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UTILITIES: Thames Water (THAMES Baa3[N]): Index Eligibility

UTILITIES
  • Class A bonds are rated Baa2[N]/BBB-*-. A downgrade to HY from S&P seems likely following Ofwat’s draft determination. 
  • Bloomberg reports that Thames bonds won’t be eligible for the ICE BofA High Yield indices due to the whole-business securitization structure. Nor are they currently eligible for ICE BofA IG indices. The composite rating is of the two ratings, so one notch from S&P alone would not affect the composite.
  • ICE BofA indices seem to be relatively more widely tracked in HY than IG, at least for ETFs. That could imply worse technicals for THAMES following downgrades. The bonds would be eligible for Bloomberg and iBoxx indices to the best of our knowledge.

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