(Bloomberg) -- Creditors to Thames Water will start work on their own proposal to rescue the beleaguered UK utility firm and avoid nationalization.
A group holding around £10 billion ($13.2 billion) of the firm’s debt is drawing up a plan to address Thames Water’s need for new funds and its unsustainable debt pile, according to people familiar with the matter, who spoke to Bloomberg on the condition of anonymity.
Thames Water, the UK’s biggest water and sewage services provider serving about a quarter of the UK population, desperately needs to find £3.3 billion in equity before it runs out of money at the end of May.
The set of bondholders, advised by Akin Gump Strauss Hauer & Feld and Jefferies Financial Group Inc., will work on its plan in parallel with Thames Water’s attempts to attract new equity investors, the people familiar said. Both potential equity investors and creditors will carry out due diligence on Thames Water’s business plan before drafting their proposals, they added.
The creditor-led solution, which would include the provision of new equity from debt investors, could both replace or be combined with potential offers of new funds from external parties, the people said. They added that the proposal could help the company avoid prolonged special administration — a type of temporary nationalization.
Thames Water bonds due in 2027 rose after details of the plan were reported, climbing to 73.51 pence.
Thames investors want to avoid nationalization because a prolonged period under government control could mean they recover less of the money they lent. While some MPs from the recently elected Labour Party have argued the case for bringing water companies into public ownership, business and trade secretary Jonathan Reynolds has said he wants to see the issue resolved without government involvement.
The creditor group holds public and private bonds of the operating company Thames Water Utilities Ltd and is led by a committee including institutions such as Apollo Global Management, BlackRock Inc and Elliott Investment Management. A separate group of bank lenders has been working with financial advisor Perella Weinberg Partners, Bloomberg reported in June.
They came together earlier this year after shareholders stopped injecting capital, deeming the company “uninvestible.” Soon after, the utility’s parent company, Kemble Water Finance Limited, fell behind on its payment obligations and defaulted on its debt.
Talks between the company and its creditors kicked off following a draft ruling by UK water regulator Oftwat in July, in which it rejected plans for a 43% bill hike by 2030 and said it wanted to put Thames Water into a special regulatory regime.
Last week, Thames said it will have to raise bills by as much as 59% by the end of the decade and that the cuts proposed by the regulator will prevent it from raising much needed equity.
Any rescue plan for Thames Water — whether from new equity investors or existing creditors — will have to be negotiated with the regulator to find acceptable terms for all parties, the people familiar said.
Some of the company’s bank debt has been trading while talks progress. At the end of July, a £300 million chunk of Class A loans changed hands, following a trade of similar size for Class B liabilities.
(Updates to add more details from fifth paragraph throughout.)
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