Thames Water has taken the first step in its bid to avoid administration after a High Court judge ruled a plan to secure up to £3 billion in funding could be put to creditors for approval.
The utility, which is England’s biggest water company with about 16 million customers, is in about £16bn of debt and needs £3.3bn over the next five years to keep running.
A court in London was told that some of its creditors had approved a restructuring plan known as the “A plan”, which would provide a loan of up to £3 billion with a 9.75% interest rate.
On Tuesday, Mr Justice Trower ruled the plan could be voted on by creditors. The court was told Thames Water is forecast to run out of money and enter special administration by late March next year if restructuring is not approved.
But a group of secondary creditors have proposed an alternative plan known as the “B plan”, which the court heard would provide the company with the same funding but on better terms and which should be adopted instead.
The ruling does not mean that the “A plan” has been finalised, and the judge said the purpose of the hearing was “emphatically not to consider the merits or fairness of the plan”.
But it means that the scheme can be put to creditors, who will vote on whether to approve it at seven meetings to be held early next year.
If approval is given, a High Court judge will be asked to rubber-stamp the plan at a final hearing, known as a sanctioning hearing, which will be held across four days in early February.
Earlier on Tuesday, Tom Smith KC, for Thames Water Utilities Holdings Ltd (TWUH), one of the companies which form Thames Water Group (TWG), told the court that the “A plan” aimed to provide “additional liquidity to act as a bridge” before a larger restructuring to take place next year.
The plan, drawn up by a cluster of investment giants including BlackRock, Abrdn and M&G, would effectively guarantee Thames Water can keep operating until 2026 by providing £1.5bn of funding, with a further £1.5bn potentially available and payment dates for its debts extended by two years.
The court was told that it had been approved by creditors holding more than 75% of its Class A debt, which is worth about £11.5bn and is the least risky class of bonds in its debt pile.
Mr Smith said in written submissions that TWG’s finances had “deteriorated” because of several factors, including operating “with the oldest water pipes, on average, in the country” and “operating in an area where a larger proportion of properties have a basement”.
He continued that the company’s funds would be “exhausted” by March 24 2025 if the restructuring was not approved, and that it was “critical that the group’s liquidity position is clearly stabilised” before then.
He added that if the group entered special administration, it would likely be sold by July 2026.
TWG owns more than 20,000 miles of water mains and more than 68,000 miles of sewers across London, the Thames Valley and the Home Counties, with approximately 8,000 employees.
It has been at the centre of growing public outrage over the extent of pollution, rising bills, high dividends, and executive pay and bonuses at the UK’s privatised water firms, and Mr Smith said there was a “public interest in having Thames Water on a stable platform”.
The dispute comes as the company faces a decision from regulator Ofwat, expected on Thursday, over whether it can increase bills by 59% over the next five years against current levels.
The watchdog has also said it would appoint an independent monitor to supervise the utility as it attempts a turnaround.
But the “A plan” is opposed by a secondary group of creditors who hold a smaller portion of Thames Water’s debt worth about £750 million, made up of riskier Class B bonds,
Their lawyers told the court that it should consider their alternative “B plan”, which also involves a £3bn loan but with different terms, including an 8% interest rate.
In written submissions, Mark Phillips KC, for the Class B creditors, said that the alternative plan was “clearly more attractive”.
He said the Class B creditors were “sophisticated and responsible financial creditors” who “do not condone precipitous action that may have serious adverse consequences” for TWG, and that Class A creditors would be “holding the group to ransom”.
He said that TWUH “accepts that the Class B proposal offers the group more attractive terms than the A plan”, and that the A plan “unduly restricts the group from seeking the best possible outcome for all of its stakeholders”.
Both plans are now expected to be considered at a further hearing, which is to take place in the week of February 3.
A Thames Water spokesman said: “The board and leadership team remain focused on turning round the business and continue to believe a market-led solution is the best financial and operational outcome for customers, the environment, UK taxpayers and the UK economy.
“We have a robust plan that we are confident delivers on this objective, and this court process is an important step on the path to putting the company back on a stable financial footing.”
