Thames Water has cleared a major legal hurdle to a £3 billion cash injection that will save it from financial collapse and a Government bailout.
The Court of Appeal dismissed an appeal from a group of Thames Water bond holders against a last ditch financial restructuring that will give Britain’s biggest water supplier more time to put itself on a sustainable longer term footing.
Today’s order means Thames can now press ahead with its plans to borrow £3 billion from lenders and avoid administration - unless there is a successful appeal to the Supreme Court.
In February, a High Court judge approved the plan proposed by Thames Water Utilities Holdings Limited just weeks before it was due to run out of money on March 24 despite describing the costs of the scheme “eye-watering”.
A group of the utility's secondary “Class B” creditors, as well as TWUH's parent company, Thames Water Limited (TWL), appealed against the decision at a hearing last week.
Liberal Democrat MP Charlie Maynard also appealed against the ruling, claiming that the company should instead be placed into special administration (SAR) to better serve customer interests.
In today’s order, Sir Julian Flaux, sitting with Sir Nicholas Patten and Lord Justice Zacaroli, said the appeals were dismissed with reasons to follow in writing "in due course".
But in a statement the Class B creditors said they were considering taking leave to appeal to the Supreme Court and will make a final decision once they have seen the wording of the judgement. There has not yet been any indication when this will be.
Thames Water CEO Chris Weston said: “We are pleased that the Court of Appeal has today decisively refused the appeals and upheld the strong High Court decision to sanction the Company Plan. We remain focused on putting Thames Water onto a more stable financial foundation as we seek a long-term solution to our financial resilience. Today's news demonstrates further progress.
“We continue to work closely with our creditors, enabling us to access liquidity to continue to implement our turnaround plan so we can deliver better results for our customers and the environment while seeking to attract new capital into the business. As we have previously stated, the Company Plan will not affect customer bills but will provide continued investment in our network to fix pipes, upgrade our sewage treatment works, and maintain high-quality drinking water. We remain of the view that a market led solution is in the best interest of customers, UK taxpayers and the wider economy."
Tt is expected that an initial tranche of £1.5 billion will be provided in instalments over the coming months .
A spokesman for the Class A Creditor Group said: “The decision from the Court is clear and we hope this brings to an end the ongoing legal distractions so all parties can focus all efforts on securing billions in fresh equity and new long-term ownership for Thames Water.
"A market-based solution is the best route to achieving financial sustainability for the Company in the coming months and will deliver the complex operational turnaround, improved service and environmental outcomes customers rightly expect and deserve.
"Customers will be placed at the centre of the rebuild and will not bear the costs of the restructuring. We will now be working with the Company to allow it to move forward and access the money it needs to continue to invest in the business and work with stakeholders to complete an equity process this Summer.”
In their statement the Class B creditors said: “While we are disappointed with the Court of Appeal’s decision to dismiss our appeal, we are pleased the Court has struck out the proposed releases of the company’s directors and advisors from legal liability, which the Class B Creditors have consistently maintained are inappropriate in an interim restructuring plan such as this one.
“Until the Court of Appeal releases its judgment, our position remains unchanged, and we will continue to explore all available avenues, including seeking leave to appeal to the Supreme Court, to ensure that customers and the broader public are not forced to bear the costs of a deeply flawed restructuring process.”
Andrew Thornton KC, for TWL, had previously told the Court of Appeal in written submissions that the approved plan was "designed by senior lenders for the benefit of senior lenders".
He said that the terms of the plan were "mispriced and inappropriate".
He continued that the judge, Mr Justice Leech, "failed to apply the correct principles" when making his decision to approve the scheme, and therefore "wrongly exercised his discretion to sanction the plan".
TWUH and its Class A creditors had opposed the appeal, with Tom Smith KC, for TWUH, stating in written submissions that the London court should not interfere with the decision "unless compelled to do so".
Thames Water serves about 16 million customers - about 25% of the UK's population - and owns more than 20,000 miles of water mains and more than 68,000 miles of sewers across London, the Thames Valley and the Home Counties.
The High Court previously heard that the restructuring is intended to be an interim measure to keep the utility running before a substantive restructuring due later this year.
The £3 billion rescue loan will come in two £1.5 billion instalments, and would be enough to last Thames Water for a further one year.
However, the deal also comes with an unusually high 9.75% interest rate, plus fees, which over the 2.5-year life of the loan could result in about £800 million in extra payments to lenders.
The loan is being provided by a group of Thames Water’s senior creditors, a group of hedge funds, banks and other big investment firms that it already owes about £11.5 billion, including Abrdn, M&G, Elliott Management and Invesco.
