Thames Water - Case Update

The High Court has sanctioned the Part 26A restructuring plan proposed by Thames Water and rejected the alternative plan proposed by Class B creditors, but this will likely not be the last word on the matter.

Facing a liquidity crisis, with cash expected to run out by 24 March 2025, the company proposed a restructuring plan (Plan) under Part 26A of the Companies Act 2006. The Plan was supported by an ad hoc group of Class A senior creditors and involved the extension of debt maturities, a cash injection of £1.5 billion, and an additional £1.5 billion available under an "accordion" facility if certain conditions are satisfied.

A group of Class B creditors, whose junior debt would be significantly affected under the Plan, opposed the Plan and proposed an alternative restructuring without certain restrictions, such as the June Release Condition, which required Thames Water to agree to a long-term restructuring plan by 30 June 2025, or risk losing access to the additional £1.5 billion. Thames Water sought to use the cross-class cram down mechanism to impose the restructuring on the dissenting creditors, arguing that they would be no worse off than in the most likely alternative—a special administration under the Water Industry Act 1991, the Water Industry (Special Administration Regulations) 2024 and the Water Industry (Special Administration) Rules 2024 (SAR).

The Court conducted a "no worse off" test, analysing the expected recoveries under the Plan versus a SAR. Each side produced its own expert evidence as to whether Class B creditors would receive any recovery in a SAR, and the Court ultimately concluded that the company’s valuation was more credible. Given that a SAR is an insolvency process, Class B creditors would not realistically recover any value in a SAR, supporting the rationale for the cross-class cram down.

The Court also found that Class A creditors were not receiving an unfair windfall — their priority under the existing capital structure meant they were entitled to recover first — and that Class B creditors were not being treated unfairly compared to their position in insolvency. While the Court acknowledged that Class B creditors were being forced to accept losses, it ruled that their economic position was already compromised due to the company’s financial distress. Thus, the restructuring was deemed reasonable and necessary.

The Court also emphasised the potential for severe public consequences and regulatory instability in the event of Thames Water’s failure. The Court reinforced that continuity of service was paramount, which strengthened the case for approving the Plan over a SAR.

The decision can be accessed here.

The following day, a hearing was held to determine whether creditor meetings should be convened to vote on the alternative plan proposed by the Class B creditors. The Court ultimately refused to order that the meetings be held, finding that there was “no reasonable probability” that this would serve “any useful purpose”.

However, the Court granted the Class B creditors and Liberal Democrat MP Charlie Maynard permission to appeal its decision, stating that the Court of Appeal should have the opportunity to scrutinise the decision and the exercise of the Court’s discretion given the public interest in the case.

Meanwhile, US private equity group KKR has reportedly offered nearly £4 billion to Thames Water for a majority stake in the utility.

Professionals involved:

• Tom Smith KC, Charlotte Cooke and Andrew Shaw of South Square and Philip Moser KC and Hugh Whelan of Monckton Chambers (instructed by Linklaters) for the plan company

• Adam Al-Attar KC and Edoardo Lupi of South Square (instructed by Akin Gump) for an ad hoc group of Class A supporting creditors

• Tony Singla KC and Charlotte Thomas of Brick Court Chambers and Mark Phillips KC, Jamil Mustafa, Imogen Beltrami and Matthew Abraham of South Square (instructed by Quinn Emanuel Urquhart & Sullivan) for an ad hoc group of Class B opposing creditors

• Stephen Robins KC of South Square (instructed by Allen Overy) for a group of bank supporting creditors

• Andrew Thornton KC of Erskine Chambers and Georgina Peters of South Square (instructed by Freshfields) for Thames Water Limited

• William Day and Lucas Jones of 3VB and Niamh Davis of XXIV Old Buildings (instructed by Marriott Harrison) appeared on behalf of Charlie Maynard MP