Thames Water Rescue Bidder Doubts Sale Process Feasibility

(Bloomberg) -- One of the rescue bidders for Thames Water has written to the High Court in London questioning the feasibility of finding new equity for the beleaguered utility by April.

Covalis Capital LLP is one contender to provide Thames with billions in new equity it needs after its existing shareholders declared the business “uninvestible.” The deadline to bring in another investor is Monday. To progress beyond this would need “significantly more information and greater engagement with Thames Water management than has been provided to date,” Covalis said in the letter obtained by Bloomberg News.

Rothschild & Co. has been trying to find a new owner for Thames Water for months, but the process has been complicated by the firm’s immediate need for liquidity and a restructuring of its debt. 

Neither the chair or chief executive of Thames Water attended the most recent meeting for prospective equity investors, Covalis said in a letter addressed to the court and dated Thursday.

Rothschild, Thames Water and Covalis all declined to comment when contacted by Bloomberg.

Thames has been in court this week waiting to see if a judge will sign off on a loan agreed with a majority of its senior creditors. The company is struggling under more than £16 billion of debt and risks running out of money by the end of March. Without new equity, the company could plunge into special administration — a state-supervised process akin to insolvency designed for bankrupt businesses that provide critical services like water and energy to keep on operating.

Covalis also hit out at the ongoing attempts to restructure the company saying “the current restructuring process is, in our view, an impediment to a timely and material turnaround of the business.”

Senior bondholders need a judge’s permission to lend as much as £3 billion to Thames in order to stave off full blown insolvency. Class B bondholders, which rank below the senior creditors, have objected to the plan and have their own deal they say is better and cheaper for the company. 

Covalis is among the holders of Class B debt as well as a would-be equity investor. It isn’t a party to the trial this week, but it was named in cross-examination of witnesses on Wednesday and asked to address the court as its role was discussed.

At the center of the spat between the Class A and B creditors is an assertion that the senior lenders have structured a rescue bid that effectively allows them to exert control over the company, a concern echoed in Covalis’s letter. The investment firm said it was also worried that the As — including Elliott Management and Silver Point Capital — were running a process to find a new owner of Thames Water outside of the Rothschild process.

At the same time, Thames is expected to end up paying around £200 million to advisers by the middle of this year to find an equity investor and cut its liabilities, a further weight on its finances. Aside from Rothschild, there are also a large number of lawyers and financial advisers working on restructuring the company’s debts, something that will likely drag on into at least the second half of this year.

“We would expect the next phase of the Thames Water/Rothschild equity process to require significant financial outlay by all equity investors,” Covalis said in its letter. “We are therefore concerned to learn that creditors are indicating they are running a separate process to find new equity.”

(Updates with Rothschild declining to comment in paragraph five.)

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