Creditors in High Court row over Thames Water restructuring plans

Two groups of creditors of troubled water company Thames Water are in a High Court dispute over how best to keep it afloat, as the utility will run out of money by March if restructuring is not approved.

The utility, which is England’s biggest water company with about 16 million customers, is in about ?16 billion of debt and needs ?3.3bn over the next five years to keep running.

A hearing on Tuesday was told the company could run out of money by March 24 next year.

Lawyers for Thames Water Utilities Holding Ltd (TWUH), one of the companies which form Thames Water Group (TWG), told the court that creditors holding more than 75% of its Class A debt – the least risky class of bonds in its debt pile, worth about ?11.5bn – have approved a restructuring plan.

Under this plan, known as the “A plan”, it could receive a ?3 billion loan with a 9.75% interest rate.

But this is opposed by a secondary group of creditors who hold a portion of Thames Water’s debt – thought to be about ?750m of riskier, Class B bonds – who told the court that an alternative plan, the “B plan”, should be approved, which also involves a ?3bn loan but with different terms.

The dispute comes as the company faces a decision from regulator Ofwat this week over whether it can increase bills by 59% over the next five years, versus current levels.

Tom Smith KC, for TWUH, told the court that the “A plan” aimed to provide “additional liquidity to act as a bridge” before a larger restructuring due to take place next year.

He said: “If it is unable to implement this plan the expectation of the directors is that the operating company will enter into special administration.”

In written submissions, he continued: “The group provides essential infrastructure services for which it is dependent on its suppliers and employees and, as such, it is critical that the group’s liquidity position is clearly stabilised well in advance of that date.”

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.

It would see ?1.5bn of funding injected into the company, with a further ?1.5bn potentially available and payment dates for its debts extended by two years.

TWG 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.

Thames Water 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, and Mr Smith said there was a “public interest in having Thames Water on a stable platform”.

Ofwat has also appointed an independent monitor to supervise the utility as it attempts a turnaround.

Mr Smith said that the group’s finances had “deteriorated” because of several factors, including operating “with the oldest water pipes, on average, in the country” and “operating in an area where a larger proportion of properties have a basement”.

He said that Ofwat’s decision on bills, expected on Thursday, will decide how much the company can charge customers and “will be central to the terms of any restructuring”, but that the group’s liquidity would be “exhausted” within months if the plan was not approved.

If the company did enter special administration, it would likely be sold by July 2026, he added.

The utility’s Class B bondholders drew up their rival “B plan” in October, saying this would provide “committed” funding of ?3bn with a lower interest rate of 8%, and other different terms.

In written submissions, Mark Phillips KC, for the Class B creditors, said that the B plan was “clearly more attractive” than the A plan.

He said the Class B creditors were “sophisticated and responsible financial creditors” who “do not condone precipitous action that may have serious adverse consequences” for TWG, and that Class A creditors would be “holding the group to ransom” through the A plan.

He said that TWUH “accepts that the Class B proposal offers the group more attractive terms than the A plan”, and that the A plan “unduly restricts the group from seeking the best possible outcome for all of its stakeholders”.

The hearing in London, known as a convening hearing, is the first stage of a legal process in which Thames Water is trying to shore up its finances with a bailout from investors.

If a judge permits, TWUH would be allowed to call meetings of its shareholders to approve the plan, which Mr Smith said could take place on January 13 next year.

If the plan is approved, a High Court judge would then be asked to rubber-stamp the restructuring at a separate hearing, known as a sanctioning hearing, which could be held over several days in late January or early February.

A Thames Water spokesperson: “The board and leadership team remain focused on turning round the business and continue to believe a market-led solution is the best financial and operational outcome for customers, the environment, UK taxpayers and the UK economy.

“We have a robust plan that we are confident delivers on this objective, and this court process is an important step on the path to putting the company back on a stable financial footing.”

The hearing before Mr Justice Trower is expected to conclude later on Tuesday.