Senior Creditors Propose £5 Billion Rescue Plan for Thames Water Amid Regulatory Challenges

Senior creditors of Thames Water, including prominent financial institutions, have put forward a £5 billion plan to stabilize the struggling privatized regional utility.

The success of this proposal is largely dependent on the willingness of Ofwat, the regulator for the water industry, to delay any fines and investigations related to the company’s past infractions. Additionally, there are expectations for revising performance targets over the next five years, which include potential penalties for failing to meet those targets.

Last week, the American investment firm KKR abandoned a £4 billion rescue initiative after Ofwat moved to enforce a £123 million fine against Thames Water for pollution violations and prohibited dividend payments.

Reports indicate that KKR withdrew its offer due to overwhelming political and regulatory challenges, alongside public backlash regarding its proposed plans.

Currently, an alternative offer is on the table from a consortium of senior creditors, who collectively hold the majority of Thames’ debt. This group includes super senior creditors who are currently providing the company with £3 billion in bridging loans.

The plan includes injecting £3 billion of equity to establish themselves as new shareholders and raising an additional £2 billion in new debt.

Under this proposal, aimed for a closure around early next year, Thames Water’s net debt of £19.25 billion would be reduced to £13 billion, with the bridging loans being eliminated. Class A creditors would face a write-off of £3.2 billion from their £16 billion exposure, while junior Class B creditors, linked to £1 billion of funding, would be completely wiped out.

With the regulated asset value of Thames projected to reach £23 billion by next year, the company would achieve a debt-to-asset ratio of approximately 57%, allowing for potential refinancing under more favorable terms.

However, the creditors’ plan hinges on ongoing negotiations with Ofwat, which may involve a suspension of regulatory penalties and revising a five-year funding arrangement set earlier this year. Thames Water contends that the current terms would lead to significant future penalties for failing to meet objectives related to environmental standards, sewer pollution, pipeline leakage, and customer service.

The coalition of creditors includes major UK institutions such as Aberdeen, Invesco, and M&G, along with significant international financial firms like BlackRock and Apollo, as well as distressed-debt investment groups such as Elliott and Silver Point Capital.

The creditor group stated, “Our plan aims to transition away from past practices by prioritizing customer needs and enhancing environmental outcomes as quickly as possible.”

Furthermore, they intend to replace the current chairman, Sir Adrian Montague, 77, with Mike McTighe, a seasoned executive recently involved in efforts to acquire The Daily Telegraph. McTighe, 71, reportedly lacks prior water industry experience.

Post Comment