Thames Water debt is being dumped by fund managers for as little as 40p on the pound, in a worrying sign of diminished confidence in Britain’s largest water supplier’s financial position.
According to The Telegraph, these bonds have crashed 20% in value in just two weeks, while six months ago, they were worth as much as 87p on the pound.
Bondholders typically sell on debt for cheap if they lack confidence in the issuer honouring future repayments.
“The market is telling you that there is a high probability that these bonds don’t get repaid,” said one unnamed investor.
Thames Water is £14 billion in the debt hole, with £19 billion in equity- making for a precarious gearing ratio for the supplier of water to London and the Southeast.
Much of the current debt level can be traced back to the period of ownership under Australian bank Macquarie, from which Thames Water's debt grew from £3.2 billion to £10.5 billion.
Thames Water faces renationalisation if it defaults on its debt, with the company suggesting it may need as much as £2.5 billion in additional funding over the next six years to stay afloat.
Also announced today, Thames Water published the results of its tender offer for £500 million 4% notes due on June 2025.
Bondholders agreed to sell back around £185.5 million of these bonds for 96.2% of their original face value, giving them an effective interest rate of 6.93%.
Thames Water offered to buy back these bonds in order to “optimise the company’s debt maturity profile."