Thames Water Making Plans for Possible Special Administration

(Bloomberg) — Thames Water is preparing for the possibility that it may be pushed into special administration following an appeal in a London court next week, according to people familiar with the matter.

While Thames executives believe a temporary nationalization of Britain’s largest water and sewage utility is unlikely, they are nevertheless developing contingency plans, said the people, who asked not to be named discussing confidential matters.

The company’s efforts to restructure its more-than £16 billion ($20.6 billion) debt load hinge, in part, on what happens next week, when the UK’s Court of Appeal will hear challenges to Thames Water’s plan to raise emergency funding. 

Although Thames has started the process of accessing a £3 billion emergency loan from existing senior creditors, dissenters including junior creditors are asking the court to block the funds. If the court agrees, the utility will be forced into special administration, a temporary nationalization similar to insolvency for businesses that provide critical services. 

The court case is the latest example of how the UK water industry has been roiled by crises following decades of poor regulatory oversight that allowed company owners to pay themselves billions of pounds in dividends instead of using the money to improve infrastructure. Customers are now footing the bill to bring the network up to scratch.

Dissenting parties — including Charlie Maynard, a Liberal Democrat lawmaker who says he’s acting on behalf of Thames Water customers in his constituency — are asking the court to overrule the emergency loan green-lit in February and arguing that the company would be better off under special administration.

Thames Water would prefer to secure emergency funding to continue operating and push back all debt deadlines pushed by two years, a plan supported by a majority of its senior creditors. 

“We remain confident in our plan and are focused on its delivery,” a Thames Water spokesperson said. “It is better than any other alternative course of action and we do not believe that the grounds for appeal meet the required thresholds.” 

The UK government has also been preparing for the possibility of nationalization but prefers a market-based solution. 

“The company remains stable,” a government spokesperson said in a statement. “It would be inappropriate to comment further on the financial matters of a private company.”

In parallel to the court process, Thames Water has been seeking new equity after its existing shareholders declared the business “uninvestible.” Thames Water has hired Rothschild & Co. to run the official equity process, which has attracted interest from investors including Castle Water Ltd. and KKR & Co. 

CK Infrastructure Holdings Ltd. is also considering taking a majority stake in Thames Water and has held discussions with the utility outside the official Rothschild-run process, Bloomberg previously reported. 

Bidders from the Rothschild process would also have to strike an agreement with the existing creditors of Thames Water over how to restructure the utility’s heavy debt pile and make it more sustainable going forward. 

Thames is also appealing to the UK’s Competition and Markets Authority to examine a recent decision by the industry regulator on how much it’s allowed to charge customers and return to investors.

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