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UTILITIES: Thames Water (Baa3[N]): SAR Priced In

UTILITIES
  • With large daily falls post Ofwat’s draft determination THAMES class A bonds now mostly trade in a 63-80 range with some high coupon bonds in the 80-85 range. € bonds are 3-10 points lower in a week.
  • Estimates for class A haircuts under SAR are generally 15-25%. Pricing now implies SAR as a near certainty, or risk of deeper haircuts.
  • Ultimate haircuts will hinge on the discount to RCV post restructuring. Given the gap between Ofwat’s 4.8% allowed and 5.7% that Thames Water sees as necessary to attract capital we expect EV/RCV around 0.85x.
  • Depending on the amount of super senior government emergency funding that could put haircuts in the 10-30% range.
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