Thames Water’s Crucial Rescue Loan Approved by UK Judge

(Bloomberg) — Cash-strapped Thames Water bought itself some more time to reorganize its debts after a London judge approved an emergency loan worth as much as £3 billion ($3.8 billion).

The plan will see the money come from a number of Thames’ existing senior creditors, including investment firms Elliott Management, Silver Point and Pimco. The loan comes weeks before Thames, the UK’s largest water and sewer company, was due to run out of cash and gives some much needed breathing space for it to negotiate a major restructuring with its lenders.

At a court hearing earlier this month approval of the loan faced opposition from junior creditors and a British politician who argued it was too expensive.

“I ought to give the plan company an opportunity to finish the jigsaw,” Judge Thomas Leech said in a 174-page ruling on Tuesday. “There is a public policy in favor of rescuing the Thames Water Group and giving the market a chance to agree a permanent restructuring plan.”

Debt Burden

Thames has at least £16 billion worth of debt weighing on it and with no plan to meet impending bills, it risks being plunged into a special administration — a temporary nationalization similar to insolvency for businesses that provide critical services. 

The loan will allow debt-laden Thames to keep on operating beyond the end of March — still, it is only a temporary measure and the stakes remain high.

“The judgment is a positive step towards efforts to deliver a highly complex operational turnaround and restructuring,” a spokesperson for the senior creditors providing the loan. “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.”

It would also give some clarity for the company’s equity raising process. So far, only a few, including Castle Water Ltd. and Covalis Capital, have put forward concrete proposals. Others have been hesitant to commit to a rescue bid until there’s more clarity over the company’s balance sheet.

In a report prepared by consultancy Teneo in December, the now-approved emergency funding plan put forward by the company put estimated recoveries of around 84% for senior debt holders and 3.5% for junior lenders.

“This is good news for our customers, puts our business on a firmer financial footing,” said Chris Weston, chief executive officer of Thames Water. “Importantly, this decision will support the delivery of our turnaround.”

Last week, Thames said it will appeal to the UK’s Competition and Markets Authority to examine a recent decision by the industry regulator on how much it’s allowed to charge customers and return to investors.

Junior Creditors

In a hearing that lasted for five days, a group of junior creditors attempted to get the judge to sign off on their own rival plan, which they said was cheaper and offered the company more flexibility. 

“The Class B creditors are disappointed by the Court’s decision” but having received permission to appeal “will proceed to do so,” a spokesperson for those lenders said in an emailed statement to Bloomberg News. “That appeal will proceed on a number of grounds and until the appeal is determined, the company will not undertake any steps which are irreversible.”

Charlie Maynard, a lawmaker for an English constituency Thames Water provides water to, will also seek permission to appeal. The member of parliament had argued that a temporary nationalization of the company would be in the best interest of consumers.

At the hearing, Maynard’s lawyer asked a number of questions about the large amounts of money being spent on legal and financial advisers by the company. Thames is spending about £15 million a month on such fees. 

“The costs of finance and adviser fees in the present case are very high,” Leech said in his judgment. “Indeed, they might be described as eye-watering.”

–With assistance from Jonathan Browning and Giulia Morpurgo.

(Updates with appeal plans in final paragraphs)

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