Thames Water Utilities Holdings Ltd, Re [2025] EWHC 338 (Ch)

“shall, subject to Clause 9 (Voting, Instructions and Notification of Outstanding Principal Amount of Qualifying Debt), following receipt of a STID Proposal from a Proposer, and in accordance with and subject to the votes of the Majority Creditors in favour of such STID Proposal, concur with TWUL, TWUF or the Issuer (as applicable) in making any modification to, or give any consent or grant any waiver under or in respect of, any term of this Deed and/or the other Finance Documents as set out in such STID Proposal;…”

“Any Secured Creditor (or, where applicable (and in the case of Bondholders or Secured TWUF Bondholders), its Secured Creditor Representative, provided that it is acting on the direction or request of the relevant Secured Creditors in accordance with the provisions of the relevant Finance Document), Secondary Market Guarantor or any Obligor will be entitled by notice to the Security Trustee to propose or request: 9.1.1 any change or modification to the Finance Documents to which it (or, in the case of any Secured Creditor, the Security Trustee) is party or, in the case of a Secondary Market Guarantor, is the subject of its secondary market guarantee arrangements; 9.1.2 the giving of any consent or waiver under or in respect of the Finance Documents to which it (or in the case of any Secured Creditor, the Security Trustee) is party; 9.1.3 the substitution of the Issuer (or any Substituted Issuer) in accordance with Clause 22 (Substitution of the Issuer) of the Bond Trust Deed or, as the case may be, the substitution of TWUF (or any Substituted TWUF) in accordance with Clause 13 (Modification and Substitution) of the relevant secured TWUF Bond Trust Deed; or 9.1.4 the taking of any Enforcement Action under any of the Finance Documents or any other action in respect of any of the transactions contemplated by the Finance Documents to which it (or, in the case of any Secured Creditor, the Security Trustee) is a party or, in the case of a Secondary Market Guarantor, is the subject of its secondary market guarantee arrangements. Any such proposal or request will constitute a "STID Proposal" and the person serving such STID Proposal is referred to in this Deed as the "Proposer".”

“9.6.1 The Security Trustee may, and will if requested by notice in writing from any DIG Representative, solicit directions of the Class A DIG Representatives, or following the repayment in full of the Class A Debt, the Class B DIG Representatives in relation to: (i) any matter expressly requiring the consent, approval or agreement of, or directions or instructions from, or waiver by the Majority Creditors pursuant to Clause 19.6 (Resignation of Security Trustee) of this Deed, and such directions or instructions shall not be subject to Entrenched Rights or Reserved Matters provided that they deal solely with matters requiring the consent, approval or agreement of, or directions or instructions from, or waiver by the Majority Creditors pursuant to Clause 19.6 (Resignation of Security Trustee) of this Deed; or (ii) any vote to terminate or extend Standstill pursuant to Clause 13.4 (Termination of Standstill) or Clause 13.5 (Extension of Standstill), as applicable. Any such solicitation will constitute a "DIG Proposal". 9.6.2 The Security Trustee will send a notice of each DIG Proposal (such notice, a "DIG Directions Request") only to the relevant DIG Representatives, which must be in writing, dated and contain reasonable detail of the consent, approval or agreement of, or directions or instructions from, or waiver by the Majority Creditors or, in respect of any vote to terminate Standstill pursuant to Clause 13.4 (Termination of Standstill) or Clause 13.5 (Extension of Standstill), by DIG Representatives representing the requisite percentage of the Outstanding Principal Amount of (i) the Qualifying Class A Debt or (ii) following the repayment of the Class A Debt in full, the Qualifying Class B Debt set out therein, which the Security Trustee is soliciting from the Majority Creditors or, in respect of any vote to terminate a Standstill pursuant to Clause 13.4 (Termination of Standstill) or Clause 13.5 (Extension of Standstill), Class A DIG Representatives or, as the case may be, Class B DIG Representatives representing the requisite percentage of the Outstanding Principal Amount of the relevant Qualifying Debt set out therein, setting out the relevant Exchange Rate and requesting the following from each relevant DIG Representative: (a) a vote in writing on the DIG Proposal from the relevant DIG Representative no later than a specified date (which date shall be not (i) less than 5 Business Days after the date that the DIG Directions Request is deemed to be given in accordance with Clause 17.3 (Effectiveness) of the Common Terms Agreement or (ii) where the Bond Trustee or the relevant TWUF Bond Trustee is a DIG Representative and a Default Situation is subsisting, subject to Clause 9.13 (Emergency Instruction Procedure) such later date (being not more than 2 months after the date that the DIG Directions Request is deemed to be given in accordance with Clause 17.3 (Effectiveness) of the Common Terms Agreement) as may be notified to the Security Trustee by the Bond Trustee or, as the case may be, the relevant TWUF Bond Trustee should the Bond Trustee or, as the case may be, the relevant TWUF Bond Trustee have given notice to convene a meeting of any one or more Sub-Classes of Bondholders or, as the case may be, Classes of Secured TWUF Bondholders to consider the DIG Directions Request) (the "DIG Voting Date"); and (b) a certificate from the relevant DIG Representative that it is entitled under the terms of this Deed to vote on the DIG Proposal and stating the Outstanding Principal Amount of its Voted Qualifying Debt (in the case of Qualifying Debt denominated in a currency other than the Base Currency, expressed in the Base Currency on the basis of the Exchange Rate set out in the DIG Directions Request). 9.6.3 Subject to Clause 9.6.4 below, the Security Trustee is duly authorised and must promptly act in accordance with the votes from Majority Creditors, in respect of the DIG Proposal following the earlier of: (a) the date on which the Security Trustee has received votes in favour of the DIG Proposal from DIG Representatives representing more than 50 per cent of the Outstanding Principal Amount of (i) the Qualifying Class A Debt or (ii) following the repayment of the Class A Debt in full the Qualifying Class B Debt; and (b) if the Majority Creditors have voted in favour of the DIG Proposal, the DIG Voting Date. 9.6.4 For the purposes of Clause 13.4 (Termination of Standstill) and Clause 13.5 (Extension of Standstill), the Security Trustee is duly authorised and must promptly act in accordance with the votes from Class A DIG Representatives or, following the repayment in full of the Class A Debt, the Class B DIG Representatives representing the requisite percentages of Outstanding Principal Amount of the Qualifying Class A Debt or, if no Class A Debt is outstanding, Qualifying Class B Debt who have voted in respect of the DIG Proposal to terminate Standstill. 9.6.5 As soon as the Security Trustee has received votes on a DIG Proposal from DIG Representatives representing more than 50 per cent of the Outstanding Principal Amount of (i) the Qualifying Class A Debt or (ii) following the repayment of the Class A Debt in full the Qualifying Class B Debt in respect of any vote to terminate Standstill pursuant to Clause 13.4 (Termination of Standstill) or Clause 13.5 (Extension of Standstill), from DIG Representatives representing the requisite percentage of the Outstanding Principal Amount of (i) the Qualifying Class A Debt or (ii) following the repayment of the Class A Debt in full the Qualifying Class B Debt set out therein, no further votes will be counted by the Security Trustee or taken into account notwithstanding the fact that the Security Trustee has yet to receive votes from all DIG Representatives in respect of the Qualifying Class A Debt or, if no Class A Debt is outstanding, Qualifying Class B Debt. 9.6.6 The Security Trustee must notify each Secured Creditor (or, where applicable, its Secured Creditor Representative) and each Secondary Market Guarantor of the decision of the Majority Creditors or, in respect of any vote to terminate a Standstill pursuant to Clause 13.4 (Termination of Standstill) or Clause 13.5 (Extension of Standstill), of DIG Representatives representing the requisite percentages of the Outstanding Principal Amount of the Qualifying Class A Debt or, if no Class A Debt is outstanding, Qualifying Class B Debt set out therein on a DIG Proposal promptly following the DIG Voting Date or (if earlier) the date on which the Security Trustee has received votes in favour of the DIG Proposal from DIG Representatives representing more than 50 per cent of the Outstanding Principal Amount of the relevant Qualifying Debt or, in respect of any vote to terminate a Standstill pursuant to Clause 13.4 (Termination of Standstill) or Clause 13.5 (Extension of Standstill), from DIG Representatives representing the requisite percentages of the Outstanding Principal Amount of the relevant Qualifying Debt set out therein.”

“9.7.1 Subject to Clause 9.3 (Notice to Secured Creditors and Secondary Market Guarantors of STID Proposal), Clause 9.4 (Notice of Entrenched Rights or Reserved Matters Procedure) and Clause 9.10 (Disputes), decisions of the Majority Creditors in relation to STID Proposals will bind the Secured Creditors and the Secondary Market Guarantors in all circumstances. 9.7.2 Subject to Clause 9.6 (DIG Directions Request), decisions of: (a) the Majority Creditors in relation to any DIG Proposal; and (b) the DIG Representatives representing the requisite percentage of the Outstanding Principal Amount of the Qualifying Class A Debt or, if no Class A Debt is outstanding, Qualifying Class B Debt set out in Clause 13.4 (Termination of Standstill) and Clause 13.5 (Extension of Standstill) in respect of any vote to terminate Standstill, will bind the Secured Creditors and the Secondary Market Guarantors in all circumstances. 9.8 The Voted Qualifying Debt held or represented by a DIG Representative for the purposes of a decision of the Majority Creditors, or, in respect of any vote to terminate Standstill pursuant to Clause 13.4 (Termination of Standstill) or Clause 13.5 (Extension of Standstill) a decision of Class A DIG representatives or, as the case may be, Class B DIG Representatives representing the requisite percentage of the Outstanding Principal Amount of the relevant Qualifying Debt set out therein shall be the total Qualifying Debt which it has voted and for which it is DIG Representative, notwithstanding that not all the Qualifying Debt Providers which it represents voted under the voting procedures in the Finance Document under which the Qualifying Debt Providers have made the Qualifying Debt available to TWUL, TWUF or the Issuer (as applicable) consistently with the DIG Representative's vote, provided that the DIG Representative voted in accordance with a decision binding on all Qualifying Debt Providers under such Finance Document.”

