Outages damage Moody’s outlook for South East Water

(by Karma Loveday)

Moody's Ratings has affirmed the Baa3 backed and underlying senior secured ratings of South East Water (Finance) — the financing subsidiary of South East Water — but changed the outlook to negative from stable.

Moody’s said the outlook change reflected “SEW's operational underperformance with regards to water supply resilience, at a time where the sector’s continued high social risk exacerbates political and media attention towards water company performance and has the potential to result in harsher eventual enforcement outcomes”. It noted each of the two investigations underway by Ofwat relating to the November/December and January outages carry potential maximum penalties of up to 10% of turnover, although fines may be converted to additional investment which is not funded by customers.

Moody’s said the affirmation of the Baa3 ratings reflects: (1) an improved regulatory settlement, in particular with regards to the water supply interruptions Outcome Delivery Incentive from the Competition and Markets Authority's provisional redetermination of PR24, albeit subject to the final redetermination due in the next two months; (2) continued shareholder support for SEW, evidenced most recently by the £200m equity injection in May 2025; and (3) a significantly improved liquidity position for SEW following the equity injection and subsequent refinancing activities, with the next debt maturity now due in August 2028.