Research Update: Issue Ratings On Thames Water Utilities Finance PLC's Class A And Class B Debt Placed On CreditWatch Negative

Thames Water's operating performance continues to lag that of its peers in the U.K. water sector. We note positively recent operational improvement in certain areas and management's focus on operating performance. However, Thames Water has one of the highest leverage ratios in the sector, with a consolidated reported debt to regulatory capital value (RCV) of 82.4% on Sept. 30, 2021. We understand that Thames Water is targeting a recovery over the next two regulatory periods by investing more than its regulatory allowance to improve its operating performance and by limiting dividend payments. This said, without further remedial measures to reduce Thames Water's overall leverage, and despite its relative resilience to the COVID-19 pandemic given the essential service it provides, we

...- Thames Water's operating performance continues to lag that of its peers in the U.K. water sector. We note positively recent operational improvement in certain areas and management's focus on operating performance. However, Thames Water has one of the highest leverage ratios in the sector, with a consolidated reported debt to regulatory capital value (RCV) of 82.4% on Sept. 30, 2021. - We understand that Thames Water is targeting a recovery over the next two regulatory periods by investing more than its regulatory allowance to improve its operating performance and by limiting dividend payments. - This said, without further remedial measures to reduce Thames Water's overall leverage, and despite its relative resilience to the COVID-19 pandemic given the essential service it provides, we believe that its operational and financial performance will only recover over the longer term. - We expect that Thames Water's S&P Global Ratings-adjusted debt to EBITDA will sit above the 10x and 11x thresholds...

Research Update