It’s crunch time for the UK’s biggest water provider Thames Water as its fate will be announced on Tuesday morning.
Thames Water finances hang in the balance with debts of £16bn and existing investors declaring the business “uninvestable”, due to the high fines it faces for environmental and other regulatory breaches and the clampdown on shareholder payouts.
But why is the utility provider in this position, what’s happening at court, and could it be nationalised if it doesn’t get the money it needs?
The short-term solution is for Thames Water to borrow its way out of the problem.
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In following this strategy the company has sought High Court approval for a £3bn rescue plan centred on an emergency loan.
That’s being provided by so-called A-class creditors who hold around £11bn in debt racked up by Thames Water Utility Holdings, the business that serves about 16 million customers in London and the South East.
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The decision on that request will be made on Tuesday morning.
Thames Water has previously said it will run out of cash by 24 March and the £3bn loan – delivered in two tranches of £1.5bn – would prevent the business from collapsing.
A controversial court battle
Two sets of creditors both want to lend Thames Water the £3bn sum, with the company favouring the A-class creditors.
But water campaigners have criticised the terms of the loan, which comes with an interest rate of 9.75% payable over two and a half years with up to a further £100m due in fees.
They’ve called on environment secretary Steve Reed to block the arrangement and force the company into special administration, effectively temporary re-nationalisation.
The terms of the loan dictate it must be repaid first if administration does happen and existing creditors would have repayment dates set back two years.
A second group of B-class creditors, who hold around £750,000 of subordinate debt, face being wiped out completely in a restructuring.
What if the loan isn’t approved?
High Court approval is contingent on 75% of its creditors agreeing to the rescue plan.
Failing that Thames Water would have to consider a plan that leaves creditors no worse off.
If the £3bn loan is not approved the chances of the company entering a special administration regime or nationalisation, are raised.
If nothing is done and no solution is reached then nationalisation could happen. The government is reportedly preparing for such an event by contacting private sector administrators.
What would happen if the deal is approved?
If the loan is approved Thames Water wants a full restructuring, taking in new shareholder investment and swapping debt for a portion of the company for existing creditors.
Thames Water last week said it was challenging the amount it can raise bills by.
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It had sought a 53% hike to bills from 2025-30.
That demand was rejected and instead, a 35% rise was allowed as part of a price determination for all suppliers across England and Wales.
Is there an alternative to nationalisation?
Companies like the UK’s biggest energy supplier Octopus Energy have expressed interest in its technology arm, managing the utility businesses’s functions.
Infrastructure CK Infrastructure Holding and water provider Castle Water are also understood to have submitted proposals to invest in Thames Water.
Nationalisation is not the preferred method in government.
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Mr Reed has said he wants a “market solution” and opposes nationalisation.
Underinvestment, mismanagement, and dividend payments have all been blamed for Thames Water’s precarious financial position.
