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Thames Water’s senior creditors have submitted a revised rescue plan to the UK’s water industry regulator, offering to commit up to £6.55bn of debt and £3.35bn of equity in a bid to take over the struggling utility.
The revised offer, which is not binding and has not yet been accepted by Ofwat, also includes a provision that would prevent Thames Water’s largest creditors from selling a “significant proportion” of their stake during AMP8 — the five-year funding period to 2030 — following a successful bid.
Lenders including hedge fund Elliott Management and private capital group Apollo Global Management are locked in negotiations with the regulator as they attempt to take formal ownership of the UK’s largest water provider. The creditors have proposed a new management plan, which could lead to a stock market listing as soon as 2030.
The deal requires agreement with regulators and the government. But Thames Water has described the situation as “complex” and said, at the end of last year, an agreement would “likely take a number of months to conclude”.
Other points to be agreed are operational performance targets and a deal over the environmental fines levied by regulators, which the creditors argue will sap money from the business that would otherwise go towards improving infrastructure. If agreed, the deal would require ratification in the courts next year.
The creditor’s £6.55bn debt figure is made up of £3.25bn that will be made available to Thames Water on day one of their ownership, up from £2.25bn previously proposed, and up to an extra £3.3bn that will be made available to the utility over the funding period.
The new debt would come in addition to £3bn of emergency financing approved last year to prevent Thames from being renationalised under the government’s special administration regime. That facility, of which about £1.5bn has already been drawn, costs the company an interest rate of 9.75 per cent plus other fees and other sweeteners.
Lenders have offered to commit their own long-term debt to Thames Water in order to quell Ofwat’s fears that the utility would not be able to access investment-grade debt markets that would allow it to borrow relatively cheaply to fund much-needed spending. The proposal comes as concerns over the heavily indebted sector have mounted after Assured Guaranty, the UK water sector’s largest financial insurer, refused to back financing efforts by any of the country’s utilities for more than a year.
The increased debt offering would come on top of an equity injection that has been revised upwards to £3.35bn from £3.15bn. Some of the revised details were first reported by Sky News.
Under the terms of the new proposal, Thames Water’s class A creditors would take a 30 per cent writedown on their existing debt, on top of “a write-off in full of the Class B Debt and any subordinated debt or equity held by existing shareholders”.
