泰晤士水务：债务削减时刻临近

Restricted - External Franck Bataille+33 (0) 14458 3221franck.bataille@barclays.comBBI, ParisParikshit Budhe+ 91 (0) 22 6175 1815parikshit.budhe@barclays.comBarclays, UK FIGURE 2. Thames Water: Class A and Class B haircut estimatesPotential 'Pure' equity injection scenariosClass APotential 'Pure' equity injection scenarios£3.0 bn£4.0 bn£5.0 bn£1.0 bn£2.0 bn£3.0 bn£4.0 bn£5.0 bn46%0%0%Gearingscenario80%9%3%0%0%0%100%100%48%70%22%16%10%3%0%100%100%100%60%35%29%22%16%10%100%100%100%55%42%35%29%23%16%Note: Class B debt is junior to Class A debt, super senior facility and derivatives. We are assuming that Class B debt are fully impaired before Class A debt gets impacted.According to the article inThe Times, the preferred partner would consider injecting £2.0bn ofnew equity while targeting a gearing ratio of around 60% (versus almost 100% today; Figure 1)in order to regain an IG status post restructuring and to turnaround the business.This would translate into a £6bn debt haircut, but existing creditors could become co-equityinvestors for up to 50% economic ownership of Thames, taking the total equity injection toabout £4.0bn. According to the article, creditors would only be able to swap part of their debt toequity with no voting rights, as the preferred partner would intend to create a two-tier shareclass structure in order to keep 100% of the voting rights.That said,The Timesreports that these equity co-investors would potentially get an exit whenthe business turnaround is completed and the company is floated on the stock exchangearound the time of next regulatory period in 2035.As detailed in Thames Water: Spring cleaning, 1 April 2025, potential haircuts on Class B andClass A (Figure 2) debt will mainly depend on the targeted leverage level to regain IG status andon the equity injection amount.For context, as detailed in UK Water: Rethinking the ownership model and capital structure, 20March 2025, we consider that recent sector reviews from rating agencies, Ofwat's move towards 2 a more conservative approach, as well as the ongoing review from the Independent WaterCommission are leading to less tolerance for leverage and financial complexity (UK Water: Alleyes on HoldCo/MidCo debt, 15 May 2025) than historically. As a result, among other financialparameters, we see a gearing ratio (net debt/RCV) between 55% (Ofwat's notional target) and70% (maximum level "to meet the requirement of maintaining long-term financial resilience”,according to Ofwat's recent statements)as required to ensure a mid-BBB positioning over theAMP-8 cycle.As a result, we consider the 60% gearing target reported byThe Timesas a reasonable andsound objective for Thames Water post restructuring. Based on our estimates in the abovetable, this gearing target associated with a "pure" (ie,. not on a debt to equity conversionformat) equity injection of £2bn would lead to the full write-down of Class B debt and a haircutof c. 30% on Class A debt, for an overall amount of c. £5.5bn. Our estimates, however, do notaccount any potential upside, if any, coming from the equity exit value post debt-to-equityconversion.Overall, the restructuring scenario reported byThe Timestoday is less investor-friendlythan what was reported in some previous articles (eg, Bloomberg reported in February2025 that the preferred partner wouldofferto inject £4bn). In the current context, wewould expect a fairly muted but still slightly negative price impact on Thames Water'sClass-A bonds today.That said, we reiterate our Market Weight rating on Thames Water, reflecting the alreadymaterial price decline in Class A bonds (Figure 3), but also uncertainties and headwindsfacing the company in the next few months (notably its ability to raise new equity and therelated potential debt haircut, as well as the evolution of Ofwat's stance in terms oftargets and potential penalties).FIGURE 3. Thames Water Class A yield (Y-axis) versus cash price (X-axis)Source: Bloomberg, Barclays Research 3 FIGURE 4. UK Water: sector premium evolutionFIGURE 5. UK Water within the GBP Universe050100150200250300350bp£ IG Other Utility£-IG ex Other Util£ IG Other Utility ex THAMES, SWSFINSource: Bloomberg, Barclays ResearchSector read-across: still exposed to several movingpartsAlthough the Final Determination (FD) put an end to contagion risk within the broader sector(Figure 5) and led to some improved rating visibility, we do not expect the UK Water sector toregain a defensive premium (Figure 4) anytime soon.Indeed, the record high level of CMA appeals (six out of 16 companies), risk of further negativerating actions on some names, as well as uncertainties around Thames Water and SouthernWater will continue to fuel volatile newsflow that may weigh on investor sentiment across theUK Water landscape.In addition, the Independent Water Commission, whose recommendations should be madepublic in the coming weeks, may recommend more profound changes to ownership and capitalstructure within the model, whi