Allowing Thames Water to run out of money by not approving restructuring plans is “a risk which cannot be run”, the High Court has been told.
Thames Water Utilities Holdings Limited (TWUH), the parent company of Thames Water Group (TWG), England’s largest water company, is set to run out of cash by March 24 and risks entering special administration if a judge does not approve its plans to inject up to £3 billion to keep it afloat.
The scheme, known as the “company plan”, is supported by the majority of the utility’s leading creditors and is being considered over a four-day hearing in London.
However, a smaller group of creditors opposes the plan being approved and has labelled it a “stopgap”, instead proposing an alternative known as the “B plan” which they claim would provide the company with the same funding on better terms.
Charlie Maynard, the MP for Witney in Oxfordshire, is also opposing the plans in court, claiming the company should be put into administration as the company plan is “a short-term fix at the expense of the company, Thames Water customers and UK taxpayers”.
In written submissions, Tom Smith KC, for TWUH, said: “If the present plan was not to be sanctioned, the directors would therefore be faced with a situation where the existing plan, which had been the product of many months of negotiation and work, had been rejected, and where the group’s cash (is) due to run out in around six weeks’ time.
“Further, this is the context of the group being a provider of essential infrastructure services to millions of people in one of the major cities in the world.”
He continued: “Given the importance of the role of the group, it is simply not possible to take any risk at all that it may run out of cash which would cause it to cease operations.
“For reasons which barely require stating, that it is a risk which cannot be run.”
TWG serves around 16 million customers – around 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.
It has approximately 8,000 employees and more than 400 water and sewage treatment sites.
But the company is in about £16 billion of debt and needs £3.3 billion over the next five years to keep running, with the restructuring bid marking an attempt to shore up its finances without a bailout from investors.
It has also been at the centre of growing public outrage over the extent of pollution, rising bills, high dividends, and executive pay and bonuses at the UK’s privatised water firms.
Mr Smith previously told the court that the group’s finances had “deteriorated” because of several factors, including operating “with the oldest water pipes, on average, in the country” and “operating in an area where a larger proportion of properties have a basement”.
The court has heard that the company plan, drawn up by a cluster of investment giants including BlackRock, Abrdn and M&G, would effectively guarantee Thames Water can keep operating until 2026 by providing £1.5 billion of funding, with a further £1.5 billion potentially available.
It comes with a 9.75% interest rate and would also see payment dates for its debts extended by two years.
The court was told that it had been approved by creditors holding more than 75% of its Class A debt, which is worth about £11.5 billion and is the least risky class of bonds in its debt pile.
Mr Smith said the plan was “an interim measure” to keep the company running before a “substantive restructuring” due later this year.
He said that if the plan was not approved the company would be likely to run out of money before March 24 due to a “significant loss of confidence in the group of the 2,700 direct suppliers on which it is critically reliant”.
He continued that the regulator Ofwat has carried out contingency planning for if the company asks to enter administration, and “expects that (the company) could make a special administration application promptly”.
The court has heard that if the company did enter special administration, it would be likely to be sold by July 2026.
The utility’s Class B bondholders drew up their rival “B plan” in October, saying this would provide “committed” funding of £3 billion with a lower interest rate of 8%, and other different terms.
They have previously claimed that one term of the company plan known as the June release condition, which concerns the release of further funding, “holds the company to ransom”, and that the company’s proposal leaves them worse off, meaning it cannot be approved.
In written submissions, barristers for Class B creditors said the company plan “is unlike any other restructuring plan that has come before the court” and “does not seek to solve the financial difficulties” of the company.
The “B plan”, which its supporters said provides a “better result for the company”, could also be given the green light to be put to creditors at a hearing on February 13.
Julian Gething, chief restructuring officer at Thames Water, said: “Our plan remains the only implementable solution to putting the business on a firmer financial footing.
“Its approval will not affect customer bills, but will unlock billions of pounds for investment in our network, fixing pipes, upgrading our sewage treatment works and maintaining high-quality drinking water.
“Any suggestion the plan will impact bills is an untrue and misleading claim that risks needlessly worrying our customers.
“This plan will not lead to any increases in customer bills. Ofwat has already determined the cost of bills for the next five years.”
The hearing before Mr Justice Leech is due to conclude on Thursday, with a judgment expected in writing at a later date.
