S&P Global Ratings has revised its outlook on Thames Water’s debt from stable to negative in light of “challenging regulatory pressure and weaker credit ratios”.
The rating agency stressed its rationale was based on Thames Water’s current financial pressure in the “absence of improvement in operating performance”.
A spokesperson for Thames, said: “We maintain a constructive ongoing dialogue with rating agencies and, whilst we are disappointed that S&P has placed our ratings on negative outlook, there has been no change in the investment grade ratings that S&P has assigned to our bonds.
“Our credit ratings are important to us as they underpin our ability to continue to access the most competitive sources of capital for the benefit of our customers. “We are completely focused on continuing to demonstrate the operational improvements and enhancements to our financial profile that will support our credit ratings over the long term.”
S&P said pressure on Thames Water’s financial metrics has continued to build for the fiscal year ending March 2018.
The agency “positively” notes the strong reduction in dividend distribution and the long-term build-up of regulated capital value.
But it believes that the “relatively high leverage” under which Thames currently operates “limits” its ability to absorb any future “additional weakening” in profitability.
Pressure may increase in the next regulatory period from April 2020, given the “reduction in allowed cost of capital and more stretching benchmarks,” the agency warned.
It also highlighted Thames’ operating performance has improved on “several regulatory measures” such as pollution and internal flooding.
However, it said Thames has “continued to miss” several regulatory targets for the UK, which relate to leakage, below-ground asset health, supply interruptions and security of supply.
Thames Water agreed to pay £65 million back to customers on top of £55 million in automatic penalties incurred for not meeting its commitment to customers to cut leaks.
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