Thames Water - comment

The Class B proposal was submitted to the company last week after finally obtaining commitments from funds within the group. The key difference from the Class A proposal is that it is less expensive with an 8% coupon (vs 9.75%), a 1.25% backstop fee (vs 3.5% and 2%), a 2% OID (vs 3%) and no make whole. ~Per our calculations this translates to c. £300m of savings. 

The Class B proposal incentivizes Class A holders (who are unable to participate in the Class A backstop) to vote by saving them c. 2 points of value which would have been lost to interest and fees. This savings may be insufficient to reach the 25% threshold necessary to block the Class A proposal in a UK Restructuring Plan, which is currently the preferred route by the company.    

The board is currently divided on which proposal to accept, which may delay the release of the Practice Statement Letter and the start of the UK RP scheduled for 17 December. Note also that the deadline for the backstop under the Class A proposal is today, which is also at risk of being delayed.