UK's South East Water gets rating breathing room after cash injection

LONDON (Reuters) -There was a rare piece of good news for Britain's troubled water sector on Wednesday as Moody's removed a key downgrade warning on South East Water's credit rating following a 200 million pound cash injection from its owners last month.

Moody's lifted the outlook on SEW's Baa3 rating to 'stable' from 'negative'. It is a positive for the firm as Baa3 is the last rung of so-called 'investment grade' - a level UK water firms are supposed to maintain as part of licence requirements.

Moody's said the 200 million pound injection meant SEW now had the money to cover 120 million pound of debt due for repayment this time next year, as well as a partly drawn down revolving credit facility maturing in September 2026.

"We anticipate that the additional equity will also support the company in timely refinancing," Moody's said.

SEW is one of six UK water firms appealing to sector regulator OFWAT about the amount that they will be allowed to hike customer bills by during the current regulatory period that runs until 30 March 2030.

Moody's estimated that the 200 million pound equity injection was equal to approximately 11% of the company's Regulatory Capital Value (RCV) as of March 2025 and will reduce leverage, as measured by Net Debt / RCV to around 65%.

However, it added that if its appeal over bill hikes fails - the result of which is expected by January - and it doesn't make "material progress" in resolving its operational challenges, its rating could get downgraded.

(Reporting by Marc Jones; Editing by Kirsten Donovan)