S&P Assigns Rtgs to Thames Water's Euro MTN.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/10/97-- Standard & Poor's today assigned its double-'A' long-term rating to Thames Water PLC's (Thames) US$1 billion Euro medium term note program and assigned its double-'A'-plus long-term rating to securities issued under the program guaranteed by Thames Water Utilities Ltd. (TWUL). The outlook on both ratings is stable. The ratings on Thames and on its principal subsidiary, TWUL, reflect a low level of business risk, including a diverse and affluent customer base for the core utility business, and a stable regulatory regime. Thames also has a strong financial profile. TWUL, the core utility business, is responsible for over 82% of group revenues, has a strong operational record, adequate resources, and maintains the lowest combined water and sewerage charge in the U.K.

Thames is well placed to cope with what will become a harsher regulatory environment over the next few years. Permitted rate increases have been set by the regulator at one-half a percentage point above inflation per year until 2000-four percentage points lower than at privatization in 1989-reflecting an increase in expected efficiency savings and lower capital expenditures. Beyond that, price increases will remain predictable, but perhaps less generous to the water companies-the regulator has signaled the possibility of lower annual increases and a one-off cut in prices. Thames is the largest water utility in the U.K. serving over seven million water and 11 million sewerage customers. Its base capital investment program is expected to total UK2.1 billion between 1995-2000, and will be mostly directed at meeting legally binding obligations for sewerage treatment under European law. Thames has not had to impose water restrictions during the recent drought years, and in response to criticism of its high level of leakage, has committed UK200 million to reducing leakage, and to date has met its mandatory targets.

Recently, Thames undertook a strategic review of its noncore operations, which has resulted in the withdrawal from some of its loss-making activities. In future, Thames will focus almost exclusively on its regulated utility operations in the U.K. and a select number of build, operate, and transfer (BOT) contracts in Asia, Australia, Puerto Rico, and Turkey-as well as a 25-year concession to operate the eastern half of the water supply system in Jakarta. Despite an increase in borrowing levels, Thames maintains a robust financial profile with strong cash flow generation, adequate debt-service capacity, and sufficient backup liquidity in the form of committed bank lines. Its financial profile has not suffered unduly following the imposition of the windfall tax, payable in 1997 and 1998.

OUTLOOK: STABLE

Thames' superior business and financial profile are expected to withstand the harsher regulatory environment, Standard & Poor's said. -- CreditWire

CONTACT: Michael Wilkins, London (44) 171-826-3528

Standard & Poor's Rating Services