(Bloomberg) -- Debt traders are rushing to secure a piece of the new, super senior debt facility that creditors are set to offer Thames Water in coming months as the beleaguered utility tries to avoid an imminent liquidity crunch.
Dealers at Barclays Plc, Goldman Sachs Group Inc, JPMorgan Chase & Co and Seaport Global Securities LLP are among those who have been bidding for chunks of the emergency funding at a price of around 101 pence on the pound sterling, according to a person familiar with the matter, who spoke on condition of anonymity. That’s a big premium compared with the 97 pence price at which the debt is due to be issued — alongside some additional sweeteners for the funds that will backstop the facility.
The market-making is happening in volumes, with the JPMorgan desk bidding for £100 million ($130 million), the person familiar said. Spokespeople for JPMorgan and Goldman Sachs declined to comment, while representatives of Barclays and Seaport didn’t immediately respond to requests for comment.
Thames Water announced the new financing last Friday. It will consist of an initial tranche of £1.5 billion and will pay annual interest of 9.75%. The company could additionally tap a further £1.5 billion if it decides to appeal against a ruling on price controls — including the rate of return for investors — set to be delivered by regulator Ofwat on Dec. 19.
The new funding was agreed with a group of holders of Thames Water’s more senior Class A debt. The coordinating committee of that creditor group includes Elliott Management Corp, Silver Point Capital, Apollo Global Management, DE Shaw & Co, Diameter Capital Partners, Pacific Investment Management Co, and Sona Asset Management, as previously reported by Bloomberg News.
While there is already a market for it, there are still some steps that Thames Water has to go through before it can issue this new super senior debt.
First, it needs the consent of at least 75% of its creditors by a deadline of Nov. 19. On Friday, it said it had the backing of around 40% of its creditors, representing £6.7 billion of its debt pile. Once it’s passed that threshold, it will seek a court sanction of its new funding proposal with a first hearing expected on Dec. 17.
Throughout the process, the water utility and its group of Class A creditors might face opposition from a competing set of Class B creditors, who have also put forward their own financing proposal for the company. The group, represented by lawyers at Quinn Emanuel Urquhart & Sullivan LLP, pitched new funding of over £1.5 billion to Thames Water with an annual coupon of around 8%.
This group includes funds Polus Capital, Covalis Capital, Zimmer Partners and Castleknight Management, as previously reported by Bloomberg.
Thames Water’s existing Class A debt is trading at a discount, with its euro-denominated bonds due in January 2031 quoted at around 79 cents on Wednesday morning, while the Class B sterling-denominated notes maturing in May 2027 are priced at around 15 pence, according to Bloomberg pricing.
(updates with existing bond pricing in last paragraph.)
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