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Thames Water faces a cash crunch with some of the utility’s own recent forecasts predicting it could have as little as £39mn left by month-end, as suppliers also step up their demands for prompt payment.
The teetering water utility has agreed an emergency loan of up to £3bn from its senior creditors, but it cannot begin to access the money until at least early April.
The dire cash projections stem from internal documents updated this month that suggest that, without the new loan, Thames Water’s cash balance could run to as little as £39mn by the end of March.
That leaves Thames Water, which serves 16mn people across London and the Thames Valley, scrambling to convince lenders to waive previous restrictions on accessing the loan while a potential court appeal to the Supreme Court over the emergency funding is pending.
Thames Water also submitted evidence to the Court of Appeal last month claiming that an “updated cash flow forecast” predicted a “significant drop” during the final full week of March to “only £39mn of available cash”. The sworn statement describes this level of liquidity as insufficient.
However, Thames Water’s more recent cash projection predicts that the company will have as much as £120mn at the end of the month, according to a person familiar with the utility’s finances.
That level of cash outlined would still be below a key £200mn threshold that the court heard Thames Water considers a safe liquidity buffer. The utility, which is the UK’s biggest water company, had over £1.1bn of cash on its balance sheet as recently as September.
Alastair Cochran, Thames Water’s chief financial officer, told London’s High Court last month that the utility frequently experienced “unexpected fluctuations in working capital”, which made a “minimum cash liquidity buffer” of £200mn advisable.
Thames Water said in a statement on Friday: “We continue to work closely with our creditors and based on our liquidity position today and prudent business management, we are confident we are able to operate our business without disruption, and we expect to be able to access additional liquidity when we need it.”
“We have recently updated on the strong interest in our equity raise process and remain of the view that a market-led solution is in the best interest of customers, UK taxpayers and the wider economy.”
The cash crunch underscores the scale of the crisis at the UK’s largest water company. Thames Water is groaning under nearly £20bn of debt, facing a public backlash to substantial bill hikes, and is trying to avoid becoming the first water company to be renationalised since England’s utilities were privatised in 1989.
Its cash crunch has also been exacerbated by nervous suppliers demanding more onerous terms, according to people with direct knowledge of its supply chain.
London-listed energy provider Drax Group is among companies asking to be paid every two weeks rather than the usual 30 to 60 day period, the people added.
Aside from Drax, other companies, ranging from IT systems providers to chemical suppliers are also asking for more favourable terms, according to people close to the company. This is particularly the case for large international companies “that have strict rules about doing business with companies in distress”, according to one person close to Thames Water.
Drax declined to comment.
Thames Water previously said it would run out of cash on March 24, but has managed to extend a £200mn loan repayment due on that date by two years. Still, its senior executives testified in court last month that without being able to access the new funding, the utility would be left in a perilous position.
Thames Water’s general counsel Andy Fraiser told a court hearing last month that even with the loan deferral the utility could be “effectively running on vapour for quite a number of weeks” without fresh liquidity.
Fraiser added that Thames Water’s management had tried to ensure that they “don’t actually ever get to the point where we are running the company close to zero”, describing it as “a very dangerous place to take the company”.
Despite its dwindling cash balance, Thames Water’s senior management believe it can still avoid crashing into the government’s special administration regime, under which it would be temporarily renationalised, as lenders are likely to agree to let them access fresh cash on March 31.
In a special administration, the UK government would step in and backstop Thames Water’s operations, ensuring that services would keep running and that suppliers and employees would be paid on time. The debt interest would be frozen, freeing up additional cash for spending on infrastructure.
Thames Water will immediately pay about £20mn of the £318mn it will initially draw from the emergency loan in fees to its top-ranking creditors, which include US hedge funds Elliott Management and Silver Point, according to people familiar with recent financial projections at Thames Water.
Thames Water revealed last month that it is already paying out at least £15mn a month in creditors advisory fees and legal costs, which is expected to increase if the loan is contested in the Supreme Court. Junior creditors, who stand to make substantial losses under the deal, are waiting for a full judgment to be handed down by the Court of Appeal before deciding whether to challenge the ruling.
Thames Water has argued that the substantial costs of the loan are necessary to provide a bridge allowing it to raise billions of pounds in fresh equity from new investors. It announced this week that it had received six preliminary bids in this process, which it hopes to agree by June.
Data visualisation by Clara Murray in London
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