Thames Water Utilities
Limited
25 October 2024
Liquidity Extension
Update
Thames Water Utilities Limited announces proposed transaction
to extend its liquidity runway. This includes up to £3.0bn of
new money in addition to access to cash reserves and debt
extensions.
Thames Water Utilities Limited
("TWUL") will today launch
a consent process for a transaction support agreement
("TSA") in connection with
a liquidity extension transaction (as set out in a term sheet
appended to the TSA) ("Liquidity
Extension Transaction") and related STID
Proposals.
Completion of the Liquidity
Extension Transaction and the related STID 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.
Taking into account the Liquidity
Extension Transaction and the related STID Proposals, TWUL's
liquidity would be extended to October 2025, with the ability to
extend further to May 2026 if TWUL makes an appeal to the
CMA.[1]
The launch of the TSA follows
engagement with committees of Secured Creditors together
representing a substantial majority of TWUL's Secured
Debt.
Sir
Adrian Montague, Chairman, Thames Water
said: "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."
Chris Weston, CEO, Thames Water
commented: "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."
THE
SUMMARY BELOW SETS OUT A HIGH-LEVEL OVERVIEW OF THE TSA, TERM SHEET
AND STID PROPOSALS. STAKEHOLDERS ARE ENCOURAGED TO REVIEW THE
DOCUMENTS IN DETAIL THEMSELVES, ALONGSIDE TWUL'S LIQUIDITY
EXTENSION TRANSACTION SUMMARY, (COPIES OF WHICH ARE (OR IN RESPECT
OF THE STID PROPOSALS, WILL SHORTLY BE) AVAILABLE AT
HTTPS://DEALS.IS.KROLL.COM/THAMESWATER)
AND SEEK THEIR OWN LEGAL AND FINANCIAL ADVICE[2] SHOULD THEY HAVE ANY QUERIES IN RELATION TO THEIR
CONTENTS
Liquidity Extension
Transaction
The key terms of the Liquidity
Extension Transaction are summarised below and are set out in
further detail in the Term Sheet. On implementation of the
Liquidity Extension Transaction:
·
New Funding: TWUL will
have the opportunity to obtain up to £3 billion super senior
funding.
o The
£3 billion super senior funding comprises:
§ An initial
tranche of £1.5 billion. This has been fully backstopped by certain
creditors pursuant to a backstop agreement (the "Backstop Agreement"), and other Class A
and Class B Debt Providers will have the opportunity to participate
in the backstop arrangements up until 11 November 2024. Backstop
providers will be entitled to a backstop fee of up to 3.5% (1.5%
payable to the primary backstop providers; 2.0% payable to the
secondary backstop providers and the primary backstop providers).
Other Class A and Class B Debt providers will be offered the
ability to participate in the super senior funding pro-rata to
their debt holdings through voting on the Restructuring Plan in
accordance with its terms.
§ Capacity
for a further £1.5 billion across two tranches of £750 million, if
TWUL makes an appeal to the CMA following receipt of the Final
Determination.
o The
funding will be released to TWUL on a monthly, or on an interim
basis, as required, subject to continued satisfaction of conditions
at that time, including that TWUL has progressed towards a more
holistic recapitalisation transaction with the agreement of a
sufficient proportion of its creditors during the course of next
year.
o The
maturity date of this new funding will be 2.5 years from
the initial funding date, with new money attracting a 9.75%
coupon across that period and being subject to an original issue
discount of 3%.
·
Maturity Extension: The
maturities of all Class A Debt and Class B Debt (including
amortisation payments) will be extended by two years.
·
Interest: Interest
payments on all Class A Debt and Class B Debt will continue to be
made and will not be deferred.
·
Hedging: Payments under
Hedging Agreements will continue to be made.[3]
·
Stable Platform:
Modifications to TWUL's covenant regime will take effect to provide
a stable platform for the next two years in order to facilitate a
subsequent recapitalisation transaction. Secured creditors will
also benefit from an enhanced information and governance
package.
Liquidity Extension Transaction
Implementation
TWUL expects that the Liquidity
Extension Transaction would be implemented through an English law
restructuring plan under Part 26A of the Companies Act 2006 (the
"Restructuring Plan") to be
proposed by TWUL's parent, Thames Water Utilities Holdings Limited
("TWUHL"). 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
A TSA has been signed by, among
others, TWUL, TWUHL and Thames Water Utilities Finance plc
("TWUF") (together, the
"Obligors"). As at the time
of this announcement, creditors representing c.£6.7 billion of
Secured Debt have entered into the TSA (and a substantial number of
creditors are in ongoing approval processes to facilitate their
accession to the TSA). A process is ongoing to facilitate further
creditor accessions to the TSA.
