Thames Water restructuring plan should not have been approved, court told

A plan to restructure Thames Water through a loan of up to £3 billion should not have been approved as its terms are “mispriced and inappropriate”, the Court of Appeal has been told.

In February, the High Court sanctioned a restructuring scheme proposed by Thames Water Utilities Holdings Limited (TWUH), the parent company of Thames Water Group (TWG), allowing the utility to stay afloat.

The plan, known as the “company plan”, effectively guarantees that England’s biggest water company can keep operating until 2026 by providing £1.5 billion of funding, with a further £1.5 billion potentially available, with a 9.75% interest rate.

But a group of TWUH’s secondary creditors, along with TWUH’s parent company, Thames Water Limited (TWL), and Liberal Democrat MP Charlie Maynard, are challenging the decision to sanction the plan at the Court of Appeal, claiming that Mr Justice Leech was wrong to approve it.

In written submissions for a hearing which began on Tuesday, Andrew Thornton KC, for TWL, said that the company plan was “designed by senior lenders for the benefit of senior lenders”.

He said: “The outcome of this plan, if upheld, will enable senior lenders to extract from the group vast sums in fees and costs.

“The terms are mispriced and inappropriate.”

The High Court heard earlier this year that TWUH provides services through a direct subsidiary, Thames Water Utilities Limited (TWUL).

It serves about 16 million customers – about 25% of the UK’s population – and owns more than 20,000 miles of water mains and more than 68,000 miles of sewers across London, the Thames Valley and the Home Counties.

Lawyers for TWUH told the court last month that it was set to run out of money by the end of March and would enter special administration (SAR) if the company plan was not approved.

The restructuring is intended to be an interim measure to keep the utility running before a substantive restructuring due later this year, the court was told.

The company plan was approved by creditors holding more than 75% of its Class A debt, which is worth about £11.5 billion and is the least risky class of bonds in its debt pile.

But the company’s Class B creditors opposed the approval of its plan and proposed an alternative, which they claimed was “substantially similar” to the company plan but included “better economic terms”.

In a 178-page ruling, Mr Justice Leech ruled that he “ought to give the plan company an opportunity to finish the jigsaw” through the later substantive restructuring.

He added that he was “not satisfied” that Thames Water customers will “have to bear the finance costs of the plan”, and that there was a “public policy in favour of rescuing the Thames Water Group”.

He also dismissed the Class B creditors’ bid to present their alternative restructuring plan to creditors.

But Mr Thornton told the Court of Appeal in London that Mr Justice Leech “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”.

He added that the judge “failed to apply the correct principles” when making his decision, and therefore “wrongly exercised his discretion to sanction the plan”.

Barristers for Mr Maynard, the MP for Witney in Oxfordshire, previously told the High Court that allowing the company to enter SAR was a “better and fairer course” which served “the public interest and customers’ interests”.

William Day, for the MP, told the Court of Appeal in written submissions that the sanctioning of the plan should be overturned, and that customers and the public “are affected by this plan”.

He said: “The plan should be rejected on the basis that its terms and cost are much worse for the Thames Water Group, in particular, TWUL, than rescue by special administration.”

TWUH and its Class A creditors are opposing the appeal.

Tom Smith KC, for TWUH, said in written submissions: “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.

“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.”

He continued: “It is hard to conceive of a less meritorious position: a person who has no skin in the game seeking to set aside a plan in order to cause loss and disruption for others who do.”

The hearing before Sir Julian Flaux, Sir Nicholas Patten and Lord Justice Zacaroli is expected to conclude on Thursday.