Moody's Changes Outlook To Negative On Thames Water And Kemble

Moody's Investors Service (Moody's) has today changed to negative from stable the outlooks on Thames Water Utilities Ltd. (Thames Water) and Thames Water (Kemble) Finance PLC (Kemble), the financing subsidiary of Thames Water's holding company.

This action follows proposals by the Water Services Regulation Authority (Ofwat) that would give it greater influence over water companies' capital structures and dividends. Moody's has also changed to negative its outlook on Thames Water's financing subsidiaries, Thames Water Utilities Finance Limited and Thames Water Utilities Cayman Finance Limited.

Concurrently, the rating agency affirmed Thames Water's Baa1 corporate family rating (CFR), the A3 senior secured ratings of Thames Water Utilities Cayman Finance Limited and Thames Water Utilities Finance Limited, and the Baa3 subordinated debt ratings of Thames Water Utilities Cayman Finance Limited. Moody's has also affirmed the B1 senior secured ratings of Kemble.

Ofwat's proposed measures -- aimed at bolstering companies' financial resilience -- mark a change in direction for the regulator in reaction to mounting political and public pressure on the sector. If implemented, the proposals would primarily penalise highly leveraged operating companies like Thames Water, curbing their earnings in an already tough regulatory environment. The measures further evidence increasing regulatory risk, which together with the potential earnings impact are the main drivers for today's outlook change. - Istanbul