UK’s Southern Water to Get £800 Million Bonds, Debt Extension

(Bloomberg) -- Southern Water, a UK utility that’s trying to stabilize its finances, has secured commitments that could help the firm extend its liquidity runway through to June next year. 

The water provider owned by Macquarie announced on Tuesday it had agreed to £800 million ($1.03 billion) of new money, to be issued in the form of new Class A bonds. It also agreed to a maturity extension for its inflation-linked hedging instruments. 

These moves are part of a broader effort to stabilize the company’s finances. Southern Water has been seeking preserve its investment-grade status — without which it would be in breach of its operating license — and avoid the kind of debt headaches that have plagued Thames Water. The utility said in February it was raising £900 million from its shareholders. 

Southern Water had £6.7 billion of net liabilities, in total, as of last September. Most of it sits at the operating company level, but there is some debt tied to entities that aren’t as connected to the firm’s core assets and operations.

The new debt and the maturity extension outlined on Tuesday helps the company resolve immediate commitments at the operating company level. Incidentally, analysts at S&P Global Ratings previously warned that Southern Water’s credit grade could be cut to junk if it didn’t get an agreement for more cash by the end of March.

Still, negotiations with creditors holding the remaining debt are ongoing. Those commitments were issued out of so-called midco and holdco entities, with the latter being the furthest away from the assets and hence the riskiest. Bloomberg News previously reported that Southern Water asked its creditors at the holding company level to write off a part of their debt, but creditors weren’t happy with the terms.

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