Agencies cut Thames’ ratings following Christmas credit crunch update

Moody’s warned on Friday that a distressed exchange “is now a highly likely scenario” within months for Thames Water.

It made the comment as it downgraded Thames’ ratings significantly further, in light of a worsening liquidity situation at the company and poor prospects of attracting new equity ahead of the PR24 Final Determination (FD).

The downgrade was to Caa1 from Ba2 on Thames’ corporate family rating as well as to Caa2-PD from Ba3-PD for the probability of default rating. It also downgraded Thames Water Utilities Finance senior secured debt (Class A) ratings to Caa1 from Ba1 and its backed subordinated debt (Class B) ratings to C from B3. 

In parallel, S&P cut its top level rating on Thames by five notches to CCC+.

The actions followed Thames’ update of 20 September that, as of 31 August, it had £1.57bn of liquidity consisting of £1.15bn of cash and cash equivalents (£0.38bn of which is required reserves) and £0.42 billion of Class A and Class B undrawn committed facilities. It warned of a Christmas credit crunch – running out of cash by December 2024 rather than the previously stated May 2025 – if majority creditor consent is not secured to release reserves from the Class A and B facilities.

Thames said it continued to work on options for a liquidity extension and would initiate a formal equity solicitation process in the coming weeks. The equity requirement is expected to be at least £3.25bn.

Moody’s said the distressed exchange (which would constitute a default under Moody's definition) could initially take the form of amending and extending existing terms of outstanding debt. Should Thames prove unable to attract new equity after FD, this may ultimately “lead to a creditor-led debt restructuring or one that is imposed as part of a special administration process”.