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Thames Water is facing a new challenge in court over its efforts to raise up to £3bn worth of emergency financing. Environmentalists say it makes more sense to temporarily renationalize the debt-ridden water utility.
Windrush, the campaign group against sewage pollution, is due to take its case at a hearing in February, with a High Court judge giving Thames Water time to restructure £19bn of existing debt and raise new equity capital. Deciding whether to approve a £3bn creditor loan.
The loan, from an existing group of Class A creditors including hedge funds such as Elliott Management, carries an interest rate of 9.75%, as well as additional fees and incentives for Thames Water’s management.
If financing cannot be secured, Britain’s largest water utility is likely to be placed into special government administration and temporarily renationalised. Thames Water currently has enough cash to last until the end of March.
Ashley Smith, from anti-sewage campaign Windrush, said creditors were “pursuing self-serving loans that enrich them and impoverish us, protecting essential water supplies and illegally polluting sewage.” “It will do nothing to eradicate it,” he said.
He added that the utility’s “16 million consumers who have been exploited for 35 years by a monopolistic water company should be given a voice.”
Environmental groups sent a letter to the high court before the last hearing in December, securing lawyers and lawyers to prepare the case. The submission was granted and the court was told it would “determine the position in the proceeding”.
The deal has already been challenged in court by another group of Class B creditors, who have proposed a cheaper deal. Class B argue that if their arrangement is not approved, they would be better off living under a special management regime.
If the government or Thames Water requests special administration, an intermediary, usually a licensed insolvency practitioner, will take over management of the company.
This allows companies to avoid paying interest on debt, freeing up cash for maintenance and improvements, and freeing up time to rebuild the business. Experts say there is no need for the government to take over the debt since it will effectively be frozen.
The special administrator can impose “haircuts” or losses on creditors to bring debts down to more acceptable levels. Hedge funds such as Elliott, which have taken on debt in recent months, are betting on the size of the haircut and will hopefully reap the benefits. Administrators will then look for new investors and possibly consider listing, dissolving the group or renationalizing it.
Sir Dieter Helm, a professor of economic policy at the University of Oxford, said a special administration was preferable because it would allow Thames Water to focus on rebuilding and improving rather than negotiating a deal with creditors.
Thames Water said its plan was “the only viable solution” and “will deliver for customers and stakeholders”.
A spokesperson for the Class A creditors said: “Our focus is on the highly complex financial system aimed at preventing the introduction of special administration and providing relief to UK taxpayers who are bearing billions of dollars in increased costs. Our goal is to achieve a complete management restructuring and reorganization of Thames Water.”
