Thames Water has won court approval to secure a £3bn cash lifeline from some of its biggest creditors.
The company will need to hold a formal vote to win support from the majority of creditors in January, before its deal is rubber-stamped by the courts in February.
The decision, which covers a complex debt-restructuring effort, was essential to ensure the company has enough money to stave off temporary nationalisation, Thames said.
Lawyers for the water company, which serves 16 million consumers in London and the Thames Valley area, said the plan was urgent in order to avoid it running out of money by 24 March next year.
“Moreover, 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,” they added.
Lawyers acting for the group of senior creditors – known as the “Class A” group because the majority hold higher-ranked Thames debt – whose deal was approved on Tuesday, said theirs was the only immediately viable option available to the water company.
They faced opposition from a second group of bondholders – known as the “Class B” group, which largely held riskier debt – who said they could offer a different deal, also for £3bn, on better terms.
It now expects to have enough cash to run its operations until October on the basis of the new £3bn agreement, if it meets with formal approval early next year. It is separately seeking raise £3.25bn in new equity to fund investments through to 2030.
MPs, activists and members of the public gathered outside the high court in London, calling for judges to block a financial bailout
Analysis by the campaign group We Own It, who were among those outside the courts, estimated that the bailout, if approved, will cost customers £250 a year each.
“This deal is for £3bn of cash right now that will be charged at a whopping 10% interest … that’s £250 a year from every household,” said Matthew Topham of We Own It. “We don’t think that households should have to pay to bail out Thames Water,” he said.
A letter from Windrush Against Sewage Pollution had earlier been delivered to the judge hearing Thames’s application by Charlie Maynard, the MP for Witney, calling for the court to hear submissions from the public on the bailout.
It read: “The outcome of this process will affect every household and business in the Thames region … the nature of the proceedings … means the court process is effectively out of sight and reach of all but the named participants in a proposed loan being arranged to keep [Thames Water] in business by forcing its billpayers to bail it out for its previous and continuing excesses and failures. We ask the court to consider our evidence on behalf of the unrepresented.”
Jenny Jones, a peer, said the hearing excluded the voices of consumers and campaigners who were challenging the attempt by Thames Water to raise the £3bn loan at an interest rate of almost 10%.
“The government could put Thames Water into special administration on the grounds of either its junk-status share ratings or its failure to reduce sewage dumping. Instead the government is trying to prop up a failed system of privatisation by allowing another big loan that will waste bill payers’ money on inflated interest payments,” she said.
Thames reported pollution had increased by 40% in the six months to 30 September, with 359 category one to category three pollution incidents.
Court approval was required as the terms of the loan effectively breach Thames Water’s agreements with its existing creditors by pushing their claims lower down the list of seniority. Ian Byrne, the independent MP for Liverpool West Derby, said if the bailout went ahead, the 16 million households who have no choice but to use Thames Water services would be due to pay more than £250 a year in higher bills to bail the company out.
The campaigners are calling for the government to use its special administration powers and take the company into public ownership. Byrne said Tony Blair used such powers in 2002 to renationalise Railtrack. “Privatisation is a failed experiment,” he said.
