Creditors plea over Thames Water plan bailout

THAMES Water creditors have appealed to the water regulator to defer fines as a condition of the company’s multi-billion pound bailout.

The group of more than 100 financial institutions hold about £12 billion of the firm’s debt and are negotiating a rescue package that could entail converting debt into equity for creditors.

The Sunday Times reported that the group of lenders wants Ofwat to pause the fines or impose undertakings instead of financial penalties while the company attempts to turn around its financial position.

It is understood that this could be for several years as Thames Water is currently labouring under a £19 billion debt pile.

The creditors want assurance that fresh money injected into the firm would be invested in upgrading the company’s crumbling infrastructure and not used to pay fines imposed by the watchdog.

A source with knowledge of the talks said that without the concessions from Ofwat the investment wouldn’t work for the creditors.

They said: “It is a red line at the moment. Investors need confidence that when the company is still turning the corner, you don’t suddenly find all that equity that you earmarked for investment is being fined away on penalties because you just can’t hit a set of targets that were unrealistic.”

The company, which serves 16 million customers in the South-East, has received fines for licence breaches including sewage spills, water leaks and awarding undeserved dividend payments to its holding company.

This includes a record £104 million fine imposed by the regulator last August for failing to manage sewage spills and polluting rivers.

If the conditions imposed by the creditors are not agreed to, it could throw the refinancing of the company into uncertainty.

Last month, the High Court granted an application by Thames Water to secure a £3billion emergency loan with a 9.75 per cent interest rate, set to be delivered in two tranches of £1.5 billion later this year.

The company said it was set to run out of cash by March 24 if the loan was not approved.

The first instalment of the bailout will ensure it can continue operations up until autumn.

Failure to secure the loan would have also increased the likelihood that the company would be placed in special administration or renationalised.

The Government has said it would prefer a market solution to renationalisation.

Campaigners have criticised the court’s decision, saying that £443million of the loan will be immediately spent on interest payments and unspecified costs to the creditors.

Another £245 million will go towards existing interest payments while professional fees will amount to another £210 million.

Junior creditors who collectively hold about £750,000 of the firm’s debt face being wiped out in the deal.

They have lodged an appeal which will be heard in the Court of Appeal on Tuesday.

Ofwat wouldn’t comment.