Thames Water secures backing for £3bn lifeline

13th Nov 2024 07:18

(Sharecast News) - Thames Water has received backing to take out a £3bn emergency loan, it confirmed on Wednesday, as the vastly-indebted utility tries to stave off a cash crunch.

The crisis-hit business, which has built up a debt pile of around £19bn, warned earlier this year it was at risk of running out of money as early as spring 2025.

In a bid to stave off collapse and being renationalised, a proposal was announced late last month to secure a £3bn "liquidity bridge", and on Wednesday Thames Water confirmed that 75% of the holders of its least-risky Class A debt had backed the deal.

As a result, the staged funding package, which needs High Court approval, can now go before a judge on 17 December.

Thames Water said the loan would give it enough funding to continue until at least October 2025.

A spokesman for the Class A bondholders said: "This is a decisive vote of confidence in the first stage of our restructuring plan for Thames Water from a large group of its creditors."

The deal will add to Thames Water's debt pile, however. The utility will initially receive £1.5bn with an annual 9.75% interest rate, with a further £1.5bn due upon certain conditions.

Thames Water wants to hike customer bills by 53%. Regulator Ofwat, which is not supportive of the move, will make its decision in the coming weeks.

Should it refuse the hike, the remaining £1.5bn will be released.

Thames Water supplies water and sewage services to around 16m homes. But its performance record is dire, including multiple leaks and sewage discharges.

It has also faced stinging criticism for paying out high dividends while building up debts and failing to invest. It has since admitted that its ageing infrastructure poses a risk to public health and safety and will cost billions to fix.

It was thrown into financial crisis in March when its owners, pension funds Omers and USS, as well as a number of sovereign and private equity funds, refused to put extra equity into the struggling business, calling it "uninvestable".

Its credit rating was then slashed to 'junk'.

Holders of more risky Class B debt have proposed a competing deal, but Thames Water is backing the Class A plan. A spokesman for the Class B bondholders said they would "continue to press for a better alternative".