Thames raises holdco debt to delever ringfence

30 November 2018 - 12:00 am UTC

Infrastructure fund-backed Thames Water’s holding company has refinanced GBP 400m of debt at a reduced rate and taken on an additional GBP 250m of debt to lower gearing at the operating company level. 

Thames Water said on Friday (30 November) that Kemble Water Finance Ltd has agreed GBP 190m of new loans maturing in April 2024 and GBP 460m of loans maturing between November 2025 and 2026. The loans, which have been agreed with banks and institutional investors and have an average rate of around 5.2%, are partly being used to repay a GBP 400m public bond maturing in April, Thames Water said. The GBP 400m bond had a rate of 7.75%.

Thames Water’s main shareholders are OMERS (32%), the UK’s Universities Superannuation Scheme (11%), Abu Dhabi Investment Authority (10%) and Kuwait Investment Authority (9%).

Thames Water declined to name the lenders who participated in the refinancing, although Inframation understands AIB was one of the banks.

Aside from repaying the GBP 400m bond, the remaining GBP 250m will be used to reduce gearing at operating company Thames Water Utilities Ltd in line with plans announced earlier this year. Thames Water in August said it plans to reduce gearing to 76.2%. Thames Water Utilities Ltd sits within the ringfence used to calculate its gearing level, while Kemble Water Finance Ltd sits outside it. 

Thames Water in its last annual report said its gearing level – the ratio of net debt on a covenant basis to regulatory capital value (RCV) – was 81.3%. Covenant net debt was GBP 11.140bn, while the RCV was GBP 13.704bn. 

Water companies have been encouraged to reduce gearing by the regulator Ofwat, whose chairman Johnson Cox has expressed concerns about the financial resilience of highly leveraged water companies. Ofwat has also indicated that it will require companies with high gearing to share the benefits of the increased equity returns this results in with customers, by increasing investment or cutting bills.

Thames Water’s refinancing announcement came on the same day ratings agency S&P downgraded Southern Water, which is also seeking to reduce leverage at the operating level by raising debt through a holding company, to B+ from BB-. B+ and BB- are at the higher end of S&P’s non-investment grade ratings.

Southern Water, whose shareholders include JP Morgan, UBS and Hermes, said in October that it is exploring setting up a “Midco” financing group to issue debt that will be used to reduce leverage at the operating level. S&P said that while this is positive for the operating companies the increased leverage at holding company level “increase the risk of a default.”


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