“13.1 Commencement of Standstill Immediately upon notification to the Security Trustee of an Event of Default occurring (other than, for the avoidance of doubt, an Event of Default as defined in any Hedging Agreement with respect to a Hedge Counterparty) in accordance with Clause 12 (Notification of Default) and for so long as any Class A Debt and/or Class B Debt is outstanding, a Standstill Period will commence (unless one is already in existence) and each of the following provisions of this Clause 13 (other than Clause 13.4.3) will apply in relation to any Event of Default set out in Part 2 (Events of Default of TWUL, TWUF and Issuer) of Schedule 6 (Events of Default) to the Common Terms Agreement occurring and the provisions of Clauses 13.2 (Restrictions during Standstill), 13.3 (Cash Management during Standstill), 13.4 (Termination of Standstill) and 13.6 (No Waiver of Rights for Obligors) will apply in relation to any Event of Default set out in Part 1 (Events of Default of TWH) of Schedule 6 (Events of Default) to the Common Terms Agreement occurring. 13.2 Restrictions during Standstill Each Secured Creditor agrees that during a Standstill Period: 13.2.1 (other than any action taken in relation to Permitted Share Pledge Accelerations in accordance with Clause 13.2.2 and, for the avoidance of doubt, Permitted Lease Terminations, Permitted Hedge Terminations and Permitted EIB Compulsory Prepayment Events), no instructions may be given by or on behalf of any Secured Creditor to instruct the Security Trustee to take any Enforcement Action (but without prejudice to the ability of the Secured Creditors to demand payment) in relation to all or any part of the Security granted by TWUL, TWUF or the Issuer; 13.2.2 the Security granted by TWH under or pursuant to the Security Documents may be enforced at any time by the Security Trustee at the direction of the Majority Creditors; and 13.2.3 save as provided in Clauses 13.2.1 and 13.2.2 and other than Permitted Share Pledge Accelerations and, for the avoidance of doubt, Permitted Lease Terminations, Permitted Hedge Terminations and Permitted EIB Compulsory Prepayment Events, no Enforcement Action may be taken. 13.3 Cash Management during Standstill Notwithstanding Clause 13.2 (Restrictions during Standstill), (i) during a Standstill Period, any monies received by TWUL, TWUF or the Issuer and all monies credited to the Accounts, will be applied in accordance with Schedule 11 (Cash Management) to the Common Terms Agreement and, upon application in the discharge of the Secured Liabilities, in accordance with the Payment Priorities and (ii) each of the Issuer and TWUF will continue to be entitled to make drawings under the Liquidity Facilities subject to Paragraph 3 of Schedule 13 (DSR Liquidity Facility/O&M Reserve Facility Terms) to the Common Terms Agreement. 13.4 Termination of Standstill 13.4.1 A Standstill Period which has commenced upon the occurrence of an Event of Default set out in Part 2 (Events of Default of TWUL, TWUF and Issuer) of Schedule 6 (Events of Default) to the Common Terms Agreement will terminate upon the earliest of: (a) the date on which an order is made for the Special Administration of TWUL or any steps are taken to commence Insolvency Proceedings against the Issuer or TWUF other than proceedings that are commenced by the Security Trustee; (b) (during the first 18 months of the Standstill Period) the date on which Class A DIG Representatives in respect of 662/3 per cent. or more of the aggregate Outstanding Principal Amount of the Qualifying Class A Debt or, following the repayment in full of the Class A Debt, Class B DIG Representatives in respect of 662/3 per cent. or more of the aggregate Outstanding Principal Amount of the Qualifying Class B Debt vote (pursuant to a DIG Proposal) to terminate the Standstill Period and (after such first 18 months) the date on which the Standstill Period terminates pursuant to Clause 13.5 (Extension of Standstill); and (c) the date of waiver by the Majority Creditors and any other Secured Creditor whose consent is required to be obtained in respect of such waiver pursuant to the Entrenched Rights or the date of remedy (which in the case of an Event of Default caused solely by a TDC Breach, is the date that such TDC Breach is treated as no longer occurring pursuant to the Tax Deed of Covenant) of the Event of Default giving rise to the Standstill Period. 13.4.2 Upon termination of a Standstill Period in accordance with Clause 13.4.1 (except by virtue of Clause 13.4.1(c)), any Secured Creditor will be entitled to exercise all rights which may be available to it under any Finance Document (other than any Security Document) (including directing the Security Trustee to take any Enforcement Action) free of the restrictions imposed by Clause 11 (Undertakings) or Clause 13.2 (Restrictions during Standstill) (but subject to Clause 10 (Ranking of Secured Liabilities), Clause 11.6 (Receipts Held in Trust) and the Security Trustee will be entitled to enforce any Security Document in accordance with Clause 14.2 (Enforcement). 13.4.3 A Standstill Period which has commenced upon the occurrence of an Event of Default set out in Part 1 (Events of Default of TWH) of Schedule 6 (Events of Default) to the Common Terms Agreement will terminate upon the earlier of: (a) the date of waiver by the Majority Creditors and any other Secured Creditor whose consent is required to be obtained in respect of such waiver pursuant to the Entrenched Rights or the date of remedy of the Event of Default giving rise to the Standstill Period; and (b) the date on which the Security Trustee notifies TWUL and each Secured Creditor (or its DIG Representative) that notice by any Secured Creditor of the occurrence of the relevant Event of Default has been revoked, provided that the Standstill Period shall not terminate if on such a date an Event of Default is continuing in relation to TWUL and/or TWUF and/or the Issuer whereupon the Standstill Period shall terminate upon the earliest of the dates specified in Clause 13.4.1.”

“so far as permitted by any binding confidentiality obligation that exists at the Initial Issue Date or any applicable law and without prejudicing the retention of legal privilege such material information about the business and financial condition of TWUL as a Secured Creditor may reasonably and properly request from time to time, on the request of the Security Trustee (as directed by such Secured Creditor)”

“9.8 Following the commencement of a Standstill Period and for so long as it continues, and provided that no Enforcement Action (other than a Permitted Share Pledge Acceleration) has occurred: (a) TWUL shall cease to be the Cash Manager and will be replaced by the Standstill Cash Manager which shall control payments into and out of the Accounts in place of TWUL, the Issuer or TWUF; (b) the Standstill Cash Manager shall pay all operating expenditure as and when it falls due; and (c) the Standstill Cash Manager shall on a monthly basis calculate the aggregate of all payments falling to be made, or expected to fall to be made, during the next following period of 12 months and shall calculate all net revenues received and/or expected to be received over that 12 month period. To the extent that the forecast revenues are insufficient (after paying all relevant operating expenditure) to pay the aggregate of all payments falling to be made during the next 12 months, the Standstill Cash Manager shall notionally apply those forecast revenues to each category in accordance with the Payment Priorities until the revenue that is forecast to be available is insufficient to meet all of the payments falling to be made within such 12 month period in any sub-paragraph of the Payment Priorities (the "Shortfall Paragraph") and shall, in respect of those categories of payment falling within the Shortfall Paragraph, divide the anticipated revenues remaining pro rata between those amounts. 9.9 Throughout the Standstill Period, any payments falling to be made within a category of payment falling within a Shortfall Paragraph shall be satisfied by a payment of the pro rata share of that payment calculated in accordance with Paragraph 9.8 above and the balance of the payment not made shall remain outstanding. 9.10 Throughout the Standstill Period, no payments falling in a category which (in accordance with Paragraph 9.3 above) falls after a Shortfall Paragraph shall be mad but such payments shall remain outstanding.”

“No Liquidity Facility Provider shall be obliged to make facilities available if (i) the Issuer or TWUF fails to pay any sum under the Liquidity Facility Agreement or any related fee letter at the time, in the currency and in the manner specified therein unless payment is made within three Business Days; (ii) an Insolvency Event has occurred in relation to the Issuer or TWUF; or (iii) an Acceleration of Liabilities (other than a Permitted Lease Termination, a Permitted Hedge Termination, a Permitted EIB Compulsory Prepayment Event or a Permitted Share Pledge Acceleration) pursuant to Clause 11.8 (Acceleration of Secured Liabilities) of the STID has occurred or a Standstill Period terminates other than pursuant to Clause 13.4.1(c) (Termination of Standstill) of the STID (each an "LF Event of Default"). For the avoidance of doubt, the Liquidity Facility Provider shall be obliged to continue to make facilities available if the Issuer or TWUF becomes insolvent as a result of a technical balance sheet insolvency arising out of a change in accounting and/or tax treatment.”

“1. Allowed Revenues – Ofwat sets a revenue cap for each water company to cover service costs, including operating expenses, capital investments, and a reasonable return on investment. Any over and under spend against the cap is managed by cost-sharing factors set by Ofwat, reflecting the quality and ambition of the company's business plan. At the end of the AMP, a true-up 'midnight adjustment' to the company's RCV is made using these cost-sharing factors. 2. Performance Commitments – Service Targets: Companies are required to meet specific performance commitments related to service quality, environmental protection, and customer satisfaction. – Price Control Deliverables: There are certain specified outputs that the companies must deliver by a certain date, with financial incentives for early/late delivery. – ODIs: These incentives include financial rewards for exceeding performance targets and penalties for underperformance. 3. Efficiency and Innovation – Efficiency Targets: Ofwat sets efficiency targets to encourage companies to reduce costs and improve operational efficiency. – Innovation Fund: An innovation fund is established to support projects that drive technological advancements and innovative practices in the water sector. 4. Monitoring and Enforcement – Annual Performance Reports: Water companies are required to publish annual performance reports detailing their progress against the set targets and commitments. – Regulatory Interventions: Ofwat monitors compliance and can intervene if companies fail to meet their commitments or if there are significant deviations from the approved business plans.”

