Credit agencies warn that Thames Water is on the verge of default.

Two of the most prestigious credit rating agencies in the world have rated Thames Water as on the verge of default. This could bring a government-backed bailout deal closer. Moody’s and S&P stated that Thames Water struggled to access cash quickly to meet its debt repayment obligations. The two downgraded the top-rated £16billion debt of the company by five rungs, to the equivalent CCC+ rating. This means that the business has a high risk and is on the verge of failure.

S&P stated that “we see material risk” of a debt restructuring which it would consider to be similar to a default. It also said that the “management and governance” of Thames Water was a negative factor. This comes after Thames Water said earlier this month that they could run out cash after Christmas, if they could not access reserve funding or rollover some credit agreements. S&P stated that Thames Water is facing “near-term cash flow stress”. Moody’s stated that Thames’s access to funds is “significantly tighter” than what was previously anticipated.

According to reports, the utility is in discussions with its creditors about a £1 billion fund that would allow it to restructure a portion of its liabilities. The government or Ofwat (the water industry regulator) could put Thames Water under a special administration regime if they don’t have a rescue plan. This would be a renationalisation. Kemble Water Financing, one of Thames Water’s parent companies, announced in April that it was defaulting on some of its loans.

The largest water provider in Britain serves London and the Southeast. The water company is owned by an intricate web of parent companies set up by Macquarie Infrastructure, the former owner. Macquarie bought the last fifth of Britain’s gas transmission grid it didn’t already own for £700 million in July, giving it complete control over the network. Last month, Thames Water informed Ofwat of the need to increase annual water bills by 59 percent, or £228 by 2030, in order to pay off debts and to raise funds for upgrading water infrastructure. Ofwat rejected a July request to raise bills by 44 percent.

Thames Water’s financial troubles have led to speculation that the Government will be forced to step in to save the Company in order to maintain water flow to around a quarter households in England.

Britain’s utility companies privatised in 1990 with largely debt free balance sheets, and according to some experts were given guaranteed profits due to the high barriers to enter the water supply industry. They have been accused, however, of building up tens or hundreds of millions of pounds in debt while neglecting investments and lavishly rewarding their chief executives and shareholder. Labour ministers said in the past that the nationalisation of Thames Water is not compatible with government fiscal rules. Recently, the government denied it would increase bills to pay for any rescue deal.

Thames Water stated: “The credit rating agencies’ announcement is consistent with the liquidity position we set forth in our Friday market statement. We will continue to adhere to the commitments we made to our regulator back in July 2024, following the downgrading of our class A rating to subinvestment grade. We are also continuing to work with creditors in order to explore options to extend our liquidity runway. In the next few weeks, formal discussions with equity investors are expected to begin.