Funds including Silver Point Capital and Elliott Management have started carrying out due diligence for a potential equity investment in beleaguered British utility Thames Water.
The investors, which include some of the larger and more senior creditors to the company, have signed a non-disclosure agreement that limits them from trading its debt as they access confidential information, according to people familiar with the matter. The funds want to scrutinize the company more closely as they could either step in as a back-up option to preferred bidder KKR & Co, or co-invest as minority partners, the people said, speaking on condition of anonymity.
About half of Thames Water’s Class A creditor committee — a group representing the broader investor base in the talks — has signed the non-disclosure agreements, they added.
The broader Class A group is represented by Akin Gump Strauss Hauer & Feld LLP and Jefferies Financial Group Inc.
Spokespeople for Thames Water, Elliott, Silver Point and KKR declined to comment.
The interest from the creditors is a positive for Thames Water, Britain’s largest water and sewage firm, which has been seeking new equity investors as part of its efforts to turn around the debt-laden business. Its financial woes have previously forced owners to write down the value of their stakes to zero, while its poor environmental record has earned it hefty fines from England and Wales’ water sector regulator, Ofwat.
The Class A creditors have supported Thames Water as it sought interim funding. They backstopped a £3 billion emergency loan that was approved by UK courts, despite opposition from the more junior Class B creditor group and an opposition lawmaker.
Not all of Thames Water’s creditors, including members of the Class A group, are keen or able to become part-owners of the utility, the people said. While some funds see potential upside in taking an equity stake, others are focused on recovering as much of their original debt as possible in the restructuring.
Late last month, Thames Water selected KKR as its preferred partner in order to finalize a recapitalization, Bloomberg News reported. The private equity firm has now entered the Phase 2 diligence stage of the equity process and its proposal includes a “material impairment” of Class A debt. Any transaction will require discussions with the Class A creditors.
KKR, which has been expanding its investments in infrastructure, doesn’t plan to sell any assets of Thames Water, nor make structural changes if it gets control of the business. Bloomberg News has previously reported that KKR has offered to inject up to £4 billion into Thames Water in return for a majority stake.
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