Aggressive US activist fund Elliott Management has reportedly taken a big chunk of Thames Water bonds at knockdown prices in the hope of making a killing from any debt restructuring.
According to weekend reports, Elliot is one of several US hedge fund managers snapping up debts in the beleaguered water utility in hopes any rescue will be at prices way above current market levels.
PM Kier Starmer has already ruled out nationalisation of the capital's water supplier Thames due to the potential cost.
Elliott’s model is to buy stakes in what it sees as underperforming and undervalued assets, force management to take radical action and bank the gains if things pick up.
It famously made billions when it bought near-worthless Argentina bonds and with a protected legal action forced the country to honour them.
According to the Telegraph, Elliott is among a pool of ninety senior creditors planning a rescue.
US asset manager Apollo is also said to be playing a major part in the restructuring plan with DE Shaw, Anchorage Capital, Pricoa and Sona other firms keenly involved.
Thames has several classes of debt in its estimated £15 billion total with all holders expected to have writedown some of their value (take a haircut) in any restructuring.
The hedge funds are seemingly betting that any haircut on the most secure £10 billion senior A debt will not be more than 20%.
Class B holders (£1.6 billion) are looking at much larger writedown or even nothing, but that is reflected in the price of the bonds.
Around £1.7bn of debt issued by Thames parent company Kemble is expected to be worthless, said the report.