Pimco Reduces Thames Water Debt

Pimco, the giant bond fund manager, has shed hundreds of millions of pounds of debt from Thames Water as the troubled energy supplier heads towards a private sector rescue deal aimed at averting the threat of temporary nationalization.

Reduction of Debt

Pimco has reduced its exposure to Thames Water’s mountain of debt in recent weeks by selling the majority of its shares to other investors. The company took advantage of a recent rise in the price of Thames Water bonds as optimism grew that the company’s Class A creditors can reach a deal with regulators and the government to keep the company private.

Thames Water’s Debt

The majority of the company’s £20bn debt falls on its Class A group of creditors. Pimco had a role on the lender coordination committee that agreed earlier this year to provide Thames Water with a £3 billion emergency loan to keep the company afloat. The company has already drawn down half of this amount, with the remaining £1.5 billion available to Thames Water subject to a number of conditions that still need to be met.

Avoiding Nationalization

The government is determined to avoid temporary nationalization of Thames Water as Britain’s public finances face huge constraints. Sources close to the process say discussions between Thames Water’s creditors, the company, Ofwat and other regulators have become increasingly conciliatory in recent weeks. Last week, Thames Water and Ofwat announced a further extension of their negotiations, further postponing a possible referral of the company’s next five-year pricing agreement to competition authorities.

Progress in Discussions

A spokesman for the London & Valley Water consortium, which includes Class A creditors, said the announcement reflected "continued progress in developing a sustainable solution that will deliver improvements for Thames Water’s customers, employees and the environment". The group added that they will continue to work expeditiously with all stakeholders to complete discussions and agree the terms of a transaction as quickly as possible to achieve an outcome that is first and foremost in the interests of customers and avoids unnecessary costs, risks and delays of special administration.

Opposition to Creditors’ Plan

CKI Infrastructure, the Hong Kong-based conglomerate, has reiterated its call for the government to nationalize Thames Water, calling the creditors’ plan "a high-risk venture." CKI has already made several attempts to buy the company, although its interest has been criticized by a number of prominent MPs who are skeptical of Chinese ownership of key British infrastructure.