The reforms, which are slated to start in July 2024, will affect the sovereign, local councils, and the New Zealand Local Government Funding Agency (LGFA), the report said.
But S&P said "a large information void" currently constraints its ability to accurately reflect the proposed reforms in its credit ratings.
Key information that would aid S&P's assessment included clarity over the future course of action, it said, such as which water-related activities are set to be transferred - all three waters - drinking water, wastewater, and stormwater - or a subset.
"Given inherent difficulties in splitting stormwater assets, there are suggestions by some affected parties that the reforms could exclude all, or a proportion of, stormwater services," S&P said.
Financial aspects of the reforms - such as whether the councils will receive any payments in return for the transfer of their assets to the WSEs and how large these payments are, whether council debt will be novated to the WSEs, or whether the debt will remain on council balance sheets until they decide to repay it, and how the quantum of debt will be calculated - were also in the "information void".
S&P said some clarity was needed over what timeframe the reforms would be implemented.
For many councils, the reforms could have significant implications for their cash flow and balance sheets, the agency said.
S&P estimated that between one-third and half of the sector's debt, and a large proportion of revenues, were water-related.
"The financial impact will differ across councils with many being better off in the immediate future, while others could be worse off.
"The long-term effect on budgets and debt ratios is difficult to determine at this stage due to the information void."
S&P laid out some hypothetical rating actions that it could take as a result of the reforms.
One would be raising a rating if the reforms significantly improved a council's budgetary performance such as narrowing after-capital account deficits and structurally lowering its debt-to-operating revenue ratio.
Another would be lowering a rating if the reforms weaken a council's budgetary performance, such as widening after-capital account deficits and increasing its debt-to-operating revenue ratio.
"This could occur if a council has limited water-related debt, and a high proportion of its revenues come from water activities," it said.
S&P said it could affirm a rating if the reforms have no material effect on a council's credit metrics.
"This could occur if the reforms result in little financial change, or if we believe the council remains exposed to water activities conducted by the WSEs.
"The latter may mean we continue to include water activities within our credit assessment," it said.
At this stage, S&P considered it unlikely that the Three Waters reforms would affect New Zealand's sovereign credit quality.
"Under our criteria, we may assess that the new WSEs present contingent liability risks to the New Zealand sovereign, particularly if they are established under New Zealand legislation and benefit from Crown liquidity facilities.
"However, there should be ample headroom in the sovereign "AA+" foreign-currency rating to absorb an increase in contingent liabilities, for now."
The implications for LGFA credit quality will depend on several factors that are yet to be determined.
One factor would be the mechanism by which the councils' current water-related debts were either transferred or repaid to the LGFA and the timeframe over which this occurs.
S&P noted the reforms follow the National Party's 2017 "Three Waters Review," which investigated ways to improve the regulation and supply of the three waters.
The review ran in parallel with the Havelock North Inquiry into a 2016 water contamination incident, when 4500 people in the town became very ill through drinking contaminated water.
