THAMES WATER CRISIS SPARKS NEW DEAL – Southern Water secures a deal with a group of hedge funds
Southern Water, which supplies more than 2m homes in the UK, is understood to have now secured a deal with a group of hedge funds, amid concerns over the crisis at Thames Water, after battles to raise fresh funding from the conventional capital markets.
The move caused its debt costs to spiral and it was the trigger for Southern Water to be downgraded again by the global credit ratings agencies that monitor the finances of the world’s biggest companies on behalf of investors.
Last week, S&P lowered its rating on Southern Water Services Ltd to BBB, one level above the rating for junk status. It came just a day after Southern Water Services agreed a premium to borrow £300m from so-called distressed credit funds.
The bond issue came with an interest rate of 7.75pc, a rate which is significantly higher than the cost of borrowing that Ofwat has modelled for the industry over the five-year investment period beginning in 2025.
One City source called it a “huge risk premium” – once other costs and potential penalties are factored in, the annual interest rate will be closer to 10pc.
Debt market experts warn that any company whose debt is above the level that the regulator allows will have to do all to absorb the extra costs.
Southern has said it is looking to borrow up to £4bn over the next five years.
