Legal Implications of Thames Water's £3bn Rescue Loan
Thames Water, the UK’s largest water and waste company, was set to go into insolvency by the end of March this year due to an accumulation of almost £19 billion worth of debt. However, through a rigorous High Court battle, the company finally secured a £3 billion rescue loan, allowing it to restructure its debts and attract prospective new investors. The accumulation of debts was originally caused by a combination of actions by its shareholders, poor management, and climate change. Prior to the rescue loan, Thames was on the brink of collapse as a company and being nationalised. However, a smaller group of secondary creditors proposed a ‘creditor bailout’, which would ultimately provide the company with the same funding.
The first £1.5 billion instalment of the loan will see the company through until the end of autumn 2025, and the second instalment will be used to fund the company in the process of appealing a decision by Ofwat over how much Thames could raise the household bills by.With the struggles of climate change, many other water companies argue that bills should be higher and that they were kept too low for far too long. With the High Court confirming its decision on February 18, the loan is now in effect. But what are its legal implications?
With regards to the legal implications of this loan, there was a dispute in the High Court on the grounds of public interest. Charlie Maynard, Liberal Democrat MP for Whitney in Oxfordshire, gave a witness statement to the High Court, opposing the loan and said: “Allowing Thames to take on £3 billion more debt is not in the interests of their millions of customers.” With public interest in mind, although it may not seem beneficial to allow Thames to take on even more loans, it is crucial that public services remain uninterrupted, as argued by Justice Leech.
There have also been claims that the creditor bailout from two existing creditors breached competition law. The two groups, Class A Ad-Hoc Group (AHG) and Class B AHG, opposed each other in court, arguing over which deal was better. Class B accused Class A of ‘bid-rigging’, where groups of firms unlawfully conspire to manipulate the bidding process, which is prohibited under the Competition Act 1998. However, Justice Leech ruled that the ‘June Release Condition’ (JRC), which allows Class A creditors to dictate the terms of funding beyond June 30, does not have a ”chilling effect’’,as stated by Richard Heis, on the equity raise and the bidding process. Thus, Justice Leech held that on the balance of probabilities, the creditor bailout did not evidentially breach any competition laws.
Through the lens of Thames’ customers, they will now “bear the brunt of massive interest payments through higher water bills, paying for corporate failure” , claimed the chairman of River Action, Charles Watson. As the interest rate for this loan is almost 10%, Thames will approximately accrue £300 million in interest over a year, which adds an extra £250 a year to the average water bill, increasing them by almost 53%. However, Ofwat has reported that it would like to increase water bill expenditure by only 21% (£19 a year), which would significantly reduce the amount spent on water bills a year by the average family in London and across the South-East. Although executives at Thames are aware of the impact on its customers, they still intend to offer bonuses and competitive salaries in order to attract talent, which consequentially passes the financial struggles of the company to its customers.
By Fiza Ashraf
