Thames Water has indicated that it may face restrictions on raising new debt as soon as next week as the company navigates significant challenges to ensure its continued operation.
According to the financial statements of its holding entity, the company with debt, which could experience temporary nationalization if it fails, has until October 7 to secure an extension for crucial financing.
Thames currently operates under an agreement that provides access to a revolving credit facility, essentially functioning as an overdraft, with a total value of £530 million. The facility is scheduled to conclude next week.
Thames Water Utilities Holdings indicated that the deadline represents a possible “trigger event” that could lead to a situation in which the water supplier would be “restricted from incurring new debt without obtaining approval from its creditors.”
The largest water supplier in the UK is currently facing over £15 billion in debts, which introduces significant uncertainty for its 8,000 employees and 16 million customers in London and the Thames Valley.
The deadline is categorised as a “material uncertainty” in the financial statements, as the auditors, PwC, express concerns regarding the company’s ability to continue operations for another 12 months due to a lack of “sufficient committed liquidity.” Thames possesses sufficient capital, approximately £1.6bn, to sustain operations until December, contingent upon the approval of loan extensions by lenders.
Insiders indicated that the revolving credit facility, which provides companies with adaptable access to a pre-approved credit line, was anticipated to be “rolled over.”. The group anticipates the rollover of £2.1bn in such facilities prior to December.
The utility company is currently experiencing a crisis, having encountered significant backlash regarding its sewage dumping practices. The fact that shareholders reversed their decision to approve £500 million in emergency funding earlier this year has made the situation worse. The company is in a standoff with the industry regulator for England and Wales, Ofwat, concerning the permissible increase in bills over the next five years.
In the event of the company’s failure, it is anticipated that it will enter a temporary nationalisation process, referred to as the special administration regime, to maintain the continuity of its essential services while the government assesses its long-term strategies.
The implementation of a special administration would incur substantial expenses for the taxpayer and pose considerable challenges for Rachel Reeves at the outset of her chancellorship.
Ministers remain optimistic about the potential for a “private market solution” that would enable Thames to restructure its finances independently of government intervention. Meanwhile, officials from the Department for Environment, Food and Rural Affairs and UK Government Investments are actively monitoring the situation.
According to sources, Thames’s creditors are working to finalise the terms of new loans aimed at providing “interim liquidity” before the year’s end.
The organisation is actively seeking to secure £3.25bn to enhance its financial stability and attract new ownership for the enterprise. The capacity to secure the funds is anticipated to depend on Ofwat’s “final determination” regarding the bill increase, projected for December or January.
Thames indicated that it might consider a downward revision of its planned expenditures should equity funding fail to materialise.
A representative from Thames Water stated: “The presentation of these accounts does not influence the operational functionality of Thames Water, its ownership framework, or its financial standing.” The provision of water and wastewater services to 16 million customers remains unaffected.
“We are actively engaging with creditors to enhance our liquidity position and are concentrating on obtaining new equity subsequent to our final determination.”