Thames Water has gained courtroom approval to pursue the subsequent section in securing a £3bn emergency mortgage, with a listening to supposed to safe creditor approval scheduled for 4 days within the first week of February.
The troubled utility advised the Excessive Courtroom that with out the mortgage it’ll run out of money by 24 March subsequent 12 months and, as a consequence, is prone to be pushed right into a government-backed particular administration regime (SAR).
Thames advised the courtroom that the mortgage is being supplied by a bunch of A-class collectors, who between them maintain round £11.5bn of the £16bn of debt held at working firm stage. An additional £3.6bn of debt is held at holding firm stage.
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The emergency mortgage, which is the primary a part of a wider restructuring plan, is opposed by a smaller group of collectors, who account for £750m of round £1.4bn of B-class debt. They face being worn out solely beneath the corporate’s plans.
Below the phrases of the mortgage, the maturity date of current loans will probably be prolonged by two years, and different collectors will probably be pushed again within the queue. As a consequence, the plan requires help from 75% of all courses of collectors and courtroom approval.
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Thames confronted demonstrations over the prices of its plan exterior the Excessive Courtroom. Pic: Reuters
The B-class shareholders have ready an alternate mortgage scheme at a less expensive price of 8% that may save the corporate £158m.
Setting the date for a sanctions listening to in February, Mr Justice Trower stated: “It was not the purpose of today’s hearing to say whether this plan should or should not be sanctioned by the court. This is not the time to decide if this proposal is fair or if there is a relevant alternative.”
Thames Water’s lawyer Tom Smith advised the courtroom the mortgage was crucial to present the corporate the respiratory house to answer a ultimate willpower from regulator Ofwat, due on Thursday, as to how a lot it will possibly cost clients over the subsequent 5 years.
“It is not in itself a solution to the troubles of the Thames Water group, but it will extend liquidity beyond the period of the Ofwat price review that will come into force in April 2025.… sufficiently that restructuring can be done in light of that determination,” Mr Smith stated.
“The company’s position is that if it is unable to implicate this plan, Thames Water Utilities Limited will enter into special administration, and the other companies in the securitisation will enter administration and insolvency.”
Mark Phillips, appearing for the B-class collectors, stated the mortgage proposal “is having a chilling effect on the equity raising process”, and the phrases, together with a clause to launch the second £1.5bn subsequent June, is successfully “holding the company to ransom”.
The emergency mortgage is being supplied at an rate of interest of 9.75% over two and a half years, plus as much as £100m in charges and prices, and with “super-senior” standing, which means it’s on the entrance of the queue for compensation within the occasion of insolvency.
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Why are water payments growing?
Earlier this 12 months Ofwat stated Thames Water might increase payments by 23%, however the firm has since requested to extend them by greater than 50% to fund funding in its community and providers.
If it secures the mortgage, Thames Water will then pursue a full recapitalisation, prone to embody the injection of contemporary fairness and a debt-for-equity swap together with current collectors.
Impartial evaluation commissioned by Thames Water, offered in courtroom paperwork, present that within the occasion of administration beneath Ofwat’s present proposal the A Class collectors would recoup lower than 50p within the pound.
Even within the best-case state of affairs, assuming Ofwat approval for the corporate’s new marketing strategy, they might stand to lose 15p within the pound.
