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A group of Thames Water bondholders has demanded an emergency meeting with the troubled utility’s management, seeking clarity on the situation at the UK’s biggest water supplier after its parent company defaulted on its debt this month.
Thames Water’s lenders have become increasingly nervous after the default by Kemble Water Finance, which has increased the likelihood of writedowns on the utility’s £16bn of debt.
The group, which claims to hold more than £5bn of Thames Water bonds has approached the company requesting a meeting to discuss the crisis, according to a letter seen by the Financial Times.
The letter from the bondholders’ advisers — law firm Akin Gump and investment bank Jefferies — cites “press reports” that they said raised the prospect of a “material impairment” of the debt that they hold.
“We must insist that the company and its advisors make themselves available for a meeting with Akin and Jefferies,” the bondholders’ representatives wrote in the letter sent on Thursday, which was also addressed to Thames Water’s advisers Rothschild and Linklaters.
The letter adds that it is “no longer appropriate or sufficient” for the bondholders to rely on “periodic investor calls” or written responses to questions, instead requesting a meeting with “senior representatives” of Thames Water “within the next week”.
Thames Water declined to comment.
The letter shows that lenders are jockeying for position in a potential debt restructuring of Thames Water, which supplies 16mn customers in London and the surrounding area.
The bondholders describe themselves as the “principal economic stakeholders” in Thames Water, arguing it is “vital” they are involved in decisions “relating to any material actions”, such as new fundraising or a break-up of the group.
Thames Water, which serves a quarter of the population of England and Wales, requires billions of pounds in investment to update its infrastructure. The present crisis has been exacerbated by a stand-off between the pension and sovereign wealth funds that own the business and water regulator Ofwat, over everything from the amount of new money shareholders need to put in to how much customer bills can be increased.
The prospect of impairments to the £16bn of debt issued by the utility has particularly rattled bondholders because it was raised through a “whole-business securitisation”, a financial structure that had been considered to offer high levels of security to bondholders when applied to regulated businesses with strong cash flows.
While the Akin and Jefferies group claims to be “the largest co-ordinated group of operating company creditors”, other advisers have been trying to form rival groups representing separate bondholders.
Law firm Kirkland & Ellis and advisory firm PJT Partners hosted a call for bondholders looking to form a competing group earlier this week, according to three people whose companies attended the call.
Representatives of Assured Guaranty, a US insurer that has the biggest-known exposure to UK water company debt, participated in the rival call, the people said.
Assured Guaranty has £1.66bn of exposure to Thames Water, having written policies that protect bondholders against default, making it the insurer’s second-largest position outside the US.
Assured Guaranty had £10.6bn of UK water company exposure in total on its books at the end of March this year. This exposure has increased by £800mn over the past year, which the company told the Financial Times was primarily because of the “inflation indexing” of the bonds it has insured.
UK water companies including Thames Water have substantial amounts of such inflation-linked debt.
Assured Guaranty declined to comment on whether it had hired Kirkland and PJT, saying “company policy is not to comment on rumours”.
