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The Guardian
18-02-2025
- Business
- The Guardian
How will approval of £3bn emergency debt package help Thames Water avoid collapse?
Thames Water has won court approval for up to £3bn in emergency debt that will allow it to avoid collapse – at least in the short-term. The debt package is an important staging post for the utility company, which supplies water and sewage services to nearly a quarter of the UK population, as it seeks to repair its finances. Yet it still has a long way to go before it is out of danger. Thames Water had said that it would run out of cash on 24 March. That outcome would force the government to take over in a special administration regime – a form of temporary nationalisation – in order to keep serving its 16 million customers across London and south-east England. The company said the debt deal, with a host of investors and hedge funds, was the only option for its survival, but it needed court approval. The high court also heard arguments in favour of the government taking control because it could be better for customers, and for a rival deal from a smaller group of investors. Both arguments were rejected. There will be appeals against the decision. If they are denied, then the deal gives Thames Water £1.5bn upfront. It will live on monthly handouts from this pot to keep it going to the end of September. It could then draw on another two slices of £750m that could allow it to survive until May 2026. Before that funding runs out, it must find new equity investors to put up even more money – as much as £7bn more, according to its lenders – to reduce its debt pile and give it enough cash to invest in fixing pipes and drains. Thames Water has received at least four bids from potential new owners. They are understood to include deals led by the hedge fund Covalis Capital, the Scottish supplier Castle Water, and the Hong Kong-based CK Infrastructure. The private equity firm KKR has also been reported to be a possible bidder. The debt deal makes special administration less likely. However, it could still happen if the company fails to come to an agreement with any of the bidders to take ownership. A spokesperson for the Department of the Environment, Food and Rural Affairs said: 'The company remains stable and the government is closely monitoring the situation.' The government could also choose to impose special administration, but it is desperate to avoid that outcome. However, some campaigners and politicians argue that nationalisation is the only way to end the financial turmoil. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion English and Welsh water bills are set by Ofwat, the regulator. In December it granted permission for Thames to raise bills by an average of 35% before inflation over the next five years. The court case will not change that decision. However, there is an added complication: Thames Water has appealed against the water watchdog's determination, arguing that it needs more money to invest. The Competition and Markets Authority will have six months to review Ofwat's decision. The judge who approved the debt deal found it was very likely that Thames Water's creditors would have to pay for the costs of the restructuring – and he would have considered blocking the deal if they did not. However, he wrote that the high court should closely scrutinise whether creditors do in fact take steep losses when deciding on the next stage. The judge said that well over half of the first £1.5bn of equity would go on expensive interest and 'eye-watering' costs, including millions of pounds in fees for legal advisers. The company and the creditors have said the whole way through that those costs would be borne by existing investors when they take a 'haircut' (a loss) on their investments. England's regional water companies were privatised in 1989, in the hope of making services more efficient. Thames Water had no debt at that point. However, under a series of owners, most notably the Australian investment bank Macquarie, its debts soared – reaching about £19bn at the end of last year. Rising interest rates plus inflation-linked debts have meant the costs of repaying those loans have soared. At the same time, the government has started to demand more investment in leaking pipes and drains, amid public anger over sewage spills into rivers and seas.
Yahoo
10-02-2025
- Business
- Yahoo
Thames Water Has Just Two Rescue Bids With Equity Deadline Hours Away
(Bloomberg) -- Today marks the deadline for investors to submit rescue bids for Thames Water but uncertainty over the emergency restructuring of the company is overshadowing the equity raise process. Nice Airport, If You Can Get to It: No Subway, No Highway, No Bridge Sin puente y sin metro: el nuevo aeropuerto de Lima es una debacle The Forgotten French Architect Who Rebuilt Marseille In New Orleans, an Aging Dome Tries to Stay Super How London's Taxi Drivers Navigate the City Without GPS By the end of last week, only Castle Water Ltd. and infrastructure investor Covalis Capital had confirmed their interest, according to people familiar with the matter. The lack of clarity is keeping potential investors like KKR & Co. and CK Infrastructure Holding on the sidelines, the people said, asking not to be named because the talks are private. Thames Water, Castle Water, Covalis, KKR and CKI all declined to comment on the equity raising process. The UK's largest water and sewage company has been looking to raise new equity after its existing shareholders declared the business 'uninvestible.' The utility is set to run out of cash by next month and risks being plunged into special administration — a state-supervised process akin to insolvency for businesses that provide critical services. The judge in charge of a restructuring plan for Thames Water is not expected to come up with a formal decision on a £3 billion ($3.7 billion) emergency loan from senior creditors before Feb. 14. Equity investors are hesitant to commit to a rescue bid until that has been decided, according to the people. Class B debt holders object to the plan, claiming it would effectively allow senior creditors to exert control over the company, and proposed a deal they say is better and cheaper. The current attempt to attract an investor follows a previous round in December that received a lukewarm response. With hours until the second equity raise process is due to expire, the situation could still change. Another uncertainty is whether Thames will decide to go to the Competition and Markets Authority until Feb. 18 to challenge industry regulator Ofwat's decision on how much money companies would be allowed to invest and hike bills over the next five-year period. Both water firms and the government say higher bills are necessary to fund an infrastructure upgrade, following a groundswell of public ire over chronic leaks and sewage spills. Potential Bidders Castle Water, a firm backed by William Pears Group that bought Thames' non-household water and sewerage retail business in 2016, is looking to own a majority stake in the utility, Bloomberg previously reported. It's seeking to ultimately list Thames on the stock exchange. The company made a fully funded offer to inject £4 billion into Thames Water to help turnaround the utility, according to one of the people familiar with the process. William Pears, a financing and real estate company, would help provide some of the funding. The other confirmed submission was a £5 billion bid from Covalis to inject around £1 billion upfront, before raising another £4 billion from asset sales, refinancing and the listing, another person said. The bid involves plans to review Thames' business, which may involve selling assets, before listing the remainder on the stock market, the person added. The government would hold a so-called golden share, granting it additional rights including a seat on the board. Covalis is also looking to bring operational partners on board, including France's Suez. But the rescue bidder has expressed doubts about the feasibility of finding new equity for Thames by April in a letter to the High Court in London, as reported by Bloomberg News on Friday. Covalis, which has also some exposure to the Class B debt, said in the letter that to progress it would need 'significantly more information and greater engagement with Thames Water management than has been provided to date.' Neither the chair or chief executive officer of Thames Water attended the most recent meeting for prospective equity investors, Covalis said in the letter. --With assistance from Lucca de Paoli, Swetha Gopinath and Vinicy Chan. Trump's Tariffs Make Currency Trading Cool Again After Years of Decline The Reason Why This Super Bowl Has So Many Conspiracy Theories Believing in Aliens Derailed This Internet Pioneer's Career. Now He's Facing Prison Orange Juice Makers Are Desperate for a Comeback Business Schools Confront Trump Immigration Policies ©2025 Bloomberg L.P.