“• The RCV was established by the first economic regulator, Sir Ian Byatt, as a means of providing cash-negative companies a financial balance sheet, enabling them to access private capital for their investment programs. • RCV is a key parameter in determining the current and future level of allowed revenues that water companies can raise from their customers. • The value of the RCV represents the level of capital invested that Ofwat has committed to allowing the company to recover, in addition to its operating expenditure. The RCV is split across the various wholesale controls. Under Ofwat’s regulatory framework, the allowed return is calculated by multiplying the (average) RCV by an estimate of the weighted average cost of capital. Consequently, a higher RCV directly contributes to a higher allowed return (in absolute terms). • Each year, capitalised spend is added to the RCV and regulatory depreciation is removed (through the RCV run-off rate). This means that the RCV will be growing in real terms if the value of capital expenditure exceeds RCV run off. • The value of the RCV is also uplifted for inflation. Indexation is currently based on a combination of RPI and CPIH inflation. However, Ofwat has signalled that from AMP8 onwards, indexation will be purely be in terms of CPIH. The RCV is also subjected to a further adjustment (the 'midnight adjustment') at the end of each five-year period to account for the reconciliation mechanisms that are in place.”

“4.1 In the PR24 Final Determination there is a significant difference between the allowed regulatory totex spend (£20.5bn) and the totex ask for in TWUL’s DD Response, where TWUL estimated it needed £24.5bn. Put another way, Ofwat expects TWUL to sufficiently deliver against TWUL’s performance commitments and wider regulatory and legal requirements, with c.£4bn less totex than TWUL estimated it would need in the DD Response. 4.2 In my view, in certain areas it is going to be incredibly challenging to deliver on TWUL’s performance commitments and regulatory requirements, within the regulatory totex spend amount and the gap cannot be bridged with just ‘efficiencies’. By way of example only, in the PR24 Final Determination Ofwat allows a unit rate of £1,200/m to deliver mains renewal in central London. However, in TWUL’s experience the unit rate has been historically as much as £5,000/m (and may be greater given the macroeconomic factors I described in paragraph 2.11). 4.3 Instead, I consider that in order to fully bridge the c.£4bn gap, TWUL would either need to remove significant items from its capex programme or materially overspend as compared to what’s included in the PR24 Final Determination. As TWUL’s capex programme is largely compliance driven, removing items from the capex programme may expose TWUL, and its directors, to legal liability. Furthermore, delivery on the capex programme is heavily incentivised by Ofwat such that not spending the money may be counterproductive as it will result in some combination of TWUL’s revenue allowance being clawed back, penalties for non-delivery and/or penalties for missing TWUL’s performance commitments. TWUL may, therefore, be left with little choice but to materially overspend in AMP8.”

“The final determination for PR24, that was published on 19 December last year? A. Correct. Q. We heard earlier you have a team of 250 employees and contractors working on it. That is right, isn't it? A. Approximately, yes. Q. You have produced a detailed provisional financial model based on that determination, which is called the Crabtree model, the updated Crabtree model. That is right, isn't it? A. No. To be clear, the Crabtree model has not been updated for the final determination. It reflects an old version, the drafted termination [sic] response plan, not the final determination. Q. Can we just go to your witness statement, so I am clear on your evidence then. That is in the sanction bundle, tab 15, page 297. At paragraph 4.6, you say -- MR JUSTICE LEECH: 297, please. MR DAY: Sorry, my Lord? MR JUSTICE LEECH: It is not on the screen. MR DAY: Sanction bundle, tab 15, page 297. There we are. I want to focus on paragraph 4.6, where you say: "In order to provide a better comparison between Mr Weerasinghe's report and the Grunwald report, the operating company has provided Mr Weerasinghe a version of the Crabtree model that incorporates the unadjusted revenues from the PR24 final determination." As I understand it, you have a Crabtree model and you have updated it to include the revenues that you are going to be permitted under PR24, is that right? A. It is not quite that simple, if I may. As I explained earlier, it has been updated for the allowed revenues. However, the revenue we actually receive is net of any penalties that will be incurred for failing to deliver Ofwat's target performance outcomes. The actual revenue we receive, the adjusted allowed revenues, which determines the cash inflow of the business, has not been updated in that model. Q. I understand, thank you. Your evidence, as I understand it from your answers earlier this afternoon, is that there is a £4 billion gap between what Thames Water can afford and what is required of Thames Water in terms of its performance commitments and regulatory obligations, is that right? A. There is a 4 billion gap, yes. Q. Presumably you think that gap is unworkable? A. What do you mean by "unworkable"? Q. That that is not a gap that Thames Water realistically can bridge? A. At this point in time, no.”

“(1) A special administration order is an order of the High Court made in accordance with section 24 or 25 below in relation to a company holding an appointment under Chapter I of this Part or which is a qualifying water supply licensee or a qualifying sewerage licensee and directing that, during the period for which the order is in force, the affairs, business and property of the company shall be managed, by a person appointed by the High Court— (a) for the achievement of the purposes of such an order; and (b) in a manner which protects the respective interests of the members and creditors of the company. (2) The purposes of a special administration order made in relation to any company holding an appointment under Chapter 1 of this Part shall be— (a) the transfer to another company, or (as respects different parts of the area to which the company's appointment relates, or different parts of its undertaking) to two or more different companies, as a going concern, of so much of the company's undertaking as it is necessary to transfer in order to ensure that the functions which have been vested in the company by virtue of its appointment may be properly carried out; and (b) the carrying out of those functions pending the making of the transfer and the vesting of those functions in the other company or companies (whether by virtue of the transfer or of an appointment or variation which replaces the former company as a relevant undertaker). (2B) Where a company is in special administration as a result of an order made on the grounds that the company is or is likely to be unable to pay its debts— (a) a purpose of the special administration order is to rescue the company as a going concern, and (b) the transfer purpose under subsection (2)(a) or (2A)(a) applies only if the special administrator thinks that— (i) it is not likely to be possible to rescue the company as a going concern, or (ii) transfer is likely to secure more effective performance of the functions or activities mentioned in subsection (2). (2C) Where subsection (2B) applies, subsections (2)(b) and (2A)(b) have effect as if they referred to carrying out functions, or carrying on activities, pending rescue or transfer.”

“It seems to me that there could easily in certain circumstances be a tension between the need to secure the transfer of the existing appointee’s undertaking to the new appointee in order to maintain the underground network and the interests of creditors in obtaining the best return from an otherwise insolvent company. The Court on an application under s.27 would have to balance those interests (so far as inconsistent with each other) in deciding what (if any) order to make. But it is also important to observe that the Court on a s.27 application under Schedule 14 to the 1999 Act is not empowered to dictate the terms of any proposed transfer scheme. The most that the Court can do is to discharge the PPP administration order unless measures are taken to protect the interests of creditors: see Schedule 14 paragraph 10(4). It would only, I think, be in extreme circumstances that such an order would ever come to be made.”

“7.1 Special administration is a process in which the objectives under a normal administration are modified to include public interest objectives. The process typically enables an insolvent company, which provides vital public services (e.g., water, energy, rail) to be put into special administration with a requirement that the public service will be provided pending rescue or transfer to new owners. This contrasts to a normal administration, where the appointed administrator is generally focused on the creditors' interests. The Government prepares for all eventualities to ensure the uninterrupted provision of vital public services. There is a high bar for implementing a SAR and it is a tool to be used when other options have been exhausted. 7.2 There is no universal special administration regime (SAR) legislative framework, rather each vital public service is governed by their own distinct SAR, e.g., the water industry special administration regime (WISAR), the Energy Supply Companies Special Administration Regime (introduced by the Energy Act 2011). This is because SAR legislative frameworks typically adapt general insolvency law to ensure it provides for the specifics of their industry.”

“23. Significant Thames Water capital (ultimately funded by customer bills) has been extracted by investors since privatisation. By way of example, dividends from the Appointed Company recorded in its annual statements from 1990 onwards (which are publicly available on Companies House) amount to £2.061bn for 1990-1999; £1.769bn for 2000-2009; £1.823bn for 2010-2019; and over £300m for 2020-2024.7 The vast majority of these dividends paid up to the Plan Company have been either distributed further up the corporate structure either to equity investors or used to service its debt obligations. Yet further debt obligations have been incurred directly by the Appointed Company or its subsidiaries. 24. Alongside paying out significant dividends, Thames Water has become highly leveraged since privatisation. The Appointed Company (and its wider group) was transferred debt-free to the private sector in 1989. As at 28 November 2024, Thames Water now has principal outstanding debt of approximately £19bn (plus hedging with a mark-to-market value representing a further liability of £1.68bn): see the Plan Company’s explanatory statement (the Explan), pt 1, paras 3.5 and 3.17. That is to be contrasted with the Appointed Company’s underlying EBITDA in its financial statements for the year ended 31 March 2024 of £1.2bn [1/8]. 25. According to a note published by Macquarie in August 2023, Thames Water when sold by RWE had a 6.5x debt-to-EBITDA ratio which rose to a 10x debt-to-EBITDA ratio in 2017 [46/1562-1569]. Based on the last available financial statements, the debt-to-EBITDA ratio is now obviously much higher; if the full £3bn in further debt funding envisaged by the restructuring plan is made available (and factoring in the impact of PR24 FD) that debt-to-EBITDA ratio may well increase even further. These are obviously unsustainable ratios for any business as a going concern. 26. As a result of this financial mismanagement, Thames Water has been downgraded progressively by the credit ratings agency. In particular, on 24 July 2024, Moody’s downgraded Thames Water to Ba2 with a negative outlook and Standards and Poor’s downgraded Thames Water to BB with a negative outcome [32/1169]. Moody’s has since downgraded Thames Water again. That means Thames Water how holds junk rather than investment grade status as an investment proposition (and several notches beneath investment grade). This itself is a significant breach of the Appointed Company’s terms of its appointment: see paragraph 31.7 below. 27. Although Thames Water claims to have been borrowing to invest or meet regulatory obligations,8 that is not a view widely shared by independent observers. Professor Sir Dieter Helm has written that [43/1521-1538]: “…what makes Thames more of a basket case than the [other water companies] is that, in addition to failing on the capital maintenance, it was profit-maximising by gearing up its balance sheet at the outer limits of what was sustainable. This turned out to be the most profitable activity of the company. Whereas the balance sheet had been set up at privatisation to move from pay-as-you-go to pay-when-delivered, Thames (and others) used the balance sheet to mortgage the assets and pay out the proceeds in special dividends and other benefits to the shareholders. All the companies were doing this, but Thames pushed it further … Thames took this to a whole new scale, engaging in whole-company securitisation and creating an offshore set of companies to facilitate this, going under the label of various Kemble entities. It was brilliantly executed, building on a strategy that had its origins back in the mid-1990s when OFWAT … decided not to act to protect the balance sheets. It was as if the owners were shown an open goal – not only had the goalkeeper been removed, but the referee was taken off the pitch too.” 28. As I explain further in section C below, a widespread view amongst customers and campaigners is that the restructuring plan should not be sanctioned because it aggravates rather than addresses the problem that the current Thames Water debt burden is unsustainable given its pre interest, tax and depreciation profit levels. The proposed terms of the restructuring plan are therefore not financially sustainable in the mid or long term for Thames Water and/or its appointed functions and activities.”

