The battle for control of Thames Water’s future has deepened after a second group of bondholders tabled a fully underwritten offer to provide £3bn of new debt.
Sky News has learnt that the utility’s class B bondholders submitted a proposal to the company on Thursday morning which aims to trump a rival offer from its class A creditors.
The submission of the class B group’s legally binding agreement sets up a tussle between some of the world’s largest pension funds, hedge funds and insurers for a key role in determining the fate of Britain’s biggest water company.
Thames Water, which has about 16 million customers, is scrambling to avert the threat of insolvency and temporary nationalisation as it seeks a compromise from Ofwat, the industry regulator, over its spending plans for the next five years.
The company’s shareholders have already abandoned plans to inject billions of pounds into it, describing it as uninvestible.
The tabling of the latest proposal will put pressure on Thames to reconsider its public support for a more expensive deal with the class A group, which includes the likes of Silverpoint and Elliott Advisors, the American hedge funds.
One of the members of the class B group said its plan provided Thames Water with “a deliverable and binding offer to address the company’s immediate funding needs”.
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Amid a dispute with the class A debtholders about the relative cost to Thames Water of their proposals, the source said the class B financing would provide “twice the capital at a far lower cost and on more flexible terms”.
They added that it was open to all Class A and Class B holders.
It was unclear whether Thames Water would be able to engage on the class B proposal under the terms of the deal the company has already endorsed with the class A group.
The class B plan has been assembled and financed in less than a fortnight by DC Advisory, the investment bank, and law firms Quinn Emmanuel Urquhart & Sullivan and Sidley Austin.
The Class B debtholders have calculated that Thames Water could save approximately hundreds of millions of pounds in interest payments and fees over a 12-month period if the company switches its backing to their proposal.
Alastair Cochran, Thames Water’s chief financial officer, said last month that the Class B group’s proposals, which include funding lent at an interest rate of 8%, were insufficiently detailed to garner the board’s support.
A separate equity-raising process is being run by bankers at Rothschild, with Sky News revealing last weekend that KKR, the American private equity behemoth, is the latest party to express an interest in a deal.
Any substantial pay packages for Thames Water executives – particularly at one standing on the brink of collapse – arising from the deal would be highly contentious, with the government recently having established an independent review of the industry that will look at far-reaching reforms.
A significant incentive plan would also be controversial given that Thames Water will require forbearance from Ofwat, the industry regulator, in terms of substantial fines and other penalties it is likely to have to pay because of its dire record on sewage leaks and wastage.
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A spokesman for the class B group, whose members include BlackRock, the world’s biggest asset manager, declined to comment.
