Thames on track to secure creditor support for its initial restructuring plan

Thames Water published an update to its liquidity extension plans on 27 December confirming that over 75% by value of each of the Class A debt (make-whole) providers, the Class A debt (non-make-whole) providers, the interest rate and index hedging providers, the liquidity facility providers and the currency hedging providers, had acceded to its restructuring proposal. This followed an initial court hearing. Thames claimed no creditors would be worse off following the restructuring.

Matt Cowlishaw of Teneo was commissioned as an independent expert to the High Court. He explored four shortlisted alternatives to the scheme proposed by the Class A creditors: 

• “An alternative interim restructuring plan – the group identifies an alternative transaction to extend its liquidity, which can be delivered through an alternative restructuring plan. This would likely require the business to operate in a ‘Standstill’ for up to three to four months, potentially resulting in significant operational disruption and regulatory challenges. The board of Thames Water has concluded that trading through a Standstill is unlikely to be sustainable such that it would have little option but to seek protection of a Special Administration Regime (SAR); 

• “Whole Business Securitisation (WBS) creditors take control – the WBS creditors take ownership of the equity, severing the utility and the finance company (TWUF) from the wider Kemble group… However, we understand from management and its advisors that the WBS creditors have shown no appetite for this as an alternative to the plan (which has been developed in conjunction with a majority of WBS creditors) during the recent financing negotiations;

• “Facility default/Standstill – the group enters into a Standstill until a comprehensive debt restructuring/M&A deal can be identified and completed. This would face the same potential operational disruption and regulatory challenges as set out in the first shortlisted option… and over a longer period; and 

• "SAR (trading) – the only insolvency procedure available to a regulated water company (other than a winding up following a SAR). This would unlock the ability to access [government] funding for ongoing operations/capex (as required) whilst an exit from SAR is explored.

“Based on this assessment I concluded that in the event of a failed plan, the relevant alternative was a SAR at Thames Water Utilities Limited and concurrent administration of TWUHL and TWUF."

However, a group of Class B creditors contested that the proposal before the High Court is the best option, arguing that a different plan should be pursued to provide cheaper liquidity. This group stated in court documents that it “does not consider that the high financing costs and entrenched control that the Class A creditors will have over any subsequent recapitalisation transaction, if the plan is sanctioned, is in the best interests of the group, its creditors or its customers”.

Creditor meetings are planned in the week commencing 13 January. A sanction hearing is currently listed before the court for 20 January. If agreed, the effective date of the new arrangements is expected to be 31 January.