“17. It was clear at this time that Thames Water needed urgent funding, maturity and amortisation extensions (primarily of the Class A Debt which is, by quantum, the most significant external financing Thames Water has incurred), and covenant waivers/modifications to help it and its senior creditors bridge to a holistic recapitalisation. This package of accommodations was required because there was not enough time to agree and implement a holistic recapitalisation with the then current liquidity runway (given that the holistic recapitalisation would require a broader reset of governance and operations, in addition to a right-sizing of the balance sheet). At the time, Thames Water’s position was that the liquidity runway extended to May 2025 but, even prior to their announcement on 20 September 2024 (referred to below), I thought that the size of the funding commitments the business needed to make could constrain this period. These three elements (bridge funding, maturity / amortisation extensions, and covenant relief), together with the release of trapped cash and the waivers to initiate the Plan referred to below, formed the cornerstones of the proposed Interim Platform Transaction.”

“21. As part of the package agreed by Thames Water and the Class A Creditors, the Class A Creditors granted waivers to allow (among other things) for Thames Water to: (i) access over £400 million of restricted cash which extended the liquidity runway from December 2024 to March 2025; and (ii) facilitate the initiation of the Plan to implement the other aspects of the Interim Platform Transaction (being the “STID Waivers”). My understanding is that, absent the granting of the STID Waivers by the Class A Creditors (which are part of and contingent on the broader Interim Platform Transaction), the directors of Thames Water were on the brink of seeking to have TWUL put into a SAR given the imminent end to the liquidity runway and the consequent defaults which would occur if Thames Water could not make scheduled payments.”

“As is evident from the enclosed indicative term sheet, the Ad-hoc Group is in a position to provide a significant liquidity injection for the Companies on attractive terms and in very short order. The Ad-hoc Group would welcome full engagement with the Companies and their advisors at the earliest opportunity to progress matters and agree a funding solution which meets the Companies’ liquidity needs. The Ad-Hoc Group believes that it is essential that any liquidity proposal which is agreed by the Companies offers the best terms commercially available to preserve value and facilitate a successful long-term resolution of the situation of the Thames Group. Our clients understand the urgency of the Companies’ need for liquidity and expect that they will be in a position to execute a transaction on a compressed timetable, subject to being swiftly provided with the necessary information.”

“4. The Backstop Agreement provides your clients with a certain, deliverable, binding and fully underwritten offer for the entire £3bn new money facility on the terms previously shared. Each signatory’s share of the commitment is reflected in the Backstop Agreement. 5. As noted, the Backstop Group includes members of the Ad Hoc Group and a number of other institutions. We are authorised by the Ad Hoc Group and all the other signatories to the Backstop Agreement to deliver this offer to the Group Companies. 6. For the avoidance of doubt, each of the signatories to the Backstop Agreement have confirmed to us in writing that their respective necessary internal investment committee approvals have been obtained to enter into the commitments which the Backstop Agreement represents, and have signed the documents attached which evidence those commitments. The proposed transaction is, in addition, supported by all members of the Ad Hoc Group, who, as mentioned above, would represent sufficient holdings as to approve on behalf of the entire class of Class B debt in any restructuring plan.”

“This Agreement will become effective and legally binding on: (i) an Original Backstop Party upon the date on which all of the following have occurred: (A) countersignature to this Agreement by TWUHL, TWUL, TWUF and the Lock-Up Agent; (B) occurrence of the TSA Amendment Date; and (C) termination of the backstop agreement entered into on or around 25 October 2024 by TWUHL, TWUL, TWUF and the Lock-Up Agent pursuant to which the Group is released from any liability or obligation thereunder (including in respect of any fees set out therein); and (ii) any other person permitted to accede to this Agreement in accordance with its terms, upon delivery of a duly completed and executed Additional Backstop Party Accession Deed or Issuer Deed of Accession (as applicable) by (or on behalf of) that person.”

“● The group of Class A senior secured creditors we represent holds in excess of £12bn of the Company’s debt and is made up of more than 100 institutions, many of which are the largest and most committed long-term investors in UK infrastructure. ● The institutions that sit on our group’s Coordinating Committee include Abrdn, Apollo Global Management, Assured Guaranty, BlackRock, Corebridge Financial, D.E. Shaw, Dexia, Diameter Capital Partners, Elliott Investment Management, GoldenTree Asset Management, Insight Investment, Invesco, Metlife, PIMCO, PRICOA Private Capital, Silver Point Capital, Sona Asset Management and Voya Investment Management. ● The Class B creditors are junior, subordinated creditors. Even though Quinn Emanuel claim to represent over 75% by value of the Class B Creditors, amounting to around £746m in face value, that is de minimis compared to the Class A creditor group, and only amounts to around £112m in value based on the 85% discount which is currently implied by the market trading price of the Class B debt. ● The New Money Financing was heavily negotiated by a representative cross-section of the Group’s senior secured creditors and has achieved a broad consensus within our group. In that regard, we understand that more than 75% by value of the Class A Creditors have now acceded to the Transaction Support Agreement in respect of the New Money Financing. ● The Company is of course also a party to the Transaction Support Agreement, and so obliged to support the New Money Financing. ● The financial position of the Company, and the fact that our group was negotiating a New Money Financing, has been publicly known for many weeks. Despite that, the Class B creditors only organised into a separate group very recently, and we understand only sent an executed backstop agreement on 7 November. ● We have already met (with you) with Quinn Emanuel on a without prejudice basis in order to see if there is any basis for a commercial resolution. At your instigation, Quinn Emanuel have now reached out to us directly, on an open basis, seeking a further discussion.”

“For at least these reasons, it is not acceptable to our clients for the Company to navigate indeterminately between the Supported Plan and the Junior Plan or to jeopardise the Supported Plan by entertaining the Junior Plan. Instead, the Company and its directors should unequivocally reject the Junior Plan and take all steps necessary to ensure that it does not interfere with the Supported Plan, including by seeking to vacate the court hearing date of 20 January 2025, which we understand was unilaterally reserved by Quinn Emanuel for the Junior Plan’s convening hearing. Further, to the extent that the Class B creditors persist with the Junior Plan and their challenge to the Supported Plan, we expect to see the Company seeking to recover costs from the Class B creditors in the relevant proceedings.” seeking to recover costs from the Class B creditors in the relevant proceedings.”

“19 Parties were invited in to Phase 1B on 19 December 2024. Parties are being provided with updated materials in Phase 1B, in relation to Ofwat’s Final Determination and Thames Water’s operational performance, as well as access to management via a dial-in / listen-in management session on these topics. Parties have also received a pensions due diligence report and an insurance report. Parties who have received the updated materials include those that entered the process after Ofwat published its Final Determination, i.e. those noted in para 15 above. 20 We have been pleased with the level of engagement shown by parties throughout Phase 1 and there are a number of serious and motivated parties involved in the process. They have engaged substantively with the due diligence materials and meetings, and dedicated a significant amount of internal resource. All parties currently in the process are incurring costs, all of them have engaged legal and financial advisers, and the financial bidders have retained technical advisers. 21 It has been of benefit to the process that the diligence phase commenced early with extensive information, so that following Final Determination, parties have been well placed to analyse the outcome, and formulate their updated NBOs. 22 In relation to the so-called “June Release Condition” (which we believe is the subject of some criticism by the Class B Ad Hoc Group), this provision has not been the subject of any criticism or concern expressed to us by bidders, nor has any party left the equity process as a result of publication of the terms of the restructuring plan (which included the June Release Condition). Additional parties have joined the formal process since the publication of the terms of the restructuring plan. 23 The one exception to this is a bidder in the process who is also a holder of Class B Debt, whom we understand has also backstopped a portion of the super senior funding proposed by the Class B Ad Hoc Group. This party has made some criticisms of the process, but nevertheless remains in the process. 24 We note for completeness that there was no significant movement in the price of the Thames Water public debt as a result of publication of the terms of the restructuring plan (containing the June Release Condition) on 25 October 2024, as shown below (source - Bloomberg):…”

“We have not received any adverse comments about the process, nor any indication that the process itself has reduced the interest of any bidder, with the one exception, as noted previously, of the bidder holding Class B debt, and partially backstopping the alternative funding proposed by the Class B Ad Hoc Group. There are a number of parties in the process who continue to engage and allocate significant resources, and incur costs, with all participants currently working towards providing updated Phase 1B proposals on 10 February 2025.”

