Thames Water’s creditors plan to inject over £1 billion before the end the year to give the utility a financial lifeline as it attempts to sort out its finances. The City’s sources say that a group of hedge funds, institutions and other financial firms holding around £10 billion in Thames debt believes the company needs an interim cash injection to stabilize it and pave the path for a complete restructuring.
Thames has stated that it only has enough cash for May. Sources say that most of the financing will be in the form loans or bonds, with a “super senior status”, which means the lenders will be the first to receive repayment if the business fails. This could give them a greater say in the final decision on reorganization.
Sources said that they would charge Thames high interest rates on these loans. They cited the “distressed status” of the company and that other water companies had raised debt at much higher interest rates. Thames’ last bond was for £575m at 7.8 percent in January. The interim funding is expected to take between two and three months. Thames has struggled for years to pay off a £16,5 billion debt and has been looking for new cash.
The company was expecting a capital injection from its investors, which included Canadian pension funds, and the British University Pension Scheme USS. Owners had promised to pay in two tranches, each of £500m and £750m. The money promised by the owners did not come as they declared that their business was “uninvestable”, and refused to invest more cash in March.
It is expected that the £1.25bn gap left by the owners will be filled by the possible injection from creditors, including Elliott and BlackRock. This would be the beginning of a major restructuring, which could see Thames raising funds from new investors or converting some of its debt to equity. Thames estimates that it will need about £3.3 billion to be on firmer ground in the future.
It is believed that new investors won’t join the Thames team until the regulator Ofwat has released its final decision on the amount Thames can charge its customers in the next five-year period. This will only be published in December and potential investors will have a clearer idea of the type of return they can expect from Thames.
If Thames does not refinance, it could be placed in a so-called “special administration” where an administrator will try to find new investors, restructure the debt and cover any shortfalls in its operating costs.
Thames has scheduled court dates for November, which could allow its lenders the option of approving the additional funding by only 75 percent of their creditors instead of the normal 100 percent.
Thames Water has declined to comment.
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