Thames Water and a group of its senior lenders have floated a new split of the planned £2.4 billion in rescue borrowing to win over Pacific Investment Management Co. Pimco holds only the utility's highest-ranking super-senior debt and, according to people familiar with the talks, was worried its position would be diluted because the original plan spread the fresh cash across super-senior creditors and lower-ranking Class A and Class B holders.
Last week, Thames Water also said it is seeking to boost its super-senior borrowing capacity to £5.4 billion to keep the business going.
Under the proposal, the first £600 million would be allocated proportionally among the three creditor groups. The balance of £1.8 billion would then be apportioned, on a pro rata basis, among a broadened group of super-senior investors. For Pimco and other top-tier creditors, that would mean a larger slice of the new money than under the initial approach, said one person, who requested anonymity to discuss private negotiations.
A Pimco spokesperson said the firm had no comment to provide. The London & Valley Water consortium, representing the Class A creditor group, likewise offered no comment. No reply was received from Thames Water to a request for comment.
Why super-senior is popular: it sits first in line for repayment and pays a 9.75% annual coupon, plus extra fees. Bloomberg pricing data shows those facilities trading above face value.
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Fresh funding, if agreed, would give Thames Water enough cash to operate through autumn 2027, buying time for a broader rescue. Class A creditors, including Silver Point Capital, Elliott Investment Management and Farallon Capital Management, have been developing a recapitalization proposal that would put them in control, though it still requires approval from the regulator and from Prime Minister Andy Burnham's newly formed government.
In September, during the Labour Party conference, Burnham said he will look to remove limits on state ownership of the major water companies in England and Wales, potentially paving the way for public ownership. In place of a creditor deal, his administration has been considering options to put Thames Water into special administration, which is a government-supervised insolvency process.
Tensions with junior creditors have begun to ease. On Friday, Thames Water said it had struck a deal with a subset of creditors - among them the Class B group - under which they would back the Class A plan in return for certain terms.
Creditors are scheduled to vote on October 29, although the process could finish earlier if the requisite majority approves it before then. For investors, the tells are pricing on the super-senior facility, any shifts in the regulator's stance, and whether the government moves toward special administration or lets the creditor-led plan run.
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