Funds, including Silver Point Capital and Elliott Management, have begun due diligence to make potential equity investments on the Thames waters of the UK utility.
According to people familiar with the matter, these investors, including some of the larger and more senior creditors of the company, have signed a non-public agreement that limits the debt they trade when accessing confidential information. The funds are said to want to review the companies more carefully because they can be used as backup options for preferred bidder KKR&CO, or as co-investment of minority partners, expressed on anonymous terms.
They added.
Akin Gump Strauss Hauer & Feld LLP and Jefferies Financial Group Inc. represent a wider category A group.
A spokesperson for Thames River Water, Elliott, Silver Point and KKR declined to comment.
Creditors’ interest is an active part of the UK’s largest water and sewage company, Thames Water, which has been seeking new stock investors as part of its efforts to reverse its debt business. Its financial difficulties have previously forced owners to write their equity value to zero, while its poor environmental record has been fined by Ofwat, the water regulator in England and Wales.
Class A creditors support Thames waters when seeking temporary funds. Despite opposition from the teenage group of B-class creditors and opposition MPs, they supported the £3 billion emergency loan approved by the British court.
The people say not all Thames Water creditors, including members of Class A Group, are keen or able to become part of the utilities. While some funds see potential upside in obtaining equity equity, others focus on recovering as much of their original debt as possible in the restructuring.
According to Bloomberg News, Thames Water chose KKR as its preferred partner at the end of last month to finalize the recapitalization. Private equity firms have now entered the second phase of diligence in the equity process, with proposals including “significant damage” to Class A debt. Any transaction needs to be discussed with Class A creditors.
KKR has been expanding investment in infrastructure, but does not intend to sell any assets in Thames Water assets, nor does it intend to make structural changes in the presence of control of the business. Bloomberg News has previously reported that KKR has proposed to inject up to £4 billion into the Thames water in exchange for a majority stake.
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