By Sarah Young and Andres Gonzalez
LONDON (Reuters) – Thames Water, Britain’s biggest water supplier, has lined up a financing lifeline of up to 3 billion pounds ($3.9 billion) to ensure its survival over the next year and beyond.
Here are some facts on what is known about its new lifeline:
WHY DOES THAMES WATER NEED THE MONEY?
Thames Water has been teetering on the brink of collapse since its investors called the company “uninvestible” in March, refusing to pump in new cash as promised, destabilising its finances and putting the government on standby for nationalisation via a special administration regime.
The company blamed the regulator, Ofwat, for not allowing it to increase water bills sufficiently. It warned in September that it was at risk of running out of money by December.
Thames Water is also at the forefront of a public backlash against the water sector as a whole, amid accusations that companies have for decades prioritised profit over the environment, leading to sewage spills and pollution.
HOW MUCH TIME DOES THE DEAL GIVE THAMES WATER?
The new debt package means Thames Water is funded until October 2025, giving it a year to complete a restructuring of its debt and raise the 3.25 billion pounds of new equity over the next five years it says it needs.
The process to attract new investors is already underway but is not due to be completed until January at the earliest, Thames Water’s chief executive said on Friday.
Under the proposed new debt package, Thames Water’s funding could be extended until May 2026 should it decide to appeal Ofwat’s ruling on prices for the next five years.
WHAT ARE THE TERMS AND CONDITIONS
The new debt consists of an initial tranche of 1.5 billion pounds of loans that will rank ahead of existing debt. If the company proceeds with the regulatory appeal, a further 1.5 billion pounds in two tranches of 750 million pounds would be provided.
The creditors who agree to provide the funds will be paid interest of 9.75%, plus the loan will be priced at a 3% discount to face value, which alongside other fees, boosts the yield on the facility further.
The company said that the terms were “comparable to other transactions of this nature for a company in this type of situation” when asked by reporters about the terms.
The funding will be released to Thames Water on a monthly, or on an interim basis, subject to continued satisfaction of conditions which include Thames Water progressing with its effort to recapitalise.
To survive in the long term, it needs to agree with creditors the restructuring of its debt pile, due to stand at 18 billion pounds by the end of March next year, and raise the new equity.
Under the package, the maturities of all Class A and Class B debt, which includes funds such as Elliott and Blackrock, will be extended by two years and its covenant regime will be relaxed for two years to facilitate the recapitalisation. The interest payments on the debt will continue and will not be deferred.
WHAT IS THE APPROVAL PROCESS?
Under the current plan, the package could be finalised by the end of January. Thames Water has booked Dec. 17 for an initial court hearing to start the approval process for the new facility.
Creditors representing about 6.7 billion pounds of secured debt, or about 40% of the group’s total secured debt, have so far agreed to support the deal, and a “substantial” number of creditors are expected to follow suit, according to the company.
Thames Water needs 75% of all classes of debt to approve the new loan package, while it needs 50% of Class A debtholders to back a bridging facility to take it to January which would release cash reserves and undrawn facilities.
(Reporting by Andres Gonzalez and Sarah Young; Editing by Anousha Sakoui and Hugh Lawson)
