Moody's Ratings is once again warning over its concerns about Thames Water's troubled financial situation, following its announcement on 26 September that it was downgrading the water company’s credit rating to Caa1 negative – effectively junk bond status.
In a Credit Opinion update issued on 8th October which was subsequently published on the investor section of the Thames Water website on 9 October, Moody’s said:
“The credit profile of Thames Water Utilities Ltd. (Thames Water, CFR Caa1 negative) reflects the company's weak liquidity position and our view that this will likely lead in the near term to a distressed exchange, where creditors agree to some form of amendment or extension of credit terms that results in a loss, or a loss is otherwise imposed on them, relative to the original promise to pay.”
According to the ratings agency, Ofwat’s recent tough AMP8 Draft Determination, as well as continuing heightened public, political and regulatory scrutiny will “hinder the required new equity funding and create uncertainty about long-term financeability.”
Moody’s is warning that any near-term liquidity provisions for Thames could include requirements to amend existing debt terms or extend maturities, potentially resulting in a loss to creditors. Inability for the water company in the medium term to attract new equity funding could “ultimately lead to a creditor-led debt restructuring or one that is imposed as part of a special administration process, should the company meet the criteria for special administration to be called”, the Credit Opinion says.
According to the ratings agency, Thames Water’s relatively high leverage compared with its peers has “left the company with limited financial flexibility to address its weak operational performance.” In addition, a tougher regulatory approach leading to sizeable penalties as well as closer oversight on distributions has led to a loss of investor confidence.
On Tuesday the Financial Times reported that one of the largest shareholders in Thames Water, the Abu Dhabi sovereign wealth fund, has written off its 9.9% stake in the troubled water company. The writedown has been separately reported across other news outlets, including Reuters and Sky News, and comes as the UK government is hoping to attract institutional investors. Next week the UK’s International Investment Summit on 14 October with an ambitious programme to showcase the UK’s economic strengths, will bring together hundreds of leading CEOs and investors from across the globe.
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