Thames Water on the brink of default, say credit agencies

Thames Water has been judged by two of the world’s top credit-rating agencies as being on the brink of default, possibly bringing a government-backed rescue deal closer.
Moody’s and S&P said that Thames Water was struggling to access cash quickly enough to fulfil its debt repayment obligations.
The pair downgraded their credit assessments of the firm’s top-rated £16 billion debt pile by five rungs to the equivalent of CCC+, a rating that means that it is extremely risky and on the edge of failure.
S&P said: “We see material risk of a debt restructuring, which we would consider akin to a default.” It also said that it viewed Thames Water’s “management and governance as negative” after the firm announced earlier this month that it could run out of cash after Christmas if it could not access to reserve funding and roll over some credit arrangements.
S&P said that Thames Water was grappling with “near-term liquidity stress”. Moody’s said that its access to funds was “significantly tighter … than previously expected”. The Financial Times reported this month that Thames Water was trying to access reserve capital because it was burning through cash much faster than expected.
The ailing utility firm is said to be in talks with creditors to tap £1 billion of funds that could allow it to restructure some of its liabilities. Without a clear rescue plan the government or Ofwat, the water watchdog, could place Thames Water into a so-called special administration regime, in effect a renationalisation.
Kemble Water Finance, one of the parent companies of Thames Water, told investors in April that it had defaulted on some of its debt.
Thames Water, the UK’s largest water supplier, which serves households in London and the South East, is owned by a web of parent companies, a complex structure set up by its former owner, Macquarie, an Australian infrastructure investor. In July Macquarie acquired the final fifth of Britain’s core gas transmission grid that it did not already own in a roughly £700 million deal, handing it total control of the 7,660km network.
In order to both repay debt and raise investment to upgrade water infrastructure, Thames Water proposed last month to Ofwat that annual water bills be increased by 59 per cent, or £228, by 2030. Ofwat had rejected a request to lift bills by 44 per cent in July.
Thames Water’s financial struggles have raised speculation that the Labour government will be forced to intervene to save the company in order to keep water flowing to about a quarter of households in England.
Britain’s utility companies were privatised in the 1990s with largely debt-free balance sheets and were handed, according to some experts, guaranteed profits owing to high barriers to entry in the water supply market. They have been accused, however, of racking up tens of billions of pounds of debt and neglecting investment while generously remunerating chief executives and shareholders.
Labour ministers have previously said that renationalisation of Thames Water was not compatible with the government’s fiscal rules. The government recently denied that it would force through an increase in bills to fund any rescue deal.
A Thames Water spokesperson said: “The announcement by the credit-rating agencies is consistent with our liquidity position set out in our market statement last Friday. We continue to operate to the undertakings agreed with our regulator in July 2024 following the reduction in our class A debt rating to sub-investment grade and we continue to engage with creditors to consider options for the extension of our liquidity runway.
“Formal discussions with potential equity investors will commence in the coming weeks.”