Southern Water Ltd was downgraded to junk status by Moody’s Ratings and warned it could be cut further in light of the woes facing UK water and sewage providers as well as the company’s own weak track record.
The firm’s “history of material operational and financial underperformance” could continue over the coming five years and impact the potential raising of £4 billion in new debt and at least £650 million of new equity, Moody’s said in a statement on Wednesday.
The move is the latest setback for the UK’s cash-strapped water industry, which has come under intense scrutiny over safety concerns. Moody’s lowered Thames Water Utilities Ltd — Britain’s biggest supplier — to junk territory in July after the company breached its licence conditions. The utilities are grappling with a combination of high interest rates and public outrage over chronic leaks and sewage spills.
Following the downgrade, Southern Water bonds due 2026 fell about 2.7 pence on Thursday morning, according to pricing compiled by Bloomberg, to around 85 pence on the pound.
The supplier of more than two million people with water and sewage services in England remains on review for a further cut, with Moody’s stating that UK water regulator Ofwat is expected to slap Southern with “severe performance penalties and total expenditure allowances below the level needed to fund” its capital-spending plans.
Southern said in a statement posted on its website that the downgrade “will have no impact on the services we provide to our customers. As Moody’s acknowledges, we maintain a strong liquidity position. Indeed, earlier this month, we secured additional financing whilst we await Ofwat’s Final Determination on our ambitious 2025-30 business plan.”
Southern Water is seeking to lift bills by 84% between 2025 and 2030, while the average hike proposed across the industry is 40%.
In a filing released earlier this month Southern announced that it had raised new debt in the private placement market, consisting of £300 million across two tranches. The money comes with a hefty price tag. One of the tranches was priced at discount of 90 pence on the pound, meaning a yield of nearly 10% for the debt, Bloomberg calculations show.
- Bloomberg
Created by Tan KW | Dec 11, 2024
Created by Tan KW | Dec 11, 2024
Created by Tan KW | Dec 11, 2024
Created by Tan KW | Dec 11, 2024
Created by Tan KW | Dec 11, 2024
Created by Tan KW | Dec 11, 2024