Thames Water to 'optimise' debt with buyback and new bond offer

Thames Water is offering to buy back its outstanding Class A bonds due in June 2025 in a tender offer intended to “optimise the company’s debt maturity profile”, the debt-ridden utility company stated on Monday.

Concurrently, the supplier of water to London and South England’s water announced its intention to issue new fixed-rate notes with insiders telling Bloomberg that the coupon rate will be 350 basis points above the UK gilt benchmark.

However, Thames Water has not yet confirmed the pricing structure of the new notes.

The tender offer and new issue come amid a concerning time for Thames Water’s debt profile.

Much of the current debt level can be traced back to the period of ownership under Macquarie, from which Thames Water's debt grew from £3.2 billion to £10.5 billion.

The former owner has faced criticism for extracting substantial dividends during its tenure, which arguably contributed to the escalating debt levels.

In 2023, the company's profits plummeted by 54% to £245 million for the half-year ending in September, while its net debt rose by 7% to £14.7 billion, equating to roughly 80% of the company's total assets.

Its valuation reportedly plummeted over the past year too, after the supplier’s second-largest investor wrote down the value of its stake in the company.

To address its precarious financial position, Thames Water secured £750 million in emergency funding from shareholders in 2023, aimed at shoring up the company's balance sheet until 2025, though it fell short of the £1 billion initially sought.

Utilities regulator Ofwat has indicated that Thames Water would require more than just this cash injection for a sustainable turnaround, suggesting the need for additional equity to de-gear the business.