Home Estate Planning Risky debt investors flood into Thames Water debt as regulator plots carve-up

Risky debt investors flood into Thames Water debt as regulator plots carve-up

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American debt investors renowned for taking risky bets on ailing companies’ survival have been buying Thames Water bonds in a punt that London’s water provider will have a better-than-expected turnaround.

Anchorage Capital, which made $2bn (£1.6bn) from buying up swathes of Metro-Goldwyn-Mayer (MGM) debt at a discount when the production company was close to bankruptcy, and King Street, which bought Wework debt when it was in $18bn (£14.2bn) of arrears, have both started picking up Thames Water’s bonds, according to reports.

Thames Water is currently buckling under a £15bn debt pile, and the price of its bonds has collapsed over fears it might go into administration. Last week, some Thames Water bonds changed hands for just 63p on the pound, meaning that a pound’s worth of company debt is worth 37 per cent less than its original price.

Four other funds—Sculptor, Casterbridge, Polus and Sona—are also said to be doing the same after US investment giant Elliot Management emerged as the first firm to gamble on the water company’s survival.

Thames Water’s hopes of recovery continue to be stymied by growing debts, which totalled less than £5bn in 2008. The annual interest bill alone is expected to reach £3bn by 2030.

All six investment firms were approached for comment.

Ofwat plans for break-up of Thames Water

The investors’ positions come as Ofwat, the water regulator, was revealed to be working on rescue plans for Thames Water that include breaking up the supplier’s multiple operations and selling them off to rivals.

The rationale behind the major carve-up is to encourage competition in a bidding process that would maximise value. Rival firms, which include the like of Severn Trent, Southern Water and Wessex Water, are, according to The Sunday Telegraph, interested in putting bids together.

The plans, dubbed Project Telford, is seen to be a favourable outcome among government officials because it would allow the Government to avoid having to take temporary ownership. Doing so would land the taxpayer with a bill that could tip into billions of pounds.

Thames Water declined to comment on the break-up plans. A spokesman for Ofwat said: “Safeguards are in place to ensure that services to customers are protected regardless of issues faced by shareholders of Thames Water.”

Thames Water customers have paid over £500m to fund Super Sewer

Last week, it was also revealed that Thames Water customers will together have paid more than £500m on top of their water bills to fund the new “Super Sewer” set to open next year.

The £4.5bn sewer has been partly funded thanks to a surcharge on the water company’s bills, currently £26 a year for each household. Customers have already paid £430m in the eight years since ground was broken on the project, which will rise to over £540m when it opened in March 2025.

Tideway, the name under which the ‘Super Sewer’ trades, was approached for comment.

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