“1.1 Further to the Practice Statement Letter dated 22 November 2024 issued by the Plan Company to the Plan Creditors (as defined therein) (the “November PSL”), a Class A Creditor (the “Senior Plan Petitioner”) intends to apply to the Court seeking orders to convene meetings of the Plan Creditors in relation to the proposed restructuring plan under Part 26A of the Act between the Plan Company and its Plan Creditors (the “Senior Plan”). In advance of that application, this Practice Statement Letter has been issued to engage the Practice Statement in respect of the Senior Plan.” “2.1 The Senior Plan is on the same terms as the Company Plan, with only certain consequential amendments. 2.2 The Senior Plan Petitioner will seek orders convening meetings of the Plan Creditors to consider the Senior Plan, such that, in the event that the Court does not sanction the Company Plan at the Company Plan Sanction Hearing, the Plan Creditors have a further opportunity, in light of the circumstances prevailing at the time, to consider and vote on the Transaction (in the case of the Consenting Creditors, in accordance with the terms of the Transaction Support Agreement to which they are party). 2.3 If, contrary to the Plan Company’s current position based on advice, (a) the Court were to find that SAR is not the relevant alternative to the Company Plan and were to decline to sanction it on that basis and (b) the Court were subsequently to give permission to convene creditor meetings to consider an alternative restructuring such that there is sufficient time for such alternative restructuring to be fully implemented within the Plan Company’s remaining liquidity runway, the Plan Company will take steps to facilitate the Senior Plan. For the avoidance of doubt, the Senior Plan Petitioner agrees with the position set out in the Company Plan that the relevant alternative to the Company Plan is the SAR Scenario (as defined below).”

“6.1 As set out in the disclosures in the November PSL, if the Company Plan is not implemented, it is expected that Thames Water Group will run out of available liquidity on 24 March 2025. In circumstances where it is anticipated that Thames Water Group will run out of liquidity prior to being able to implement an alternative liquidity solution, it is expected that TWUL’s directors will request Ofwat to petition to place TWUL into a SAR and that the Plan Company and TWUF would each enter their own insolvency processes (anticipated to be UK administration proceedings) (the “SAR Scenario”). The Senior Plan Petitioner agrees with the position set out in the Company Plan that the relevant alternative to the Company Plan is the SAR Scenario. 6.2 Insofar as the Court decides at the Company Plan Sanction Hearing not to sanction the Company Plan and that there is a sufficient available liquidity to implement an alternative restructuring transaction, the Senior Plan Petitioner will seek to have the Senior Plan run in parallel to the Junior Plan to enable Plan Creditors to consider whether to approve the Transaction in light of the circumstances prevailing at the time. The SAR Scenario is considered to be the “Relevant Alternative” to the Senior Plan.”

“2.4.1 The Borrower may request, on not more than two (2) occasions, that the Total Commitments under this Agreement be increased by delivering to the Super Senior Issuer (with a copy to the Super Senior Security Trustee) a Super Senior IBLA Accordion Request. Each Super Senior IBLA Accordion Request submitted under this Agreement shall be for an amount not exceeding £750,000,000 and, to the extent the Super Senior Issuer accepts such request in accordance with Clause 2.4.2, shall be funded by the Super Senior Issuer solely out of the proceeds of Additional Super Senior Issuer Funding incurred in accordance with, and where expressly permitted by, the Super Senior Issuer Intercreditor Agreement and the Common Agreements generally (the “Additional Commitments”).”

“The Super Senior Issuer shall only make the Initial Loan or, in respect of any Additional Commitments, the first Additional Loan in respect of such Additional Commitments made available to the Borrower under this Agreement if the following conditions precedent are satisfied and relevant copies thereof and other evidence is provided to the Super Senior Issuer and the Super Senior Security Trustee (unless waived by the Super Senior Security Trustee in accordance with the Super Senior Issuer Intercreditor Agreement): 4.1.1 evidence that each of the relevant Funding Conditions have been satisfied;…”

“(viii) in respect of any Loans to be made on or after 30 June 2025 (including any Additional Loans), a Supported LUA has been entered into by such date, provided that this condition shall cease to be satisfied at any time if the Supported LUA has terminated or ceases to be fully effective in accordance with its terms (unless a Recapitalisation Transaction has been implemented which is the subject of the Supported LUA) (such condition being, the “June Release Condition”) provided further that, where the Borrower is (at the relevant time) acting in good faith towards a Recapitalisation Transaction, any extension of the June Release Condition can be effected with the consent of the Super Senior Issuer and the Super Senior Security Trustee in accordance with clause [4.7(a)(iv)] of the Super Senior Issuer Intercreditor Agreement;…”

“(a) Notwithstanding anything to the contrary in any other Underlying Super Senior Finance Document, the Company shall not submit an Additional Super Senior Issuer Funding Request Notice under this Agreement or incur any Additional Super Senior Issuer Funding unless: (i) as at the relevant time: (1) a CMA Reference Decision has been made; and (2) the Supported LUA has been entered into and is effective; and (ii) the relevant Additional Super Senior Issuer Funding Closing Date does not fall prior to 30 June 2025.”

“"Enhanced Majority SSIS Creditors" means, at any time, those Super Senior Issuer Secured Creditors whose Super Senior Issuer Secured Credit Participations aggregate at least 66 2/3rds of the total Super Senior Issuer Secured Credit Participations as at such time, taking into account any adjustments to the Super Senior Issuer Secured Credit Participations deemed voting and/or disenfranchisement in accordance with Clause 22 (Consents, Amendments and Override).” “"Majority SSIS Creditors" means, at any time: (a) those Closing Date Super Senior Issuer Secured Creditors whose Super Senior Issuer Secured Credit Participations aggregate more than 50 per cent. (50%) of the total Super Senior Issuer Secured Credit Participations of all Closing Date Super Senior Issuer Secured Creditors at that time, provided that, as at the relevant time, those Closing Date Super Senior Issuer Secured Creditors: (i) hold at least 40 per cent. (40%) of the aggregate Super Senior Issuer Secured Credit Participations; and (ii) represent more than ten (10) in number of the Closing Date Super Senior Issuer Secured Creditors (disregarding any Closing Date Super Senior Issuer Secured Creditors which are Affiliates of each other or Related Funds); or (b) if paragraph (a) above does not apply, those Super Senior Issuer Secured Creditors whose Super Senior Issuer Secured Credit Participations aggregate more than 50 per cent. (50%) of the total Super Senior Issuer Secured Credit Participations as at the relevant time, and in each case taking into account any adjustments to the Super Senior Issuer Secured Credit Participations deemed voting and/or disenfranchisement in accordance with Clause 22 (Consents, Amendments and Override).”

““CMA Reference Decision” means a decision by TWUL to dispute any determination in relation to the AMP 8 regulatory period made by Ofwat under Part III of Condition B of the Instrument of Appointment and require that Ofwat refer the disputed determination to the Competition and Markets Authority for determination, as specified by Part V of Condition B of the Instrument of Appointment and section 12(3)(a) of the WIA (a “CMA Appeal”), provided that such decision (i) has also been approved by a majority of the TWUL Directors and each of the Reference Decision Nominated Directors, or (ii) to the extent the conditions in (i) are not satisfied, is approved by the Super Senior Security Trustee;…” “Recapitalisation Transaction” means a transaction involving the reinstatement, recapitalisation, restructuring, compromise or arrangement with creditors (including, without limitation, an extension of maturity) in respect of any Senior Debt (including for the avoidance of doubt any Finance Documents entered into in connection therewith) whether as part of or as condition to an equity raise or a creditor led transaction, or otherwise;…”

“Debt Incurrence and Prepayments (a) Save as permitted by Paragraphs 14 and 17 of the Hedging Policy, no Obligor may incur any additional Financial Indebtedness or enter into any new agreement in respect of the provision of additional Financial Indebtedness, which would rank pari passu with or senior to Super Senior Debt, other than any Additional Super Senior IBLA Funding. For the purposes of this Sub-paragraph (a), "incurrence of any additional Financial Indebtedness" or "entry into any new agreement" includes any amendments to or replacement of any existing Financial Indebtedness (including Financial Indebtedness represented by Hedging Agreements) or any agreement in respect thereto which has the effect of increasing (or potentially increasing) in any manner whatsoever the liabilities owing under or in respect of such Financial Indebtedness. (b) During the Stable Platform Period, no Obligor shall make any voluntary repayments in respect of Class A Debt or Class B Debt, and shall not exercise any rights of early termination or close-out of any Hedging Agreements, other than termination on the final exchange date of Cross Currency Hedging Agreements in respect of any exposure whereby the maturity date of the Class A Debt corresponding to the Cross Currency Hedging Agreement has been deferred but such Cross Currency Swap has not been extended, provided that nothing in this Sub Paragraph (b) shall prevent a Hedge Counterparty from exercising its rights to terminate or close-out a Hedging Agreement in accordance with its terms.”

