Three waters and one mountain of debt

The government's proposed Three Waters reforms amount to shifting a mountain of financial risk onto central government's balance sheet. The entities will be aggressively leveraged, with a backstop Crown support guarantee that S&P views as critical in its ratings assessment. 

The government views distress scenarios as unlikely. 

But it is piling a ton of aggressively leveraged debt onto a globally-novel governance structure.

The pseudonymous Thomas Cranmer goes through it all over at Substack. 

And he also explains a bit of his background.

Before starting on a discussion of the proposed debt financing of Three Waters, I have a disclosure to make: whilst on Substack I am usually writing on topics that interest me based on my general knowledge and experience as a lawyer, in this instance I am writing as a lawyer who has practised as a leveraged finance and restructuring expert for 25+ years - starting in New Zealand at one of our leading law firms and then, for many years in the UK. I’ve acted for borrowers, banks, hedge funds and private equity sponsors putting these deals together and then restructuring them more times than I care to remember. The majority of these deals are in multiple jurisdictions including the US, Europe, MENA and Asia Pacific and cover all manner of sectors including utilities and privatised government assets. I failed at becoming an All Black or a writer so this is my bag.

These are simply my own independent views having reviewed the Department of Internal Affairs Information Memorandum on the debt financing (the Info Memo) and the Standard & Poors’ evaluation report (the S&P report). I have also reviewed the Castalia reports prepared for Communities 4 Local Democracy (C4LD) which first analyzes the proposed reforms, including the financing as it is currently proposed, and then suggests alternative structures.

He knows this stuff. 

He goes through debt restructurings at British water utilities that had been similarly leveraged.

He provides the warnings about heaping this mountain of debt onto untried foundations. 

And I expect that, if this all goes ahead, he'll be providing the "I told you so's." 

[Update: I'd noted some of the problem over at Newsroom a few weeks ago, but Cranmer is far more on top of the detail than I am. This really is his bag.]