S&P downgrades Thames Water debt under squeeze from inflation and investment plans

Ratings agency S&P Global has lowered its rating of class A and class B debt held by Thames Water with a stable outlook. The action was sparked by Thames’ increase in inflation-linked debt amid the current inflation rise and its highly-leverage.

S&P pointed to Thames’ heavy investment plan with little opportunity for deleveraging despite a £500m injection from shareholders. It said the company’s inflation-linked debt at 56% of its total caused a significant increase in its borrowings. And accretion along with higher energy costs further eroded Thames’ opportunities to reduce debt. “Thames Water's large investment plan and high inflation will weigh on its financial metrics until the end of the regulatory period,” S&P retorted in a research note.

S&P said its stable outlook “reflects our expectation that metrics will gradually improve through the

regulatory period ending March 2025.”

The agency lowered its rating on Thames’ class A debt from BBB+ to BBB and on the company’s class B debt to BB+ from BBB-.