Thames Water 'haircuts' would make life tough for rest of sector, says bank

A leading bank has warned that punitive action against Thames Water might backfire and make it hard for any other utility to raise finance.

Barclays surveyed investors in water sector bonds, who responded that protecting the investment grade rating for Thames' operating company and avoiding “haircuts” or losses for bondholders had to be a priority.

Analysts of Thames' bond structure have suggested losses of up to 40% for bondholders if the utility is nationalised, according to contingency plans drawn up by officials

“Failing to preserve Thames Water’s IG status and exposing the senior opco bondholders to material losses would lead debt investors to question the resilience and the sustainability of the UK water regulatory framework,” said Barclays in a note.

Thames has debts of around £16 billion and its parent company Kemble has already defaulted on interest payments on a portion of its debt 

If bondholders are to take a hit that would come at a time when the sector is seeking between £45 billion and £50 billion by 2020 to fund a massive infrastructure upgrade programme after a surge in sewage discharges across the country.

Barclays said nearly 80 credit and equity institutional investors responded to its survey.