Thames Water starts new bid to amend £400 million 7¾% notes due 2019

By Susanna Moon

Chicago, April 27 – Thames Water (Kemble) Finance Ltd. said it canceled the previously announced consent solicitation and will begin a new solicitation for its £400 million of 7¾% notes due 2019.

The notes are guaranteed by Kemble Water Finance Ltd.

The move is based on feedback from key investors, and “the revised proposals are offered in good faith, balancing the offer to restrict interest cover headroom to the benefit of bondholders ... in conjunction with an increase to the debt cap to £900 million and resetting initial investors to the current shareholders,” according to a company press release.

The company said it is “maintaining its strong and long track record of constructive relationships with its debt investors and appreciates the feedback received.”

A meeting for bondholders has been set for May 19 in London.

Bondholders who would like to vote but do not want to attend the meeting must do so by noon ET on May 15.

Since the bonds were issued, there have been amendments to legislation and regulation that have affected Thames Water Utilities Ltd., which is Kemble Water’s key subsidiary, including those related to the Thames Tideway Tunnel Project and the 2014 price review.

Amendments to the project and price review have been previously approved by the creditors of Thames Water Utilities and are being offered through the consent solicitation to bondholders to ensure that the company does not benefit from unintended headroom in the financial covenants, the company said on Monday.

Kemble Water would like to make two additional amendments:

• The debt cap to £900 million from £750 million to provide limited flexibility for the company’s refinancing options, including for a potential closeout of hedging agreements if more fixed-rate debt is issued; and

• Updating the change-of-control language to reflect the fact that the company’s shareholder base has changed since 2011.

Holders who deliver an electronic voting instruction for the measure by noon ET on May 6, the early date, will receive a fee of 37.5 basis points.

Those who vote for the measure after the early deadline will receive 10 bps.

The solicitation will end at noon ET on May 15, with settlement set for May 22.

Previous consent bid

The company began the previous solicitation on April 14.

As previously announced, the Thames Tideway Tunnel will be an independent entity although Thames Water Utilities will collect revenue for it. The proposed covenant change will eliminate the accounting effect of this project.

Under the price review, the company’s regulator, Ofwat, will cease to publish some measures, which will therefore be set to zero, making the covenants unsuitable for their intended purpose.

Amendments relating to these have previously been approved by the creditors of Thames Water Utilities in May 2014 and earlier this month, as previously noted.

Kemble Water Finance also sought to remove the debt cap in the bonds, which “was never intended to be a permanent feature of the capital structure” and to alter the terms covering a change of control “to allow a moderate increase in flexibility surrounding ownership,” reflecting the increased diversity in Kemble Water’s shareholder base since 2011.

Kemble Water said it was considering refinancing its debt. One option is to access the bond markets.

The proposed strategy could conflict with the debt cap, the company noted.

The company said that neither of the amendments would affect the financial covenant protection nor affect Thames Water Utilities’ status as a ring-fenced business. Leverage would still be limited by another covenant.

The bondholder meeting was previously scheduled for 5 a.m. ET on May 6.

Holders who delivered consents by 12 p.m. ET on April 27, the early instruction deadline, would have received a fee of 25 bps.

The fee after that deadline was 10 bps.

Thames Water previously said that if it planned to issue new sterling-denominated notes within three months then it will “look favorably upon” those investors who submitted consents by the early instruction deadline.

The solicitation agents are HSBC Bank plc (+44 207 992 6237 or liability.management@hsbcib.com), Morgan Stanley & Co. International plc (+44 207 677 5040 or liabilitymanagementeurope@morganstanley.com) and Royal Bank of Scotland plc (+44 207 085 5991 or liabilitymanagement@rbs.com). Lucid Issuer Services Ltd. (+44 20 7704 0880 or thameswater@lucid-is.com) is the tabulation agent.

Thames Water (Kemble) Finance is a financing unit of Kemble Water, a holding company for 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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