Thames Water has been given the green light to undertake up to £3bn of high-cost borrowing in a bid to avoid insolvency, after London’s High Court signed off on a controversial creditor bailout.
The utility, already straining under £19.5bn of debt, had sought court approval to borrow up to £3bn from its top-ranking creditors. The company says that will give it breathing room to raise equity from new investors and renegotiate its debts.
Mr Justice Leech, who presided over a week-long High Court hearing earlier this month, approved the loan in a 178-page judgment on Tuesday. He said it met the necessary criteria under English corporate law and was not unfair to lower-ranking bondholders.
“This is good news for our customers, puts our business on a firmer financial footing and enables us to continue to invest in our network and deliver critical infrastructure upgrades for our customers and the environment,” said Thames Water’s chief executive Chris Weston.
Without the judge’s approval, Thames Water risked running out of cash on March 24, when £200mn of debt is due that the utility has no other way of repaying. Thames Water would then almost certainly have become the first water company to fall into the government’s special administration regime since utilities in England and Wales were privatised in 1989.
The rescue loan has proved controversial, however, as lenders including US hedge fund Elliott Management are charging a hefty 9.75 per cent interest rate, along with other fees and sweeteners.
In his judgment, Leech noted that the headline interest rate on the loan was “very, very high” and that the deal’s advisory fees “might be described as eye-watering”.
“Customers and residents who are struggling with their bills will be horrified at these costs,” he wrote.
