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The future of Thames’ waters hangs in balance after KKR, a US private equity company, leaves its £4 billion rescue contract for a problematic utility serving 16 million people in and around London.
The next step for a company struggling under a nearly £20 billion debt mountain is important as it seeks to stem temporary nationalization.
Why did KKR leave?
KKR spent two months evaluating the contract to rescue the Thames water. It had more than 100 people working in and outside the companies working on an intensive due diligence process that included multiple site visits in and around London.
However, they eventually retreated from the process shortly after submitting a formal plan detailing how to maneuver the Thames water turnaround.
According to people close to the debate, KKR executives in New York were concerned about regulations and political uncertainty regarding the UK’s water sector.
People may be attached to range due to continued political interference in the operation of the UK’s largest water operator, people added.
The government’s office over the weekend was not enough between Prime Minister Kiel’s business advisor Varun Chandra and KKR co-founder Henry Kravis.
Thames Water was left to announce the withdrawal of KKR on Tuesday, the same day the government-led review recommended an overhaul of the water sector’s regulatory system.
Will Thames Water lenders step in now?
Thames Water should rely on a backup plan. This is a recapitalization proposal from a senior lender who secured another £3 billion emergency loan in March.
The company’s top-ranked “Class A” debt holders submitted a detailed turnaround plan to Thameswater and sector regulators last week.
Thames Water’s Class A lenders account for more than £17 billion in a debt stack of nearly £20 billion, including US hedge funds such as Elliott Management and UK asset managers such as Aberdeen. Low-Utilities Class B debt and further loans at holding companies are expected to be wiped out in restructuring.
People close to the group show that senior bondholders have a commitment to providing billions of pounds in new equity funds. They will further strengthen the utility balance sheet by amortizing some of their debt.
Although haircuts can range from 25p in pounds, accurate writing depends on the level of concessions to aspects such as fines and fines and other penalties that bondholders can negotiate with OFWAT.
Emergency loans of up to £3 billion should provide sufficient liquidity to last until next year, but utilities must meet certain conditions and continue to raise funds.
Will other bidders return to the table?
In addition to proposals from KKR and creditors, Thameswater received five other reserve stock bids from various infrastructure investors in March.
The utility’s decision to award exclusivity to KKR-ranked rival bidders, such as Hong Kong’s CK infrastructure, is part of Hong Kong’s wider CK Hutchison Group. OFWAT was also frustrated by Thameswater’s decision to freeze other bidders from the process, FT previously reported.
At least one of the previous Gilt bidders is looking for a way back into the process. This is looking for the castle water — a water supplier to businesses — who said Tuesday that it can “support businesses quickly with the funding they need.”
However, it questioned whether it is currently feasible for Thameswater and its advisors to resume the process of referencing stocks. Someone close to the debate said it was “very difficult” to replicate the massive due diligence that KKR and creditors carried out in a sufficient time frame.
Can Thames water be nationalized?
As Thameswater’s presumed savior walks away, speculation is growing as to whether it could become the first water company to fall into a government special administrative power, as the privatization of British and Wales public interests in 1989.
Under this process, the authorities will appoint administrators to handle the utility, and the UK government will provide loans to fund its operations and ensure that the services continue to run. If the water in the Thames was sold to the private sector, the government could recover this money.
Thames Water is already narrowly avoiding slipping into the SAR this year. Without emergency loans from creditors, the utilities predict that their cash balance could drop to £39 million, the FT has previously reported.
The ruling Labour Party has argued that temporary supremacy is not in the interest of taxpayers, but it is under pressure from rivals from both sides of the political spectrum.
Charlie Maynard, a liberal Democrat who led the public interest court challenge to Thames Water, which assumes higher profit debt, said the company has reached the “end of the road” and it’s time for the government to step in.
“Creditors who have accumulated billions of debts to the company should pay to settle this mess,” he said.
Richard Tice, the assistant leader of British reform, said it should wipe out shareholders and bondholders and enter the business with “pounds a day.”
Tice told Commons:
