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A £3 billion loan deal designed to prevent Thames Water from going bust looks set to go ahead after Court of Appeal judges rejected several appeals against it.
On Monday, Sir Julian Flaux, sitting with Sir Nicholas Patten and Lord Justice Zacaroli, dismissed the appeals made by a group of the utility’s secondary creditors, as well as TWUH’s parent company, Thames Water Limited (TWL) with reasons to follow in writing “in due course”.
Thames Water’s chief executive Chris Weston said the firm was “pleased” that the Court of Appeal had upheld a “strong High Court decision”.
The plan had originally been approved in the High Court in February, and could give bosses time to find a longer-term source of funding.
But why does it need the emergency money, and what does it mean for consumers?
What’s going on at Thames Water?
In February, a £3 billion funding plan for Thames Water was approved by a High Court judge.
The utility company supplies about 16 million households across London and the South East – about 25 per cent of the UK’s population.
But it has at least £16 billion of debt, and had previously warned it only had enough money to keep running until March 24.
The new financing is designed to stop it from going bust, which would have resulted in it temporarily falling into government hands.
What happened?
While the latest funding package is being provided by a set of Thames Water’s senior creditors – or lenders – a rival group of secondary creditors had appealed against the decision.
They had argued that the deal only benefited the senior creditors, and said the terms were “mis-priced and inappropriate”.
Also appealing was a Liberal Democrat MP, Charlie Maynard, who said Thames Water should instead be allowed to go into administration to better serve customer interests.
On Monday, those appeals were dismissed, setting the company on course to get access to the funding package.
Why are people angry about Thames Water?
Thames Water has been at the centre of a growing scandal in the wider water industry.
Bills will climb steeply over the coming years, while privately-run water firms are still pumping raw sewage into rivers and waterways.
That is despite a succession of penalties from regulators Ofwat and the Environment Agency.
Meanwhile, many bosses, including those at Thames Water, have still been given large bonuses in the last year.
Why does Thames Water need this emergency money?
The company’s debts are so high and its cash reserves are so low that bosses have said it will go out of business in March without extra cash.
The taps in people’s homes would still work – but it would be damaging for the finance firms that Thames owes billions of pounds to.
Many of them would have seen those debts written off, resulting in hefty losses.
Thames Water would instead come under temporary government control until a new buyer is found.
Labour previously said it wants to avoid that scenario, citing extra costs to taxpayers of running the water company.
Experts have argued those costs will eventually be recouped by the proceeds of selling Thames Water back to a private sector buyer further down the line.
So what happens next?
The £3 billion is thought to be enough to last Thames Water for about one year.
It buys bosses some more time to find a permanent source of funding, which will likely come by selling the company.
Thames Water’s chief executive Chris Weston said the latest decision marks “further progress” in attempts to turn Thames Water around.
A spokesperson for the group of senior creditors said they “hope this brings to an end the ongoing legal distractions”.
He added that customers “will not bear the costs of the restructuring”.
“We will now be working with the company to allow it to move forward and access the money it needs to continue to invest in the business and work with stakeholders to complete an equity process this summer.”
What’s the catch?
The new loan is being provided by Thames Water’s senior creditors – namely companies it already owes about £11.5 billion.
They are mostly made up of hedge funds and other finance firms, including Abrdn, M&G and others who are charging an unusually high interest rate of 9.75 per cent, plus fees.
The High Court judge who approved the deal in February described the terms as “eye-watering.”
Over the 2.5-year life of the loan it could cost about £800 million in interest payments and fees, experts have calculated.
Earlier this year, a group of MPs said it would force households to pay an extra £250 over the next five years to cover the costs.
Currently, about 28 per cent of Thames’ bills service its debts, a figure which is expected to rise to 31 per cent this year.
So what about my water bills?
In December, regulator Ofwat said Thames Water will be allowed to raise bills by 35 per cent by 2030, an average of £152 more than current levels.
Ofwat said the lion’s share of that increase, about £108 of it, will come in the 2025-2026 financial year.
But Thames Water is also appealing to regulators to let it to charge customers even more than this, in a move which consumer groups have railed against.
Company chairman Adrian Montague said in February that the appeal is aimed at “putting the business on a long-term stable footing”.
