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Thames Water has received court approval for a controversial £3bn loan from creditors including the hedge fund Elliott Management, which should enable the UK’s largest water utility to stave off immediate renationalisation.
A group of junior creditors, which stood to make substantial losses under the deal, had challenged the loan agreement in London’s Court of Appeal in a hearing that concluded last week.
But judges ruled on Monday that the deal could go ahead with only a small amendment tightening a previously sweeping term that released directors from future litigation.
The decision should allow the heavily indebted utility access to fresh funds while it tries to raise equity to shore up its longer-term finances. It could, however, be subject to a further appeal at the Supreme Court.
Chris Weston, chief executive of Thames Water, said on Monday that the company remained of the view that a “market-led solution” was in the “best interest of customers, UK taxpayers and the wider economy”.
Environmental campaigners, led by the Liberal Democrat MP Charlie Maynard, had opposed the plan in court, arguing that it was in the public interest for the utility to be renationalised under the government’s special administration regime.
Opponents are concerned about the interest rate of 9.75 per cent, plus other fees, which in total could cost Thames Water more than £800mn. The company is already paying out at least £15mn a month in fees to advisers, lawyers and consultants.
The group of so-called class A creditors providing the loan claimed on Monday that “customers will be placed at the centre of the rebuild and will not bear the costs of the restructuring”.
An initial tranche of £1.5bn will be provided in instalments until September to prevent Thames running out of money, with a further £1.5bn, in two tranches of £750mn, to further extend liquidity to May next year if required.
The loan agreement is just one part of a restructuring plan as the company grapples with nearly £20bn of debt. The company is also seeking new investors to inject equity into the business under a process being run by the investment bank Rothschild.
KKR and CKI Infrastructure, as well as the hedge fund Covalis and Castle Water, a provider of business water services in London that is backed by the Pears group, have all expressed interest in a deal. The class A creditors have also said they will put forward a bid if a serious offer fails to emerge.
Some of these potential bidders have said they will maintain their interest if the company is to be renationalised. In that case the debt would be restructured with the interest frozen, freeing up cash from customer bills for investment in infrastructure. Any loan from the government could be recouped if the business was then sold on to new investors.
The class B group, which also prefers special administration to the current loan, said it was “disappointed” with the Court of Appeal’s ruling, but “pleased” that director releases it had “consistently maintained are inappropriate” have been changed.
The lower-ranking creditors added that they would “continue to explore all available avenues, including seeking leave to appeal to the Supreme Court”.
The Court of Appeal ruled that a clause in the original ruling that released directors from the threat of lawsuits should be amended to “not apply” to any future claims a “special administrator” or “insolvency office-holder” might bring against Thames Water’s “directors and advisers”.
During last week’s hearing, Lord Justice Zacaroli, one of the panel of three judges ruling on the appeal, noted that the breadth of the litigation releases appeared “more novel than I’ve seen in previous cases”.
While Thames Water’s barrister Tom Smith KC suggested there was “nothing wrong” with this, Mark Phillips KC, acting for the class B creditors, argued that the original wording could stymie a lawsuit against directors if the utility was to crash into the special administration regime in future.
