Global Infrastructure Finance

For more than three decades, Assured Guaranty has worked with local and sovereign governments, regulated utilities, and private-sector developers and operators, along with their bankers and advisors, to reduce the medium- and long-term funding cost of essential projects and services.  We are active in developed countries with investment-grade sovereign ratings in the Americas, Europe and the Asia-Pacific.

Among the issuers who can benefit are:

• Public-private partnerships (PPP/P3)
• Special purpose infrastructure companies/projects
• Essential infrastructure companies/assets (e.g. airports, ports)
• Regulated utility companies
• Renewable energy projects
• Sovereign issuers
• Municipal and local authority issuers
• Government-sponsored enterprises

Guaranteed infrastructure financings have the characteristics to meet fundamental demand from pension funds, insurance companies and other institutional investors seeking long-tenor, low-risk investments that are well matched to distant future liabilities. They also help banks compete for business, increase returns and manage lending capacity.

In addition to unconditionally guaranteeing timely payment of principal and interest, we add value through our credit skills, ability to negotiate documentation appropriate for our guaranty and ongoing surveillance capability. Our guarantees help issuers gain capital market access and achieve broader distribution in both domestic and cross-border markets, while providing investors credit protection and potentially enhanced market liquidity.

Alongside our longstanding U.S. public finance business, Assured Guaranty subsidiaries have written guarantees for sovereign, municipal and public infrastructure financings outside the United States since 1988. Our broad experience encompasses highways, bridges, tunnels, airports, rail projects, hospitals, water and waste management facilities, gas and electric distribution systems, solar power, government buildings, convention centers, stadiums, universities and other infrastructure.

We provide credit enhancement for listed bonds, private placements with sole or a restricted number of institutional investors, and bank loans. We apply our guaranty in both primary and secondary markets and to issues with fixed, floating or inflation-indexed interest rates.

Assured Guaranty subsidiaries have the ability to guarantee qualified infrastructure financings in the United States, United Kingdom and most countries of the European Union, as well as in Australia, New Zealand and certain other developed countries of Asia and the Americas. We maintain close contact with lenders, investors and borrowers in our various markets. 

Eligible infrastructure transactions finance essential public projects or services. We require that both the transaction’s underlying credit quality and the sovereign rating of the country of origin be at least investment-grade, and we apply other criteria appropriate for the transaction’s revenue sources, credit characteristics, transaction structure and expected return. Transaction structures are subject to local regulation, and not all applications of our guarantees can be made available in every jurisdiction.

Assured Guaranty Exposure to UK Water

Assured Guaranty UK Limited (AGUK) and Assured Guaranty (Europe) SA (AGE) are two bond insurance subsidiaries of Assured Guaranty Ltd. (NYSE: AGO) (together with its subsidiaries, Assured Guaranty).  The following table shows the par exposure of the Assured Guaranty group to the UK regulated water sector and to Thames Water in particular.

The UK water sector makes up approximately 6% of Assured Guaranty’s total net par outstanding.  Assured Guaranty’s UK water portfolio has maturities between 2025 and 2062.

All exposure information above is as of March 31, 2025.

UK Water Sector
Assured Guaranty’s insured UK water company debt has a strong credit profile composed of 15 unique obligors. The UK Water companies provide an essential public service and are in a regulated industry where Assured Guaranty guarantees senior level debt at the operating company level, almost all of which has underlying investment grade ratings. We note that Thames Water was downgraded to below investment grade by rating agencies during 2024.

Interest coverage for all UK water obligors that Assured Guaranty has guaranteed remains adequate, with most obligors reporting coverage in the 2x – 4x range. Net Debt to Regulated Capital Value (regulatory gearing) remained at similar levels to 2023 with most obligors in the 65% – 75% range. Thames Water reported regulatory gearing at 81% in 2024. 

Regulated by Ofwat (Water Services Regulation Authority)
We highlight the following factors arising out of the regulatory framework applying to the UK water sector:

The privately owned water utilities operate like a monopoly in their service area and function under a regulatory regime governed by Ofwat.

The regulatory framework determines tariffs every 5 years (current cycle started in 2025), following a process of intensive reviews of each company’s operating budgets and CapEx plans. The tariff determination is based on revenue requirements composed of operating expenses, economic depreciation (maintenance CapEx), tax and return on capital (i.e. regulation provides for equity to earn a return on their investment).

The latest Ofwat price determination was issued in December 2024. Six of the water companies, including Thames Water, have appealed the final determination to the Competition and Markets Authority. 

All the utilities have provisions in their regulatory licenses which include (i) the legal separation of the regulated entity from any unregulated businesses, (ii) limitations on business activities, and (iii) provisions to maintain an investment grade rating.

Ofwat requires that each company “must ensure” that it will maintain an investment grade rating. Failure to maintain an investment grade rating represents a breach of the operating licence and requires the water company involved to submit a plan to Ofwat detailing how it intends to recover the investment grade rating. 

Companies may not, without Ofwat’s consent, pay dividends while their credit rating is Baa2/BBB, with a negative outlook, or if they have a rating below Baa2/BBB.  

Thames Water
Against this regulatory backdrop, we make the following comments relating to Thames Water:

Thames Water’s immediate parent company, Kemble Water Finance (“Holding Company”), announced that it missed a debt interest payment due on April 2, 2024. Assured Guaranty does not guarantee any debt of Holding Company. Assured Guaranty guarantees only senior Class A debt at the regulated operating company level (not Holding Company debt, or subordinated debt).

During 2024, Thames Water’s existing shareholders announced that they would not be committing to additional equity investment in Thames Water, as they viewed the likely returns expected from the Ofwat draft regulatory determination to be insufficient. 

Ofwat’s final price determination published in December 2024 resulted in potentially significant financial penalties for Thames Water during the next 5 years, along with inadequate revenue to deliver Ofwat’s required capital expenditures. Thames management has referred the final determination to the Competition and Markets Authority for review. 

Some of the existing Senior Class A debt holders have provided a £1.5bn liquidity facility to Thames Water, the regulated operating company, to meet cash flow needs while it looks to raise fresh equity investment. The terms of the £1.5bn liquidity facility includes a maturity extension of all of Thames Water’s outstanding operating company debt. The facility also includes a provision that the maturity dates will all revert to their original dates if and when Thames recovers its investment grade rating. 

The process to identify new owners for Thames Water is ongoing, with the expectation that this process will be finalised during 2025.

If there were ever a claim filed against Assured Guaranty, Assured Guaranty would continue paying principal and interest in line with the original debt schedule unless it decides, in its sole option, to pay on an accelerated basis. Additionally, the first scheduled principal payment that comes due under our Thames exposure is 12 years from now, in 2037.