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Rival classes of Thames Water bondholders are targeting each other at a hearing in London’s high court, where the troublesome utility has put its case for an emergency loan of up to £3bn from top-ranked lenders.

The junior bondholders claimed in written documents submitted to the hearing on Tuesday that the company’s more senior creditors were “holding (Thames Water) to ransom” through onerous terms of their “expensive ” loan, which they argue “has a chilling effect” in parallel with the utility trying to raise equity from new investors.

The court hearing, which Thames Water said was “urgent”, is the first step for the UK’s biggest water and sewerage company to get court approval for borrowing up to £3bn from the top tier which are “class A” bondholders. Without it, the company, which has a near-£19bn debt pile, “will lose available liquidity by 24 March 2025”, according to court documents.

The loan is part of the utility’s effort to avoid being temporarily renationalized under the government’s special administration regime. Thames Water serves 16 million people in and around London.

The loan proposal led to a increased salivation between the company and its lower-ranking bondholders, who claim the utility did not properly consider their rival offer of an equivalent £3bn loan at cheaper costs and more profitable ones term.

These so-called class B bondholders are now looking challenge processes and launch their own parallel restructuring plan, which lawyers say is the first time a judge has been asked to consider rival proposals since the new restructuring regime used by Thames Water was implemented in those 2020.

Thames Water’s lawyer told the court on Tuesday that the proposed loan “is not in itself a comprehensive solution to Thames Water’s financial difficulties”. Instead, Thames Water is borrowing money to boost its liquidity until the regulator, Ofwat, determines how much it and other water companies can raise customer bills. That determination is scheduled for Thursday.

For their part, senior bondholders described their opposition group’s proposal as an “unenforceable distraction to further their own interests”.

A barrister representing the class A creditors told the court that arguments that their loan would have a chilling effect on Thames Water’s planned parallel equity raise “seemed implausible”, while arguing that the juniors bondholders are just looking to “take the timeline” of the proceedings. in the hope of “improving their position”.

As well as drawing the ire of junior bondholders, the trend towards class A loans has also attracted criticism from campaigners, academics and experts, who have been hit by the high 9.75% interest rate on the loan and other charges that may be utility costs. as much as £800mn more than 2.5 years.

A group of campaigners staged a protest outside the Royal Courts of Justice on Tuesday, calling on environment secretary Steve Reed to “block the High Court signing off on a Thames Water bailout”.

Oxfordshire-based charity Windrush Against Sewage Pollution also wrote a letter to the court last week asking for evidence to be considered on behalf of Thames Water’s bill payers, which the group argued was “not being told”. in proceedings though “creditors in waiting”.

A judge can approve a restructuring plan if it has approval from at least 75 percent of each class of creditors – but failing that, will consider a plan that none of the company’s creditors are more severely under the so-called “relevant alternative”.

The company argues that the relevant alternative to their loan is the special administration, which its expert analysis shows will result in a total elimination of class B bondholders, compared to a mark of 3.5 percent. that recovery in the future debt restructuring of Thames Water.

Class B owners claim there is “insufficient clarity” on what a special administration would look like, however.

The 131-page analysis of Thames Water, prepared by advisers Teneo, highlighted how damaging a special administration would be for all holders, projecting that the senior group would recover less than half of their money if Thames Water falls into Ofwat’s out-of-favour regime. bill increase deal.