A group of hedge funds and institutional investors, including Elliott Management and BackRock, holding around £10bn of Thames Water’s debt is preparing to offer the company a temporary £1bn cash injection to stabilise its finances and pave the way for a larger restructuring, according to a report by The Times.
The report cites unnamed City sources as revelling that the full restructuring may not be completed until mid-2024.
Thames Water, which has been grappling with £16.5bn in debt, urgently needs this interim funding, and lenders are expected to charge high interest rates due to the company’s distressed status. Other water companies have also been securing loans at significantly higher rates. In January, Thames raised £575m in bonds at a 7.8% interest rate.
Securing this temporary funding could take two to three months, and it’s seen as crucial for the company’s financial stability.
Earlier this year, Thames Water had hoped for an equity injection from its owners, which include Canadian pension funds and the UK’s university pension scheme USS. The owners had initially pledged £500m and £750m in separate tranches, but declared the business “uninvestable” in March, pulling back on their commitment.
Now, creditors including Elliott and BlackRock are expected to step in to cover the £1.25bn funding gap left by its owners. This move would serve as a precursor to a comprehensive restructuring, which may involve raising funds from new investors and possibly converting part of Thames’s debt into equity. Thames estimates it will need £3.3bn in total to secure its long-term future.
However, potential new investors are unlikely to commit until Ofwat, the water industry regulator, publishes its final decision on how much Thames can charge its customers over the next five years. This crucial ruling, expected in December, will provide clarity on the potential returns investors can expect.
If Thames Water fails to secure refinancing, it could fall into special administration, where an appointed administrator would seek new investors and restructure its debt, with the government stepping in to cover any funding shortfalls in the interim.
The company has arranged court dates in November to potentially secure approval for the additional funding from 75% of its creditors, bypassing the usual requirement for unanimous approval.
