Moody’s and S&P improve Southern Water outlook

(by Verity Mitchell)

On 18 August, Moody’s Ratings announced that it had changed its credit outlook for Southern Water to positive, while on 20 August, S&P Global Ratings also announced it had revised its outlook from negative to stable. Fitch had already upgraded its rating last month.

Now all three major rating agencies have formally recognised the improvements being made across the business: pledged equity support of £300m from Southern Water’s shareholders; improved financial resilience and credit metrics; and progress in operational performance.

Moody’s described the progress as "a clear indication that the turnaround programme is being successful”. S&P noted significant improvements across a number of key operational measures during the first year of AMP8, and that Ofwat's cost change draft determination published on 13 August could raise £687.6m (in 2022-2023 prices) in Southern’s allowances for AMP8, increasing its Regulatory Capital Value by an additional £555.5m by 2030.

All agencies highlighted that Southern Water must continue to improve its performance. Fitch noted that penalties resulting from poor customer perception will take time to rectify and expected these penalties to persist for most of the AMP.

Stuart Ledger, chief financial officer of Southern Water, said: “We welcome the more positive outlook provided by Moody’s and S&P alongside Fitch’s decision to upgrade our senior secured debt rating. Taken together, these actions provide important independent recognition of Southern Water’s improving operational performance… The £1.2bn of new equity committed by our shareholders is being invested directly into Southern Water, strengthening our financial resilience and providing important support for the delivery of our ambitious investment programme.”