Holders of hundreds of millions of pounds of obscure debt issued by an entity linked to Thames Water could escape any potential nationalization without a haircut because of former Labour Party leader Jeremy Corbyn.
(Bloomberg) — Holders of hundreds of millions of pounds of obscure debt issued by an entity linked to Thames Water could escape any potential nationalization without a haircut because of former Labour Party leader Jeremy Corbyn.
Britain’s biggest water supplier inserted a clause for about £560 million ($709 million) of outstanding debt that forces the company to repay the money, including accrued interest, immediately if it is taken over by the state. The safeguard was introduced in response to Corbyn’s threat to nationalize the UK’s water companies if he won power in the 2017 election.Â
The clause could prove a headache for management and the government, which is weighing a temporary takeover of the firm, as concerns grow over Thames Water’s debt pile. Some bondholders in the wider debt structure may take a haircut of as much as 25% if the firm enters a so-called special administration regime, Bloomberg Intelligence estimates.
News of the firm’s problems sent bonds issued by junk-rated Thames Water Kemble Finance, a unit that does not have the safeguard and relies on cash from the operating company to service its debt, tumbling. They fell to just over half of their face value on Wednesday.
The four senior secured notes that contain the nationalization clause were issued privately in 2018 and 2019 by Kemble Water Finance. In a prospectus at the time, the issuer cited as a risk factor Corbyn’s election manifesto and a reaffirmation of the policy by a senior politician a few months later.
There’s little to no secondary market for the securities, making pricing difficult to discern. A spokeswoman at Thames Water declined to comment on the potential outcome for these notes, saying that the company does not comment on speculation. Corbyn’s office did not reply to calls and an email seeking a request for comment.Â
Thames Water dropped the nationalization clause in bond documents in subsequent years. The latest prospectus, filed last year, lists a potential nationalization of the company by the opposition party as a risk if it were to come to power in the next national election.Â
Current Labour Party leader Keir Starmer ruled out public ownership of energy companies in 2021.
–With assistance from Giulia Morpurgo and Sujata Rao.
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