Winding Up — UK Budget tax hikes stir concerns among investors

Alessia Argentieri

1 November 2024•4 min read

Winding Up is 9fin's weekly newsletter, incorporating summaries and commentary from our European distressed coverage for the past week. Find out more about what we do for distressed here.

The dreaded UK government Autumn Budget — Labour's first Budget in 14 years — was delivered by Chancellor Rachel Reeves on 30 October, spreading concerns about the new scale of government borrowing.

The Budget features tax rises worth £40bn to fund the NHS and other public services, a £70bn annual increase in public spending and the plan to boost public investment by over £100bn over the next five years.

Some of the measures may also affect wage growth for workers, as businesses will have to absorb the costs of paying higher National Insurance employer contributions and will likely reduce salaries and provide smaller pay rises.

The Office for Budget Responsibility — an independent body that provides economic forecasts for the UK's public finances — said Reeves’s policies would push up inflation by around half a percentage point at their peak. Inflation it is projected to rise to 2.6% in 2025, and then gradually fall back to target.

The OBR also forecasted that the economy would grow by just over 1% this year, rising to 2% in 2025, before falling to around 1.5%, slightly below its estimated potential growth rate.

Following the Budget announcement, ten-year gilt yields hit a one-year high of over 4.5% and finished the day around 10 bps higher at 4.45%.

Meanwhile, in the Eurozone, inflation increased to 2% in October, according to Eurostat flash estimate, meeting the European Central Bank’s target and strengthening the case for a smaller cut in December.

Let’s now take a look at this week’s news…

This week’s news

Essity — The Swedish hygiene products company, had a decent start to 2024 showing a return to organic topline growth in Q3 24, and stable profit margins. Risk remains around its cap stack as bondholders requested repayment of their EMTN notes. That said, in Q3 24 the company had less debt and more liquidity compared to last year, which supports a strong balance sheet. Furthermore, with SEK 78.2bn against SEK 33bn of outstanding bonds in Q3 24, Essity is in a good position to deal with the bondholders’ challenge in the event of a negative outcome.

OQ Chemicals — Lenders to the German chemicals producer are expected to take control of the company through its debt as its sale process fails to find a buyer, sources close told 9fin. One of the sources close said the company had received one bid by the deadline on 15 October but the lenders had rejected it as it did not cover its outstanding debt.

Peach Property — The stressed real estate group has decided to suspend its refinancing negotiations with its largest shareholder, Ares Management, and its bondholders and focus on its equity raise, hoping to resume the discussions after the capital raising is complete.

Thames Water — The distressed water company was presented with rescue financing of up to £3bn by a group of junior noteholders pitched as a cheaper financing cost solution this week. The plan is a counter proposal to a Elliot Management and Silver Point backed plan presented last week by a much larger group of creditors which is looking for early consent votes by 11 November.

Varta — The German car battery manufacturer submitted its restructuring plan to court on Thursday (31 October) after a two week delay due to a reclassification of creditors, sources close told 9fin. The company’s Schuldschein creditors and its syndicated lenders will now be under one class after previously being in two separate classes, they said.