(March 17): Appeal judges have approved emergency funding allowing Thames Water to access as much as £3 billion (RM17.3 billion) and stave off temporary nationalisation.

The UK’s Court of Appeal dismissed a challenge to the proposed loan after a three-day hearing last week. The decision should give the beleaguered utility access to much-needed funds and prevent a messy insolvency while it seeks a long-term fix for its financial woes. The debt will be provided by a group of senior creditors — including Elliott Management, Silver Point and Pimco.

A group of junior creditors pushing for an alternative debt package and an opposition lawmaker in favour of nationalisation had challenged the proposed financing. Both argued the new loan was excessively expensive.

“We remain focused on putting Thames Water onto a more stable financial foundation as we seek a long-term solution to our financial resilience,” Chris Weston, chief executive officer of Thames Water, said after the court order. Customer bills won’t be affected by the plan, he said.

The plan was approved subject to a limited modification of releases, according to a statement from Thames Water. The company is now expecting that the initial tranche of £1.5 billion will be provided in installments over the coming months, it said.

“We will continue to explore all available avenues, including seeking leave to appeal to the Supreme Court, to ensure that customers and the broader public are not forced to bear the costs of a deeply flawed restructuring process,” a spokesperson for Class B creditors said.

While the Class B creditors were “disappointed” at the appeal court’s decision, they welcomed the decision by the judges to strike out the proposed releases of the company’s directors and advisers from legal liability.

Charlie Maynard, the Liberal Democrat MP who also opposed the plan, responded to the decision by reiterating his request for the government to put the company into special administration.

“We must not stand back and allow Thames Water’s lenders to keep lining their pockets at the expense of customers and the environment while our regulators sit on their hands,” he said.

Thames has long been weighed down by its debt burden, which has already seen its owners write off the value of their stakes to zero. Beyond its financial woes, the company has come under criticism for its poor environmental record, which has landed it hefty fines from regulator Ofwat.

The rescue financing would be little more than a stopgap measure. It would, however, provide the company with enough liquidity to continue operating while it searches for an owner and challenges the regulator’s ruling on how much it can invest and spend over the next five years.

Over the long term, the new loan will push the company’s debt higher and exacerbate the need for a restructuring of the group’s capital structure, with its debt pile set to hit £24.8 billion by September.

This will entail finding a new equity investor to inject new funds while also securing an agreement with creditors to ensure that the company’s capital structure is sustainable in the long term. That fundraising process is progressing, Thames Water said in its statement on Monday.

“The decision from the court is clear and we hope this brings to an end the ongoing legal distractions so all parties can focus all efforts on securing billions in fresh equity and new long-term ownership for Thames Water,” a spokesperson for the Class A creditor group said in an emailed statement to Bloomberg News.

Bloomberg previously reported that KKR & Co and Castle Water Ltd have put forward offers to take a majority stake in the company. The Class A group also said it would work on a creditor-led solution for the company as a backup option.

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