Thames Water has won court approval for an emergency debt package worth up to £3bn that should stave off the collapse of Britain’s biggest water company for at least another few months.
London’s high court said on Tuesday the deal could proceed, after hearing four days of complex arguments earlier this month over whether it should go ahead.
Thames, which has 16 million customers and 8,000 employees, has been on the verge of collapse for months, with debts of about £19bn. The financial difficulties have contributed to underinvestment in the pipes and drains needed to prevent sewage overflows into rivers and seas.
The deal will give Thames £1.5bn in cash, released monthly, plus up to £1.5bn more to see it through an appeal to try to increase bills by more than the 35% allowed by the industry regulator for England and Wales, Ofwat. On Friday, Thames announced the appeal, to be decided by the Competition and Markets Authority (CMA), as it awaited the court judgment.
Thames had argued in court that it would run out of money on 24 March if the emergency debt deal did not go through. It will still have to raise billions of pounds of additional equity to repair its finances over the longer term. The company last week said it was considering several bids from unnamed parties.
Adrian Montague, the chair of Thames Water’s board, said: “The court’s approval of the company plan marks a significant milestone for Thames Water, enabling us to proceed with the implementation of the liquidity extension transaction.
“Its implementation is a key step in strengthening our long-term financial resilience and will allow us to continue progressing the equity raise process and a holistic recapitalisation transaction as well as complete the CMA appeal process. Critically, it enables the management team to continue progressing the turnaround.”
The company said the first £1.5bn would give it enough cash to continue operating until September, with the extra £1.5bn allowing it to continue until May 2026 if required during the CMA review.
While the company had argued in favour of the deal, it also faced opposition in court. The Liberal Democrat MP Charlie Maynard was allowed to intervene in the case to argue that the interests of consumers would be better served by placing the company into special administration, essentially temporary nationalisation. He argued that that would limit the outflow of cash on expensive fees and interest charges.
The case had also pitted two groups of existing creditors against each other as each argued that its offer was the better.
One group, holding almost £12bn of class A debt, included investors such as Abrdn and Insight Investment as well as hedge funds and other investors in distressed companies such as Elliott and Silver Point. The other, smaller group, holding class B debt, included the hedge funds Polus Capital and Covalis Capital.
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The class A group has been the effective owner of Thames after the previous investors walked away. However, the class A offer has been criticised for an expensive interest rate of 9.75%. The class B offer was at a cheaper 8%, but it has faced persistent questions over whether it will actually be able to put up the money.
It is understood the class B group plans to seek permission to appeal against the judgment.
The court approval will mean the repayment date of both classes of debt will be extended by two years.
