Thames Water bondholders submit competitive £3bn funding offer

The battle for control of Thames Water’s future has intensified after a second group of bondholders put forward a fully underwritten bid for £3 billion of new debt.

Sky News has learned that the utility’s Class B bondholders presented the company with a proposal on Thursday morning that aims to outweigh a rival proposal from Class A creditors.

The unveiling of a legally binding Group B agreement sets off a fight between some of the world’s biggest pension funds, hedge funds and insurers for a key role in determining the fate of Britain’s largest water company.

Thames Water, which has about 16 million customers, is struggling to stave off the threat of insolvency and temporary nationalization 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 invest billions of pounds in it, calling it uninvestable.

The latest proposal will force Thames to reconsider its public support for a higher-priced deal with the Class A group, which includes US hedge funds such as Silverpoint and Elliott Advisors.

One member of the Class B group said its plan provided Thames Water with a “feasible and binding proposal to meet the company’s immediate funding needs”.

Amid a dispute with Class A debt holders over the relative value of their proposals to Thames Water, the source said the Class B funding would provide “twice the capital at much lower cost and on more flexible terms”.

They added that it is open to all A and B class holders.

It was unclear whether Thames Water would be able to participate in the Class B offer under the terms of the deal it had already approved with the Class A group.

The Class B plan was put together and funded in less than two weeks by investment bank DC Advisory and law firms Quinn Emmanuel Urquhart & Sullivan and Sidley Austin.

Class B debt holders estimate Thames Water could save around hundreds of millions of pounds in interest and fees over the 12-month period if it goes ahead with their proposal.

Alastair Cochran, chief financial officer of Thames Water, said last month that the group’s Class B proposals, which include funding provided at an interest rate of 8%, were not detailed enough to secure board support.

Rothschild bankers have a separate capital raising process. Sky News reported over the weekend that KKR, the US private equity giant, is the latest party to express interest in a deal.

Any significant pay packages for Thames Water executives – especially for a company on the brink of collapse – arising from the deal will be highly controversial as the government recently commissioned an independent review of the industry which will consider far-reaching reforms.

A significant incentive plan would also be controversial given that Thames Water would seek leniency from Ofwat, the industry regulator, in the form of significant fines and other penalties it would likely have to pay due to its dismal record on wastewater leaks and waste.

A spokesman for the Class B group, which includes BlackRock, the world’s largest asset manager, declined to comment.