Part of Thames Water restructure plan ‘holds company to ransom’, High Court told
Two groups of the utility’s creditors have introduced rival restructuring plans for the company, which could run out of money by late March.
One of the terms of a plan to restructure Thames Water “holds the company to ransom”, the High Court has heard.
The utility, which is England’s biggest water company with about 16 million customers, is in about £16 billion of debt and needs £3.3 billion over the next five years to keep running, with money due to run out by late March.
At a hearing last month, a High Court judge allowed a restructuring plan known as the “A plan” , which would provide a loan of up to £3 billion with a 9.75% interest rate, to be put to creditors for approval.
But a group of secondary creditors has proposed an alternative known as the “B plan”, which they claim would provide the company with the same funding on better terms.
On Monday, barristers for Class B creditors told a hearing in London that a term of the “A plan” known as the “June release condition” (JRC) would allow Class A creditors to “dictate” the terms of further funding beyond June 30 if certain conditions are not met.
Tony Singla KC, for the Class B creditors, told the court the JRC would allow Class A creditors to “wrestle control of this company and call the shots”.
He said: “The JRC holds the company to ransom because unless these conditions are met the company will risk entering into (special administration).
“It is putting the company into the position whereby the Class A will be able to say ‘We are not releasing any further funding’.
“The JRC gives the Class A creditors a right to veto. It allows them to direct the way in which this future recapitalisation process will go.”
Mr Singla said the Class B creditors wished to compile a “24-page expert report” on the impact of the JRC as part of a “very targeted and focused attack”, adding that, if their case was correct, it would be “the end” of the “A plan”.
The bid was opposed by Thames Water, and its Class A creditors.
Tom Smith KC, for Thames Water Utilities Holdings Ltd (TWUH), one of the companies which form Thames Water Group (TWG), said the bid by Class B creditors is an “omnishambles”.
Adam Al-Attar KC, for a group of Class A creditors known as the “Class A Ad Hoc Group”, said in written submissions that the Class B group’s case is “obviously weak” and “does not need expert evidence”, adding that the JRC “is not a negative control right, i.e. veto, as to who might bid to provide equity”.
Mr Justice Trower dismissed the bid to compile the report, ruling the Class B creditors “have not established that this evidence is reasonably required”.
The hearing comes amid the company’s efforts to shore up its finances with a bailout from investors.
It 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.
Mr Smith told a hearing in December that the company’s funds would be “exhausted” by March 24 2025 if the restructuring was not approved and that there was a “public interest in having Thames Water on a stable platform”.
Two days after that hearing, regulator Ofwat announced the company would be allowed to increase consumer bills by 35%, despite its asking to raise prices by 59%, and would also be fined £18.2 million for paying “unjustified” dividends to shareholders.
The “A 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 £1.5 billion of funding, with a further £1.5 billion potentially available and payment dates for its debts extended by two years before a larger restructuring due later this year.
The court was told it had been approved by creditors holding more than 75% of its Class A debt, which is worth about £11.5 billion and is the least risky class of bonds in its debt pile.
This 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 have told the court that their alternative “B plan” also involves a £3 billion loan but with different terms, including an 8% interest rate and no JRC, and was “clearly more attractive”.
Mr Justice Trower ruled the “A plan” could be put to creditors at seven meetings last month, which if approved could be rubber-stamped at a final hearing, known as a sanctioning hearing, due to be held across four days in early February.
A Thames Water spokesman previously said the company’s board remains “focused on turning round the business” and that it has a “robust plan that we are confident delivers on this objective”.
