also downgraded the backed senior secured debt ratings of Thames Water's guaranteed finance subsidiary Thames Water Utilities Finance Plc (TWUF) to Ba1 from Baa2 and its backed subordinated debt ratings to B3 from Ba3. The outlook on Thames Water and TWUF remains negative.

Today's rating action follows the announcement, on 11 July 2024 by Ofwat, the economic regulator for water companies in England and Wales, of its draft determination for the five-year regulatory period commencing 1 April 2025 (AMP8).

The rating action also reflects Thames Water's results for the financial year ending 31 March 2024, indicating its weakening liquidity position and breach of forecast trigger event financial ratios for March 2025.

Moody’s says that Thames Water's outlook remains negative, reflecting the increased likelihood that:

1. the final determination expected later this year would deter existing or new shareholders from providing sufficient additional equity during the next regulatory period to allow the company to deliver its investment programme; 

2. in the absence of a pathway to future equity support, existing lenders may be reluctant to provide the company with the required flexibility to improve its immediate liquidity runway by raising new debt.

A statement issued by Thames Water Utilities Ltd commenting on the downgrade said:

“Thames Water Utilities Limited alerted Ofwat to the possibility of potential credit rating downgrades in April 2024 and continues to work with Ofwat to maintain the ongoing financial resilience of the business. Management is engaging with investors and its creditors and remains committed to seeking new equity funding and exploring all options to extend its liquidity runway.

“Increasing our financial resilience and securing an investible PR24 determination is a critical priority for the business. In the meantime, it's business as usual for our customers and our teams on the ground who will continue to supply our services and remain focused on the delivery of our turnaround plan.”

Yesterday another investor in Thames Water confirmed that it had written down the value of its investment to zero.

The Queensland Investment Corporation (QIC), the sovereign wealth fund which is owned by the Queensland Government marked down the value of its investment to zero - QIC owns about 5% of the water company.

Appearing yesterday before a Parliamentary hearing of the Cost Of Living Economics Committee of the Queensland Parliament in Australia, Kylie Rampa, QIC Chief Executive Officer told Committee members:

“Thames Water has been quite a troubled investment and asset. The owners of that asset, like QIC, were a minority owner. We own approximately five per cent, so we have a minority position. Major global investors are the other owners in that asset. The asset has come under difficulty with the regulator, Ofwat. When the investment was made, it assumed a very stable regulatory regime which we currently find that asset not in that position. We have written that asset down to zero, which is very unfortunate.”