South East Water received a credit rating downgrade last Friday from one of its two ratings agencies, S&P Global Ratings; earlier this year the water company’s credit rating was downgraded to sub-investment grade by Moody’s on 28 May 2026.

Last Friday South East Water (SEW) separately announced it had agreed terms for £200 million liquidity backstop to support an upcoming bond issuance.

Commenting on the downgrade, Andrew Farmer, Chief Financial Officer at South East Water said:

“As a condition of its operating licence with the regulator, Ofwat, South East Water must maintain at least two investment grade credit ratings.

“The Company will engage with Ofwat following the ratings action by S&P.

“The ratings action by S&P has resulted in South East Water (Finance) Limited’s backed and underlying senior secured rating changing to BB+ from BBB-.

“S&P's ratings action relates to the persistent operational challenges South East Water has faced over the past few years. South East Water continues to maintain strong liquidity and a resilient capital structure. As announced today, the Company has agreed terms for £200 million of new liquidity.”

S&P says in the downgrade that South East Water (Finance) Ltd. has faced persistent operational challenges over the past few years, culminating in the regulator Ofwat taking enforcement actions that have been resolved by agreeing to a set of undertakings. “This has weakened assessment of SEW's business risk profile compared to SEW's regulated peers.”

According to the ratings agency, while the backstop, which is available from first-quarter 2027--mitigates liquidity concerns, S&P estimate that without it, the utility’s liquidity sources “would cover only 1.1x of its uses for the 12 months from March 2026.”

S&P said:

“SEW’s weak operational performance, caused by supply interruptions, has materially worsened its profitability despite strong revenue growth. SEW's March 2026 annual results showed a severe operational decline that has had significant reputational and regulatory repercussions. Despite a 23% increase in revenues on the back of regulatory price increases, supply interruptions between November and January 2026 have sharply weakened SEW's profitability…..

“The main reason for the decline in profitability was £54.7 million of incident-related costs, which include compensation payments, bottled-water distribution, tankering costs, and operational responses.”

The ratings agency expects SEW to accumulate around £50 million-£55 million in Outcome Delivery Incentive (ODI )penalties in the current AMP8 regulatory period.

Commenting on the £200 million in additional funding, S&P writes:

“SEW’s liquidity position is tight; although the company has secured a £200 million backstop facility, it cannot be drawn until the first quarter of 2027, leaving limited flexibility until the company successfully accesses capital markets. We understand SEW is seeking to raise additional debt in the coming months to finance its capital program. Without the backstop, SEW's liquidity sources only cover uses by 1.1x from the 12 months starting end-March 2026.”

S&P are also warning it could lower the rating on SEW’s debt further if it believes that the company is unable to secure new financing at a reasonable cost. This could happen if SEW cannot access capital markets, or if the terms of the secured financing agreement undermine its financial metrics.

“In line with the rest of the sector, SEW needs significant funding to deliver investments in the current regulatory period.”