"Goldman Sachs Facilitates £3 Billion in Thames Water Bond Trades Amid Distressed Debt Buying Surge"

Goldman Sachs Group Inc. has executed approximately £3 billion ($4 billion) in trades of Thames Water bonds throughout September, acting as an intermediary between original investors looking to exit the struggling utility and hedge funds seizing the opportunity to purchase the debt at a discount.

According to dealers at Goldman, hedge funds and distressed investment funds are actively bidding for the debt of the UK’s largest water provider. This trading activity coincides with Thames Water’s discussions with creditors as it seeks to raise equity amid concerns of an impending cash shortfall. Recent downgrades from S&P Global Inc. and Moody’s Ratings reflected these worries, with the firms cutting the company’s Class A debt—considered the safest—by five and six notches respectively, alongside downgrades to its riskier Class B debt.

“The Thames structure remains a focus at Goldman Sachs as risk continues to shift hands post-downgrade,” noted the bank in a client memo. Initially, trading activity centered on Class B debt, but there has been a recent shift towards selling Class A risk as well.

Buyers are showing a preference for more illiquid bonds at lower cash prices, as the price differential between shorter- and longer-dated bonds narrows. This disparity often arises in heavily indebted companies where bonds are issued over varying years and interest rate cycles.

In addition to bond trading, Goldman has also been involved in the trading of Thames Water’s bank debt, with £145 million transacted since April. A spokesperson for Goldman Sachs did not immediately comment on the matter.

S&P has indicated that a debt restructuring and potential default for Thames Water is likely within the next year. The company has stated it does not anticipate equity funds prior to a final decision by the regulator Ofwat, expected no sooner than December 19.

Thames Water is in negotiations with a group of creditors holding £10 billion of its Class A debt to explore options for delaying a potential liquidity crisis. This creditor group includes investors from BlackRock Inc. and Elliott Investment Management, who are working on a strategy to tackle the company’s urgent need for new funding and its unsustainable debt levels.