Thames Water, which was due to run out of money, has been given a lifeline after a £3bn loan was approved by the High Court.

The loan gives the UK’s biggest water provider time to sort out its finances and could ward off nationalisation.

Court approval had been needed for the rescue plan centred on an emergency £3bn loan.

The business is provisionally attempting to borrow its way out of its financial problems as it struggled with £16bn in debt.

It had said it would run out of money by 24 March.

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It will now receive an initial tranche of £1.5bn to fund it until September 2025.

Mr Justice Leech who heard the case said, “The costs of finance and adviser fees in the present case are very high.”

“Indeed, they might be described as eye-watering.”

What does the loan mean?

The loan will cost at least £100m in fees and comes with a 9.75% interest rate.

The funding will be released on a monthly, or interim basis as needed, subject to Thames Water satisfying loan requirements including that it has taken on new shareholder investment.

Potential funders had submitted bids to invest in Thames Water and the company said it is now conducting a detailed assessment of each bid.

Loan terms dictate it must be repaid first in the event of administration and existing creditors have their repayment dates set back two years.

The timeline for accessing loan funds depends on the impact of a potential appeal process by B-class creditors. They had objected to the loan as they face being wiped out completely in a restructuring.

The company said it is considering when to draw down the money, loaned by so-called A-class creditors.

What next for Thames Water?

The government has been on standby to put Thames Water into special administration, a form of temporary nationalisation aimed at keeping the taps on in the event of financial collapse.

Some campaigners have called for nationalisation, though the government opposes this.

Thames Water wants a full restructuring, taking in new shareholder investment and swapping debt for a portion of the company for existing creditors.

Its chief executive Chris Weston welcomed the ruling.

“This is good news for our customers, puts our business on a firmer financial footing and enables us to continue to invest in our network and deliver critical infrastructure upgrades for our customers and the environment,” he said.

The water utility is seeking more expensive bills to pay for its future investments and continued existence.

It’s asking for bills to rise 53% from this year to 2030, challenging Ofwat’s allowed 35% increase, equivalent to an extra £151 a year.

Mismanagement and a lack of adequate investment have brought Thames Water to its current state.

It’s crunch time for the UK’s biggest water provider Thames Water as its fate will be announced on Tuesday morning.

Thames Water finances hang in the balance with debts of £16bn and existing investors declaring the business “uninvestable”, due to the high fines it faces for environmental and other regulatory breaches and the clampdown on shareholder payouts.

But why is the utility provider in this position, what’s happening at court, and could it be nationalised if it doesn’t get the money it needs?

The short-term solution is for Thames Water to borrow its way out of the problem.

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In following this strategy the company has sought High Court approval for a £3bn rescue plan centred on an emergency loan.

That’s being provided by so-called A-class creditors who hold around £11bn in debt racked up by Thames Water Utility Holdings, the business that serves about 16 million customers in London and the South East.

The decision on that request will be made on Tuesday morning.

Thames Water has previously said it will run out of cash by 24 March and the £3bn loan – delivered in two tranches of £1.5bn – would prevent the business from collapsing.

A controversial court battle

Two sets of creditors both want to lend Thames Water the £3bn sum, with the company favouring the A-class creditors.

But water campaigners have criticised the terms of the loan, which comes with an interest rate of 9.75% payable over two and a half years with up to a further £100m due in fees.

They’ve called on environment secretary Steve Reed to block the arrangement and force the company into special administration, effectively temporary re-nationalisation.

The terms of the loan dictate it must be repaid first if administration does happen and existing creditors would have repayment dates set back two years.

A second group of B-class creditors, who hold around £750,000 of subordinate debt, face being wiped out completely in a restructuring.

What if the loan isn’t approved?

High Court approval is contingent on 75% of its creditors agreeing to the rescue plan.

Failing that Thames Water would have to consider a plan that leaves creditors no worse off.

If the £3bn loan is not approved the chances of the company entering a special administration regime or nationalisation, are raised.

If nothing is done and no solution is reached then nationalisation could happen. The government is reportedly preparing for such an event by contacting private sector administrators.

What would happen if the deal is approved?

If the loan is approved Thames Water wants a full restructuring, taking in new shareholder investment and swapping debt for a portion of the company for existing creditors.

Thames Water last week said it was challenging the amount it can raise bills by.

It had sought a 53% hike to bills from 2025-30.

That demand was rejected and instead, a 35% rise was allowed as part of a price determination for all suppliers across England and Wales.

Is there an alternative to nationalisation?

Companies like the UK’s biggest energy supplier Octopus Energy have expressed interest in its technology arm, managing the utility businesses’s functions.

Infrastructure CK Infrastructure Holding and water provider Castle Water are also understood to have submitted proposals to invest in Thames Water.

Nationalisation is not the preferred method in government.

Mr Reed has said he wants a “market solution” and opposes nationalisation.

Underinvestment, mismanagement, and dividend payments have all been blamed for Thames Water’s precarious financial position.

Wages have risen while unemployment unexpectedly saw no change, official figures show.

Average weekly earnings rose 6% in the three months to December, data from the Office for National Statistics (ONS) showed, while wages – excluding bonuses – grew 5.9%, despite economists expecting a 5.8% rise.

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Even when inflation is factored in, wages are still rising. In the same month as earnings grew 6% the rate of price rises was 2.5%.

It marks the third month in a row of wage growth after falling for a year. In November both basic pay excluding bonuses, and average weekly earnings, rose at an annual rate of 5.6%.

Both private and public sector worker pay increased.

But the growth is expected to end and the rises are anticipated to slow to 3% by the end of the year, according to the chief economist at KPMG UK, Yael Selfin.

“We expect a steady downward trend over the coming months”, she said.

Increased costs for employers from higher minimum wage and upped national insurance costs are forecast to dampen wage growth.

An unemployment surprise

The unemployment rate remained unchanged at 4.4%. A rise was anticipated by economists who were polled by the Reuters news agency.

The number of job vacancies also continued to fall in the latest three-month period, albeit more slowly, with the total number remaining a little above its pre-pandemic level.

The ONS, however, has advised caution in interpreting changes in the monthly unemployment rate due to questions over the reliability of the figures.

The exact number of unemployed people is not known – partly because people don’t answer the phone when the ONS calls.

What does it mean for interest rates?

Traders were pricing in a slim chance of an interest rate, of just 28%, before the data but the likelihood fell to 25% after the announcement.

Better wages can fuel inflation, which the interest rate setters at the Bank of England are fighting to bring down.