Thames Water has wrapped up its week in court with its creditors, and it lays bare some ugly truths.
The evidence given by the company’s officers and advisers, and by the rival groups of creditors — broadly representing holders of senior Class A and subordinated Class B debt — shows that the UK’s largest water company is trapped in a tangled web of claims and counterclaims, exceptions, waivers and conditions precedent.
With seven weeks to go until it runs out of money, Thames is trying to secure emergency funding. The Class A creditors propose to lend it £1.5bn now and another £1.5bn if necessary later. It would have to pay a 9.75% coupon and original issue discount of 3%.
The Class Bs want to provide £3bn now, at an 8% coupon. Both groups claim they have the money and are ready to go.
Thames Water’s chief financial officer admitted the B plan was cheaper. But Thames does not believe it can be implemented quickly enough in practice, and it has already gone a long way down the road to implementing the A plan, including securing creditors’ approval.
This conflict stems from October, when, according to the B group, they were “ejected” from what had till then been a group including members of both classes. The A team dispute this account.
But what is clear is that issues of vital national importance are being decided through a duel between antagonistic creditors, backed up by their legal and advisory seconds, rather than anything approaching a process in which the public can have confidence that the best outcome will be reached.
GlobalCapital has already commented on the dreadful leadership vacuum into which Thames Water has been sucked by the desertion of its shareholders a year ago and the government’s reluctance to intervene until Thames is actually on its knees. We argued in November that Thames should be nationalised immediately, but the A and B creditors be kept whole.
In this chaotic maelstrom, the court is the only presiding authority. It would clearly be better for Thames and the A and B creditors, and those who say they are willing to provide loans, to get round a table and thrash out a deal that would satisfy them all. Instead, the issue is fought out through a hail of legalese and statements in evidence that contradict each other.
One suspects that the real issue at stake is the unspoken one, to be decided separately later this year — how much money the A and B lenders will have to lose, and whether they can recover any of it by helping to finance the turnaround.
As a way to organise the restoration of a vital national asset, this legal tournament is perverse.