Thames Water - comment

Rating agency Moody’s has come out with a “glass half full” outlook comment on the UK water sector where they expect the draft determinations from Ofwat (which is expected to be announced on the 12th June) to be more balanced and investor-friendly as well as consumer-focused. This should make it more attractive for investors to deploy capital in the equity of UK water companies including Thames Water. If this scenario plays out, this would be very positive for the Class A and Class B notes as it would give noteholders visibility on creation of an equity cushion beneath them (through an improvement in the asset quality of the company) and an eventual par refinancing of the debt (especially if there is a ratings upgrade on this outcome). Given the binary outcome at this stage, we at Sarria prefer to wait until the 12th June before reassessing the situation.