Thames Water is seeking High Court approval today for a £3bn emergency loan to keep the troubled utility afloat, in a crucial 48-hours for the company and the industry.
At a hearing at the Royal Courts of Justice before Mr Justice Trower on Tuesday, Thames will present the loan as the first stage of a restructuring plan it says is necessary to avoid running out of cash in the spring.
Two days later on Thursday, regulator Ofwat will reveal its “final determination” on water company five-year business plans and how much they will be permitted to increase consumer bills and what return they can offer investors.
Please use Chrome browser for a more accessible video player
Why are water bills increasing?
It is a crucial moment not just for Thames but for the entire privatised water system, with companies facing increased borrowing costs and pressure to address sewage outflows, climate change and population growth.
Under the restructuring plan, Thames Water’s A-class bondholders will provide a £3bn loan over two and a half years at a rate of 9.75%. The loan would have “super-senior” status, putting it at the front of the queue of the company’s creditors in the event of a default.
The class A bondholders are thought to control up to £12bn of the almost £17bn of net debt at the regulated company level.
Court approval is required as the terms of the loan effectively breach Thames Water’s agreements with its existing creditors by pushing their claims lower down the list of seniority.
Please use Chrome browser for a more accessible video player
August: Water firms face record fines
Should the judge approve the first step, final ratification will come after a meeting of shareholders next month.
Read more: Five charts that explain why water bills are to spike
The move, which requires the support of 75% of creditors, is expected to be opposed by a group of Class B bondholders, holding around £1bn of debt, who say they can offer a similar loan on less expensive terms to the company.
Please use Chrome browser for a more accessible video player
Sept: Thames Water boss can ‘save’ company
Campaigners are expected to gather at the Royal Courts of Justice to oppose the plan, saying the loan will cost £300m a year in interest and fees, and cost Thames Water customers £250 a year.
The company is expected to tell the judge that it has the support of banks that provide financial derivatives alongside the A class creditors, and that it is the first step in a restructuring intended to attract fresh equity.
Under relatively new legislation introduced in 2020, a judge can approve a restructuring plan if it has the support of 75% of all types of creditor, but if not they can consider a “relevant alternative” that leaves none of them worse off.
Thames Water is likely to argue that the alternative to its restructuring plan would be the company falling into the state-managed Special Administration Regime, which would likely see creditors lose money.