It is now even harder and more expensive for the UK’s biggest water provider to borrow money as leading credit ratings agency Moody’s has downgraded its debt to “junk” status.

Thames Water’s parent company had already defaulted on some loan payments that make up its £16.5bn debt pile. More pressure will be put on its ability to meet debt obligations as a result of the downgrade.

The utility is in a perilous financial position, due to run out of money next May as it cannot raise any investment from current shareholders who described the company as “uninvestable”.

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It is now also in breach of its licence requirements.

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Water regulator Ofwat requires utilities to maintain an “investment grade” debt ranking, something Thames Water no longer has.

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It comes as the industry struggles with sewage discharges into waterways and investment into crumbling infrastructure as climate change means flooding and droughts become more common.

An Ofwat spokesperson said: “This downgrade reinforces our position that a comprehensive financial and operational turnaround in Thames’ operations is essential.”

Why the downgrade?

The write-down follows Ofwat’s decision to allow bills to become more expensive but by less than Thames Water had requested.

Yearly bills are to increase by £99, rather than the £191 Thames Water sought.

Also considered, Moody’s said, was Thames Water’s annual financial results which the ratings agency said indicated “its weakening liquidity position”.

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What does ‘junk’ mean?

A junk rating means Moody’s thinks there is a likelihood of default.

Moody’s is just one rating agency and reflects its take on Thames Water’s financial health.

What next?

The core issue for Thames Water is still the same – it must secure new investment to continue to exist and negotiate with the institutions it owes money to.

Dutch bank ING and a large Chinese bank are said to be among the lenders owed millions by Thames Water parent company Kemble Water Finance.

Plans for a special administration and effective nationalisation have been under way within the government.

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Thames Water reaction

Thames Water said it “notes” the downgrades.

The company said it had expected an announcement having alerted regulator Ofwat to the possibility of the potential credit rating downgrades in April and it “continues to work with Ofwat to maintain the ongoing financial resilience of the business”.

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“Management is engaging with investors and its creditors and remains committed to seeking new equity funding and exploring all options to extend its liquidity runway,” a company statement read.

“Increasing our financial resilience and securing an investible [price review] determination is a critical priority for the business. In the meantime, it’s business as usual for our customers and our teams on the ground who will continue to supply our services and remain focused on the delivery of our turnaround plan.”

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