Southern Water credit rating downgraded to 'junk'

Southern Water's debt is currently more than £6bn

The Moody's credit rating agency has downgraded its rating of Southern Water, placing the under-fire utility company at greater financial peril.

The provider, which operates across Hampshire, the Isle of Wight, Sussex and Kent, has been downgraded to junk status - indicating the company is more likely to default on its debt.

In making its judgement, Moody's cited a “history of material operational and financial underperformance” at the utility company.

Southern Water, which is owned by an Australian company, blamed regulatory uncertainty over the UK water sector for the downgrade.

Credit rating agencies, such as Moody's, score governments and large companies on how likely they are to pay back their debt.

The rating affects how much it costs companies to borrow money in the international financial markets.

'Challenges and uncertainty'

It has amassed more than £6bn of debt - making it one of the UK's most indebted water companies.

Moody's has downgraded Southern Water to a Ba1 rating, placing it below investment grade.

The judgement highlights the company's risk of technical default - meaning that if it were to lose another investment grade rating then it would breach the rules of it's loans.

Southern Water said the judgement did "not reflect" any change to its "robust financial position", and highlighted that its debt was within the industry regulator Ofwat's guidelines.

Stuart Ledger, CFO of Southern Water, said: “The action by Moody’s Ratings today reflects the growing challenges and uncertainty faced by all companies operating in the UK water and wastewater sector.

"Ofwat’s Final Determination on 19 December should help to alleviate much of the uncertainty around the sector and enable us to continue to improve our services for customers, with the support of our shareholders and lenders."

The utility company, which supplies 4.7 million people across the south and south-east of England, recently asked Ofwat to allow it to increase the average annual household water bill to £734 - higher than any other water company in the UK.