Thames Water: Recent Developments

More headlines emerging this week:

• Today Assured Guaranty with $2bn+ in exposure reportedly engaged restructuring advisers and lawyers with other bond holders.

• Barclays published a survey showing that haircuts would cause contagion to other regulated structures; we have seen this point before and it is self-interested from the respondents, but nonetheless does have some validity.

• The government will not want to treat ringfenced bondholders unfairly for these reasons, but politically they cannot be seen to bail out bondholders at the expense of bill payers. We would expect that equity value post restructuring would have to flow to bondholders at least, cushioning the size of the haircut somewhat.

• Reports of Elliott getting involved are probably the most interesting. The reports did say their position is small for now; they are considered a big hitter in this area and won’t shirk a hard fight if necessary. This has probably been the biggest factor in spreads recovering 25-35bp from the wides.