Parties to the TSA will, amongst
other things, undertake to support and
facilitate the Liquidity Extension Transaction and vote in favour
of the Restructuring Plan and the STID Proposals, and agree not to
take any enforcement action and forbear in relation to any breaches
under Finance Documents as a result of the Liquidity Extension
Transaction. The TSA includes a number of transaction milestones,
as well as some additional covenants and undertakings during the
period.
Creditors are encouraged to accede
to the TSA by 11 November 2024 to access a non-cash early bird fee
of 0.75% and by the record date for the Restructuring Plan to
access a non-cash consent fee of 0.50% (each capitalised in its
respective position in the waterfall), to be provided to relevant
consenting Class A Debt Providers, Class B Debt Providers, Cross
Currency Hedging Agreement providers and Interest Rate Hedging
Agreement providers.
The TSA and the Backstop Agreement
will be made available through the website set up by Kroll Issuer
Services Limited (the "Lock-Up
Agent") at https://deals.is.kroll.com/thameswater.
Creditors will need to contact the Lock-Up Agent at
thameswater@is.kroll.com
to receive a password to access the website and
view the TSA and the Backstop Agreement. Creditors should contact
the Lock-Up Agent at thameswater@is.kroll.com
with questions on how to accede to the TSA and the
Backstop Agreement.
STID Proposals
TWUL will today also launch STID
Proposals and a consent solicitation under its financing
arrangements to:
·
Allow implementation of the Liquidity Extension
Transaction including the launch of the Restructuring Plan and
other related consents and waivers;
·
Permit use of restricted cash in the reserve
accounts for liquidity enhancement;
·
Permit use of restricted cash in the compensation
account for liquidity enhancement; and
·
Waive the requirement to deliver interim financial
statements for the period ending 30 September 2024.
Pro-forma Liquidity
Position
As at today's date TWUL 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 such release. This is
intended to provide TWUL with a cash runway to February 2025 ahead
of implementation of the wider liquidity extension described
above.
If the STID Proposals pass and
Liquidity Extension Transaction is implemented, TWUL is expected to
have liquidity of £1.65 billion as at 31 January 2025[4] and TWUL's liquidity runway is expected to be
extended to October 2025 (through £1.5 billion of new funding and
approximately £0.6 billion of principal deferrals in that period
and based on TWUL's submitted business
plan)[5]. In a downside
case, assuming revenues indicated by Ofwat's July 2024 draft
determination, TWUL's liquidity runway would in such case be
expected to be extended to September 2025 instead.
If TWUL makes an appeal to the CMA,
it may also have the ability to extend its liquidity to May 2026
(through a basket of £1.5 billion to raise additional new funding
and an additional approximately £2.4 billion of principal deferrals
in that period and based on TWUL's submitted business plan). In a
downside case, assuming revenues indicated by Ofwat's July 2024
draft determination, TWUL's liquidity runway would in such case be
expected to be extended to March 2026.
Governance update
TWUL is pleased to announce that
Aidan de Brunner and Neil Robson have been appointed as independent
non-executive directors of the Company (as of 1 September and 2
October 2024 respectively) to assist in facilitating the equity
process and recapitalisation transaction and in compliance with its
undertakings to Ofwat dated 21 August 2024.
Final Determination and CMA Referral
Process
TWUL continues to engage with Ofwat
with a view to achieving an investible and financeable Final
Determination. TWUL also 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 TWUL to be
investible and financeable going into AMP8 and to facilitate a
recapitalisation transaction.
Ofwat is currently scheduled to
provide the Final Determination in respect of AMP8 on 19 December
2024 (ahead of a regulatory deadline of 31 December 2024). Ofwat
has modified TWUL's (and other water undertakers') licence in order
to permit Ofwat to provide the Final Determination on or before 31
January 2025, although TWUL is not aware of any decision by Ofwat
to provide the Final Determination later than 19 December
2024.
TWUL has two months from receipt of
the Final Determination to notify Ofwat that it disputes the Final
Determination and that it requires Ofwat to refer the Final
Determination to the CMA. On the basis of the current expected
Final Determination date, TWUL would have until 19 February 2025 to
make such notification, although a CMA referral could take place up
to 31 March 2025 if the Final Determination was delayed pursuant to
Ofwat's recent licence modification.
Following a notification from TWUL,
Ofwat is required to refer the Final Determination to the CMA for
redetermination - there is no fixed period for Ofwat to do this.
