Rival Thames Water bondholders submit £3bn bailout plan

A second group of Thames Water lenders will this week submit a fully funded £3 billion financing package, which they will claim is cheaper and more secure than a competing bid approved by the company last week.

Sky News has learned that the water company’s Class B bondholders – which reportedly include Aviva, BlackRock and MetLife – will submit a proposal as soon as Tuesday, as the company and its advisers try to prevent what would be among the most significant. bankruptcies in the recent history of British business.

The group is expected to argue that its offer will be significantly cheaper than an offer from Class A (or higher) creditors backed by Thames water at the end of last week, which included £1.5 billion in guaranteed funding and a further £1.5 billion in provisional money.

The Class B group is understood to have calculated that Thames Water could save around £375 million in interest payments and costs over a twelve-month period if it opted for this proposal.

Insiders said they had calculated that the Class A group, which also includes US hedge funds Elliott Advisers and Silverpoint, would earn around £650m in the period.

Thames Water chief executive Chris Weston said last week that the Class B group’s proposals, which included financing at an 8% interest rate, were not sufficiently detailed to gain board support.

The group is likely to counter this on Tuesday by submitting fully developed loan documentation to the company.

Last weekend it emerged that the Class As proposals included a management incentive plan aimed at retaining key executives at Thames Water.

While the details of that structure have yet to be outlined, a person close to the process said it raised questions about a potential conflict of interest about which Thames would need to be transparent.

Substantial pay packages for water company executives – especially if they are on the brink of collapse – would be highly controversial, with the government recently setting up an independent review of the sector that will look at far-reaching reforms.

A significant stimulus plan would also be controversial as Thames Water will require patience from Ofwat, the industry regulator, in the form of significant fines and other penalties that it is likely to have to pay due to its poor track record on sewage leaks and waste.

It was unclear whether the Class B bondholders’ proposals would include a similar incentive package for the company’s management.

While a spokesperson for the Class B group declined to discuss the details of the loan documentation, he said Thames Water was “attempting to lock itself into an extremely expensive short-term loan and ignoring the more affordable financing offers it has received”.

“While it is being positioned as a solution to the company’s problems, in the long term the opposite is true,” they said.

“The predatory interest rates, lender fees and conditions imposed will place the company in greater financial and operational distress and block the potential for a fair, transparent market-based share raise, open to all interested investors.

‘Thames should at least evaluate its options and seek a market-based solution, especially if there is a significantly more affordable £3 billion alternative from long-term investors that could give the country the runway and flexibility it needs to explore the best long-term . term path.”

Thames Water declined to comment.