TheChek News Flow

US manager known for aggressive approach bets markets are too pessimistic about potential losses on utility’s debt

US hedge fund Elliott Management has been buying the bonds of troubled British utility company Thames Water, in a bet that markets have grown too pessimistic over the size of losses that investors may have to take on the debt.

Elliott, which manages about $65bn in assets and is known for its aggressive approach to corporate and sovereign debt restructuring, had built a position in the heavily-indebted water company’s bonds at a discount to face value in recent weeks, according to three people with knowledge of the trade.

Thames Water — which supplies 16mn people in London and the surrounding area, or about a quarter of the population of England and Wales — has suffered a sharp drop in its bond prices after its parent company defaulted on its debt earlier this month.

Elliott’s bet is focused on the top-ranking bonds out of more than £16bn of debt within a so-called regulatory ringfence — which surrounds the core utility and means it has to abide by regulatory conditions. Some of these bonds are trading at little over 70 pence in the pound, as investors have grown more nervous about the potential for deep impairments.

One person with knowledge of the position said these levels were lower than Elliott’s worse-case expectations for these bonds, and the hedge fund firm believes the debt could potentially make it out of Thames Water’s present crisis unscathed. Two of the people said that Elliott’s position was relatively small and it was still evaluating whether to build it to a more material holding.

Elliott declined to comment.

Government contingency plans for a potential nationalisation of Thames Water, which has become a focus for public anger over sewage pollution and mistrust of England’s privatised water system, emerged last week.

They mooted that the £15bn of top-ranking bonds could face losses of 5-10 per cent in the event that the utility has to come back under public control. The £1.3bn of so-called class B debt, which is still inside the ringfence but has a lower-ranking claim on the company’s cash flows, could be hit with even deeper 35-40 per cent impairments.

While Elliott has a long record of distressed debt investing, it is best known in the UK for its activist equity bets, including pushing for change at pharmaceuticals group GSK and more recently at Scottish Mortgage Investment Trust.

Elliott is just one of a number of distressed debt investors that have rushed to buy Thames Water’s bonds in the belief that nervous fund managers are selling them for less than they are worth. The hedge fund has stayed clear of bonds at Thames Water’s holding company Kemble, however, which sit outside the regulatory ringfence and are trading at less than 15 pence.

While Elliott is known for its hardball tactics with creditors — for instance seizing an Argentine naval vessel during a protracted tussle with the Latin American nation — British water company legislation restricts the ability of bondholders to seize assets if Thames Water is unable to service its debts.

Instead, in the event of an insolvency, debt in the securitisation is secured on claims from the proceeds of a sale to a suitable owner. Present shareholders, which include the sovereign wealth funds of China and Abu Dhabi, last month declared Thames Water “uninvestable” and backtracked on plans to inject a further £500mn into the business.

These owners, which also include pension funds Omers of Canada and Britain’s USS universities scheme, are in a stand-off with regulator Ofwat over the amount of shareholder equity needed to support the water company, which requires billions of pounds to overhaul its ageing infrastructure, and the size of increases in customer bills that can be imposed.

Thames Water on Monday updated its business plan to increase the amount it plans to spend on its network to combat environmental issues such as sewage spills by £1.1bn to £19.8bn.

Footage of officer calling antisemitism campaigner ‘openly Jewish’ sparks a furore

The Metropolitan Police chief Sir Mark Rowley was embroiled on Monday in a dispute over the treatment of an antisemitism campaigner as pressure mounted on the force over its handling of pro-Palestine protests.

The furore was sparked by a video clip released by the Campaign Against Antisemitism showing a police officer calling its chief executive, Gideon Falter, “openly Jewish” near a pro-Palestine protest in London on April 13. Another officer at the scene said Falter’s presence was “antagonising”.

Former home secretary Suella Braverman, seized on the footage to call for Rowley’s dismissal. Braverman has also renewed her calls for a ban on the protests, which have taken place regularly and largely peacefully since October.

Pro-Palestinian campaigners said the incident was being mis-portrayed and used to delegitimise opposition to Israel’s conduct in Gaza.

Speaking on Sky news on Monday, deputy foreign secretary Andrew Mitchell described the incident as an “appalling episode”. “The home secretary will undoubtedly hold Sir Mark, the Metropolitan Police commissioner, to account for what happened,” he said.

