Thames Water has today announced a proposed transaction to extend its liquidity runway which includes up to £3 billion of new money in addition to access to cash reserves and debt extensions. Under the terms of the transaction, Thames will have the opportunity to obtain up to £3 billion super senior funding.

The £3 billion super senior funding comprises an initial tranche of £1.5 billion which has been fully backstopped by certain creditors, with capacity for a further £1.5 billion across two tranches of £750 million, if Thames makes an appeal to the Competition and Markets Authority (CMA) following receipt of Ofwat’s Final Determination.

The water company will today launch a consent process for a transaction support agreement (TSA) in connection with the liquidity extension transaction.

Taking into account the Liquidity Extension Transaction and related Security Trust and Intercreditor Deed (STID) Proposals, liquidity would be extended to October 2025, with the ability to extend further to May 2026 if Thames makes an appeal to the Competition and Markets Authority over Ofwat’s Final Determination on its AMP8 Business Plan.

The launch of the TSA follows engagement with committees of secured creditors together representing a substantial majority of the water company’s secured debt.

"The Board and leadership team remain focused on stabilising the business and today's announcement is an important step in the process to increase its long-term financial resilience. There will be further stages and we will continue to work collaboratively with our many stakeholders as we look to attract new equity into the business and seek a final determination that enables the delivery of our ambitious business plan for the next five years."

"Today's news demonstrates further progress to put Thames Water onto more stable financial footing"

Chris Weston, CEO, Thames Water said:

"Today's news demonstrates further progress to put Thames Water onto a more stable financial footing as we seek a long-term solution to our financial resilience. This step forward comes on top of our performance improvements which were recently recognised by Ofwat. We are working closely with and have the support of our creditors, enabling Thames to continue to implement our turnaround plan so that we can deliver better results for our customers and the environment whilst seeking to attract new capital into the business. In the meantime, our teams on the ground continue to supply our services to our 16 million customers every day."

Sir Adrian Montague, Chairman, Thames Water commented:

"The Board and leadership team remain focused on stabilising the business and today's announcement is an important step in the process to increase its long-term financial resilience. There will be further stages and we will continue to work collaboratively with our many stakeholders as we look to attract new equity into the business and seek a final determination that enables the delivery of our ambitious business plan for the next five years."

Thames Water expects the Liquidity Extension Transaction would be implemented through an English law restructuring plan under Part 26A of the Companies Act 2006 to be proposed by parent company Thames Water Utilities Holdings Ltd. The current expected timetable for the implementation of the Restructuring Plan is:

• Convening Hearing: 17 December 2024
• Creditor Meeting: week commencing 13 January 2025
• Sanctions Hearing: 20 January 2025
• Effective Date: 31 January 2025

As at the time of today’s announcement, creditors representing c.£6.7 billion of secured debt have entered into the TSA, with a substantial number of creditors in ongoing approval processes to facilitate their accession to the TSA.

Thames Water currently has cash of c.£0.5 billion (excluding £0.5 billion of cash which is held in or earmarked for the reserve accounts and compensation account).

If the STID Proposals pass, the cash released from the reserve accounts and compensation account is expected to total £0.4 billion by the time of the release. This is intended to provide the water company with a cash runway to February 2025 ahead of implementation of the wider liquidity extension.

If the STID proposals pass and the Liquidity Extension Transaction is implemented, Thames is expected to have liquidity of £1.65 billion as at 31 January 2025 and the liquidity runway is expected to be extended to October 2025. In a downside case, assuming revenues indicated by Ofwat's July 2024 draft determination, the liquidity runway would in such case be expected to be extended to September 2025 instead.

In the event of an appeal by Thames to the CMA, it may also have the ability to extend its liquidity to May 2026. In a downside case, assuming the revenues indicated by the draft determination, the liquidity runway would be expected to be extended to March 2026.

Discussions with Ofwat and other public bodies regarding uncertainties in respect of exposure to material unfunded costs, fine and prosecutions.

Thames Water says it is continuing to engage with Ofwat with a view to achieving “an investible and financeable” Final Determination. The water company says it understands that the advisers to an ad hoc group of creditors are in discussions with Ofwat regarding the extent to which they would expect the Final Determination to differ from the Draft Determination in order for the company to be investible and financeable going into AMP8 and to facilitate a recapitalisation transaction.

In the interests of ensuring that Thames is investible and financeable, the utility is also engaging with Ofwat, the Environment Agency and the Drinking Water Inspectorate in respect of what are described as “significant uncertainties” relating its exposure to unfunded costs and/or fines across a range of investigations and environmental programmes, and related delivery constraints.

Thames Water said:

“Completion of the Liquidity Extension Transaction and the related STID ( Security Trust and Intercreditor Deed) Proposals will improve TWUL's liquidity runway to enable us to continue with the planned investment and maintenance of our infrastructure in order to continue to meet customers' needs, and our environmental responsibilities. It will allow us to progress our equity raise process and a holistic recapitalisation transaction and will allow us to complete the Final Determination process, including a CMA appeal if necessary.”