Why Read?

• Understand our 6 scenarios for Thames Water: Class A and B haircuts and new equity IRRs within these; probabilities; and uncertainties 
• Understand how we estimate Outcome Delivery Incentive (ODI) penalties and other fines
• Understand long-term capex needs to replenish asset health of Thames Water’s aged infrastructure
• Understand modelling of RPI debt principal accretion and of 60 : 40 cost-sharing between Thames Water and its customers respectively on any cost over-spend vs FY 26-30 totex in Ofwat Final Determination

What’s New?

• Estimated ODI penalties and other fines
• Detailed financial modelling and valuation of 6 scenarios – Thames Water Business Plan (likely basis for CMA appeal); base, bear and bull cases assuming permitted revenue and totex as per Ofwat Final Determination but varying actual totex according to what is needed to deliver mandated Performance Commitments and back-solving for Class A and B haircuts needed to achieve certain new equity IRR targets in line with those typically generated and sought by KKR’s Infrastructure funds; Creditor Solution; Special Administration

Questions Answered

• Does it make sense for KKR to invest equity into Thames Water based on Ofwat’s Final Determination for PR24? What restructuring would KKR need on Thames Water’s Class A debt to make equity investment attractive?
• What recapitalisation transaction structures could make sense for Thames Water’s creditors as an alternative to equity investment from KKR?
• What happens if neither a binding equity investment proposal from KKR nor a suitable alternative recapitalisation transaction structure from creditors is forthcoming? How would special administration play out for creditors?
• How does Thames Water’s Whole Business Securitisation work in terms of: Guarantees, Security and Payment Priorities waterfall? How resilient is Security for TWUF bonds in Special Administration? 
• How return on Regulatory Capital Value (RCV) translates to permitted revenue, P&L, cash flow and valuation. Reconciling DCF and comparables multiples valuations in terms of return on RCV. Challenges to simple bull case around discount to RCV 
• How should KKR and Thames Water creditors look at equity investment and / or debt restructuring taking into account returns on RCV beyond the PR24 2025-30 period given large capex and RCV growth expected over 2025-30?
• Reconciling Thames Water’s IFRS P&L net finance expense with its IFRS cash flow net cash interest paid and same for Regulatory P&L and cash flow. Why is IFRS net cash interest paid so low and why does accurate modelling of RPI debt principal accretion matter significantly for valuing Thames Water?
• What IRRs do KKR’s Infrastructure funds target and what experience does it have in UK water?
• Key due diligence for KKR and for creditors – what long-term capex beyond AMP8 is needed to replenish asset health of Thames Water’s aged infrastructure?
• Comparison of Thames Water to listed UK water utilities (Severn Trent, Pennon Group and United Utilities)