S & P Global Ratings has raised Thames Water’s rating to 'CCC' from 'D' on completed debt restructuring following the High Court of Justice of England and Wales' sanction on 18 February of its restructuring plan.

On 25 February 2025 the maturities of all class A debt and class B debt issued by Thames Water Utilities Finance PLC (TWUF) were extended by two years following the High Court approval of the restructuring plan proposed by Thames Water Utilities Holdings Ltd. in connection with implementing a liquidity extension transaction.

However, the court also granted an ad hoc group of class B debt creditors, Thames Water Ltd. and Charlie Maynard MP permission to each appeal the court's decision to sanction the plan on certain grounds. They have since filed and served notices of appeal.

The ratings agency said that upon the completion of the maturity extension, it would consider the default that resulted from the first stage of the restructuring plan cured.

S & P has accordingly raised its issue-level ratings on TWUF's Class A debt to CCC and on the Class B debt to CC. It also raised its issuer credit rating on Thames Water Utilities Ltd. (TWUL) and TWUF to 'CCC' from 'D'.

Commenting on the forthcoming appeal hearings which will now take place March 11-13, 2025, S & P said it believed that if the appeals overturned the court's February 18 decision on the maturity extension would become void and new funding of up to £3 billion would no longer be available to Thames Water. The water company then has the option to appeal to the Supreme Court, which would “likely be a prolonged process.”

If appeals overturn court's decision maturity extension would become void and new funding of up to £3 billion would no longer be available to Thames Water

“In this case, we believe there would be insufficient liquidity for Thames Water to honor its financial obligation in March 2025. TWUL would therefore enter standstill and most likely enter a special administrative regime, while TWUF would most likely also enter into insolvency proceedings.”

The ratings agency has revised down its assessment of TWUL's business risk profile to satisfactory because it now considers that U.K. water companies “will operate in a less supportive regulatory environment.”

On 18^th February S & P took multiple rating actions on companies in the U.K. water utilities sector, after revising its view of the preliminary regulatory advantage for water companies in England and Wales to strong/adequate from strong

The ratings agency is projecting that gearing at TWUL will reach over 85% - significantly above Ofwat's notional gearing of 55%.

“There are significant uncertainties associated with the execution of TWUL's business plans under such conditions, and it already has a track record of weak operational performance during the current AMP7 period, including large outcome delivery incentive (ODI) penalties. Thames Water does not believe that AMP8 operating targets are achievable, which is one of the reasons why it has asked Ofwat to refer its final determination to the competition and market authority for a redetermination. We therefore continue to apply a negative business modifier to assess TWUL's regulatory advantage as adequate,” S & P continued.

The ratings agency is also anticipating :

• the second stage of the restructuring plan will likely result in write-downs of class A and class B debt
• significant capital structure changes in the next 12-24 months to allow the company to make the committed investment, which could include new equity raise, as well as likely significant write-downs of its existing debt.

The outlook on Thames Water’s ratings remains negative, indicating that S& P expects the second stage of the restructuring plan will likely result in write-downs of the class A and class B debt. In addition, there are also risks that there will be missed repayments if the pending appeals overturn the High Court’s approval on 18th February of the restructuring plan proposed by the water company.

The ratings agency said it could:

• lower the issuer credit ratings if TWUL misses any principal or interest payments or implements the next round of restructuring plan that includes a potential write-down of its class A and class B debt.
• revise the outlook to stable or raise the ratings if TWUL meaningfully improves its liquidity position without weakening terms for current lenders.