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Traders Are Willing to Pay Big Premium for Thames’ Rescue Loan
Thames Water desperately needs cash before the end of March in order to stave off insolvency, and investors are willing to pay over the odds for the opportunity to provide it.
(Bloomberg) -- Thames Water desperately needs cash before the end of March in order to stave off insolvency, and investors are willing to pay over the odds for the opportunity to provide it.
The beleaguered utility won court approval this week to borrow as much as £3 billion ($3.8 billion) from a group of its senior creditors. The loan hasn’t even been made yet, but that hasn’t stopped investors attempting to buy the right to lend the much-needed funding to Thames on a ‘to be issued’ basis in the secondary market.
The opportunity to participate in the loan is being sold at more than 112% of face value, according to people familiar with the pricing. That’s a couple of pence in the pound higher than during the trial earlier this month, and much higher than when Bloomberg first reported the prices in October.
A representative for Thames Water declined to comment.
These ‘to be issued’ deals are not unheard of, but the prices that traders are willing to pay for Thames’ loan are unusually high. The utility, which provides almost a quarter of England’s households with water, said that it would run out of cash before the end of next month without emergency funding.
The high cost of the debt being offered to Thames by its senior creditors was one of the most discussed features of the trial. Junior creditors and a member of UK parliament argued that the cost of the debt was too high for the low level of risk taken by those providing the funding. The rescue loan would sit above other bonds and loans issued by the company, making it highly likely to be repaid if Thames were to fall into a formal insolvency process.
The loan is already being issued at a 3% discount, meaning that the bidding price in the secondary market implies a full 15 pence on the pound difference between the issuance price and what traders are willing to pay for it. All in all, these estimates imply that Thames is paying around £225 million more for the rescue loan than it would have based on the secondary pricing, according to Bloomberg calculations.
Quotes for new money on a ‘to be issued’ basis are not normally seen at these levels. For instance, fresh first lien funding for the restructuring of French IT company Atos SE was pitched at 90 cents on the euro before it was actually issued, Bloomberg reported.
While the judge acknowledged the high cost of the debt, he did allow the loan. In his ruling he said that a special administration — a form of government managed insolvency — would likely be as expensive as the loan.
“The headline price of the new money in this case, the super senior funding, is very, very high,” Judge Thomas Leech said in his Tuesday hearing. “Both the terms of the B Plan and the immediate trading price of the super senior funding suggest that [Thames] might have found better terms in the market from new funders who are not exposed to the plan debt.”
--With assistance from Priscila Azevedo Rocha.
More stories like this are available on bloomberg.com
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First Published:19 Feb 2025, 07:13 PM IST
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