“57. Governance Requirements (a) Each Obligor will ensure that its Directors at all times include at least two independent non-executive directors ("INEDs") who possess restructuring experience (being, as at the Restructuring Effective Date, Aidan de Brunner and Neil Robson). (b) The Obligors will not appoint any replacements for the directors described in Sub-paragraph (a) above or for TWUL's Chief Restructuring Officer (if being appointed in accordance with the terms of the Transaction Support Agreement) without the consent of the Super Senior Security Trustee.” “59. Recapitalisation Transaction In respect of any Recapitalisation Transaction: (a) in which Secured Creditors (or any of them) are offered the right to reinvest (either directly or indirectly) in the TWU Financing Group (by means of debt, equity or any similar instrument) or any entity that acquires any rights or assets of the TWU Financing Group (whether constituting a lender-led process or a co-investment with third party investor(s) or otherwise), each member of the TWU Financing Group shall: (i) in good faith, consult with the advisers to its Secured Creditors (including, without limitation, the Relevant Creditor Advisers and the Ad Hoc Hedge Advisers) in respect thereof; and (ii) use its reasonable efforts to engage with its Secured Creditors and their advisers on an equal and open basis and use reasonable endeavours, taking into account the circumstances at the time, to ensure the Recapitalisation Transaction includes options for participation (including via different instruments) for all relevant Secured Creditors which will avoid material adverse capital or other economic treatment for some Secured Creditors relative to other pari passu Secured Creditors (the "Participation Condition"); and (b) each member of the TWU Financing Group shall consult with the advisers to its Secured Creditors (including, without limitation, the Relevant Creditor Advisers and the Ad Hoc Hedge Advisers) and commence negotiations in respect of the Supported LUA by no later than 31 March 2025. (c) without prejudice to the other information undertakings and obligations set out in this Agreement (including in Paragraph 60 (Engagement with Creditors) below), each member of the TWU Financing Group shall engage with the Hedge Counterparties and their advisers on an equal and open basis with other creditors in relation to any potential amendment and/or restructuring of the Hedging Agreements in connection with such Recapitalisation Transaction. 60. Engagement with Creditors (a) Subject to Sub-paragraph (b) below, TWUL shall share with the Relevant Creditor Advisers and the Ad Hoc Hedge Advisers (subject to confidentiality arrangements, which are satisfactory to TWUL (acting reasonably), being in place), until the completion of the equity raise or Recapitalisation Transaction, updates on key issues, including (without limitation) TWUL's response to the Ofwat final determination, the equity raise, the turnaround plan, the pension deficit, TWUL's liquidity, any meetings with the UK Government, Ofwat, the EA and/or any other regulatory body or Governmental Agency, a Recapitalisation Transaction (including (i) draft term sheets or indicative terms provided by TWUL or any other member of the TWU Financing Group to any Secured Creditors in respect of the Recapitalisation Transaction, and (ii) draft term sheets or indicative terms that TWUL or any other member of the TWU Financing Group has received from any Secured Creditors from time to time which TWUL, acting reasonably, considers would be reasonable to disclose in accordance with this Sub-paragraph (a)). In relation to the equity raise and the Recapitalisation Transaction, this will include: (i) regular updates to the Relevant Creditor Advisers and the Ad Hoc Hedge Advisers (such updates to be provided to each of the advisers on an equal basis to facilitate parity of information) as to the progress of the equity raise process or Recapitalisation Transaction (as applicable), together with question-and-answer sessions; and (ii) the provision of information as may be reasonably requested from time to time by the Relevant Creditor Advisers and/or the Ad Hoc Hedge Advisers, and (in relation to the equity raise) reasonable access to TWUL's advisers in the respect of the equity raise. (b) Nothing in Sub-paragraph (a) shall require TWUL to disclose commercially sensitive information that, in TWUL's opinion (acting reasonably), could prejudice the equity raise process and/or be in breach of its obligations under the UK Market Abuse Regulation. (c) TWUL shall consult in good faith with the Relevant Creditor Advisers and the Ad Hoc Hedge Advisers (or the Secured Creditors which they each represent) in respect of (i) the progress in relation to a Recapitalisation Transaction and/or (ii) a potential decision to be reached as to whether a CMA Appeal is to be made, provided that: (A) this shall not require the disclosure of any inside information and/or any information of a legally-privileged or commercially sensitive nature, (B) this shall not require TWUL to share commercially sensitive information that (in TWUL's opinion, acting reasonably) could prejudice the equity raise process and/or be in breach of its obligations under the UK Market Abuse Regulation; and (C) relevant Secured Creditors (and/or their advisers) have in each case entered into appropriate confidentiality arrangements on terms satisfactory to TWUL (acting reasonably). (d) TWUL shall engage with the Relevant Creditor Groups and the Ad Hoc Hedge Counterparties (and/or their advisers) on a good faith basis to facilitate development of a creditor led Recapitalisation Transaction (the "Creditor Led Transaction"), including (without limitation) by: (i) providing access to any relevant investor data rooms (including any virtual data rooms or other data sites made available to investors); (ii) providing reasonable access to TWUL's senior management team; (iii) cooperating with the reasonable information requests of any of the Relevant Creditor Groups and/or the Ad Hoc Hedge Counterparties (or any of the Relevant Creditor Advisers and the Ad Hoc Hedge Advisers on their behalf); (iv) cooperating in facilitating reasonable access to Ofwat, the EA and other relevant regulatory bodies or Governmental Agencies; and (v) ensuring that any proposal in relation to a Creditor Led Transaction will be able to be submitted as an offer in any formal equity process run by TWUL (or any of its Affiliates), it being understood that these obligations shall not fetter any of the Obligors' Directors' duties to consider and, subject to such duties, facilitate all other available options relating to the Recapitalisation Transaction or otherwise (if relevant) or TWUL's compliance with the Participation Condition.”

“9.7 Binding Decisions of Majority Creditors 9.7.1 Subject to Clause 9.3 (Notice to Secured Creditors and Secondary Market Guarantors of STID Proposal), Clause 9.4 (Notice of Entrenched Rights or Reserved Matters Procedure) and Clause 9.10 (Disputes), decisions of the Majority Creditors in relation to STID Proposals will bind: (a) the Secured Creditors and the Secondary Market Guarantors in all circumstances; and (b) Subordinated Creditors and the Subordinated Creditors will (i) give (or be deemed to give) a corresponding consent (to the extent required) in relation to each Finance Document to which they are party; and (ii) do anything (including executing any document) that the Proposer or the Security Trustee (acting on the instructions of the Majority Creditors) may reasonably require in order to give effect to such decisions. This paragraph (b) does not apply to a Subordinated Creditor where the relevant decision of the Majority Creditors materially adversely affects the right of the relevant Subordinated Creditor under the Finance Documents (taken as a whole) and such Subordinated Creditor has notified the Security Trustee that it objects to the relevant decision of the Majority Creditors before the applicable STID Voting Date until such time as the relevant Subordinated Creditor (or, where the relevant decision affects all Subordinated Creditors equally, each Subordinated Creditor) confirms its consent to such decision. 9.7.2 Subject to Clause 9.6 (DIG Directions Request), decisions of: (a) the Majority Creditors in relation to any DIG Proposal; and (b) the DIG Representatives representing the requisite percentage of the Outstanding Principal Amount of the Qualifying Class A Debt or, if no Class A Debt is outstanding, Qualifying Class B Debt set out in Clause 13.4 (Termination of Standstill) and Clause 13.5 (Extension of Standstill) in respect of any vote to terminate Standstill, will bind the: (i) Secured Creditors and the Secondary Market Guarantors in all circumstances; and (ii) Subordinated Creditors and the Subordinated Creditors will (i) give (or be deemed to give) a corresponding consent (to the extent required) in relation to each Finance Document to which they are party; and (ii) do anything (including executing any document) that the relevant DIG Representative or the Security Trustee (acting on the instructions of the Majority Creditors) may reasonably require in order to give effect to such decisions. This paragraph 9.7.2(b)(ii) does not apply to a Subordinated Creditor where the relevant decision of the Majority Creditors or the DIG Representatives (as the case may be) materially adversely affects the rights of the relevant Subordinated Creditor under the Finance Documents (taken as a whole) and such Subordinated Creditor has notified the Security Trustee that it objects to the relevant decision of the Majority Creditors before the applicable DIG Voting Date until such time as the relevant Subordinated Creditor (or, where the relevant decision affects all Subordinated Creditors equally, each Subordinated Creditor) confirms its consent to such decision.”

“A. So, as Mr Fraiser said, we are challenging the fines from Ofwat, so we do not know how much we will be fined, and, if we are fined, when they will be due. And then any associated undertakings, it is unclear as to the cost of those undertakings and when they will be incurred. Q. It is right, isn't it, that Ofwat has not committed to the company to refrain from finalising that enforcement action over the next six months? A. That's correct. Q. So the company may be landed with accrued regulatory obligations under those enforcement notices? A. That is correct. Q. If Ofwat takes that enforcement action in the next six months, given your evidence of the 590 million left once you have paid out creditors and professional expenses 3 and so on, your evidence was all of that needs to go into the company to meet capital expenditure. This bridge finance has insufficient headroom for Thames Water to comply with those regulatory obligations. That is right, isn't it? A. I think that is oversimplistic, because the cost of any undertakings is typically incurred over a longer period of time. Therefore would fall due outside the period you have just outlined. Q. You would have to start spending the 1.7 billion, wouldn't you? Let's say Ofwat says next week enforcement action is confirmed, you couldn't take no steps to start remediation action over the next five or six months, could you? A. I agree, but I am simply saying you could not spend all that money in that period. Q. You would have to spend some of? A. Yes, you would start. Q. You would have to pay the 104.5 million in the fine? A. The fine would be due within a period of weeks I believe. Q. Likewise with the unlawful dividend, the 18 -- I think, 14 days. Q. The point I am putting to you, that this bridge finance, envisaged by this plan, has insufficient headroom for you to comply with your regulatory obligations in those circumstances? A. And I am simply saying in response that the fines would be due within several weeks, but amounts required to spending to -- to -- as part of an undertaking to make good any failing, founded by the regulator, would be spent over a longer period of time than six months as I suggested in your question. Q. Okay. Let me try one last time, my Lord, then I am going to stop on this. Can we go back to the bottom of the previous page. This is in a section which refers to material unfunded costs, fines and prosecutions. I am putting to you -- let's just focus on the fines -- that if Ofwat decides in the next six months to finalise those fines, you do not have financial headroom in this bridge plan to meet those regulatory obligations. That is right, isn't it? A. If the fine was £145 million, we would be running the business with £200 million of headroom. That is what the super senior facility and that drawdown schedule provides for. So logically we would have £45 million of cash in the business. Q. But not funded. I mean that is why you flagged this to the markets, it is unfunded? A. It is unfunded, but there is liquidity to cover the cost.” cost.”

