Thames Water Kemble Bonds Are Close to Worthless as Board Exits

(Bloomberg) -- The parent company of struggling British water utility Thames Water Ltd. saw its debt plummet to new lows after a wave of directors quit the board ahead of a crucial June 12 ruling. 

The defaulted bonds of Thames Water Kemble Finance Plc, the holding company of Britain’s largest water utility, dropped as low as 5.8 pence on the pound on Tuesday, according to Bloomberg pricing data. 

While the bonds were already trading at extremely low levels after Kemble defaulted on its debt last month, a wave of board resignations has rendered the debt almost worthless.

The board clearout began on Monday afternoon and continued into Tuesday. Yesterday, directors resigned from Thames Water (Kemble) Finance and several quit from Kemble Water Finance Ltd, the two units in the company’s holding structure that contain most of the debt. Today, some of those same directors also left Kemble Water Holdings Ltd, the ultimate parent company, along with Kemble Water Eurobond Plc and Kemble Water Finance Ltd.

The resignations raise the risk that Thames Water will need to be temporarily nationalized if it fails to find new investors after June 12. That’s the date when industry regulator Ofwat is due to publish its assessment of Thames’s next big business plan, which runs to 2030. The heavily indebted utility needs more than £2.5 billion ($3.18 billion) to fund itself. The money is unlikely to come from Kemble, which declared the business plan “uninvestible” before defaulting on its debt. 

However, the government and Ofwat have continued to resist pressure to bring Thames into special administration, insisting it has a wide range of options to find new equity. Ofwat last week told Thames that it was minded to take action against Thames for paying dividends to service Kemble debt last year, which could potentially lead to new fines. 

Consultants at restructuring advisory firm Alvarez & Marsal are working with Kemble as the company starts talks with lenders and bondholders over its debt structure. 

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