Thames Water default: What’s next for the company now it can’t officially pay its debts?
In an announcement today, the firm’s parent, Kemble said it would be unable to pay the interest that’s due on its borrowings and pleaded with creditors to stick by its side.
The woeful finances of the UK’s most infamous water firm and the bad financial practices that have led it here have become front-page news in recent weeks.
So, with today’s developments, has Thames finally sunk, and if it has, what does this mean for the company and its shareholders?
Thames Water’s in default – does that mean it’s going bankrupt?
The short answer is no. The company’s parent has failed to make required interest repayments on its debt but can still likely keep creditors to whom the money is owed onside, as much of a challenge as that may prove.
In a statement, the company confirmed it couldn’t pay interest on a £400m loan, and its parent company, Kemble, has already said that it would be unable to meet the repayment of a separate £190m loan that is due this month.
But Kemble is a different entity to Thames Water, which actually operates the water network. Thames Water has said it’s got enough cash to keep going for nearly two years.
What will happen if it does?
Much like the effluence coursing through the waterways it manages, Thames will likely be able to stay afloat for the foreseeable future.
There has been much talk about the possibility of the government stepping in and facilitating a Bulb-style bailout.
Indeed, Thames and its some 25m water and sewage customers cannot feasibly be allowed to fail, as some have argued. The real question is, where is the government’s line of responsibility to try and fix that failure?
The government has argued it’s not up to it to help the parent company Kemble and the law does not require it to.
All eyes will now be on Whitehall and water industry regulator Ofwat to see if any action or reaction comes forth.
Who ultimately will have to pay?
In a continuation of the trend, shareholders of Kemble will likely foot the bill to keep Thames and its parent afloat, at least in the meantime.
The statement issued today counts around £560m of active secured loans to Kemble Water Finance from a variety of creditors that are due to be paid back between 2025 and 2028.
So, no matter how much the £16bn-and-mounting debt pile the organisation currently holds weighs on everyone with a stake in the company, they will want to keep it alive to cling to any prospect of recuperating their funds.
Taxpayers are already facing the prospect of footing a portion of Thames’ multi-billion pound recovery plan for the coming years, despite being told by the firm that there will be more faults with their water supply than before.
Will the taps turn off?
No, water and sewage will keep flowing for now as the operating company, Thames Water, remains solvent.
Can I stop paying my water bill?
No. Thames Water is still a functioning entity, and whatever happens to the firm next, its employees will have to be paid, and maintenance will still have to be completed.
That means if you’re using its water and network you’re obligated to pay the business and if you stop, it’s likely Thames Water will take you to court whoever becomes the ultimate owners.