“a) On acquisition, the Financing Subsidiary will meet the Appointment definition in Condition A in that it will be a wholly-owned subsidiary, controlled by Thames Water and its sole purpose will be raising finance on behalf of the regulated entity, Thames Water. This will be reflected in the Articles of Association of the newly acquired Financing Subsidiary; b) Following acquisition, the Financing Subsidiary continues to be wholly-owned and controlled by Thames Water and its sole purpose remains raising finance on behalf of the regulated entity, Thames Water; c) All funds raised by the new Financing Subsidiary are passed on to Thames Water less the relevant administrative expenses of the Financing Subsidiary. The funds raised by the Financing Subsidiary are to be held on the account of the Financing Subsidiary and, to the extent not utilised by the regulated entity, Thames Water, would be applied by the Financing Subsidiary to repay the finance provided by the external creditors (in accordance with the documents between the Financing Subsidiary and the external creditors, which we understand provide for this); d) On the acquisition of the new Financing Subsidiary, Thames Water must inform Ofwat, within 10 days of the date it is acquired, of the Financing Subsidiary's trading name, company number and provide Ofwat with the articles of association (in each case to the extent not already provided or if provided previously, to the extent any changes have been made). e) The nature of the guarantee and Cross-Default Obligation arrangements for which this Consent is required are, and remain, materially as described in the Consent Request Letter.”

“17. Ofwat confirms that, if the board of directors of the Company were to conclude that the Company is unable to pay its debts and to write to Ofwat requesting a petition is made for entry into special administration under s24 WIA (i.e. the SAR Request Scenario), then Ofwat would likely make a special administration application, on the grounds of inability to pay debts under s24(2)(c) WIA, after having sought and obtained consent from the Secretary of State for Environment, Food and Rural Affairs ("SoS") to do so. 18. Ofwat considers that the directors of a company are in the best position to make a decision about the solvency of that company and its ability to continue trading should the SAR Request Scenario arise. If the board of directors of the Company consider that there is no other viable plan, such that other funding options have been exhausted, Ofwat is likely to accept the board's conclusions and to make a special administration application under s.24 WIA. Ofwat reaches the conclusion that it is likely to make such an application having regard to its statutory duties, including its responsibilities to customers and the environment, and noting the objectives of special administration to continue the functions of the water and sewerage undertaking under the Licence. 19. Ofwat has carried out appropriate and prudent contingency planning, as any regulator would in a position of uncertainty of this kind, and expects that it could make a special administration application promptly, as required, in the days immediately following any decision by the directors described above. 20. Ofwat wishes to note that the Company and the relevant experts instructed by the Company remain responsible for the presentation of all aspects of their relevant alternative, including in any expert’s report provided to the Court under CPR 35, and including their assessment of the likelihood of the SAR Request Scenario arising and of the outcomes for stakeholders. 21. Ofwat makes no comment (and by doing so should not be inferred to be taking any position) in this letter on any other aspect of the Company's proposed relevant alternative or the likely actions of the directors, including the likelihood of the SAR Request Scenario arising.”

“3.5 Thames Water commits to use all reasonable endeavours to raise substantial equity investment into its business (the Equity Raise), which will be underpinned by the development and implementation of the Business Plan. Thames Water has already commenced the initial stages of the Equity Raise and commits to implement the process of the Equity Raise, and other necessary processes, on a timetable and to milestones agreed with us, and will evolve the Equity Raise process appropriately.”

“3.7 Thames Water agrees that we will appoint a monitor (the Monitor), who will be independent of the company, with appropriate qualifications and experience, to monitor and review the company's compliance with the conditions of the undertakings and progress towards achieving the objective of the undertakings, which is to take all reasonable steps to address the concerns raised by its Credit Rating Agencies and to restore two Investment Grade Ratings in line with Condition P26. The Monitor will report to us and make recommendations to us as to any additional steps Thames Water should take to achieve the conditions and objective of the undertakings.”

“27. For completeness Ofwat records here that it has accepted undertakings from the Company in relation to its breach of Condition P26 of the Licence. The undertakings require the Company to take steps to restore the investment grade rating of its debt in accordance with Condition P26. 28. Ofwat continues to monitor the Company's compliance with these undertakings, assisted by the appointment of an independent monitor. 29. As at the date of this letter, Ofwat is not currently of the view that entry into financing arrangements under the Company Plan or under the Alternative Plan would involve a breach of those undertakings. In the event that either the Company Plan or the Alternative Plan is sanctioned by the Court, Ofwat would continue to monitor the Company's compliance with the Condition P26 undertakings, including as regards the Company's proposed equity raise process.”

“53.1 Market participation – a significant portion of the committed funding offered pursuant to the Alternative Plan is backstopped by a number of leading international financial institutions that, in contrast to the backstop parties to the Company Plan, do not hold Thames Water Debt. These institutions are participating because they consider the terms of the Alternative Plan to be commercially attractive. 53.2 Drawdown and June Release Condition - the Alternative Plan contains similar conditions to the Company Plan in respect of the drawdown of funds but importantly, and by contrast with the Company Plan, the Alternative Plan does not contain a condition which requires Thames Water to have entered into a recapitalisation solution by way of lock-up agreement (by way of an equity raise or a creditor led solution) with a two-thirds majority of both the lenders providing the Company Plan Funding and holders of its Class A Debt (“June Lockup Agreement”) by 30 June 2025 (referred to as the “June Release Condition”). If the June Release Condition is not satisfied, Thames Water will not be able to drawdown any of the Company Plan Funding after 30 June 2025. £483 million of the Company Plan Funding is scheduled to be drawn down after 30 June 2025. 53.3 The Applicant considers that the absence of the June Release Condition gives Thames Water the ability to pursue the equity raising process via a more competitive and transparent process and on a more flexible timetable. 53.4 The absence of the June Release Condition will mean that Thames Water is not required to enter the June Lockup Agreement before the existing ongoing equity raise process is currently expected to complete. Fraiser 1 explains that “final binding offers from bidders [are] currently expected by mid-2025”

“It must also be reiterated that the court’s willingness to decide cases quickly to assist companies in genuine and urgent financial difficulties must not be taken for granted or abused. In particular, where a restructuring is designed to deal with the foreseeable maturity of financial instruments, and a division of the anticipated benefits of the restructuring is being negotiated between sophisticated investors, sufficient time for the proper conduct of a contested Part 26A process must be factored into the timetable. This will include complying fully with the Practice Statement [2020] 1 WLR 4493, giving interested parties sufficient time to prepare for hearings, giving the court appropriate time to hear the case and to deliver a reasoned decision, and permitting time for the determination of any application for permission to appeal. If this is not done, the parties can have no complaint if the court decides to adjourn hearings and to take whatever time it requires to give its decision.”

“(1) If a number representing 75% in value of the creditors or class of creditors or members or class of members (as the case may be), present and voting either in person or by proxy at the meeting summoned under section 901C, agree a compromise or arrangement, the court may, on an application under this section, sanction the compromise or arrangement. (2) Subsection (1) is subject to— (a) section 901G (sanction for compromise or arrangement where one or more classes dissent)…” “(5) A compromise or arrangement sanctioned by the court is binding— (a) on all creditors or the class of creditors or on the members or class of members (as the case may be), and (b) on the company or, in the case of a company in the course of being wound up, the liquidator and contributories of the company. (6) The court's order has no effect until a copy of it has been—(a) in the case of an overseas company that is not required to register particulars under section 1046, published in the Gazette, or (b) in any other case, delivered to the registrar.”

“(1) This section applies if the compromise or arrangement is not agreed by a number representing at least 75% in value of a class of creditors or (as the case may be) of members of the company ("the dissenting class"), present and voting either in person or by proxy at the meeting summoned under section 901C. (2) If conditions A and B are met, the fact that the dissenting class has not agreed the compromise or arrangement does not prevent the court from sanctioning it under section 901F. (3) Condition A is that the court is satisfied that, if the compromise or arrangement were to be sanctioned under section 901F, none of the members of the dissenting class would be any worse off than they would be in the event of the relevant alternative (see subsection (4)). (4) For the purposes of this section "the relevant alternative" is whatever the court considers would be most likely to occur in relation to the company if the compromise or arrangement were not sanctioned under section 901F. (5) Condition B is that the compromise or arrangement has been agreed by a number representing 75% in value of a class of creditors or (as the case may be) of members, present and voting either in person or by proxy at the meeting summoned under section 901C, who would receive a payment, or have a genuine economic interest in the company, in the event of the relevant alternative.”

“Q. I want to ask you first about your assessment of the different returns in the different scenarios, just to set the scene. Can we go to paragraph 7.1.4 of your first report and the table, which is figure 6, is S/36/3042. If we look in that table at the Class B debt, you show a return of 3.5 pence in the pound under the A plan and final RP, can you see that? A. Yes. Q. Then 100p in the pound under the B plan and final RP? A. Yes. Q. Also 100p in the pound in SAR; do you see that? A. Yes. Q. Those are all based on Dr Grunwald's valuation, aren't they? A. Yes, they are. Q. If we look at the returns for the A plan and the final RP, that is headed "With control provisions", isn't it? A. Yes. Q. As I understand it, that reflects the fact that these estimated returns have been adjusted by you to reflect what you say would be the effect of the June release condition, is that right? A. Yes, that's right, and associated conditions, yes. Q. On your assessment, if you were to ignore the effect of those conditions, then the Class B creditors would receive the same returns under each of the existing plan, the Class B plan and SAR? A. I think that is right. It is reflected I think in 8.2.6, Mr Smith. Q. Exactly, that is where I was going to go to. If we go 15 to S/36/3044. Just to check I understand this as well, so you have the first set of columns, they show the return for the existing plan based on Dr Grunwald's valuation, with the effect of those conditions, correct? A. Yes. Q. Then the second set of columns show the return for the existing plan without the effect of those conditions? A. Yes. Q. I think it follows from that you agree that your opinion on the satisfaction of the no-worse-off test in relation to the Class B debt all turns on your opinion as to the effect of the June release condition and the associated conditions, correct? A. Not strictly, Mr Smith. If you are looking at the comparison with the B plan, the B plan even without the control provisions is better, because of the better economics. Q. Yes, but the no-worse-off test means you have to be no worse off than in the relevant alternative, doesn't it? A. As regards the Class B debt, yes. Q. What I was putting to you is the question of satisfaction of the no-worse-off test all turns on your view of the effect of the control provisions in the existing plan, doesn't it? A. Yes, it does, but, sorry, the point I was making was that if you look at the subordinated creditor line, it is better in the B plan than the A plan, even without control. Q. I understand that. I was talking about the Class B creditors, I completely understand in relation to the subordinated creditor.”

