By Sarah Young and Paul Sandle
LONDON (Reuters) -Britain’s Thames Water started trying to convince a London court on Tuesday to approve a 3 billion pound ($3.8 billion) lifeline, one of several hurdles it must clear to avoid nationalisation.
A High Court judge is hearing from Britain’s biggest water supplier and its creditors before deciding whether to approve the rescue, without which Thames will soon run out of cash.
Thames, which has 17 billion pounds of debt, is confident it will succeed as more than 75% of senior creditors support the plan. But a group of lower-ranked creditors remains opposed, setting up a potential legal showdown early next year.
Thames said in court documents its plan was “urgent”, as its current liquidity only lasts until March 24 and the only alternative to the lifeline was administration.
Thames Water’s lawyer Tom Smith told the court that the question for all creditors was the same: “Should we give the group temporary liquidity…or should we pull down the shutters now?”
But the group of lower-ranked ‘B’ creditors disputes this, arguing that its plan offers an alternative for providing new, cheaper liquidity to Thames.
“(The Class B creditor group) does not consider that the high financing costs and entrenched control that the Class A creditors will have over any subsequent recapitalisation transaction, if the plan is sanctioned, is in the best interests of the group, its creditors or its customers,” its lawyers said in court documents.
The court will consider the viability of the ‘B’ plan next year.
The ‘A’ group said in court documents the cost of funding for its plan would be 327 million pounds, 10 million pounds more than the Class B plan once the structure of the consent fee is taken into account.
Thames instructed Eraj Weerasinghe of Kroll and Matt Cowlishaw of Teneo Financial Advisory to prepare valuations for its lifeline and restructuring plan versus special administration.
Cowlishaw said that under administration there would be no value for Class B debt, and he concluded that no creditor class would be worse off under the company’s plan.
Thames and the A group argued that the reports showed the Class B creditors were deeply out of the money, and Smith said pursuing the ‘B’ proposal could result in default.
A spokesperson for the ‘B’ group said on Wednesday it would continue to work on its parallel restructuring plan and would “come back to the court in due course”.
Tuesday’s High Court hearing will be followed by a creditor meeting in January and further legal hearings in the new year.
Thames was plunged into crisis in March when its owners refused to stump up new cash, calling the utility “uninvestible” and putting the government on standby to nationalise it. The government has said its preference is for a market-based solution.
As well as the lifeline, Thames needs to secure 3.25 billion pounds in equity and to restructure its debt.
The water regulator will announce on Thursday how much Thames can charge customers for the next five years, a decision that could make or break the equity raising.
($1 = 0.7906 pounds)
(Reporting by Sarah Young and Paul Sandle. Additional reporting by Sam Tobin and Andres Gonzalez. Editing by Alexander Smith and Mark Potter)
