Thames Water’s parent company Kemble Water Finance has been downgraded by ratings agency Fitch for the third time in just over a year.
The company was downgraded from a CCC rating to a CC, after shareholder’s withdrew £500 million of previously committed funding.
The funding U-turn means that Kemble will be unable to repay a £190 million loan that is due to mature at the end of this month.
Fitch warned that this means that “some form of default is probable”.
“In Fitch’s view, Kemble’s liquidity constraints and the high likelihood of getting to some form of Restricted Default are consistent with the ‘CC’ rating, which indicates that a default of some kind appears probable,” the ratings agency added.
“Even if lenders agree to amend and extend the upcoming loan, it is highly likely that the agreement would constitute a distressed debt exchange under our criteria, which would trigger a downgrade of Kemble to ‘Restricted Default’ on completion.”
It is the third such downgrading suffered by Kemble in the past 13 months, after first falling from a B+ to a B in March last year before again being downgraded to a CCC in December 2023.
The current CC rating means that Kemble is now recognised as being “non-investment grade”, or “junk” territory, and that the company carries “very high levels of credit risk”.
Kemble’s cash balance is estimated at about £20 million as of end-November 2023 while gross debt stands at £1.35 billion.
Fitch added that this level of liquidity is therefore “insufficient to cover interest payments (around £80 million-£85 million in FY24) and short-term debt maturities, which are related to a £190 million syndicated loan due 30 April 2024.”
Chris Goodall, who previously worked at the Competition and Market Authority’s predecessor the Competition Commission, told Utility Week that renationalisation of Thames Water is the is now the only feasible option for the debt-laden company.
Teneo, the administrators who handled the Bulb administration process are understood to have been on-site at Thames HQ in recent months, despite senior management insisting it was business as usual.
Thames chief executive Chris Weston and financial officer Alastair Cochran stated that the company has several options before administration is a consideration, but without reassurances from the regulator it seems unclear where new equity could come from.