(Bloomberg) -- Thames Water is offering sweeteners to its most senior creditors in exchange for their support for its plan to raise £3 billion ($3.8 billion) of emergency cash.
The beleaguered utility has modified its restructuring plan and has now offered to pay additional fees to the providers of its interest rate and index swaps, according to a statement by Thames Water on Friday.
With these additional premiums the company is expecting — based on previous discussions — a sufficient majority of its derivatives counterparties to give the green light to its proposal. Without that emergency liquidity, the UK’s largest water provider could run out of cash early next year.
The backing of this group of creditors is key for the company as it looks to win over as many stakeholders as possible ahead of the first court hearing on Tuesday.
“Today’s announcement is yet further demonstration of the support of our creditors and the progress we are making to increase the company’s long-term financial resilience,” Chris Weston, the CEO of Thames Water, said in a statement accompanying the decision.
Thames Water already has the backing of over 75% of the holders of the Class A debt, as well as its currency swaps counterparties, according to the statement.
However, the company’s plan faces the opposition of a group of its more junior Class B creditors, who are pitching their own funding to stabilize the utility.
The swaps counterparties, comprising banks who entered into the contracts with Thames Water before its difficulties arose, organized by hiring lawyers at Simpson Thacher as the crisis at the water firm escalated. Those swap liabilities were valued at around £1.3 billion in March.
Following talks, the company is now offering the interest rate and index swaps providers a fee equal to 0.75% of their exposure in exchange for their support of the plan, the statement said.
On top of that, these providers would also receive a 3% payment, of which half would be paid in cash following the implementation of Thames Water’s plan to boost its cash, and the rest instead settled after a more comprehensive restructuring of the company.
The group will also get an additional 1% fee each year until Thames Water returns to investment grade status. This will accrue and be paid out every six months following a comprehensive recapitalization, the statement said.
Fees aside, the company added additional benefits for the swaps counterparties. For instance, they can add a break clause to their contracts, allowing them to demand repayment before maturity if the company hasn’t received at least two investment grade credit ratings by the end of 2028.
Swaps counterparties will also have the ability to transfer their agreements without the consent of the company following a more holistic restructuring.
--With assistance from Jessica Shankleman and Greg Ritchie.
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