He added that “strategic issues” needed to be resolved by the police over “how we ensure that Jewish people, people of any faith at all, can go about their business in London . . . and not be stopped from walking through the streets of London because of the demonstrations”.

The Met has rowed back on its initial assertion that Jewish people near the protests “must know that their presence is provocative” and were “increasing the likelihood of an altercation”.

However, Dal Babu, a former Met chief superintendent, said on Monday that the full 13-minute footage from the encounter showed officers “bending over backwards” to help Falter. Babu added that had he been at the scene, he would have arrested Falter for “breach of the peace”.  

“The language the Metropolitan Police used was not acceptable but the full picture shows somebody trying to go against the march, attempting to push past police officers and being quite frankly rude and aggressive,” Babu told the BBC’s Today programme.

Ben Jamal, head of the Palestine Solidarity Campaign, which supports the protests, described the encounter as a stunt that was being used “to provoke a banning of marches against Israel’ s genocide”.

The International Court of Justice in January ordered Israel to comply with international law on genocide after South Africa brought a claim alleging the country was committing genocide against Palestinians in its war with Hamas. Israel has denied the allegations as “false and outrageous”.

In its latest statement, the Met said it remained “focused on doing everything possible to ensure Jewish Londoners feel safe in this city”.

It added that it had invited Jewish community leaders, police and crime officials from the London mayor’s office, and members of the House of Lords to a meeting where it would take participants through a range of protest scenarios and “invite direct community feedback to inform and challenge operational plans”.

The Met confirmed that Rowley would on Monday meet senior representatives from the Jewish community including from the London Jewish Forum and Community Security Trust.

The police chief has also been summoned to separate meetings with London mayor Sadiq Khan and policing minister Chris Philp.

Anne Brorhilker, who led investigation into ‘cum-ex’ scandal, accuses judiciary of being too lenient on white-collar crime

The lead prosecutor in Germany’s most notorious tax fraud scandal has announced her immediate resignation, accusing the country’s judiciary of treating high-level white-collar criminals too leniently.

Anne Brorhilker announced on Monday that she was stepping from her role as head of a team of more than 30 prosecutors in Cologne working on the so-called cum-ex probe. The scheme, estimated to have cost German taxpayers more than €10bn, involved complex share-swapping deals used to reclaim dividend tax that was never paid.

“I’ve always put my heart and soul into my job as a criminal prosecutor, but I am not at all satisfied how white-collar crime is being pursued in Germany,” she told German public broadcaster WDR on Monday in an interview, adding that wealthy and well-connected culprits were often able to walk away with fines.

Brorhilker’s investigative work resulted in long prison terms for several senior bankers and lawyers. It also exposed political lobbying that led to questions over potentially illegal interference by German Chancellor Olaf Scholz during his time as mayor of Hamburg. Scholz has repeatedly denied any wrongdoing.

Brorhilker decided not to name Scholz as a suspect but launched a probe — which is continuing — into two of his political confidants and an employee of Hamburg’s tax authority.

Cologne criminal prosecutors are running investigations into about 1,700 suspects in this case, including former executives of Deutsche Bank and former senior lawyers at Freshfields.

On Monday, Brorhilker disclosed that she would join German consumer financial lobby group Finanzwende to head its financial crime unit. Gerhard Schick, a former Green MP who founded Finanzwende, said it was “encouraging” that a successful criminal prosecutor was joining the group, calling the move a “declaration of war against white-collar criminals and their supporters”.

Brorhilker has become known for her hard-nosed investigative approach as she refused to settle cases out of court and arranged for police to raid the headquarters of many well-known banks and professional services companies.

Due to the large number of individual cases and their complex nature, the investigations have been dragging on for years, causing criticism from lawyers who are representing defendants in the cum-ex saga.

Lawyers including those representing Christian Olearius, co-owner of one of Germany’s oldest and most prestigious private banks, MM Warburg, have accused Brorhilker of bias and questioned the sincerity of a lead witness who supported her investigations.

“We regard Anne Brorhilker’s resignation as a step towards the restoration of the rule of law in Germany,” a spokesman for Olearius, who is facing trial in Bonn, told the Financial Times on Monday.

Last year, North Rhine-Westphalia’s justice minister Benjamin Limbach planned to split Brorhilker’s team in two over concerns about the drawn-out process and the need to speed up the investigations. Those plans, however, triggered a public outcry as they were seen as an implicit demotion of Brorhilker. According to people familiar with the matter, she came close to resigning back then.

