Thames Water: Emergency loan should not have been approved, court told
A £3bn emergency loan that temporarily averted Thames Water’s special administration should not have been approved, a court has been told.
The Court of Appeal on Tuesday heard the terms of the agreement were “mispriced and inappropriate.”
Thames Water, which serves around 16m customers in the UK, has been battling to stave off collapse amid a collosal £19bn debt pile.
The embattled utility was given the green light by the High Court last month for a £3bn emergency loan from a Class A group of creditors, which has given it a temporary lifeline.
But a group of secondary creditors, along with the Lib Dem MP Charlie Maynard, are challenging the decision in a three-day hearing at the Court of Appeal this week. Thames Water’s parent company and the Class A creditors are opposing the appeal.
Critics of the loan argue the arrangement is merely a short-term fix and will go nowhere in solving the company’s wider issues.They say taking the company into special administration would be firmly in the public interest.
In written submissions to the first day’s session, Andrew Thornton KC said the plan was “designed by senior lenders for the benefit of senior lenders.
He claimed it would enable senior lenders to “extract from the group vast sums in fees and costs.”
Mr Thornton told the Court of Appeal that Mr Justice Leech, the judge in the initial High Court case, had “failed to appreciate and overlooked the role of the court’s discretion in deciding whether the plan is fair and justified, including if a fairer alternative is available.”
Tom Smith KC, acting for Thames’ parent company, said in a written submission: “The judge’s decision to sanction the plan was a complex, multi-factorial, evaluative exercise.
“A number of the judge’s key findings arise from his determination of facts or evaluation of the evidence.
He added: “An appellate court should not interfere with findings of facts, the evaluation of those facts or the inferences to be drawn from them unless compelled to do so because they are plainly wrong.”
Under the current terms, the loan carries a 9.75 per cent annual interest rate and will cost £898m over the next half-year.
Ahead of the hearing on Tuesday, the Financial Times reported bond fund Pimco had already recorded a 17 per cent paper profit on its portion of the £3bn loan.
A source familiar with the secondary creditor’s position argued Thames had come under “predatory tactics” by the Class A creditors, whose “primary objective is to take control of the company for excessive returns rather than supporting its operational turnaround for the benefit of customers and the environment.”
“Thames Water has attempted to portray a special administration (SAR) as a worst-case outcome, but in reality, SAR would provide an opportunity for a structured, fair, transparent, and competitive process—ensuring that all stakeholders, including customers, benefit from a fair and sustainable solution,” the source added.
“SAR reduces uncertainty for customers by establishing a clear process with public accountability and guaranteed funding for sufficient liquidity.”
Thames Water’s Class A Creditors have previously said a SAR would “signal regulatory failure and impose billions in additional costs on UK taxpayers, diverting money away from pressing public service priorities.
“Any turnaround in a SAR would be prolonged and asset improvement made more expensive by the disruption to customers and the supply chain.”