A licence breach resulting from a credit rating downgrade could result in further costly penalties. Under the industry’s licence obligations, water suppliers must maintain investment grade credit ratings. A further downgrade would push Thames into “junk” territory, meaning it no longer meets those requirements.
The severity of Thames Water’s financial constraints was laid bare in documents published last week.
Bosses revealed that the company was provided with vital funding after drawing down £1.1bn worth of new debt in May and June alone. It also successfully negotiated the delay of a £530m loan repayment that was due last month. Lenders have agreed to extend it to December.
Chief executive Chris Weston said on Tuesday that Thames currently has enough money to see it through until May next year as the company seeks to raise £3.25bn from potential investors and creditors.
The prospect of having to find hundreds of millions of pounds to meet new fines will be a further blow to the company’s hopes of averting nationalisation by raising fresh capital from private investors. Thames was abandoned by its shareholders earlier this year who said the company had become ‘uninvestible’.
Its efforts to secure funding will be further complicated by Ofwat’s refusal to sign off on Thames’ demands for bill increases of as much as 44pc between 2025 and the end of the decade. It has been told it must contend with rises of just 22pc – equivalent to just under £20 a year per household.
“Any private investor is going to look at this and say ‘this doesn’t add up to a great investment proposition – I’ve got better places to put my money, thank you very much” one banker said.
A Thames Water spokesman: “We have set out an ambitious business plan for the next five years, and with consistent leadership and priorities, time and resources, and with the appropriate regulatory determination, we will turn around this business and make it perform for all our customers, the environment and our wider stakeholders.”