Signage for British utility company Thames Water at a repair site in London, on June 28, 2023.Toby Melville/Reuters
Thames Water said on Friday it had lined up a financing lifeline of up to £3-billion ($5.4-billion) with some of its creditors in a deal which, if approved, will help Britain’s biggest water supplier survive for another year at least.
The government has been on standby to place Thames Water, which is at the centre of a scandal over sewage pollution in rivers, into a special administration regime given the risk of a financial collapse.
But Thames Water chief executive Chris Weston said on Friday that the new debt package, an initial tranche of £1.5-billion ($2.7-billion) of loans that will rank ahead of existing debt and extend its liquidity to October, 2025, would put the company on a more stable financial footing.
“This is good news for the business and the best option available,” Mr. Weston told reporters on a call.
Creditors representing about £6.7-billion ($12-billion) of secured debt, or about 40 per cent of the group’s total secured debt, have so far agreed to support the deal, and a “substantial” number of creditors are currently doing the paperwork to follow suit, Thames Water said in its statement.
The plan needs 75 per cent of all classes of debt to get the green light with a first court hearing scheduled for Dec. 17 ahead of a possible finalization of the plan by the end of January. As a bridge to take it to then, it needs 50 per cent of class A debt-holders to approve debt extensions and access to reserve cash.
Holders of about £12-billion ($21.6-billion) of Thames Water debt have been in talks with the struggling company, which supplies about a quarter of the British population with water, about providing this sort of an interim liquidity facility.
Mr. Weston said the debt package on the table, which has an interest cost of nearly 10 per cent not including a discount rate and extra fees, was a better option than an alternative presented days ago by a different group of creditors which sources said carried an 8-per-cent interest rate.
“It lacked detail and it’s not deliverable in the time that is available to us,” he said of the alternative plan.
Reuters reported on Thursday a group made of mainly so-called B note investors, had proposed an alternative liquidity package.
“Thames Water is attempting to lock itself into an extremely costly short-term loan and ignoring more affordable offers of financing it has received,” a spokesperson for the Class B bondholder group said in an e-mailed statement on Friday.
“Thames must at the very least evaluate its options and seek a market-based solution,” the representative added.
Should Friday’s lifeline be approved, it will give Thames Water time to restructure its debt, which by next March is expected to stand at about £17.9-billion ($32.2-billion) giving the company a gearing level of 85 per cent, paving the way for it to raise new equity and ensure its long-term survival.
“The government is fully aware of our gearing position and we have kept them in close contact throughout these negotiations,” chief financial officer Al Cochran said.
Thames Water has for the last year said it needs to raise over £3-billion ($5.4-billion) of new equity, a process which Weston said was already under way but would not conclude until after Britain’s water regulator had provided clarity on future water prices, due either in late December or early January.
The new debt package on the table also includes a further tranche up to £1.5-billion ($2.7-billion), which would tide Thames Water over if it decides to launch a regulatory appeal over the prices, extending its liquidity until May, 2026.
Separately, the Financial Times reported on Friday that British water retailer Castle Water is looking to acquire a controlling stake in Thames Water, citing people familiar with the matter.
The FT said the exact size of the stake has not been disclosed. Thames Water declined to comment. Castle Water did not immediately respond to a request for comment.