S&P and Moody’s slash Thames Water’s ratings as default fears mount

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By Marc Jones

(Reuters) -S&P and Moody’s slashed the credit rating of Thames Water on Wednesday with both firms warning that Britain’s largest and most troubled water provider was fast running out of money and on the brink of default.

Heavily indebted Thames, which serves 16 million people in and around London, is at the centre of a crisis over relentless sewage dumping, crumbling pipe networks and huge debts.

It warned last week it was at risk of running out of money before the end of the year unless its major creditors approved emergency funding.

“We believe Thames Water is now facing an acute near-term liquidity shortfall,” S&P said as it cut the rating on Thames’ highest-ranked ‘class A’ and lower level ‘class B’ debt to ‘CCC+’ and ‘CCC-‘, respectively, from ‘BB’ and ‘B’ previously.

“We see material risk of a debt restructuring, which we would consider akin to a default.”

Without a rescue plan, Britain’s government and water regulator Ofwat are likely to need to put Thames into a so-called special administration regime (SAR), a form of renationalisation.

The crisis is now a major headache for the new Labour government. It is already facing financial pressures, and international investors losing money on a flagship UK utility would be a major reputational scar.

S&P’s peer Moody’s also cut Thames’ ratings and delivered much the same warning, that one of the biggest defaults in UK history could be looming. Thames has around 18 billion pounds ($24 billion) of debt in total.

“Inability to attract new equity funding may ultimately lead to a creditor-led debt restructuring or one that is imposed as part of a special administration process,” Moody’s said as it slashed the firm’s rating by a massive five notches, ‘Caa1’ from ‘Ba2’. Before July it was “investment grade.”

Thames is seeking a 3.25 billion pounds ($4.33 billion) equity injection over the next five years but its crisis means it is also in talks about emergency help and is also hoping Ofwat will allow it to hike bills by more than previously indicated.

“Given the worsening liquidity situation and a potentially lengthy process to attract new equity funding, we believe that a distressed exchange over the coming months is now a highly likely scenario,” Moody’s said.

($1 = 0.7511 pounds)

(Additional reporting by Shanima A in Bengaluru; Editing by Shounak Dasgupta and Chris Reese)