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Macquarie has agreed to inject up to £1.2bn of fresh equity into Southern Water as part of a deal that will result in the debt owed to its holding company lenders being cut by more than half.
As part of the deal Macquarie, Southern’s owner, has committed to invest £655mn of equity initially into the utility — which provides water and sewerage services to 4.7mn customers in the south-east of England.
The Australian investor intends to provide a minimum of £245mn in additional equity by December, a sum that could rise to as much as £545mn.
While Southern’s finances are less fraught than those of Thames Water, the UK’s largest water utility, it has still come under pressure in debt markets over concerns it could breach its covenants.
This year Southern asked bondholders including Ares Management and Australian infrastructure investor Westbourne Capital to write off all of their roughly £370mn of debt, the Financial Times previously reported.
The writedowns were seen as a way to allow new equity to flow directly into the utility’s heavily-indebted operating company, rather than being used to service debt further up the capital structure.
Ares and Westhouse hold debt at Southern’s top holding company level, far away from the utility’s operating assets, making it risky for investors to own.
The writedowns will reduce the amount of debt across Southern’s holding companies from £865mn to £415mn. Bondholders have been given concessions in exchange for accepting writedowns, according to a person familiar with the matter.
The maturities of the remaining debt facilities are being extended to at least September 2030.
In February, Macquarie committed to injecting £900mn of fresh equity into the company, an increase on the £650mn it had promised previously.