Britain's Thames Water seeks court approval for rescue plan

By Sarah Young and Paul Sandle

LONDON (Reuters) -Thames Water asked an English court on Monday to approve a debt lifeline worth up to 3 billion pounds ($3.7 billion), at the beginning of a four-day hearing it hopes will help to stave off nationalisation.

In a packed courtroom, judge Thomas Leech started to hear from witnesses from Britain's biggest water supplier, gathering evidence before deciding whether to approve the rescue. Without it, Thames Water has said it could run out of cash by March.

Thames Water, which has 17 billion pounds worth of debt, is at the centre of a public backlash against Britain's privatised water industry, which has polluted rivers and seas with sewage, amid accusations that profit has been prioritised over the environment.

Thames Water said in legal documents published on Monday that if the plan was not approved, the government would need to step in and put it into special administration.

"The most likely outcome, if the Plan is not sanctioned, is a SAR (special administration) of Thames Water," the documents said.

ALTERNATIVE PACKAGE

A group of lower-ranked creditors opposes the rescue plan and wants the judge to consider its alternative.

The company is confident its plan will succeed as it has the backing of creditors holding more than 90% of its secured debt.

Thames Water's lawyers said there was insufficient time for an alternative rescue to be considered, plus there were questions over the "implementability" of the lower-ranked, or B, creditors' package.

In their legal documents, the B creditors said the way the company's plan had been designed would enable the majority creditors to "divert value" from other stakeholders, including the minority creditors, at the final stage of restructuring.

They also said its 9.75% interest rate made it too costly.

Their alternative plan would provide liquidity "on the most favourable terms to the group", they said in legal documents.

Thames was plunged into crisis last year when its owners refused to stump up new cash, calling the utility "uninvestible" and putting the government on standby to nationalise it.

Under the company-backed rescue proposal, Thames would get access to additional funding, cash reserves and debt extensions, giving it breathing space to secure its survival in the long term by raising 3.25 billion pounds in new equity alongside a debt restructuring.

The company faces a further challenge over the price it is permitted to charge its 16 million customers for the coming five-year period. The regulator has said it can hike bills by 35% over that time, lower than the 53% rise it says it needs.

Thames Water has until Feb. 18 to launch an appeal against the regulator's decision.

($1 = 0.8054 pounds)

(Reporting by UK bureau. Editing by Gareth Jones and Mark Potter)