(Bloomberg) -- A group of Thames Water’s creditors including BlackRock Inc. and Elliott Investment Management LP formed a coordination committee as talks kicked off with the struggling utility over options to restructure its debt load, according to people familiar with the matter.
The committee formed last week is part of a larger group of creditors who are being advised by investment bank Jefferies and law firm Akin Gump, said the people, who asked not to be named discussing private information. The broader group holds about £8.5 billion ($10.9 billion) of Thames Water debt.
The coordination group is a sign that talks over Thames Water’s future are likely to heat up now, after more than a year of turmoil for the utility. Surging interest rates in 2022 raised financial pressure on the company, which has about £16 billion of debt, while at the same time outraged public officials and consumers demanded the company spend billions of pounds to fix chronic leaks and sewage spills.
“It’s going to be far from simple and a key question would be whether a high enough reduction on the sums owed can realistically be agreed that would allow Thames Water to survive,” said Alex Jay, a partner and head of insolvency and asset recovery at law firm Stewarts, who’s not involved in the discussions.
Thames Water’s shareholders — which include Ontario Municipal Employees Retirement System and UK pension provider Universities Superannuation Scheme — have refused to put more money into the company. Prices of the utility’s bonds have plunged as it became clear Thames Water would struggle to pay back its debts.
The smaller group of creditors leading the talks consists of 14 firms, among them asset managers and opportunistic credit funds that swooped in to buy the debt on the cheap.
Besides BlackRock and hedge fund firm Elliott, other members include Invesco Ltd., MetLife Inc., Abrdn Plc, Anchorage Capital, Corebridge Financial Inc., D.E. Shaw, Insight Investment, M&G Plc, Pricoa Private Capital, Sona Asset Management, Assured Guaranty Ltd. and Voya Investment Management.
Thames Water, BlackRock, Elliott, Jefferies, Anchorage and Sona Asset Management declined to comment. The other firms didn’t immediately reply to requests for comment.
Britain’s largest water supplier is at risk of running out of money by the end of May next year if it can’t find at least £2.5 billion in new equity. The UK’s water regulator, Ofwat, this month rejected plans for a 43% bill hike by 2030 and said it wanted to put Thames Water into a special regulatory regime.
The company is now looking to engage with creditors to discuss options.
Thames Water, which provides drinking water and sewage services to a quarter of England, including London, asked regulators this week to help it avoid massive fines after it was downgraded to junk by Moody’s Ratings. The downgrade means the company breached the terms of its license, which requires it to maintain investment-grade credit scores from two ratings companies, and it could now face fines of as much as 10% of its revenue.
--With assistance from Jessica Shankleman and Giulia Morpurgo.
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