CMA clarity and upside allows Northumbrian to issue an oversubscribed bond

(by Verity Mitchell)

Northumbrian Water has issued a £300m bond maturing in July 2032, which was around seven times oversubscribed. The bond pays interest of 5.375%, and was issued at a yield equivalent to 120 basis points over Gilts, comfortably inside the initial indicative price of Gilts +140bps.

The timing of the bond issue reflects both clarity and upside from the Competition and Markets Authority’s (CMA) recently-published initial view of its redetermination of Ofwat’s allowed price increases. The CMA has allowed Northumbrian a £57m increase in its total expenditure for 2025-2030, driven primarily by a 26 basis points increase in the WACC to 4.29%. This will increase Northumbrian’s customer bills by a further 1.3%.

Earlier this summer, Northumbrian agreed to a £15.7m enforcement package to address spills from storm overflows, to be borne by shareholders. Northumbrian, according to Ofwat, will still need to underpin its investment programme with additional shareholder contributions but its investors will now be rewarded with a 16% increase in their return on equity, to 5.9% from 5.1%, as proposed by the CMA.