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A high court judge who will decide whether to approve a £3bn bailout of troubled utility Thames Water has criticised the British government and water regulator for failing to engage in the process.
Mr Justice Leech, who is presiding over the week-long hearing on whether to approve an emergency loan from Thames Water’s senior lenders, said that the lack of engagement in proceedings from water regulator Ofwat and the government was “unfortunate”.
“It would have been nice, I think, if either Ofwat or the secretary of state had felt the need to turn up and explain the position to the court”, Leech said.
He later added that the lack of government testimony on the costs of a temporary renationalisation had also placed the court in a “very difficult position”.
The hearing comes at an existential moment for Thames Water, the UK’s biggest water company that is struggling under its £19bn debt mountain. If the court does not approve the emergency loan, the judge has acknowledged that the utility will “inevitably” fall into the special administration regime, a form of temporary renationalisation.
Thames Water told the court that it will run out of cash on March 24 absent a deal, triggering the first temporary renationalisation of a water company since utilities in England and Wales were privatised in 1989.
The High Court proceedings this week saw rival creditors go to war over the future of the struggling utility, which supplies almost a quarter of the UK with water and sewerage services. Thames Water’s lower-ranking lenders are trying to challenge the plan for the emergency loan and force the utility to accept their own cheaper £3bn loan.
There is a parallel effort to raise billions of pounds in new equity to fix Thames Water’s balance sheet, overseen by Rothschild & Co.
Rothschild initially approached more than 50 potential investors such as infrastructure funds and private equity firms, according to a letter submitted to the court and which was obtained by the Financial Times.
It does not state how many submitted non-binding proposals by the last deadline in December.
The letter also noted that one bidder had “made some criticisms of the process”, adding that this bidder also holds lower-ranking class B debt. Thames Water’s barrister Tom Smith KC said this was likely Covalis Capital, which was revealed in court to have backstopped part of the junior bondholders’ rival £3bn loan plan.
Covalis said it “cannot conclude whether it is possible to deliver a binding bid by the end of April 2025” unless it has more access to information and engagement with the utility’s management, according to a separate letter sent by Covalis to Judge Leech on Thursday. Neither the chair or chief executive had attended the most recent briefing to equity providers on January 28, the letter said.
The class A creditors, which include US hedge funds Elliott Management and Silver Point, are preparing a “creditor bid” for the utility in the event the Rothschild process does not succeed, the court also heard.
While the next round of bids is due on Monday, Leech is not expected to make a ruling on the loan until the end of next week at the earliest, and there is potential for an appeal.
“The government is closely monitoring the situation, and it would be inappropriate for the secretary of state to comment further on ongoing legal proceedings or private company financial matters,” the Department for Environment, Food & Rural Affairs said.
Ofwat declined to comment.
The absence of Ofwat and the government left the public interest case to be made by Charlie Maynard, a Liberal Democrat MP, whose barrister argued that only a third of the emergency loan’s proceeds would reach the utility after interest payments and other costs. Under cross-examination, Thames Water’s chief financial officer conceded its total bill on restructuring lawyers and advisers could also climb to £200mn.
“It shouldn’t have taken a pro bono intervention by a junior to cross-examine the CFO for those sorts of costs to come out,” William Day, Maynard’s barrister, said in his closing argument.
