Thames Water Bondholders Should Beware of Bailout Bluffing
Creditors to the struggling utility are playing hardball with the government, but the threat of administration works both ways.
Bondholders at struggling UK utility Thames Water are in pole position to lead a rescue that would prevent it collapsing into administration. But that doesn’t mean they can push the government around. Both sides have plenty to lose from Thames failing – if anything, the creditors more.
At more than £17 billion ($23 billion), Thames has too much net debt and a £4 billion hole in its investment plan. The solution is clear enough: Write down the existing borrowings to a sustainable level, something like £12 billion net of cash at hand. Then find equity investors to inject several billion pounds to fund the business. US private equity firm KKR & Co. walked away last week after getting a close look at the situation.