LONDON — A judge approved an emergency plan Tuesday to keep Britain’s largest water company afloat, averting the possibility of a temporary government takeover.
Thames Water, which serves 16 million customers in and around London, was seeking court approval for about 3 billion pounds ($3.8 billion) in rescue loans to prevent it from being nationalized when it runs out of cash next month.
Justice Thomas Leech ruled in the High Court in London that the company’s restructuring proposal was a better alternative for the public than having Thames Water become insolvent and come under government administration, or a competing plan by a small group of investors.
“There is a public policy in favor of rescuing the Thames Water Group and giving the market a chance to agree a permanent restructuring plan before the government is forced to fund a special administrator,” Leech said.
Leech gave permission to appeal to the smaller group of creditors who had proposed a plan that they said would be cheaper and a member of Parliament pushing for a government takeover.
Without the funding, Thames Water would run out of money next month, which could force the government to temporarily take the reins. Both the government and Thames Water said water would continue flowing to customers regardless of what happens.
The decision was applauded by Thames Water Chairman Adrian Montague as a “significant milestone” to strengthen the company’s finances.
Thames Water has been the focus of criticism from consumers and politicians who say the company was the author of its own misfortune, paying overly generous dividends to investors and high salaries and bonuses to executives while failing to invest in pipelines, pumps and reservoirs.
Company executives say the fault lies with regulators who kept bills too low for too long, starving the company of the cash it needed to fund improvements.
Thames Water and the industry that manages water and wastewater services have been the subject of nationwide disgust and outrage over rampant sewage spills in rivers and along the coast.
“This national scandal is a disaster for Thames Water billpayers and the environment,” said Charles Watson, chairman of River Action, an environmental group. “Instead of recognizing now is the time for a special administration of Thames Water, the decision saddles customers with the responsibility for funding billions of junk-rated debt while its executives, investors and shareholders escape responsibility.”
Ofwat, which regulates water companies in England and Wales, in December approved a 35% increase in Thames Water’s consumer charges over the next five years. The company argued that bills needed to rise by 53% in order to finance needed projects and provide the financial returns necessary to attract investors.
The company faces massive penalties for sewage discharges, including a fine of more than 100 million pounds ($126 million) by Ofwat in August for failing to manage its wastewater treatment.
Leech had been considering competing proposals to provide credit to the cash-strapped utility — one from Thames Water and a second supported by a smaller group that claimed the company’s plan was too expensive and favored bigger investors. Creditors holding most of the company’s debt backed the company deal.
Critics of the plan said the high interest rate — 9.75% — would enrich creditors who are making the loans, a point noted by the judge.
“The costs of finance and adviser fees in the present case are very high. Indeed, they might be described as eye-watering,” Leech said. “50% of the scheduled loans go round in a circle and back into the pockets of the plan creditors.”
Still, Leech said the alternative of government administration, which he said was preferable to the so-called Plan B, wasn’t as attractive as the company plan.
Charlie Maynard, a member of Parliament from the Liberal Democrat party who had argued in court for the government takeover, said he planned to appeal the ruling, insisting that the short-term bailout wasn’t in the long-term interest.
“This restructuring is simply throwing good money after bad,” Maynard said. “The money from our bills which is being spent on interest repayments is desperately needed to repair water infrastructure, improve customer service and clean up our rivers.”
