UK's Thames Water wins approval for R69.7-bn debt lifeline

The lifeline, provided by senior creditors, will give Thames 1.5 billion pounds plus a possible further 1.5 billion, extending its funding until May 2026.

Without the approval, it had said it would have run out of cash in six weeks.

Thames Water called the decision a "significant milestone", that would allow it to pursue its attempt to obtain new equity.

The package was controversial. A group of lower-ranked creditors opposed it, calling its 9.75% interest rate too costly.

Judge Thomas Leech, however, said in his written ruling that the most likely alternative to the plan was Thames being put into special administration, rather than the successful implementation of the Class B creditors' rival proposal.

He said the plan was "not unfair" to the Class B creditors and it did not infringe competition law.

He gave the junior creditors permission to appeal because of the importance of the case.

The junior creditors said they were confident they still had a case, given that the cost of the lifeline was "very, very high", with more than half of the money going "round in a circle and back in the pockets" of the lenders as described by the judge.

"Having this judgement reviewed by the Court of Appeal is essential against the backdrop of predatory lending to an essential utility with a clear public interest," a spokesperson said.

Thames is at the centre of a public backlash against the country's privatised water industry, blamed for polluting rivers with sewage. The government wants Thames to avoid administration and is focusing its efforts on reforming the sector.

The senior creditors said the judgment was a positive step in a "highly complex operational turnaround and restructuring".

"At a time when ministers are trying to drive investment and encourage economic growth, Thames Water is being watched carefully by international investors as an important test case for UK regulation," a spokesperson for the group said.

"Failure to secure a market-based solution will undermine confidence in the infrastructure financing model which underpins much of the government's long-term investment agenda."

Thames Water, which has 16 million customers, still must overcome challenges to ensure it can survive beyond 2026.

It needs to raise over 3 billion pounds in new equity and restructure its debts, while at the same time improving its infrastructure and environmental performance to avoid millions of pounds in fines.

The company has also appealed a regulatory ruling over how much it can charge customers over the next five years - it wants bills to increase by 53%.

Three other water companies, Anglian, South East Water and Southern Water, said on Tuesday they would also appeal their price caps. Southern also said it intended to raise 900 million pounds of new equity.

While Thames fights for more money, the judge said it was paying "eye-watering" fees to legal and other advisers of around 210 million pounds.

"Customers and residents who are struggling with their bills will be horrified at these costs and mystified how the Thames Water Group has been able to fund them or why it has agreed to do so," he said in his ruling.

The rescue package was provided by a group of Thames Water's senior creditors including Abrdn, Apollo Global Management, Elliott Investment Management, Invesco, M&G and PIMCO.