Severn Trent Offers First RPI Bonds From a U.K. Water Utility

Severn Trent Plc offered the first retail price index-linked debt from a U.K. water utility to non- professional investors under a multiyear program as companies seek alternatives to traditional corporate debt and bank loans.

“We expect this market will continue to grow,” Chief Financial Officer Mike McKeon said today in a telephone interview. “Investors are looking at these kind of products and issuers are looking for other sources of liquidity. We’re looking at this as a multiyear program.”

Britain’s second-largest water company plans to raise 50 million to 100 million pounds ($157 million) and expects to return to the retail bond market every 12 to 18 months, he said.

Severn Trent’s plan follows a trend of borrowers seeking new areas of funding in the U.K., with National Grid Plc raising 260 million pounds through an RPI-linked bond in September. The U.K. this month began a “funding for lending” plan to spur banks to offer more financing for companies and households as the government struggles to ignite economic growth.

“With the bond markets less liquid and bank-financing markets tough, it is no surprise that U.K. utilities continue to find innovative sources of funding,” Mark Freshney, analyst at Credit Suisse AG (CSGN), wrote in a note today to investors.

Severn Trent’s bonds will pay interest semi-annually at a real rate of 1.3 percent a year, adjusted for changes in the RPI, the Coventry, England-based company said in a statement. Barclays Bank Plc and Investec Bank Plc are acting as joint managers. The offer will be open until about July 4 and the issue is likely to take place on July 11, Severn Trent said.

Capital Intensive

“We’re a heavy capital-intensive business and we’re constantly looking at issuing new bonds and refinancing existing bonds,” McKeon said. “Traditionally we’ve used the wholesale market. We believe we can be successful in this market.”

The company is two years into a five-year plan to invest 2.5 billion pounds repairing and improving its water networks. U.K. water utilities are required to meet expenditure targets set by regulator Ofwat, with the funds coming from customers, whose price caps are also set by the regulator.

To contact the reporter on this story: Kari Lundgren in London at

To contact the editor responsible for this story: Will Kennedy at

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