Thames Water’s bondholders locked horns at the convening hearing of the restructuring plan proposed by its senior (class A) bondholders yesterday. Junior (class B) bondholders claimed that the class A bondholders were “holding Thames Water to ransom” over its £3bn restructuring plan and, in an unprecedented move, submitted their own rival restructuring plan in parallel. 

The class A restructuring plan faced substantial opposition from the class B bondholders, who argued that their alternate plan had not been properly considered and would deliver an equivalent loan on preferential terms and at a lower interest rate. The senior bondholders dismissed the class B plan as an “unimplementable distraction to further its own interests”. Neither restructuring plan alone will comprehensively solve Thames Water’s financial difficulties, as the lending will simply extend Thames Water’s liquidity runway until a deal can be struck with Ofwat on the amount by which bills can be increased in the future.

The judge at yesterday’s hearing confirmed that the fairness of the class A plan will be considered at the sanction hearing which has now been scheduled for February, when we can no doubt expect more mud-slinging from the class B bondholders and other potential stakeholders.

Counsel for Thames Water argued that the “relevant alternative” to the proposed class A restructuring plan is special administration. According to a report prepared by Teneo, this alternative would apparently be disastrous for all bondholders with class B bondholders receiving nothing, while class A bondholders would recover less than half of their investment. These stark findings underscore the high stakes involved and the potential consequences of failing to reach a consensual restructuring agreement.

Watch this space for Ofwat’s determination on customer bills which could potentially derail the proposed rescue of Thames Water and, at the very least, will no doubt impact upon the sanction hearing in February.