Is it good or bad news that hedge funds are having a punt in the debt of Thames Water? The speculators include Elliott Management, a firm with a reputation for being New York’s finest financial bruiser. It is reported to have bought £1bn-worth of Thames’s bonds at steep discounts to face value, effectively betting that writedowns will turn out to be less severe than market prices currently imply.
On balance, the development sounds welcome. First, it suggests hard-nosed investors realise that bondholders will not escape the Thames disaster zone intact. That acceptance of financial reality stands in contrast with the victim mentality being displayed by the Thames chairman, Sir Adrian Montague, who is still whistling the impossible line that the company’s troubles would evaporate if only the regulator, Ofwat, would capitulate and inflate customers’ bills by almost two-thirds.
