Ofwat has today confirmed the implementation of commitments from Thames Water, effective immediately, to remedy its licence breach in losing its investment grade credit ratings - including a commitment to further develop a revised AMP8 Business Plan for the period 1 April 2024 to 31 March 2030 by 28 August 2024.

On 7 August 2024 Ofwat consulted on the undertakings proposed by Thames Water and its provisional decision to accept them - interested parties had until 16 August 2024 to submit their views on the proposals. During the consultation, Ofwat received nearly 13,000 responses. Of these, approximately 12,700 emails, driven by a template campaign response, called for a revocation of Thames Water's licence.

The commitments are built around four key elements:

• The appointment of an independent Monitor to report on the company’s progress, including against its transformation plan. The independent Monitor will report back to Ofwat frequently and be entitled to access to company information;
• Developing and delivering a suitable operational business plan to achieve turnaround;
• Taking the steps required to deliver an equity raise;
• New non-executive director board appointments.

The water sector regulator said the commitments will remain in place until the company regains two investment grade credit ratings.

Thames Water’s Licence under Section 19 of the Water Industry Act 1991 stipulates that Thames Water must:

“ensure that it or any Associated Company which issues corporate debt on its behalf maintains, at all times, two Issuer Credit Ratings which are Investment Grade Ratings from two different Credit Rating Agencies, other than where Ofwat provides its written agreement for the Appointee to maintain only one Issuer Credit Rating which is an Investment Grade Rating.”

On 12 August 2020, Ofwat confirmed to the water company that it had determined that its Moody’s Corporate Family Rating and Thames Water Utilities Finance plc’s Standard & Poor’s Class A Debt Rating were Issuer Credit Ratings for the purpose of the Licence.

Thames Water was informed on 24 July 2024 that its Moody’s Corporate Family Rating had been changed to Ba2 and was further informed on 31 July 2024 that Thames Water Utilities Finance plc’s Standard & Poor’s Class A Debt Rating had been changed to BB.

Both the ratings are defined as below investment grade - as of 31 July 2024, Thames Water does not hold any Issuer Credit Ratings which are Investment Grade Ratings.

Thames Water has committed to take “all reasonable steps” to address the concerns raised by its credit ratings agencies and to restore two Investment Grade Ratings.

Thames commits to further develop a revised AMP8 Business Plan for 1 April 2024 to 31 March 2030 by 28 August 2024

The undertakings include a commitment to further develop a revised AMP8 Business Plan for the period 1 April 2024 to 31 March 2030 by 28 August 2024 to meets its statutory and wider regulatory obligations which will enable the company’s turnaround and underpin the Equity Raise, with further iterations of the company’s Business Plan being developed and updated “from time to time.”

Thames has also committed to use “all reasonable endeavours to raise substantial equity investment into its business”, dedicate appropriate resources and take “all reasonable actions to establish long term financial resilience and with the objectives to deliver a successful outcome to the Equity Raise, to maintain access to debt capital markets and to ensure it has funding and plans in place to enable TWUL to meet its statutory and regulatory obligations over the long term.”

In consultation with Ofwat, Thames will also appoint a further two appropriately experienced independent non-executive directors as soon as reasonably practicable to the board and any board sub-committee providing oversight to the Equity Raise.

The utility is required identify a member of its senior leadership team within 15 days of the date of signing of the undertakings with appropriate experience and authority to assume oversight and monitoring of its compliance with the Undertakings. The appointed executive must also liaise with Ofwat and the Monitor the regulator will now appoint (in consultation with Thames Water).

The Monitor’s role will include monitoring the delivery of the turnaround as part of Thames Water’s delivery of the AMP8 Business Plan and the steps that have been taken towards the launch and implementation of the Equity Raise.

The Monitor will be providing a written report to Ofwat on a monthly basis witj the first report to be submitted not later than one calendar month after the terms of appointment of the Monitor have been agreed.

Thames Water has acknowledged that the Monitor will promptly inform Ofwat of any developments that may have a material impact on compliance with the Undertakings.