Rival Thames Water bondholders face off in court proceedings

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Rival groups of Thames Water bondholders took aim at each other in a London Supreme Court hearing in which the malfunctioning utility set out its case for taking out an emergency loan of up to £3bn from its leading lenders.

Junior bondholders claimed in written documents submitted at Tuesday’s hearing that the company’s senior creditors were “holding (Thames Water) to ransom” by the onerous terms of their “extremely expensive” loan, which they said was “a “deterrent effect” on the company has a parallel to the benefit Attempts to raise equity from new investors.

The court hearing, which Thames Water described as “urgent”, is the first step by Britain’s largest water and wastewater company to seek court approval to borrow up to 3 billion pounds from its high-profile “Class A” bondholders to obtain. Without it, the company, which has a debt pile of almost £19bn, will “run out of available liquidity on March 24, 2025”, according to court documents.

The loan is part of the power utility’s attempt to avoid temporary renationalization under the government’s special administration arrangement. Thames Water serves 16 million people in and around London.

The loan proposal resulted in one increasingly sharp spitting between the company and its subsidiary bondholders, who claim the energy supplier failed to properly assess its rival offer of an equivalent £3bn loan at cheaper costs and terms.

These so-called Class B bondholders are now on the hunt Appeal procedure and launch its own parallel restructuring plan, which lawyers say will be the first time a judge has been asked to consider competing proposals since the new restructuring regime Thames Water is applying came into force in 2020.

Thames Water’s lawyer told the court on Tuesday that the proposed loan “does not in itself represent a comprehensive solution to Thames Water’s financial difficulties”. Instead, Thames Water is borrowing the money to boost its liquidity until regulator Ofwat determines how much Thames Water and other water companies can increase customer bills. This decision is scheduled for Thursday.

Senior bondholders, for their part, called their rival group’s proposal an “unworkable diversion to advance their own interests.”

A lawyer representing the Class A creditors told the court that arguments that their loan would have a chilling effect on Thames Water’s planned parallel capital increase “seem implausible”, while he argued that the subordinated bondholders were merely tried to “extend the time frame” in the process in the hope of “improving their position”.

The Class A loan proposal not only drew the ire of junior bondholders, but also drew criticism from activists, academics and experts who criticized the loan’s high interest rate of 9.75 and other costs that made the loan more expensive utilities could cost up to 800 million pounds over 2.5 years.

A group of activists protested outside the Royal Courts of Justice on Tuesday, calling on Environment Secretary Steve Reed to “stop the Supreme Court from approving a bailout package for the Thames.”

Oxfordshire-based charity Windrush Against Sewage Pollution also wrote a letter to the court last week, calling for evidence to be examined on behalf of Thames Water bill payers, who the group said had “no say” in the process, despite being “creditors in waiting.” “be.

A judge can approve a restructuring plan if at least 75 percent of each class of creditors agree to it. Otherwise, it will consider a plan that leaves none of the company’s creditors worse off under the so-called “relevant alternative.”

The company has argued that the relevant alternative to its loan is special administration, which its expert analysis suggests would result in a total default for holders of Class B notes, compared with a symbolic 3.5 percent recovery in a future debt restructuring from Thames Water.

However, Class B bondholders claim there is still “insufficient clarity” about what special administration would look like.

The 131-page analysis of Thames Water, prepared by consultants at Teneo, underlines how disastrous a special administration could be for all bondholders and predicts the senior group could get less than half their money back if Thames Water goes without a favorable one Ofwat falling into the regime would deal over bill increases.