S&P Global Ratings has this morning placed its 'BBB' and 'BB+' issue ratings on Thames Water's class A and class B debt on CreditWatch with negative implications. This means that S&P could lower the ratings by one notch within the next three to six months in the absence of sufficient clarity on the management transition and timing of additional equity support from shareholders.

 According to the ratings agency’s latest research update, the unexpected resignation of Thames Water's CEO Sarah Bentley last week could hinder the company's efforts to address its operational performance via its eight-year transformation plan.

Thames Water is the most indebted water company the credit ratings agency rates - as of 31 March 2022 Thames’ had adjusted debt of £13.7 billion, 80.6% of its regulated capital value (RCV).

S & P said the exact timing of additional equity injections from shareholders totalling £1 billion which are “critical to fund the transformation plan ... remains unknown” and it “expects the absence of this support would further pressure Thames Water's financial metrics.” The additional shareholder support will “remain critical for Thames Water beyond the current rating horizon.”

The research update states:

“We could lower our ratings on the debt issued by Thames Water if we do not believe equity support is forthcoming, if there are signs that the turnaround plan is not making sufficient progress, or if the company's results for fiscal year 2023 are much weaker than we currently expect.”

The rationale for S & P’s rating action also says it believes “implementation risks to tackle long-standing operational issues have increased following the CEO's sudden departure.”

S & P warned in September last year in a research update on Thames Water’s financial position:

“A near-term improvement in Thames Water's credit metrics will ultimately depend on any potential further measures by its owners to shore up financial resilience. Although there is broad shareholder commitment in this regard, the timing and amount of any further support remains uncertain.”

Commenting on the effects of inflation and debt levels at UK water companies in December 2022, the ratings agency pointed out that the water sector “relies more on inflation-linked debt than other regulated U.K. networks, such as power and gas” and that “index-linked debt accounts for more than half of the U.K. water sector's debt, on average.”