Opposition continues to Thames’ restructuring plan

Thames Water’s restructuring plan continues to face criticism despite approval from secured debt holders.

Thames has announced that it has received support from over 90% of secured debt holders in the Liquidity Facility, Interest Rate and Index Hedging, and Currency Hedging classes for its financial restructuring plans. Over 98% of the Class A debt holders also voted in favour of the scheme. However, Class B debt holders remain opposed with 84.5% voting against the plan. The Subordinated Creditor Class also unanimously rejected the proposal.

Barristers acting for Class B creditors told the hearing at the High Court in London on 20 January that the terms 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. They said: “The JRC holds the company to ransom because unless these conditions are met the company will risk entering Special Administration (SA). 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. It is putting the company into the position whereby the Class A will be able to say ‘We are not releasing any further funding’.”

A lawyer representing A Class creditors said that the proposal by the Class B creditors to compile a “24-page expert report” on the impact of the JRC was part of a “very targeted and focused attack,” adding that, if their case was correct, it would be “the end” of the “A plan”.

Barristers acting for Thames called the proposal by Class B creditors an “omnishambles,” arguing the Class B group’s case is “obviously weak” and “does not need expert evidence”.

The presiding judge initially dismissed the bid to compile the report, ruling that the Class B creditors “have not established that this evidence is reasonably required”. However, it appears that the High Court has since granted consent for campaigners to present their case against the proposals.

The High Court of Justice of England and Wales is scheduled to consider the approval of the plan at a sanction hearing from 3-6 February. The hearing's timing will be confirmed in the Insolvency & Companies Court cause list, expected to be published on 31 January.

Moody’s last week downgraded Thames’ debt rating and changed its outlook from stable to negative, arguing the company’s proposed financial plans “do not provide an attractive risk-return balance for existing or new investors”.

Special administration call

Campaigners against the proposals have announced plans to protest at the High Court. A petition calling for Thames Water to move into public ownership has been handed to the environment secretary. The 34,000-signature petition organised by nationalisation lobby group We Own It calls for Thames to be put into special administration. The campaigners claim the deal needs over £250 a year from every local household to pay off the loan (a figure disputed by Thames) and “could set a precedent for other failing privatised utilities forcing the public to bail them out, without seeing any benefit to services”.

FD gloom 

Thames has reportedly expressed unhappiness with Ofwat’s final determination, which it says will not allow it to attract the additional equity it needs to stabilise the business.

This is unsurprising given that Ofwat itself admits that Thames will fail to achieve its base allowed return, having been penalised for the quality of its plan (compared to Southern Water which had its penalty removed at FD). It will see its base return on regulated equity set at 30 basis points lower than the sector. It also has the largest totex gap of 16% compared to its peers. Its average bill increase, up 35%, is smaller than five of its large water peers. There is now a widely-held view among debt and equity investors in UK water that Thames has no option but to appeal to the Competition and Markets Authority.

The UK government has reportedly begun to approach restructuring advisers for the role of special administrator for Thames Water if it falls into bankruptcy. Teneo, Interpath and EY are among the companies contacted by the government, according to press reports, as it prepares contingency plans should the financial bailout fail.