Thames Water's credit rating has been double-downgraded by credit agency Moody’s to 'junk' status, which raises the prospect of that the water company could breach the terms of its operating licence.
With a £16.5 billion debt mountain to service, the move piles further pressure on the utility company, which was one of the four water firms cited yesterday by the UK Environment Agency for being responsible for over 90% of serious pollution incidents in the past year,
Moody’s lowered its rating two notches to Ba2, which is below investment grade, due to the water company’s “weakening liquidity position” and the potential for debt covenants to be breached.
Downgrades push up borrowing costs, limiting access to capital, but also, as part of its operating licence, Thames Water needs to maintain two investment-grade ratings, although watchdog Ofwat can make an exception.
Another rating agency, S&P, said this month that it was looking to downgrade the water group’s highest-rated, or supposedly safest, class of bonds, to junk status due to liquidity concerns.
Thames Water has £10 billion worth of investment-grade debt that would be affected by such a move.
If the terms of the licence are breached, Ofwat could intervene and take over the running of the franchise.