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A group of Thames Water bondholders have called for an emergency meeting with the troubled utility’s management to seek clarity on the situation at Britain’s largest water supplier after its parent company defaulted on its debts this month.
Thames Water’s lenders have become increasingly nervous following Kemble Water Finance’s default, raising the likelihood of write-downs on the utility’s £16bn debt.
The group, which says it holds more than £5bn worth of Thames Water bonds, has contacted the company and asked for a meeting to discuss the crisis, according to a letter seen by the Financial Times.
The letter from the bondholders’ advisers – law firm Akin Gump and investment bank Jefferies – cites “press reports” that said there was a prospect of a “significant impairment” in the value of the debt they held.
“We must insist that the company and its advisers be available to meet with Akin and Jefferies,” the bondholders’ representatives wrote in the letter sent on Thursday, which was also addressed to Thames Water advisers Rothschild and Linklaters was.
The letter goes on to say that it is “no longer appropriate or sufficient” for bondholders to rely on “regular investor calls” or written responses to questions and instead require a meeting with “senior representatives” of Thames Water “within the next few months.” week”.
Thames Water declined to comment.
The letter shows lenders are jockeying for position in a potential debt restructuring of Thames Water, which serves 16 million customers in and around London.
The bondholders describe themselves as Thames Water’s “key economic stakeholders” and argue that it is “vital” that they are involved in decisions “that relate to material actions”, such as raising new funds or dissolving the bond Group.
Thames Water, which serves a quarter of the population of England and Wales, requires billions of pounds of investment to modernize its infrastructure. The current crisis has been exacerbated by a standoff between the pension and sovereign wealth funds that own the company and the water regulator Ofwat. This involved everything from the amount of new money shareholders would have to invest to the amount of customer bills.
The prospect of impairments on the energy utility’s £16bn of debt has particularly unsettled bondholders because it was raised through a “whole-business securitisation”, a financial structure that, when applied to regulated markets, gives bondholders a high level of exposure Companies with strong cash flow should provide security.
While the Akin and Jefferies group claims to be “the largest coordinated group of operating company creditors,” other advisers have sought to form competing groups representing various bondholders.
Law firm Kirkland & Ellis and consulting firm PJT Partners held a call earlier this week for bondholders looking to form a competing group, according to three people whose companies participated in the call.
Representatives from Assured Guaranty, a U.S. insurer that has the largest known exposure to U.K. water company debt, took part in the competitive call, the people said.
Assured Guaranty has a £1.66 billion exposure to Thames Water and has written policies protecting bondholders from default. This makes Assured Guaranty the insurer’s second largest position outside the US.
Assured Guaranty had exposure to UK water companies totaling £10.6bn on its books at the end of March this year. This risk has increased by £800 million in the past year, which the company told the Financial Times was primarily due to the “inflation indexing” of the bonds it insured.
British water companies, including Thames Water, have significant amounts of such inflation-related debt.
Assured Guaranty declined to comment on whether Kirkland and PJT were hired, saying, “It is company policy not to comment on rumors.”