Thames Water last week secured High Court approval for its restructuring plan to enable its liquidity extension. It can now access up to £3bn of super senior funding, including:
An initial tranche of £1.5bn to extend the liquidity runway until September 2025.
Capacity for a further £1.5bn across two tranches of £750m, to further extend liquidity to May 2026 if required, following Thames’ decision to appeal its PR24 final determination at the Competition and Markets Authority (CMA).
In addition, the maturities of all Class A Debt and Class B Debt can be extended by two years.
Success in court means Thames can continue progressing its turnaround plan, equity raise and holistic recapitalisation, and complete its CMA appeal.
On the equity raise, Thames confirmed it has received proposals from multiple parties and is now conducting a detailed assessment of each bid. Press reports last week suggested private equity firm KKR was now among those involved.
Thames Water’s chief executive Chris Weston said the court’s decision was “good news for our customers” in enabling continued investment to deliver “critical infrastructure upgrades for our customers and the environment”.
However, others begged to differ. Water quality campaigner Windrush Against Sewage Pollution criticised the Government’s lack of intervention to put Thames into special administration (SAR). It tweeted: “Government's failure to take control of Thames Water means almost £1bn of customers' money will be squandered. How is this good for anyone but financial parasites and predators?”
Mark Lloyd, chief executive of The Rivers Trust, said: “The astounding level of debt and punitive interest rates agreed mean that a large proportion of customer bills will be spent on paying financiers rather than improving the environment, when we know that Thames Water are already not delivering many of their promised environmental improvements.
“This is a reflection of poor regulation over decades, which has driven companies to debt rather than equity finance, and some very greedy owners who siphoned too much funding out of the company to make themselves rich rather than fix our creaking infrastructure.”
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Comment: High Court ruling – a litmus test of government sentiment? - by Verity Mitchell
The commentary from the judge, concluding the High Court’s consideration of the A creditors’ financial rescue package, reveals much about Government’s view of the importance of the water sector as a litmus test of the investability of the UK.
Although he had listened to arguments for Government to intervene to restructure Thames, Lord Justice Leech said that, “after taking into account the public interest,” he had exercised his “discretion” to approve the loan.
The A creditors said after the judgment that they believed that a rejection of the deal would have had wider implications for the Government’s growth agenda. This would “signal regulatory failure and impose billions in additional costs on UK taxpayers”.
The senior creditors said: "At a time when ministers are trying to drive investment and encourage economic growth, Thames Water is being watched carefully by international investors as an important test case for UK regulation.” They were keen to point out that: “Failure to secure a market-based solution will undermine confidence in the infrastructure financing model which underpins much of the Government's long-term investment agenda."
However, the deliverability of the restructuring could be jeopardised by an appeal by either the lawyers representing Class B creditors or the Lib Dem MP Charlie Maynard’s group. The restructuring package would then be stayed pending an appeal.
The Class B group are also pursuing separate court hearings to try to force the implementation of their own rescue plan. They claim their package is cheaper than the approved package of what they called “predatory lending to an essential utility with a clear public interest”.
For the potential equity investors, a market-based solution has delivered a clear way forward, unlike any potential SAR remedies.
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