Thames Water's Financial Struggles: December Deadline Looms

Thames Water, the UK's largest water company, needs urgent financial assistance to prevent running out of cash by December. Struggling with nearly £16 billion in debt, the company is seeking new equity and a possible debt restructuring to restore its investment-grade credit rating. Various outcomes, including special administration, are being considered.

Thames Water has issued a warning that it faces running out of cash by the end of December unless it secures approval from creditors to borrow additional funds.

The UK's largest water company is seeking to raise new equity and restructure nearly £16 billion in debt to reduce leverage and regain its investment-grade credit rating. The company breached its licence terms in July after losing two investment grade ratings from Moody's and S&P.

Moody's further downgraded Thames Water deeper into junk territory on Wednesday, marking the second downgrade in two months. The company's goal is to reduce its leverage to around 65% of its regulated asset base (RAB), currently valued at €19 billion, to recover its credit ratings, according to sources familiar with the restructuring talks.

Last week, Thames Water revealed that its creditors must allow it to draw on £380 million in reserves and access £420 million of undrawn committed facilities to avoid running out of money by December. It also has £550 million in undrawn reserve liquidity for potential standstills.

Discussions continue with creditors over an interim liquidity facility of up to £1 billion, with a deal possible within weeks, two sources told Reuters. Potential outcomes include securing up to £3.25 billion in new equity or undergoing a significant debt restructuring.

Thames Water is working with Rothschild and Linklaters and has initiated talks with potential investors. It plans to seek formal equity offers in early November. A company spokesperson referred to previous public statements for more details.

The company's creditors are divided into three groups, each preparing their own business plans and financial analyses. A restructuring might include new equity from third parties or extending existing debt maturities.

If no rescue plan is found, Thames Water could be placed under a special administration regime (SAR) by the government, aimed at maintaining operations. However, this scenario is less favorable for creditors seeking to recover investments.

Special administrators would oversee the company's affairs, aiming for the best outcome for all creditors, and potentially transferring assets to other entities. Court dates are scheduled for November and December for potential deal approvals.

(With inputs from agencies.)