Thames Water faces a Christmas credit crunch

Thames Water is facing a Christmas liquidity crunch that could force it to seek legal protection from its creditors.
The country’s biggest water supplier said it was in talks with its creditors to release funding to roll over or extend facilities beyond the end of the year. Without it, the company said it would enter into a “financial standstill” in which it would seek protection from its creditors to avoid forcing the business into insolvency.
Thames Water is creaking under £16.5 billion of debt, has been abandoned by shareholders who have judged the company uninvestable and only has enough reserves to see it through to next May. Concerns are growing that it faces the appointment of special administrators, unprecedented since the privatisation of the water industry, or an emergency renationalisation.
In a statement the company said: “As contingency planning, we have entered into discussions with our financial stakeholders to release cash reserves under our financing. This would require majority creditor consent. If consent were not forthcoming and should it not be possible to draw the Class A and/or Class B [debt] facilities, available cash and cash equivalents would expire at the end of December 2024, whereupon we would enter standstill under our financing.”
Thames Water serves London and the Thames Valley west of London. Its supply and sewage networks touch 16 million people, about a quarter of the country’s population.
It is in financial crisis after years of mismanagement and shareholders taking dividends out of the company. Underinvestment in the business has resulted in fines and penalties for pollution, leakage in its mains supply and poor customer service. With debts of up to 80 per cent of the value of its assets, the cost of servicing its debt has spiralled during the high interest rates of the past two years.
It is understood that some creditors were taken aback by the statement by Thames as they had believed that discussions for an interim refinancing from debtholders had been progressing positively.
“The language is not helpful,” said one informed source. “We have been aiming for a bridge to a market-based solution that will bring stability to the company and avoid a costly, disorganised special administration.”
Thames Water is in parallel negotiations with the industry regulator Ofwat over its next five-year business and financing plan from next April. The regulator has opposed the company’s demand to raise household bills by 44 per cent to catch up on maintenance and upgrades. Instead, Ofwat has put the company into special measures with external monitors in place.
The failure to cut a deal with the regulator has led its coterie of nine international shareholders, including funds from the governments of China and Abu Dhabi, to refuse to put up a previously pledged £3.5 billion in cash to see the business through to the next five-year funding deal.
Thames is trying to find new equity investors but it is not expected that any funds will sign up to become shareholders and agree to inject cash until the final determination of Ofwat’s five-year settlement. The final determination, already delayed, had been expected in the week before Christmas but it is increasingly likely because of the complexity of its crisis that in Thames’s case it could be put back to January.
Thames’s best bet is widely regarded as a deal with the dozens of banks and funds that have lent it money that could swap outstanding debts for equity stakes and leave creditors taking a haircut and writing off their exposures. In any event, the business still needs to raise the extra £3.5 billion of financing outside of its settlement for annual customer bills, which bring in £2.5 billion a year.
In its latest update the company revealed how desperately short of money it is. It states that it has £1.57 billion of “liquidity” but £420 million of that is in undrawn facilities that it would need creditor agreement to release and a further £380 million is in ringfenced money in its reserves.