Thames Water’s troubles mount after second debt downgrade

Thames Water has suffered a fresh blow after its debt rating was cut to “junk” status by another major ratings agency, raising the prospect of a government bailout.

S&P Global slashed the rating on Thames’s top-rated bonds to “BB” on Wednesday as it warned the cash crisis engulfing the utility giant was likely to run until the end of the year.

The move follows a decision by Moody’s to classify Thames’ debts as junk last week.

Pushing Thames’s debt into junk territory means the water company is in breach of its operating licence with regulator Ofwat, which requires companies to maintain an investment-grade debt rating.

Thames, Britain’s largest water company with 16m customers, last month said it only had enough cash to keep going until May 2025 and was scrambling for new investment.

The rating cut pushes the company further into crisis and will raise questions over whether the Government will have to put the company into special administration.

Labour has so far steered clear of pledging financial backing for the company despite concerns over its collapse.

Environment Secretary Steve Reed last week said the group remained “financially viable” and would not need to be nationalised.

Mr Reed added that there was “no need to have undue concerns at the moment”.

However, S&P said uncertainty over its ability to raise the funds in the short term meant its bonds posed a greater risk for investors.

Thames has said it needs £3.25bn to stay afloat, although its current shareholders previously severed ties with the business after describing the company as “uninvestable”.

S&P said it was “essential” for the group to get new equity but this was unlikely to be before a December decision from Ofwat about Thames’s proposed bill hikes.

The ratings agency said: “The negative outlook reflects continued deterioration in Thames Water’s liquidity position and persistent uncertainties on support from existing or new shareholders for Thames Water’s business plan.”

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Companies that have an investment-grade rating can borrow on cheaper terms than businesses in junk territory. This will increase financial pressure on Thames Water as it battles to stave off collapse.

However, Thames Water chief Chris Weston talked down the prospect of nationalisation earlier in July.

He said: “Special administration is something that is not in the interests of any of our stakeholders or the UK taxpayers.

“I can’t put any probability on whether it will or won’t happen, but it is a long way off if it were to happen and there is a lot more that we can do and will do and are focused on doing over the coming months to make sure that that does not happen.”