A spokesman for the Cologne public prosecution office said that Brorhilker’s decision came as a complete surprise. “We are deeply regretting her departure, as she was a highly determined prosecutor” and a key driver of the cum-ex investigations.

The prosecution office, however, remained “well-positioned” and would continue to focus on getting to the bottom of the multiyear tax fraud, he said.

The ministry of justice in North Rhine-Westphalia told the Financial Times that Brorhilker made “extraordinarily outstanding contributions” towards the criminal investigations into cum-ex, adding that her decision to step down was “regrettable”.

The ministry stressed that the state’s law enforcement authorities would not back down in prosecuting the tax fraud.

High costs and concerns over efficacy and side effects limit uptake of first treatment as another nears approval

Pfizer’s Emblaveo to be aimed at some of the most dangerous drug-resistant bacteria

The EU has approved a new antibiotic for serious illnesses such as pneumonia and urinary tract infections, marking a step forward in the drive to combat the growing resistance of “superbugs” to existing drugs.

Emblaveo, marketed in Europe by US pharmaceutical company Pfizer, combines two existing medicines to tackle so-called Gram-negative bacteria that are among the leading drug-resistance threats.

The European Commission is the first authority to approve the treatment, which is likely to be used in a relatively narrow group of serious cases to reduce the risk it will trigger a surge in anti-microbial resistance (AMR).

Health policymakers are trying to provide an incentive to pharma businesses to invest more in dealing with the scourge of pathogen resistance. AMR is already estimated to be linked to 5mn deaths a year worldwide.

“Emblaveo really is going to make a difference. It’s a drug that’s active against [resistant] pathogens that gives us a tool to treat the type of infection that we don’t have good options for now,” said Jay Purdy, Pfizer’s vice-president of global medical affairs, before the announcement.

Infections from multi-drug resistant bacteria cause an estimated 35,000 deaths in the EU every year, according to the European Medicines Agency. The World Health Organization has identified antimicrobial resistance as one of the top 10 global public health threats. By 2030, the global cost in lost gross domestic product could amount to $1tn-$3.4tn a year, according to World Bank estimates.

Emblaveo is the second antibiotic the EU has approved this year, after Exblifep, another treatment for complicated urinary tract infections caused by Gram-negative bacteria which is produced by Germany-based Allecra Therapeutics, was approved last month. It approved four antibiotics in 2020.

The drug will be marketed for use against bacteria that produce enzymes known as Metallo β-lactamases (MBL). Some of these bacteria are listed among the most critical priority pathogens by the WHO. The MBL enzymes break the structure of many existing antibiotics, destroying their efficacy.

People who will receive treatment with Emblaveo will include very frail patients, those with severe infections or with few other treatment options, and those in regions where drug-resistant bacteria are more prevalent, Purdy said.

Emblaveo is a “really interesting combination” to combat drug resistance but there is “scope for improvement” in its antibacterial action, said Chris Schofield, an Oxford university professor and head of chemistry at the Ineos Oxford Institute for antimicrobial research.

He added that Emblaveo’s pricing “will be a key question since some of the resistant bacteria it targets are most prevalent in low- and middle-income countries”.

Developing new antibiotics is often unattractive for pharmaceutical companies, as research and development costs are high but their use is designed to be limited to reduce the risk of the product driving a surge in bacterial resistance.

Emblaveo was developed in partnership with US pharma company AbbVie and with financial support from US and EU public bodies. Purdy said Emblaveo’s use was unlikely to be widespread, reflecting the weak financial incentive for developing antimicrobials.

“You should really save it for those patients that need it, otherwise you build resistance,” he said. “[This means] the return on investment for antibacterials is much lower than other types of drug development.”

Andrea Chiarello, Pfizer’s head of EU government affairs, said drugmakers needed more encouragement to discover new antimicrobials and develop drugs.

As part of pharmaceutical legislation reforms, the commission has proposed incentivising antibiotics by granting companies that develop priority antimicrobials longer exclusivity periods on regulatory data. Such “transfer exclusivity vouchers” could be applied to other drugs in their portfolios.

But Chiarello said the package “was not attractive enough” owing to the limited number of drugs to which it applied. As Emblaveo is a combination of two existing antibiotic treatments, aztreonam and avibactam, it would not qualify as a “priority” drug eligible for a voucher.

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