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UTILITIES: Thames Water (THAMES Ba2[N]/NR/NR): Price Action

UTILITIES
  • After a relief rally following the Moody’s downgrade last week, THAMES bonds have been weaker again so far this week.
  • Class A 27s fell more than 1 point yesterday; the new UK Environment Secretary Reed said that Thames will not be nationalised because it “remains financially viable”, towing the line that it’s working on new funding. With new equity investors unlikely to be found as things stand, we expect that stance to change once lack of new money is confirmed. The politics of the situation require that sequence of events before reality is confronted. The government at some point will have to shift its stance once “financially viable” is no longer a defensible position. Given the near inevitability of SAR, timing is important and the earlier the better for bondholders in our view. That will impact the amount of super senior government funding required; better to act sooner before cash runs out.
  • Prices are mixed today, but small lower on average. Bloomberg reports that £300mn of Class A loans and private placements are being offered in the market on behalf of a seller.
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