Macquarie shores up Southern with equity injection and debt write down

Macquarie has announced plans to inject up to £1.2bn of new equity into Southern Water, in a demonstration of continued financial commitment.

The payments will come in tranches. The first unconditional payment of £655m will support the ramp up of Southern's AMP8 investment programme during 2025. Another payment of at least £245m is promised (with the potential to be as much as £545m, subject to the decision of the Competition and Markets Authority) by December.

Importantly, debt investors have agreed a write down of their debt from a face value of £865m to £415m. The holdco bondholders have agreed a 100% debt for “equity-like” swap. Lenders to the midco have not taken an impairment but have agreed revised terms and a longer maturity. The remaining debt is being extended to 2030. This debt restructuring is allowing the new equity to flow directly into the operating company rather than to the holdco and midco.

Macquarie has said publicly that it remains committed to Southern Water and the delivery of its investment programme which will improve its environmental outcomes and increase customer satisfaction.

Southern is still appealing its final determination at the CMA, despite being allowed a 53% increase to average bills over the next five years. Macquarie’s funds and its co-investors have already injected £1.65bn of equity into Southern. Together with the additional equity commitments of up to £1.2bn, the total equity investment could be up to £2.85bn, receiving no dividends – and with none planned until 2030.

Following the investor action, Moody's Ratings confirmed the Ba1 corporate family rating and Ba1-PD probability of default rating of Southern Water, and the Ba1 backed and underlying senior secured ratings of SW (Finance) I PLC, the guaranteed finance subsidiary of Southern Water. The outlook on all entities is stable. Previously, ratings were on review for downgrade.