Thames Water’s holding company Kemble Finance and the financing subsidiary of Anglian Water’s holding company, Osprey Acquisitions, were downgraded from a stable to negative outlook.
Moody’s downgraded them because the price review by regulator Ofwat is likely to result in significantly lower dividends being paid up from the regulated water companies to the holding companies. Its action follows Ofwat’s announcement last month that its target weighted average cost of capital (WACC) is 3.85 per cent for 2015-2020, down from 5.1 per cent in the current cycle.
Moody’s further said that Thames Water’s credit profile would be strained if it was required to deliver the main construction works associated with the £4.1 billion Thames Tideway Tunnel.
Moody’s said the outlook could be stabilised if it becomes clear by the time of the final price determination in December 2014 that the water companies were unlikely to be “materially constrained” in their ability to pay up dividends to their holding companies.