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Thames Water’s lower-ranking bondholders are planning to mount a legal challenge to the troubled utility’s proposed £3bn emergency loan deal, setting a stage for a courtroom clash over the future of the UK’s largest water supplier.
The £3bn loan from senior bondholders has been agreed with the board of the utility in an attempt to stave off renationalisation. A hearing is scheduled in London’s High Court next week, when Thames Water will begin to seek formal court approval for the loan, which comes at a 9.75 per cent interest rate and could cost the company as much as £800mn if it is fully drawn over the next 2.5 years.
But a rival group of creditors, in what lawyers say is a legal first, will present its own restructuring proposal in court for their separate £3bn loan, said people familiar with the matter.
The group of Thames Water’s so-called class B bondholders, represented by litigators at Quinn Emanuel, have previously told Thames Water that they have commitments in place to lend £3bn to the utility at a significantly cheaper interest rate and on less onerous terms.
The escalating wrangle between the utility and its differing classes of creditors in the group’s near-£19bn debt pile comes as Thames Water, which provides water and sewerage services to 16mn customers, this week warned that without a new loan it could run out of cash by March.
Both loans would rank ahead of Thames Water’s existing bonds and so have proved contentious with creditors keen to protect themselves against losses in any further restructuring of its debt pile.
In a letter to creditors last month, Thames Water said it had “carefully considered the class B proposal”, but had opted to proceed with their original plan because of concerns about whether the alternative proposal “is capable of being implemented”.
This is primarily because the rival loan does not have support from Thames Water’s class A creditors, which hold roughly £16bn of the utility’s debt.
Lawyers believe it will be the first time a judge has been asked to consider rival plans since the new restructuring regime Thames Water is utilising came into force in 2020.
The group decided to press ahead with the legal challenge after discussions with Thames Water around a potential settlement proved fruitless, said people close to the junior bondholders.
Thames Water declined to comment.
Thames Water has said the new £3bn loan would give it further runway in order to raise new equity and “achieve a holistic recapitalisation”, as well as giving it scope to potentially challenge an upcoming bills settlement with water regulator Ofwat. The regulator’s determination over how much the utility can charge customers could also come as soon as next week.
Thames Water has asked for a 53 per cent increase in customer bills by 2030 and could turn to the Competition and Markets Authority if Ofwat does not acquiesce.
A judge can approve a restructuring plan if it has approval from at least 75 per cent of each class of creditors but failing that, will consider a plan that leaves none of the company’s creditors worse off under the so-called “relevant alternative”.
Thames Water plans to argue in court that the most likely alternative if its restructuring plan is not approved is being placed into special administrative — a form of temporary nationalisation — which it will argue would likely pose larger losses for all of its creditors.
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