Southern Water bailed out by owner to stave off debt crunch
Owner Macquarie has agreed to a £655m cash injection as part of a deal that will see Southern Water's senior creditors write off a large chunk of its debt pile.
Existing shareholders and unnamed new investors have also promised to provide a further £245m by the end of the year, which could rise to £545m depending on the outcome of a legal appeal to increase customer bills further.
The maturities on its remaining loans will be pushed out to 2030, giving the company much-needed breathing space on a slew of debt repayments.
The move came after a series of potentially damaging credit rating downgrades raised fresh questions about Southern's precarious financial position and put it at risk of a breach of its licence.
Moody's demoted the company to junk status in November after it was forced to turn to a pack of vulture funds for hundreds of millions of pounds in costly financing.
The new debt came with punishing interest rates approaching 10pc – nearly three times higher than the cost of borrowing assumed for the water industry by regulator Ofwat – and pushed Southern's total borrowings past the £6bn mark.
Southern, which provides water to nearly 5m people in the South East of England, had to seek more expensive, alternative sources of funding after being shunned by mainstream capital markets.
With S&P threatening to also cut Southern's rating to junk status if it failed to raise further funds, the company was at risk of breaching its regulatory licence.
Ofwat requires water suppliers to have investment-grade ratings from at least two of the three global ratings agencies that closely monitor the finances of the world's biggest companies on behalf of investors.
Five-year rescue plan
Macquarie said the new equity and debt package would 'further improve the company's financial resilience in response to the credit rating downgrades of the UK water framework in recent months'.
'This new equity investment will enable Southern Water to fund its investment plan for the next five years, the 2025 to 2030 regulatory period,' it added.
Southern has a convoluted capital structure with its debts stretched across multiple layers.
As part of the financing package, bondholders Ares Management and Westbourne Capital have agreed to reduce the amount of debt at the holding company level from £865mn to £415mn.
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