Thames Water has won court approval to proceed with the next phase of securing a £3 billion emergency loan, with a hearing to seek approval from creditors scheduled for four days in the first week of February.
The troubled utility told the High Court that without the loan it would run out of cash by March 24 next year and, as a result, would likely be pushed into special administration ( SAR) supported by the government.
River Thames told the court that the loan was provided by a group of Class A creditors, who between them hold around £11.5 billion of the £16 billion of debt held at the operating company level. A further £3.6bn of debt is held at holding company level.
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The emergency loan, which is the first part of a wider restructuring plan, faces opposition from a smaller group of creditors, who account for £750m of around £1.4bn sterling of Class B debt. They risk being wiped out entirely by the company’s plans.
Under the terms of the loan, the maturity date of existing loans will be extended by two years and other creditors will be pushed back into the queue. As a result, the plan requires the support of 75% of all classes of creditors and court approval.
Thames faced protests at the High Court over the costs of its project. Photo: Reuters
Class B shareholders have prepared an alternative loan scheme at a lower rate of 8% which would save the company £158m.
Setting a date for a sanctions hearing in February, Judge Trower said: “The purpose of today’s hearing was not to say whether or not this plan should be sanctioned by the court. Now is not the time to decide whether this proposal is right or whether there is a relevant alternative.”
Thames Water’s lawyer Tom Smith told the court the loan was necessary to give the company breathing space to respond to a final decision from regulator Ofwat, expected on Thursday, on how much it can charge its customers over the next five years.
“This is not in itself a solution to Thames Water Group’s problems, but it will extend liquidity beyond the Ofwat price review period which comes into force in April 2025.…sufficiently so that a restructuring can be carried out in light of this. determination,” Mr. Smith said.
“The company’s position is that if it is unable to bring about this plan, Thames Water Utilities Limited will enter into special administration, and the other securitization companies will enter into administration and insolvency.”
Mark Phillips, acting for the Class B creditors, said the loan proposal “has a chilling effect on the fundraising process” and that the conditions, including a clause to release the second £1.5 billion sterling next June, “effectively holding the company to ransom”.
The emergency loan is offered at an interest rate of 9.75% over two and a half years, plus up to £100 million in fees and charges, and with ‘super-senior’ status, which means he is at the front of the queue for reimbursement. in the event of insolvency.
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Earlier this year, Ofwat said Thames Water could increase its bills by 23%, but the company has since asked to increase them by more than 50% to fund investment in its network and services.
If it secures the loan, Thames Water will then carry out a full recapitalisation, which is likely to include the injection of new equity and a debt-for-equity swap including existing creditors.
Independent analysis commissioned by Thames Water, presented in court documents, shows that if administered under Ofwat’s current proposal, Class A creditors would recover less than 50p per pound.
Even in the best case scenario, assuming Ofwat approves the company’s new business plan, they would stand to lose 15p per pound.