The CMA has 6 months from the date of referral to reach a decision,
although the CMA has the ability to request that Ofwat agrees that
the CMA decision can be provided up to 6 months later (i.e. up to
12 months after initial referral). In the PR19 CMA appeals, Ofwat
took approximately 1 month to refer the Final Determination to the
CMA and the CMA availed of the 6-month extension, with the decision
being provided 12 months after initial referral.
Discussions with Ofwat and other
public bodies regarding uncertainties in respect of exposure to
material unfunded costs, fine and prosecutions
In the interests of ensuring that
TWUL is investible and financeable, TWUL is engaging with Ofwat,
the Environment Agency and the Drinking Water Inspectorate in
respect of significant uncertainties relating to TWUL's exposure to
unfunded costs and/or fines across a range of investigations and
environmental programmes, and related delivery
constraints.
These give rise to possible
obligations that are dependent on uncertain future events.
Consequently, any unfunded costs and fines in respect of such
matters that may arise in the future cannot be accurately estimated
reliably at this point in time
For example, following recent
discussions with Ofwat in relation to its proposed findings in its
investigation into non-compliance by all water and wastewater
companies in England and Wales at wastewater treatment works, TWUL
estimates that the costs of complying with Ofwat's proposed
findings to be £1.7 billion in AMP8.
£1.044 billion of the £1.7 billion
was requested in TWUL's response to Ofwat's Draft PR24
Determination as enhancement funding for TWUL's Waste Asset
Assurance Programme, as TWUL does not believe that the necessary
capital investment has been funded in previous price reviews.
However, in recent discussions with Ofwat, it was suggested that
Ofwat may take the view that such costs were historically funded
through botex. The extent to which Ofwat will allow TWUL's
enhancement funding in its Final Determination is therefore
unclear.
The remaining £650 million of the
£1.7 billion funding represents the cost of complying with the
requirements set out in Ofwat's proposed findings related to Dry
Day Spills. This funding requirement was not requested in
TWUL's response to Ofwat's Draft PR24 Determination, because of the
lack of certainty in relation to what the permit requirements in
respect of Dry Day Spills will be following the outcome of the
Environment Agency's ongoing consultation. TWUL has now
performed a high-level assessment of the potential cost of
complying with Dry Day Spill requirements and is seeking clarity
from Ofwat on how it can access the necessary funding through its
PR24 price review or in respect of future AMPs. Until such
time as Ofwat's PR24 price review provides a mechanism for
assessing such costs, TWUL is exposed to up to £650 million of
unfunded costs in respects of meeting Dry Day Spill
requirements.
Should TWUL be required to undertake
further capital investment programmes to comply with Ofwat's
finding that go beyond compliance with existing EA permit
requirements, such investment would need to be delivered over a
multi-AMP period to allow sufficient time to grow the relevant
supply chain and address the need to keep wastewater treatment
plants in operation during the carrying out of any capital works.
TWUL would seek funding for this work in future price
reviews.
TWUL could additionally be exposed
to up to £0.5 billion of unfunded costs, penalties, fines and
remediation costs in AMP8 in relation to other
investigations.
Given the challenges that TWUL faces
with respect to delivering all of the capital works required in
relation to these environmental programmes, TWUL is seeking to
agree with its three principal regulators a reasonable period of
time to deliver all of the necessary works and
improvements.
An update on environmental
compliance and regulatory investigations and uncertainties around
these is included in an Environmental Compliance and Regulatory
Investigations summary available at https://www.thameswater.co.uk/about-us/investors.
Equity Process Update
Following completion of an extensive
pre marketing phase, TWUL has now launched the first round of its
equity process and any equity process is not expected to conclude
until after the Final Determination.
TWUL will continue to engage with
investors and creditors to facilitate a holistic recapitalisation
solution.
For further information
Investor enquiries
Frederick Maroudas - Director of
Corporate Finance
debt.investorrelations@thameswater.co.uk
Media enquiries
Suvra Jans - Head of Media
Relations
suvra.jans@thameswater.co.uk
M: 07747 640 810
Information contained in this
announcement would have been deemed inside information for the
purposes of Article 7 of Regulation (EU) No 596/2014 as amended and
as it forms part of United Kingdom domestic law ("UK MAR") until
the release of this announcement. For the purpose of UK MAR and
Article 2 of Commission Implementing Regulating (EU) 2016/1055 as
it forms part of United Kingdom domestic law, this announcement is
made by Chris Weston (Director) at Thames Water Utilities
Limited.
LEI: 213800JKM5UQHFJOTZ25