Southern Water has suffered another credit rating downgrade, with Fitch bumping the struggling utility company’s debt to one step above junk status.
Fitch announced the move on Tuesday, citing “challenging funding conditions” and the growing risk that it will default on its debt.
The ratings agency also placed Southern Water on “rating watch negative”, which means it thinks the company could face further downgrades.
Southern has asked to be allowed to raise the average consumer water bill by 84% over the coming five years versus the current level.
But Ofwat indicated over the summer that it will only allow a rise of about 44%.
The watchdog is set to make a final verdict on bill increases across the sector in December.
Southern Water has amassed more than £6 billion of debt – making it one of the most heavily indebted water firms in the UK behind Thames Water.
Southern Water, which supplies 4.7 million people across the south and south-east of England, is controlled by Macquarie, the Australian investment bank.
Fitch added that a favourable decision from Ofwat in December could alleviate some of the financial stress and lead to it removing the negative outlook.
It comes after ratings agency Moody’s separately downgraded Southern Water’s credit rating to junk last week, putting it below investment grade.
Stuart Ledger, chief financial officer of Southern Water, said: “The action by Fitch Ratings today, following a similar move by Moody’s Ratings earlier this month, reflects the ongoing 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.”
An Ofwat spokesperson said: “We note Southern Water’s engagement with creditors in respect of its financing documents.
“We will continue to engage with the company and closely monitor its progress as it delivers its turnaround plan to improve performance and financial resilience.”
