Thames Water: English Court Approves Restructuring Plan, Despite Major Opposition — But Appeal Imminent

At a Glance

The English Court today approved the restructuring plan of Thames Water, but granted all opposing parties permission to appeal. The appeal is expected to be heard on an expedited basis within the next few weeks.

The plan seeks to implement an interim solution to extend the group’s liquidity runway and provide a stable platform in order to allow time for a substantive restructuring later this year. 

This unprecedented plan faced major opposition from certain junior creditors on multiple grounds, as well as from a Member of Parliament, Mr. Maynard MP, on public interest grounds.

In a 178 page judgment, Mr. Justice Leech held as follows.

• Relevant alternative: The correct relevant alternative to the Plan was special administration in which junior creditors would receive nothing. The court rejected opposing arguments that the relevant alternative was a competing restructuring plan proposed by certain junior ‘Class B’ creditors (the B Plan).¹
• ‘No worse off’: Junior creditors would be no worse off under the Plan than in the relevant alternative of special administration, even considering the potential effect of certain terms which granted senior ‘Class A’ creditors control in respect of an anticipated second holistic restructuring plan (the Class A Control Terms). The court found such terms had no effect on value.²
• ‘Fair share’ of post-restructuring value: The case gave rise to no issue of horizontal fairness as the Plan was an interim restructuring plan which involved no restructuring surplus; in any event, all plan creditors were treated equally because they were entitled to participate equally in the new super-senior funding. The court attached little weight to the opposition of junior creditors given they were out of the money in the relevant alternative.
• Public interest issues: Although it took careful account of opposition to the Plan on public interest grounds, the court nonetheless exercised its discretion to approve the plan.
• No stay: The court did not order that its judgment be stayed pending the judgment of the Court of Appeal. Instead, it will accept undertakings from the plan company to the effect that any steps it takes to implement the Plan must be capable of reversal if so ordered by the Court of Appeal.

^{1. The terms of the B Plan are similar to the company’s Plan in providing for an extension of maturity dates. In contrast to the company’s Plan, the B Plan does not contain the June Release Condition and a full £3 billion is committed upfront.↩}

^{2. Such terms included a condition precedent to drawdown of a second £1.5 billion tranche of the new money which required that at least 2/3 of super-senior and Class A creditors must have locked up to a wider recapitalisation deal - the June Release Condition).↩}