Thames Water will seek High Court approval for a £3bn rescue plan in a four-day hearing beginning at the Royal Courts of Justice on Monday.
The indebted utility is seeking a judge’s approval for a restructuring plan centred on an emergency loan it says it needs to avoid running out of cash by the end of March.
The loan is being offered by existing “A class” creditors who hold around £11bn of the more than £16bn of debt racked up by Thames Water Utility Holdings, the regulated operating company that serves more than 15 million customers in London and the South East.
The company will argue that without court approval for the deal, it will be forced to enter a Special Administration Regime (SAR), overseen by the government at taxpayers’ expense.
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Water campaigners have criticised the terms of the loan, which is being offered at an interest rate of 9.75% over two and a half years with up to a further £100m payable in fees, and called on Environment Secretary Steve Reed to block it and force the company into special administration.
The loan will also be provided on “super-senior” terms, meaning it will be repaid first in the event of administration, and existing creditors will have repayment dates set back by two years.
It will be opposed by a group of B class creditors, who hold around £750,000 of more junior debt and face being wiped out completely in a restructuring.
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The court hearing comes as Thames Water decides whether to appeal against the terms of a final determination from water regulator Ofwat, which allowed the company to increase bills by more than 30% from April.
Thames had asked for bill increases of more than 50% to fund its operations and planned investments in new and improved infrastructure over the next five years. It is not yet clear whether Thames believes the Ofwat determination makes it an investable proposition.
Sources close to the process have told Sky News there remains “lots of uncertainty” over the Ofwat final determination and whether it can support the turnaround of the company.
The £3bn loan, delivered in two tranches, is required to get the company to the other side of an appeal, which will be overseen by the Competitions and Markets Authority.
Mr Reed, the environment secretary, has previously said he opposes the nationalisation of Thames Water and wants a “market solution”, but it has been reported the government has approached potential administrators to oversee an SAR should the company fail.
If the loan is approved Thames intends to pursue a full restructuring, involving new equity investment and a debt-for-equity swap with existing creditors. Without that process, chief executive Chris Weston has described the company as “uninvestable”.
In order for the judge to approve a rescue plan it must have the agreement of 75% of creditors. Thames says it has more than 90% approval. Failing that it would have to consider the impact of a “relevant alternative”, a plan that leaves creditors no worse off.
