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Thames Water faced mounting opposition in its attempt to win court approval for an expensive £3bn loan on Monday after the judge agreed to hear “public interest” objections from environmental campaigners and another group of creditors sought to block the plan.
A group of bondholders and lenders represented by the regulated utility’s parent company — Thames Water Limited — released court documents opposing the emergency funding for the first time. They argued that the “ransom terms” on the funding would allow lenders to make a “handsome return” on an “essentially risk-free” deal, which would give them “effective control” over any future restructuring.
The intervention came at the start of a crowded four-day court hearing, in which Britain’s biggest water utility is seeking approval to take out up to £3bn in loans from its so-called class A bondholders, which include US hedge funds such as Elliott Management, to stave off an imminent cash crunch.
The proposed loan carries a hefty 9.75 per cent annual interest rate, as well as further fees and onerous terms that critics argue will hand the lenders greater control over the company.
London’s High Court on Monday also allowed Charlie Maynard, a Liberal Democrat MP representing environmental campaigners in the Oxfordshire constituency of Witney, to speak for the “public interest and the consumer interest” in considering Thames Water’s restructuring proposal.
In documents submitted to court, Maynard argued that Thames Water’s restructuring plan was a “poor, short-term fix” that “aggravates rather than mitigates the Thames Water debt doom loop”.
Without the loan, Thames Water says it will run out of cash on March 24 and risk crashing into the government’s special administration regime, a form of temporary renationalisation. This process would allow services to keep running while the debt is frozen ahead of a potential restructuring and sale of the business, or a full nationalisation.
The loan proposal has led to an increasingly bitter spat between the company and its lower-ranking class B bondholders, who claim that the utility has not properly considered their rival offer, which they say comes at a lower cost and with less restrictive terms.
These class B lenders, who could face near-total losses if the company’s proposed restructuring went ahead, have argued that they would fare better under a special administration than under the company’s plan.
They argued in written submissions to court that the planned loan from class A creditors had “inbuilt control mechanics” that were typical of “an aggressive loan-to-own strategy adopted by distressed [debt] hedge funds”.
Thames Water has said that the loan is a necessary bridge to a wider restructuring, which will give it time to raise equity from new investors and renegotiate its debts.
Maynard argued in his written submission that the class A loan “provides a bridge to nowhere” and the “better and fairer course would be a special administration”.
A judgment is not expected for at least a week after the hearing is scheduled to end on Thursday.
