Thames Water - comment

Following the webinar, we were going to liquidate our small 1% position in the Bs, but have not yet had the chance to write it and possibly go short the front end of the As instead, or put on a flattener as discussed with some of you since. So yesterday evening events took over with a Sky News article and were confirmed by Kemble this morning, stating that talks with shareholders to inject cash to pay down the Lloyds loan are failing. To be sure, this is just the first element of discussions and it would have been extraordinarily generous of the shareholders to inject the cash before any reciprocal commitments from the regulator/government. We seem to be seeing a bid for the paper now down at 73p/£ and will be hitting it. Our conclusion from working with K&E on the name was that even though the ultimate break-up of the securitisation vehicle remains unlikely, it hinges on finding over £3bn to be injected behind the considerable A&B debt stack, which will remain uncertain for as long as we don’t have an AMP8 plan. We expect Lloyds to extend the loan, but we think its unlikely there will be a conclusion driving the value of those Bs before 2025.