Southern Water seeking debt relief from some creditors - reports

(Sharecast News) - Southern Water is seeking debt relief from some of its creditors, it was reported on Wednesday, as its owner Macquarie Asset Management injected fresh capital into the struggling UK utility. According to Bloomberg, which cited people familiar with the matter, the company had approached creditors holding riskier debt at the holding company level, asking them to accept losses on a portion of their £380m in outstanding loans.

However, creditors were apparently resisting the terms and pushing for better conditions.

The request came as part of a broader effort to stabilise Southern Water's finances, which included £6.7bn in total net debt.

Bloomberg said the firm was raising £900m from shareholders to strengthen its balance sheet, protect its investment-grade credit rating, and avoid financial difficulties similar to those facing Thames Water.

Without at least two high-grade ratings, Southern Water could be in breach of its operating licence.

Fitch Ratings recently removed it from downgrade review after the equity injection was announced, but a further downgrade could trigger regulatory action from Ofwat.

S&P Global Ratings had, however, warned that a downgrade to junk status could occur if the company failed to secure additional funding for near-term debt obligations, including a £75m term loan due next month.

The company also needed to receive a significant portion of Australian fund giant Macquarie's equity commitment by June to maintain stability.

While negotiations over the company's capital structure were progressing more smoothly at lower debt levels, Bloomberg said creditors at the holding company level - who rely on cash distributions from subsidiaries - were being asked to take greater losses.

The UK water sector had faced increased financial pressure following years of regulatory scrutiny and concerns over excessive shareholder payouts, with Thames Water currently undergoing its own debt restructuring to avoid a potential government takeover.

Bloomberg said representatives for Southern Water and Macquarie declined to comment on the ongoing talks.

Reporting by Josh White for Sharecast.com.