Thames Water seeks investor call option for £400 million 7.241% notes

By Wendy Van Sickle

Columbus, Ohio, Nov. 16 – Thames Water Cayman Finance Ltd. announced a consent solicitation for its £400 million of 7.241% unwrapped puttable callable reset bonds due 2058, according to a notice.

The bonds are guaranteed by Thames Water Utilities Ltd., Thames Water Utilities Holdings Ltd., Thames Water Utilities Finance Ltd. and Thames Water Utilities Cayman Finance Holdings Ltd.

The company said it is seeking to amend the securities to add an investor call option as part of a broader strategy to manage its refinancing risk relating to the bonds, which are subject to an interest rate reset on April 9, 2018.

On and from that date, if certain conditions are met, the interest rate may be reset and the bonds acquired from the bondholders and remarketed to new investors. If the conditions are not met, the bonds will be subject to the deemed exercise of an investor put option, following which Thames Water will be required to redeem all the bonds.

Additionally, the bonds are subject to an assignable call option, which grants to the option holder – initially Thames Water Utilities Ltd. – the right to acquire all of the bonds.

The exercise of the assignable call option is one of the conditions to the bonds’ interest rate reset.

Thames Water Utilities Ltd. has granted two "low strike call options" to Morgan Stanley and to RBS, which grant to the option holders the right to take an assignment of the assignable call option.

In order to increase the flexibility of the timing of the interest rate reset procedure, the issuer proposes to amend the terms of the bonds to grant to Morgan Stanley an investor call option, granting Morgan Stanley the right to acquire, prior to the reset/put date, all of the bonds at the investor call option purchase price.

That investor call option purchase price is intended to compensate bondholders for their foregone return on the bonds from settlement of the investor call option to the reset/put date, according to the notice.

Morgan Stanley would not be required to exercise the investor call option, but if it does the issuer and Morgan Stanley may enter into one or more transactions intended to apply a pre-agreed interest rate to the bonds on and from the reset/put date.

Those potential transactions may include a par-for-par exchange of the bonds for new GBP bonds, which would accrue a pre-agreed rate of interest, likely to be similar to the interest rate on the existing bonds, until maturity on April 9, 2058.

Bondholders are being asked to consent to add the investor call option to the terms of the bonds.

If the proposal passes, the issuer will pay an early instruction fee of 15 basis points of the outstanding principal amount held to holders who delivered voting instructions consenting to an extraordinary resolution containing the proposal by 11 a.m. ET on Nov. 28.

Holders who delivered voting instructions after the early deadline would receive the base fee of 5 bps of their outstanding principal amount.

The consent solicitation expires at 11 a.m. ET on Dec. 5.

A bondholders meeting to consider the extraordinary resolution will be held at 4 a.m. ET on Dec. 8 in London.

Payment of early instruction and base fees would occur on Dec. 9.

If the consent solicitation is approved and the issuer and Morgan Stanley decide to proceed with the issuance of new 2058 bonds, then bondholders who submit electronic voting instructions in favor of the proposals and who wish to subscribe for new bonds may receive priority in the allocation of those new bonds.

The issuer said it asked a special committee whose members hold about 40.38% of the bonds to examine the proposals, and that the committee found the proposals acceptable and its members indicated that, subject to client and other approvals, they intend to vote in favor of the proposals.

Morgan Stanley & Co. International plc (+44 207 677 5040 or liabilitymanagementeurope@morganstanley.com) is the solicitation agent.

Lucid Issuer Services Ltd. (+44 20 7704 0880 or thameswater@lucid-is.com) is the tabulation agent.

Thames Water Cayman Finance is a financing unit of Thames Water Utilities, the regulated monopoly provider for water and wastewater services in London and the surrounding areas. It is based in Reading, England.

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