ADVERTISEMENT

Investing

Thames Water’s Junior Creditors Offer at Least £1.5 Billion Loan

By Laura Benitez, Lucca de Paoli, and Giulia Morpurgo
A public information sign from Thames Water Ltd. on protective barriers surrounding water supply works in London, UK, on Monday, July 8, 2024. Thames Water is waiting on a key July 11 ruling from water regulator Ofwat on its next business plan, a decision which will set price controls for water utilities. (Chris Ratcliffe/Bloomberg)

(Bloomberg) -- A group of creditors that holds Thames Water’s riskiest debt is drawing up plans to provide the beleaguered UK utility with a loan of at least £1.5 billion ($1.9 billion) to help it stave off insolvency.

The holders of Class B securities have offered financing that would pay about 8% interest, according to people familiar with the matter, who spoke to Bloomberg on the condition of anonymity. It would rank senior to all of the company’s existing debt, one of the people said.

The creditor group, which includes investment funds, banks and insurers, hired Quinn Emanuel Urquhart & Sullivan LLP for legal advice last week after splitting from a wider set of investors that earlier unified for debt talks, Bloomberg reported. Creditors that hold Class A debt are also preparing a proposal to provide fresh funding, Bloomberg reported earlier.

A spokesperson for Class B bondholders declined to comment.

The emergency loan would buy Thames Water and its creditors time to restructure more than £15 billion of outstanding debt. Without fresh funding, the firm, which serves about a quarter of the UK population, only has enough money to last until May.

Why Customers Will Pay the Bill for UK’s Water Crisis: QuickTake

For the creditors, the loan is a way of protecting their interests and avoiding a government-managed insolvency, which would likely see the value of their debt slashed. The utility is seen as too big to fail, and without new funds it would likely be nationalized temporarily, though politicians aren’t keen to use taxpayer funds to bail out the firm.

Thames Water’s roughly £1.4 billion of Class B debt has been trading at deeply distressed levels, with notes due in 2027 currently quoted at about 14 pence on the pound sterling, according to pricing compiled by Bloomberg. 

Meanwhile, Thames Water and its adviser Rothschild & Co. have also formally kicked off a process to raise £3.25 billion in equity to fix chronic leaks and sewage spills, as well as cope with a growing population and climate change. 

--With assistance from Jessica Shankleman.

(Adds detail on seniority in paragraph 2, adds chart)

©2024 Bloomberg L.P.