Fitch warns of multi-notch downgrade for Thames' parent if PR19 is unfavourable

Fitch Ratings has warned that Thames Water’s parent company Kemble Water Finance could face a multi-notch downgrade if Ofwat’s PR19 final determination is unfavourable.

The rating agency has put Kemble’s BB- senior secured debt rating and issuer default rating on Rating Water Negative. It said this “reflects the significant probability of Kemble Water's financial profile weakening to a level no longer commensurate with a ‘BB-' IDR in the new price control (AMP7).

It also reflects significant uncertainty around the final price determinations, a potential Competition Markets Authority appeal and any balance sheet strengthening. We note the reduced risk of intermittent dividend flow from Thames Water Utilities Limited to Kemble due to an increased buffer under its lock-up covenants.” Dividends from TWUL are Kemble's only cash flow source.

Fitch pointed out that a final determination in line with Thames’ draft determination representation “could result in Kemble maintaining its BB- rating”.