Thames Water Secures High-Priced Loan to Avoid Insolvency
Thames Water has obtained court approval to borrow up to £3 billion ($3.8 billion) from senior creditors to avert potential insolvency. Despite the loan not being issued yet, investors are eager to acquire the rights to lend to Thames on a "to be issued" basis in the secondary market.
The opportunity to participate in the loan is being sold at a premium of over 112% of face value, significantly higher than prices observed during the trial earlier this month and since Bloomberg's initial report in October.
Thames Water has confirmed the high cost of the debt offered by senior creditors, which was a contentious topic during the trial. Junior creditors and a UK parliament member expressed concerns about the excessive cost of the debt compared to the low risk assumed by lenders.
The rescue loan will rank higher than other bonds and loans issued by the company, minimizing the likelihood of losses in the event Thames enters formal insolvency.
The loan is being issued at a 3% discount, implying a substantial difference between the issuance price and the secondary market trading price. This suggests that Thames may be paying around £225 million more for the rescue loan than it would based on secondary pricing estimates.
"To be issued" quotes at these levels are atypical. For example, fresh first lien funding for the restructuring of Atos SE, a French IT company, was priced at 90 cents on the euro prior to issuance.
Despite acknowledging the high cost of the debt, the judge approved the loan. He reasoned that a special administration, a form of government-managed insolvency, could be equally expensive.