Thames Water restructuring: Battle of bondholders over emergency loan

Thames Water has long been struggling to raise equity to enable them to continue to operate. During a hearing in December 2024, two classes of bondholders disputed the company’s proposed £3billion emergency loan from senior-ranking lenders. The junior lenders contend the senior lenders were effectively “holding [Thames Water] to ransom” with their onerous and “extremely expensive” loan proposals.  

In the absence of the proposed £3 billion loan, Thames Water is projected to exhaust its available liquidity by 24 March 2025, and therefore is likely to necessitate the company’s entry into the government’s special administration regime. Entry into such a regime will likely result in Thames Water being sold or even re-nationalised.  

In light of these circumstances, Mr Justice Trower scheduled a hearing to take place in February 2025, to enable the proposed loan to progress to the next stage of the court approval process. However, the junior lenders have sought to introduce a restructuring proposal of their own. Litigator Helen Rainford explores this case further… 

Thames Water restructuring – case background

The UK’s largest water company who serves 16 million customers, announced last year it was facing debts of £15.2 billion however, this is now estimated to be around £17 billion. After receiving £1.8 billion in funding last year, Thames Water believed this would keep it going until May 2025, however a recent court document suggests this is more likely to be March 2025. Thames Water has since struggled to get an equity raise approved and May 2025 is quickly approaching. It has now taken urgent action so it can continue to operate by taking out a £3 billion emergency loan.  

Thames Water’s creditors

There are two classes of creditors of Thames Water: senior (class A) bondholders and junior (class B) bondholders. Class A creditors will be paid back ahead of any class B or other bondholders. However, the expectations for those class B bondholders to recover the sums due to them are low and should Thames Water be re-nationalised, those class B bondholders will likely face heavily losses or even see the sums due to them wiped out.  

The submission of the class A bondholder’s restructuring plan has sparked a dispute between the classes of creditors. Whilst the plan obtained approval from creditors holding approximately 89% of Thames Waters secured debt, their proposed plan was not welcomed and in turn, heavily criticised by the class B bondholders. As a result, the class B bondholders have filed an objection to the plan and provided their own alternative plan. 

The Class B creditor group said, “The Alternative Restructuring Proposal provides Thames Water with significantly more committed funding on much cheaper and more flexible terms as compared to the Class A restructuring plan“. However, the class A bondholders have dismissed this plan as an “unimplementable distraction to further its own interests”, arguing the class B bondholders were seeking to “draw out the timeline” in proceedings in the hope of “improving their position”. 

The class B restructuring proposal sought to obtain an equivalent loan in the sum of £3 billion however on more preferential terms and at a lower interest rate. The proposal put forward by the class B creditors includes a loan at an interest rate of 8%, significantly lower than the 9.75% rate contained within the class A restructuring proposal.  

A court hearing is scheduled for early February 2025 to review the plan put forward by the class A bondholders and consider the fairness of such a proposal, with a further hearing later that month to review the class B creditors proposals.  

Comment

The unfolding saga of Thames Water’s restructuring highlights the complex interplay between competing creditor interests and the financial pressures on essential service providers. Furthermore, this case marks the first time that a court has been asked to consider rival restructuring plans under the new restructuring regime since 2020. 

As the February 2025 hearings approach, the court’s consideration of competing restructuring proposals will likely set an important precedent under the relatively new restructuring regime. The outcome will not only determine the future of Thames Water but may also shape the landscape for future restructuring cases involving heavily indebted companies providing vital services. Ultimately, the court’s decision must strike a delicate balance between safeguarding the interests of creditors and preserving the operational viability of the UK’s largest water supplier. 

 This dispute must also consider the decision in the recent High Court decision approving Cineworld’s latest restricting plan last year. The judge highlighted the need for companies to carefully consider the body of their creditors of a whole when seeking to agree a restructuring plan. Accordingly, any decision by the court will require careful consideration as to whether any creditor would be worse off by the two proposals.