Thames Water’s liquidity dries up

One spurned takeover bid to start: The chief executive of Anglo American has called on potential suitors of the mining company to “pay the right number” as he defended his strategy to sell four major parts of the business in the wake of BHP’s failed takeover attempt.

In today’s newsletter:

• Thames Water: The UK’s very own water-gate

• Belron’s mammoth debt-fuelled dividend

• Citi gets in on private credit

Thames Water’s cash goes down the drain

How do you lose five months of liquidity?

This seemingly metaphysical quandary is a very real concern for Thames Water, its scores of creditors, 16mn customers and British taxpayers who could foot the bill if the country’s largest water utility has to be renationalised.

It all began last Friday, when Thames Water announced it was engaging in a light spot of “contingency planning” to access some cash that lenders were currently holding in reserve. But while the company reiterated it was sticking to a May 2025 liquidity projection it set in July, there was a big catch.

Eagle-eyed readers would have seen that it tweaked the methodology to include what are in effect emergency liquidity facilities that can only be accessed in a default scenario.

Thames might have to take this drastic step if it’s not able to get creditors to play ball, because it would otherwise run out of cash shortly after Christmas.

On Tuesday, DD’s Robert Smith and the FT’s Gill Plimmer revealed this was partly because the utility is burning cash at a faster rate than it expected, piling pressure on Thames days before it has to refinance £530mn of credit lines.

The other shoe then dropped the following day when S&P and Moody’s cut the rating on Thames Water’s £16bn of top-ranking debt by an epic five notches to the equivalent of CCC+, with both agencies citing liquidity concerns.

Even DD’s seasoned credit market readers will be able to think of only a few examples of companies going from investment-grade to triple C in two months.

S&P was clearly unimpressed by Thames Water’s semantics around the May 2025 cash projection: the agency also downgraded its assessment of the utility’s “management and governance” to “negative”, citing “deficiencies in the liquidity risk management”.

The headline of the FT’s Lex column summed up the mood on Thursday: “Thames Water’s credibility is disappearing with its cash.”

Private equity heads to the ATM machine

Some $1tn-plus in deals were struck in 2021 as ultra-low interest rates propelled private equity dealmaking to stratospheric heights.

The industry was left with a brain-crunching hangover as buyout executives spent recent years hearing calls from investors for their cash back and triaging stretched balance sheets after a sharp rise in interest rates.

But cash is starting to trickle back into investors’ pockets even as dealmaking and flotation activity remains lacklustre. The secret? Dividend recapitalisations. This year’s shaping up to be filled with the manoeuvres, in which buyout firms finance a large distribution to investors.

Belron, a windscreen repair company backed by Clayton, Dubilier & Rice, Hellman & Friedman, BlackRock and GIC, is working on what dealmakers say is the largest debt-financed dividend in the history of the $4tn private equity industry.

Belron, which owns the Safelite brand in the US and Autoglass in the UK, is in talks with lenders to raise €8.1bn through new bonds and loans, with €4.4bn earmarked for a dividend to its investors, DD’s Antoine Gara, Eric Platt and Alexandra Heal report.

Other large recent debt-financed payouts include Brookfield-owned railroad Genesee & Wyoming and Blackstone and Warburg Pincus-backed financial technology group IntraFi.

The payouts come at a time when buyout groups have struggled to return cash to their investors because of slow dealmaking activity.

And Belron has emerged as one of the PE industry’s most unique deals.

CD&R bought a 40 per cent stake in the company from Belgium conglomerate D’Ieteren Group at a €3bn valuation in 2018, but cashed out a few years later in a complex deal that valued the windshield repair company at a staggering €21bn. (For more about the mechanics of the deal, read the FT’s deep dive.)

If the deal is completed, investors will have had 35 per cent of their original capital returned through dividends, people familiar with the plans tell DD, and Belron’s debt will nearly double to almost €9bn.

Investors are getting cash back — albeit at the expense of Belron’s balance sheet.

Citi and Apollo team up on private credit push

Partnerships between financial institutions can sometimes lead to unlikely reunions.

When BlackRock agreed to buy Global Infrastructure Partners earlier this year, Larry Fink and GIP chair Adebayo Ogunlesi were brought back together after first working at Credit Suisse in the 1980s.

This week, a similar reunion of sorts played out between Citigroup and Jim Zelter, the co-president of Apollo’s asset management arm, who spent more than a decade at the bank before joining the buyout group in 2006.

On Thursday, Citigroup and Apollo announced they’re teaming up on a $25bn push to lend to private equity groups and lower-rated companies, as the fourth-largest US bank by assets tries to get a foothold in the private credit industry.

The duo plans to finance the $25bn worth of deals over a handful of years, with the hope of investing $5bn in the first 12 months.

While the partnership is one of the biggest between a traditional bank and alternative asset manager, Citi is by no means the first old-school bank to try to get in on the booming business of private credit.

A year ago, Wells Fargo and Centerbridge got together for a $5bn fund to invest in private loans. And in April, Barclays unveiled a partnership with investment group AGL to provide private loans to its clients.

As banks have tried to avoid the riskier corners of the market, asset managers saw an opportunity to chip away at some of the more lucrative parts of the lending business. Now, banks are trying to claw back some of that territory.

Citi’s investment bank had a big coup recently by advising Mars on its $36bn acquisition of snack company Kellanova. But it’s generally lagged behind rivals otherwise.

Getting in on private credit could give the bank the jolt it needs.

Job moves

• Chevron will agree to exclude John Hess, the chief executive of Hess, from its board if required by US regulators in order to get the merger of the two companies approved, said people familiar with the matter.

Smart reads

7-Eleven’s suitor Alain Bouchard, who opened up Couche-Tard’s first convenience store, is technically retired, the FT reports. But as executive chair, he’s a driving force behind the company’s bid for 7-Eleven.

Corporate warcraft Bobby Kotick, the former chief executive of Activision, and Mike Morhaime, the co-founder of Blizzard Entertainment, were an unlikely and unstoppable pair, Bloomberg writes. Then the problems started.

FBI target Shan Xiangshuang’s $10bn buyout group stealthily became one of the biggest investors in Silicon Valley, the FT reveals. Then the FBI caught on.

News round-up

Commerzbank to hold first meeting with UniCredit on Friday (FT)

Workers getting share in windfalls as private equity firms soften image (FT)

Northvolt to be served ‘suspicion of gross manslaughter’ notice over worker death (FT)

SoftBank-backed fantasy sports start-up accused over unlicensed gambling (FT)

FCA chair says he will not quit over whistleblower mishandling (FT)

Stumbling Stellantis sets up new hurdle with effort to replace CEO Tavares (FT)

Rolls-Royce and US rivals enter final stretch to build Britain’s first mini nuclear reactors (FT)