Thames Water rescue deal talks rumble on interminably but its future remains unclear | Nils Pratley
It is two years since the shareholders of Thames Water threw in the towel, declared the company “uninvestible” and accepted their shares were worthless.Yet the water torture goes on and on.We are now in the ninth month of negotiations between Thames’s senior creditors and the regulator, Ofwat, on a rescue deal – and still an outcome is thought to be weeks away.Monday’s updated sketch of the proposal contained a few new details.The amount of fresh equity that would be injected into Thames has increased from £3.
15bn to £3.35bn.The day-one debt facility has been boosted by a billion pounds to £3.25bn.Ofwat also appears to have insisted creditors underwrite a further £3.
3bn debt facility in case Thames, circa 2028, can’t raise borrowings from the market on commercial terms by then; that precaution is probably wise.But those financial tweaks can be viewed as a standard part of the negotiating cut and thrust when trying to repair a broken balance sheet.The senior creditors opened with an outrageously greedy proposal that they should suffer haircuts of only 20% on their Thames debt.They’ve been beaten back to 30% and told to find a bit more equity and to boost the debt headroom.Fine, but that was always the easy bit, relatively speaking.
The critical stuff is still the euphemistic regulatory “easements” and the on-the-ground operational details.On those fronts, there are at least three reasons why the picture for outsiders, including the poor old customers, remains as clear as a polluted watercourse.First, how much should the creditors have to cough up to be granted a bespoke turnaround regime that would allow Thames to escape normal pollution rules until 2030? We know Thames would pay outstanding fines (one should hope so too) but a critical figure will be the “significant upfront and ringfenced investor and redress commitment”.That sum will cover, in effect, fines that would otherwise be incurred because Thames’ assets are in such a shocking state.By rights, the figure ought to run to hundreds of millions of pounds.
At the moment, though, “significant” is undefined.Second, what are the “minimum expectations and performance targets” that would apply? The creditors can call them “ambitious” but, amid all the talk about “prioritising” spending within the current five-year £20.4bn programme, they haven’t said which projects would be de-prioritised.Which targets are being diluted to make them believable, and to what degree?Third, it’s good to see Ofwat is awake to the risk that some creditors – those who bought their debt at 60p in the pound – could end up making a packet if a turnaround plan, set from a bombed-out base, succeeds.Thus, Monday’s statement mentioned an “excess value share mechanism from the proceeds of any eventual sale of the business”.
Consider that a form of anti-embarrassment clause since it would not look good if the likes of New York hedge fund Elliott Management (among the late arrivers in the debt pack) get fat merely by overseeing an improvement at Thames from bottom of the class to, say, third bottom,But what is the “agreed level” at which customers would get a slice of any financial spoils? The coy phrasing disguises the fact that serious money could – potentially – be at stake if a sale, probably via a stock market listing, is the destination sometime in the early 2030s,And, by the way, we still await a hint of who, among the creditor group, would end up with the biggest ownership stakes, which is not an incidental worry since it probably won’t be the cuddly UK pension funds,The devil remains in the detail, in other words,Up to a point, one can understand the government’s reluctance to tip Thames into special administration, AKA temporary nationalisation.
A process in which an administrator comes under a duty to maximise value for creditors is not risk-free if the aim is to fix the assets as quickly as possible.But any voluntary deal with the creditors has to be seen to put the bite on them credibly and transparently.We’ll reserve judgment until the missing details appear.But Ofwat, even after this drawn-out dance, should not be afraid to say no.Sometimes there isn’t a deal to be done.
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Thames Water rescue deal talks rumble on interminably but its future remains unclear | Nils Pratley
It is two years since the shareholders of Thames Water threw in the towel, declared the company “uninvestible” and accepted their shares were worthless. Yet the water torture goes on and on. We are now in the ninth month of negotiations between Thames’s senior creditors and the regulator, Ofwat, on a rescue deal – and still an outcome is thought to be weeks away.Monday’s updated sketch of the proposal contained a few new details. The amount of fresh equity that would be injected into Thames has increased from £3
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