Assured Guaranty facing $10 billion exposure to UK water utilities

US insurer Assured Guaranty has over $10 billion exposure to several of the UK’s most troubled water utilities, according to a report published today in The Financial Times (FT).

The New York-listed insurance companies could end up on the hook to lenders in the case of defaults or missed interest payments by companies including Thames Water and Southern Water. Facing pressures from inflation and increased regulatory consideration, these UK water companies are labouring under £60 billion in debt, according to the report.

In an emailed statement to the FT, Nick Proud, a senior managing director at Assured Guaranty, said: “We feel the UK water company debt we have insured has a strong credit profile, as it provides an essential public service and is in a well-regulated industry where we guarantee the senior level debt, all of which has underlying investment grade ratings. To date, a UK water company has not defaulted on their debt.”

The FT revealed that, according to results published in March, the group has built up an exposure of about $1.9 billion to Thames Water alone, with Southern Water its largest non-US exposure at $2.2 billion. The results also show that Anglian Water, Yorkshire Water and Dŵr Cymru Welsh Water are all among its top 10 non-US holdings.

The report noted that Assured Guaranty has been accelerating its activity in the UK water sector over the past 18 months, announcing a new deal to provide cover to lenders to Portsmouth Water in June, while last year it agreed to provide liquidity facilities to Yorkshire Water.

The outlook for UK water companies

The FT highlighted that rating agency S&P has negative outlooks for about two-thirds of the UK water companies it rates. And Fitch Ratings downgraded Southern Water’s credit rating on Friday, while maintaining a negative outlook.

The UK government has been said to have discussed plans to put failing water companies into a “special administration regime”, while UK water regulator Ofwat is closely monitoring the financial health of five UK companies — Thames Water, Southern Water, SES Water, Portsmouth Water and Yorkshire Water.

The report noted that Thames Water, Southern Water and Yorkshire Water each secured commitments from shareholders to put in hundreds of millions of pounds of additional investment in recent weeks in a bid to shore up their finances.

Assured Guaranty’s exposure

The report also revealed Assured Guaranty’s exposure to UK water companies is nearly equal to the group’s total “claims-paying resources”, which stood at $10.8 billion at the end of March.

The insurer carries strong credit ratings of AA and A1 from S&P and Moody’s respectively.

In his statement to the FT, Proud said that Assured Guaranty had a “long history of successfully mitigating potential losses” and noted that the group had maintained “a relatively constant level of claims paying resources over the past 15 years”.