Thames Water Ltd drew in bumper investor orders by paying a high premium for a new bond, the first such offering by a British water company since an industry blow up earlier this year exposed massive debt piles.
(Bloomberg) — Thames Water Ltd drew in bumper investor orders by paying a high premium for a new bond, the first such offering by a British water company since an industry blow up earlier this year exposed massive debt piles.
The UK’s largest water company raised £300 million ($366 million) in bonds maturing in 2040 at a spread of 320 basis points over gilts, according to a person familiar with the matter. That included a premium for the new issue of about 57 basis points, several times higher than recent sales seen in the market, Bloomberg calculations show.
It forked out to attract investors wary of the highest debt-to-equity ratio of any UK water company. That led to more than £1.5 billion of orders, enabling it to cut pricing slightly from initial guidance. The bond sale was managed solely by Morgan Stanley.
Some investors had made enquiries expressing an interest in new debt from the company, Thames Water said. The proceeds of the bond will be used for refinancing debt maturities and will add to liquidity, but won’t significantly impact its net debt or gearing.
The new offering could be used to replace a €500 million bond maturing next week, which carries a coupon of just 0.19%, Bloomberg Intelligence analyst Paul Vickars said. The new deal priced with an interest rate of 8.25%, showing just how much borrowing costs have risen for UK firms.
Read more: Why Thames Water Almost Buckled Under Its Debts: QuickTake
Thames Water also needs to pay fines to regulators over a failure to invest enough, while much of the debt being inflation-linked has worsened its financial situation.
Thames Water has said it would need the Water Services Regulation Authority, Ofwat, to make significant changes to the rate of returns allowed for regulated water companies in order to deliver on its £18.7 billion business plan to strengthen its finances. That rests on getting £2.5 billion additional equity from shareholders for 2025 to 2030.
Shareholders of UK water companies will have to cough up at least £12 billion, or about a third of the funds needed to finance improvements in coming years, to keep average debt gearing to a targeted level of about 67% in the 2025-30 regulatory period, according to Moody’s Investors Service analysts.
Earlier this week, Bloomberg News reported that Wessex Water Services Finance Plc is considering offering a benchmark-sized bond of at least £250 million ($304 million) in the next few weeks, according to people familiar with the matter.
–With assistance from Paul Cohen.
(Updates with pricing details, Thames Water comments.)
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