S&P Global Ratings has revised Southern Water’s outlook from negative to stable following increased shareholder support and improved operational performance.

The ratings agency said the water company’s operational performance has improved significantly in terms of key performance indicators (KPIs), which in turn will aid financial metrics.

Southern Water has received substantial shareholder support in the current AMP8 regulatory period, with a further £300 million committed in June 2026, significantly deleveraging its balance sheet relative to its March 2025 position.

S&P now expect funds from operations (FFO) to debt to improve toward 7% by 2029 versus its previous expectation of a deterioration toward the end of the decade.

S&P also point out:

“At the same time, the final redetermination from the Competition and Markets Authority (CMA) further provides favorable tailwinds in the form of derisking outcome delivery incentives (ODIs), higher revenue, and the shifting away of some allowances into large gated schemes, resulting in a lower capital expenditure (capex) burden.”

S&P has:

• affirmed the 'BBB-' rating on the debt issued by SW (Finance) I PLC, Southern Water's financing vehicle, and revised the outlook to stable, from negative
• affirmed its 'AA' issue ratings on the senior secured debt guaranteed by Assured Guaranty UK Ltd. (AA/Stable/--). The outlook on the guaranteed debt is stable.

The stable outlook reflects the ratings agency’s view that the shareholder support has aided the utility’s operational turnaround and improved the credit metrics' trajectory.

It also flags up that shareholder Macquarie Asset Management (MAM) has completed the total £1.2 billion equity package it had announced in July 2025, significantly reducing the operating company's gearing to 67% in March 2026 from 74% in March 2025.

In June 2026, MAM announced it had secured a binding third equity commitment of £300 million, which will be drawn by March 2027, with the majority of the funds coming from subscriptions in new shares in the Southern Water group of Asterion Industrial Partners, a European infrastructure investment manager with about $10 billion assets under management. Following the transaction,

MAM will retain around 80% of its shareholding, remaining the majority shareholder.

However, S&P points out that while Southern Water management is projecting an additional £700 million injection in fiscal 2029 (ending March 31, 2029) that would reduce gearing to 65%, this is not included in its base case projections, “given that it is not a binding commitment but rather a shareholder stated intention.”

Improvement in performance underpinned by additional investments during AMP7

The latest rating from S&P also states that the improvement in performance has been underpinned by the company's additional investments during AMP7, which were £1.6 billion more than the final determination allowances. However, the rating cautions:

“While we understand this has been a deliberate decision by management, shown for instance by the fact that the AMP8 phosphorus removal program is running ahead of schedule, we still believe that one of SWS' challenges will be to demonstrate stronger cost efficiency.”