UK Water: Financial Resilience Update

Andrew Moulder – Senior Analyst - European Utilities
Bozhidar Dinkov – Analyst - European Utilities

  • Last week Ofwat released its annual ‘Monitoring Financial Resilience Report’ for the UK water companies, with data evaluated for the financial year ending 31 March 2023. Once again both Thames and Southern Water are judged to be higher priority for engagement and monitoring.
  • While Thames and Southern continue to be higher priority, Severn Trent, United Utilities, Anglian and South West are all within the standard category, with no specific concerns. Yorkshire Water has taken action to support financial resilience during 2022/23 and has been removed from higher priority, down to ‘elevated concern.’
  • Overall, in the 2022-23 year key credit metrics have slightly worsened. Average gearing across the sector rose to 68.2% compared with 66.2% for the previous year, FFO/net debt deteriorated and adjusted cash interest cover was generally weaker. Much of this was to do with higher inflation and rising costs.
  • For 2022-23 RoRE ranged from 12.14% for Severn Trent, down to a -10.07% for Southern Water, but only seven companies, out of 17, reported a RoRE above their base return. Average RoRE across the sector was 3.6%, against an average allowed base return of 4.1%. We note that in their PR24 business plan submissions many companies highlighted what they perceived to be a downward skew in the incentive framework for the next regulatory period. Returns in the current period do seem to bear this out.
  • Thames recently managed to demonstrate market access with a £300 mn 16.5 year bond, although it did have to pay up. The bond priced at a yield of 8.3% with an 8.25% coupon. We regard it as positive that Thames was able to come to the market, but everything has a price, and a regulated ring fence entity issuing senior debt at 8.3% demonstrates the uncertainty around the name.
  • Thames issuing new debt at 8.3% certainly adds weight to the argument that the cost of new debt is higher than the Ofwat early view of a nominal cost of 5.34%. Ofwat will update its cost of debt depending on market conditions at the date of the final determination in December 2024.

We do not yet have published views on the UK water companies, but from the graph above the widest names are Thames and Southern, while the tighter names are UU, Severn Trent and Welsh Water. In our view that reflects the relative risks and uncertainties around the various companies.

To download the full article, fill out the form opposite and we’ll email you a PDF copy of the report.

Would you like access to the report?
Submit your contact details to request the full report.

Request a Trial

Receive 1-month complimentary access to our research platform, where you can browse our library of expert-produced insights and reporting. Qualifying institutions can gain access to our platform.


Sign up to our Newsletter

It is our mission to enable fixed income professionals to know more, risk better, and ultimately create value. Sign up to receive our monthly newsletters to get the latest credit insights direct to your inbox.


Our Products

We’re proud to be the trusted resource for these credit research consumers:


The independent research and actionable ideas you need to help guide investment and risk management decisions.

Risk Products

From BondScore to Credit Quality Score and Fallen Angel Score, these products give you an analytial edge.

Covenant Review

In-depth analysis and impact assessment on current and future leveraged finance deals from the market’s trusted authority on bond and loan covenants.

LevFin Insights

News and analysis covering the debt capital markets including leveraged loans, high yield, secondary trading, CLOs, middle market and BDCs.

Markets Served

We’re proud to be the trusted resource for these credit research consumers:


From mutual funds, pensions and hedge funds to the world’s largest insurers, managers at these institutions are guided by our credit research


Financial intermediaries-the world’s broker-dealers, market makers and liquidity providers-rely on our credit insights each day


Brokers, financial advisors and private wealth managers entrusted with their clients’ assets leverage our intellectual capital when it comes to the credit markets