Thames Water seeks debt term extension to avoid nationalisation

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Thames Water will go to the High Court in November to negotiate an extension to its debt terms so Britain’s biggest water company can avoid nationalization next year.

The capital’s water and sewerage provider, which serves 16 million households, is facing the weight of higher interest payments on its £18bn pile. It said it would run out of cash by May unless investors inject equity into the business, meaning it may have to be renationalised if only temporarily.

The court hearings are for the business to seek a deal with more than 90 creditors over a debt extension ahead of a potential full restructuring so they don’t have to deal with each one separately, according to a person familiar with the matter. Thames Water’s. position.

The water monopoly has more than £1bn of loans to be renegotiated by December, only some of which can be renewed.

Although Thames appointed investment bank Rothschild & Co to raise billions of pounds in equity from investors this autumn, that process is still in its early stages and there has been “incredibly little” interest, according to two sources close to the talks.

Any equity raise is also dependent on a favorable agreement with Ofwat, the sector regulator, on how much the company can raise customer bills over the next five years. This will not be confirmed until late December at the earliest.

Creditors representing around £9bn owed by Thames Water have also started drawing up contingency plans should the company’s efforts to raise equity in the coming months be unsuccessful.

“We note that it would be quite common and expected for a company to book court dates well in advance where a UK restructuring plan may be required,” it said in an email to holders of bonds on Thursday from investment bank Jefferies and law firm Akin Gump. , who advise lenders and are seen by the Financial Times.

“As we’ve discussed, one of the work streams we’ve considered is the company’s liquidity path and whether a short-term restructuring plan might be necessary.”

Thames Water has already breached the terms of its license conditions and has been brought under a newly created “special measures” regime by Ofwat in an attempt to avoid renationalisation.

As part of the special measures regime, Ofwat is expected to appoint an independent monitor to keep a close eye on the company. The independent monitor, which will most likely be a consultancy, is expected to be announced within days.

The company is still in talks with Ofwat over a potential fine for paying dividends of £195.8m in the year to March, as well as a proposed fine of £104m for failing to manage or invested in wastewater treatment plants.

The company is also facing the unknown fallout from the Environment Agency’s biggest ever license breach case at its waste water treatment works, as well as a number of class action claims.

Thames Water “continues to review all options to expand its liquidity and raise new equity,” said a person familiar with its position.

They added: “Reserving court dates is sensible forward planning and part of keeping all options open.”

Additional reporting by Alistair Gray in London