S Poddar
Thames Water is about to learn whether its proposal to restructure will be endorsed by a High Court judge on Tuesday. The water company, which serves much of England, is in dire financial straits and risks being out of cash by March. Without endorsement of its restructuring plan, it will be put into special administration.
The parent organization Thames Water Utilities Holdings Limited (TWUH) of Thames Water Group (TWG) has been facing considerable debt, about £16 billion as reported. As a strategy to prevent itself from being rescued by investors, the company laid before the British Parliament a restructure plan whereby up to £3 billion can be injected in the company in an attempt to steady its books. The move was not given support across board. A smaller constituency of creditors also is in opposition to the plan and is working to advance another solution, the “B plan,” which, they contend, would provide essentially the same money on better terms for the firm.
The High Court has already taken a few days in February to consider whether or not the initial restructuring plan should be approved. The judge, Mr. Justice Leech, listened to arguments from TWUH’s lawyers as well as several groups of creditors before the ruling is due to be delivered on Tuesday morning. The hearing will then be followed by a hearing to resolve any matters that arise from the ruling.
Thames Water, which serves around 16 million customers across the UK, supplies water and sewage services to parts of London, the Thames Valley, and the Home Counties. It operates a large network, which involves over 20,000 miles of water mains and over 68,000 miles of sewers. Besides, it employs around 8,000 individuals and operates more than 400 water and sewage treatment facilities.
Despite its significant role in the country’s infrastructure, Thames Water is facing a major financial crisis, needing an estimated £3.3 billion over the next five years to continue its operations. The company’s efforts to address its financial troubles have been further complicated by growing public dissatisfaction with the performance of the UK’s privatized water sector. There has been a growing cry against pollution of the environment, escalating bills, too-high executive compensation and bonuses, and excessive dividends distributed to shareholders.
The company’s restructuring proposal would entail a financing package of £1.5 billion with a further £1.5 billion available at an interest rate of 9.75%. It has been supported by over 75% of its Class A bondholders, whose debt has a value of £11.5 billion. These bondholders are the safest class of lenders in Thames Water’s debt chain. In addition to this support, the business has come under fire from some creditors over its terms for a proposal.
An important area of disagreement between both parties is one clause referred to as the “June release condition,” which applies to the release of additional financing under the firm plan. Critics of the plan contend that this condition essentially puts undue stress on the company, making it a less desirable choice than the alternative offered by the Class B bondholders. The competing “B plan,” authored by Class B bondholders, offers £3 billion in financing with a reduced interest rate of 8% and better terms. Backers of the scheme say it provides a superior result for the company and its creditors.
Wednesday will decide whether the “B plan” is to be put before creditors for approval. Backers of the alternative scheme say that it would leave Thames Water in a more favorable financial situation, enabling the company to overcome its burden of debt and continue operating in the long term.
As the restructuring drama unfolds, the financial fate of Thames Water and its capacity to keep providing vital services to millions of individuals remains uncertain. Whether the High Court approves the initial company plan or the alternative “B plan” will determine the direction of the company, with the potential to affect millions of customers who depend on the company for their water and sewage services.
Both the public and creditors are waiting with bated breath for the court’s ruling, which may decide if Thames Water can balance its books without outside help or if additional restructuring will be necessary. The result will not only have implications for Thames Water’s near future but also for the long-term discussion regarding the sustainability and viability of privatized utility firms in the UK.