“148 Although, for the reasons that I have given, I do not consider that the rationality test derived from scheme cases has any part to play outside a consideration of the appropriateness of a plan within an assenting class, there are other concepts that have been developed in scheme cases and cases involving challenges on the grounds of unfair prejudice to CVAs that can be modified and applied to the question of whether to impose a plan on a dissenting class under Part 26A. These involve what have come to be known as the “vertical comparison” and the “horizontal comparison”. 149 These expressions were first used judicially by Etherton J in the context of an unfair prejudice challenge to a CVA in Prudential Assurance Co Ltd v PRG Powerhouse Ltd [2007] Bus LR 1771 but have since been adopted in the context of Part 26 and Part 26A. The vertical comparison involves a comparison of the position of the particular class of creditors in question under the restructuring proposal with the position of that same class in the relevant alternative. The horizontal comparison compares the position of the class in question with the position of other creditors or classes of creditors (or members) if the restructuring goes ahead.”

“159 I agree with both Trower and Zacaroli JJ that a key issue for the court in exercising its discretion to impose a plan upon a dissenting class is to identify whether the plan provides for differences in treatment of the different classes of creditors inter se and, if so, whether those differences can be justified. I also agree with Zacaroli J that an obvious reference point for this exercise must be the position of the creditors in the relevant alternative. 160 This exercise cannot, however, properly be carried out merely by asking whether any dissenting creditor will be any worse off as a result of the restructuring plan than in the relevant alternative. That would simply be to restate Condition A in section 901G. As a matter of principle, when the court exercises its discretion to impose a plan upon a dissenting class, it subjects that class to an enforced compromise or arrangement of their rights in order to achieve a result which the assenting classes of creditors consider to be to their commercial advantage. In my judgment, that exercise of a judicial discretion to alter the rights of a dissenting class for the perceived benefit of the assenting classes necessarily requires the court to inquire how the value sought to be preserved or generated by the restructuring plan, over and above the relevant alternative, is to be allocated between those different creditor groups. 161 It is this concept that has been encapsulated in the expression “the fair distribution of the benefits of the restructuring” or “fair distribution of the restructuring surplus”: see DeepOcean and Houst. To similar effect, in the paper referred to in Houst at para 30, Professor Sarah Paterson adopted a dictum of Mann J in the scheme case of In re Bluebrook Ltd [2010] 1 BCLC 338 (“Bluebrook”) at para 49 and suggested that the essential question for the court is whether any class of creditor is getting “too good a deal (too much unfair value)”.”

“180 New Look [2021] Bus LR 915 involved a challenge to a CVA. At paras 191–196, in considering the horizontal comparison, Zacaroli J said: “191. Whether unfair prejudice exists depends on all the circumstances, including those that would be taken into account in exercising the discretion to sanction a scheme … and in exercising the discretion to cram-down a class in a Part 26A plan. “191. Whether unfair prejudice exists depends on all the circumstances, including those that would be taken into account in exercising the discretion to sanction a scheme … and in exercising the discretion to cram-down a class in a Part 26A plan. 192. Without attempting to define what all the circumstances in any case might be, I make the following four points which are of particular relevance on the facts of this case. 193. First, an important consideration is whether there is a fair allocation of the assets available within the CVA between the compromised creditors and other sub-groups of creditors. That will include considering the source of the assets from which the treatment of the different sub-groups derives, and whether they would or could have been made available to all creditors in the relevant alternative. … 195. … if assets that would, in the relevant alternative, have been available for all unsecured creditors are allocated in a greater proportion to other creditors (e g where critical creditors are paid in full), then the fact that the requisite majority was reached by reason of the votes of those creditors may point towards the CVA being unfairly prejudicial, even if there was an objective justification for their payment in full. 196. … in considering whether the allocation of assets is fair, the court is necessarily required to consider whether a different allocation would have been possible, so the principle adopted in scheme cases, against considering whether an alternative arrangement would have been fairer, needs to be modified.”

“106. … if the question to be addressed is one about the overall balance and fairness of the proposed plan in light of the relative treatment of the different creditor classes, I fail to see why that should not involve comparing the plan with other possible alternative structures. Points of comparison might well be helpful. Indeed, in many cases the basic challenge is likely to be: this is not fair— things could and should have been done differently. As I read it, Zacaroli J said something similar in In re Houst Ltd [2023] 1 BCLC 729, because in addressing the question of fairness at para 37, he posited an alternative plan structure in which the cram-down power was sought to be used against the company’s bank (rather than HMRC) and not the other way around (as was the case under the plan in that case).”

“The classic formulation of the principles which guide the court in considering whether to sanction a scheme was set out by Plowman J in Re National Bank Ltd [1966] 1 All ER 1006 at 1012, [1966] 1 WLR 819 at 829 by reference to a passage in Buckley on the Companies Acts (13th edn, 1957) p 409, which has been approved and applied by the courts on many subsequent occasions: “In exercising its power of sanction the court will see, first, that the provisions of the statute have been complied with; secondly, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting; but at the same time the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind, or some blot is found in the scheme.”

“The logic underlying the acceptance of releases is that scheme creditors are the persons whose rights are reflected by the scheme and as scheme creditors each will have the opportunity to object to the scheme in whatever way they see fit, whether by voting against it or, more importantly, at the sanction hearing. This would include the right to argue that there had been a blot upon the scheme in the form of a breach of duty in relation to its formulation and implementation. If no such breach is alleged and proper and adequate disclosure has been given, it is appropriate that third parties identified in the releases, including directors, should have the certainty of such releases which relate to the promotion and formulation of the scheme, not to the management and affairs of the Company generally. As I have already noted, the releases in this case cover also the formulation, negotiation, promotion or provision of the Additional Liquidity Arrangements. It seems to me this is appropriate since the matters covered by the Scheme are part and parcel of an overall package of measures to improve the liquidity and cash flow of the Company. Releases are not being given in relation to the management and affairs of the Company generally.”

“6.7 For the reasons I explain below, a Standstill Period places significant restrictions on TWUL’s capex spending, which would give rise to a number of significant additional legal and regulatory risks for TWUL and its directors. As a result of these additional risks, and given that the Thames Water Group would be unable to pay its debts, it is expected that prior to a Standstill Period commencing (or as soon as possible thereafter), TWUL’s directors would write to Ofwat and the Secretary of State requesting that they apply for a special administration order on insolvency grounds in respect of TWUL; or otherwise that OfWat and/or the Secretary of State would decide to do so unilaterally. 6.8 Consequently, as the Plan Company’s and TWUF’s solvency prospects are entirely dependent on TWUL as the only operating entity in the Thames Water Group, it is expected that the Plan Company and TWUF would each enter their own insolvency processes (anticipated to be UK administration proceedings).”

“7.9 If the Plan is not sanctioned by the Court, the boards of the Thames Water Group companies would in any event need to consider carefully if those companies would have a reasonable prospect of avoiding entry into insolvency processes. As matters stand, the boards concluded at the 21 January 2025 meeting that the only sensible basis to conclude that there is such a reasonable prospect would appear to be if a liquidity extension transaction could be implemented before an intervening SAR. In the immediate aftermath of the Plan failing and in light of the proximity by that stage at the end of the liquidity runway, before pursuing a further transaction, the boards of the Thames Water Group companies would likely need a very high degree of certainty that such a transaction could be implemented in time to avoid SAR. The mere possibility, or even a good chance, that such a transaction could be implemented is unlikely to be sufficient comfort for the boards of the Thames Water Group companies. That is particularly so given the risk for individual directors of wrongful trading in those circumstances. 7.10 Broadly, the boards considered at the 21 January 2025 meeting that Mr Heis’ report fails properly to consider the reality and scale of Thames Water’s day-to-day operations and the uniquely challenging regulatory and legal environment within which its directors operate. As noted, it is the board’s assessment that this would lead towards seeking the protection of insolvency proceedings (i.e. SAR) in the event the Plan fails. Mr Heis’ report suggests that TWUL’s directors should instead favour trading through a period of significant legal and regulatory risk, exhausting the company’s remaining liquidity in pursuit of an alternative transaction that on any view carries a significant degree of execution risk.”

“4.1.14 Four key conditions that would determine whether the Plan could be implemented include: 1. The ability to be completed and funds drawn down within the liquidity runway available (see section 4.2 below); 2. The consent of TWUHL (in light of the lock up and TSA) and that of the directors; 3. The B Plan must pass the “No worse off” test, i.e. Plan Creditors must be no worse off in the relevant alternative to the B Plan, should a cross-class cram down/up be required; and 4. The Class B Creditors have a genuine economic interest in the B Plan Relevant Alternative should a cross-class cram down/up be required. Tests 3 and 4 are demonstrated in the SAR outcomes at section 7. 4.1.15 In my opinion, these conditions can be satisfied. Condition 1 can be amended by the behaviours of certain creditors to extend the liquidity runway if necessary (see section 4.3 below). 4.1.16 In respect of condition 2, at the point when the A Plan is not sanctioned, I am of the view that it is likely that the Class A Creditors (and other acceding creditors) would be willing to consider an alternative solution which avoids insolvencies in the Group. I therefore consider that the TSA terms could be amended or terminated if required to implement the B Plan.”

“3.55 The other significant difference is that Mr Weerasinghe uses a nominal risk-free rate to calculate the cost of equity (in Figure 3.11 above), based on the current (as of October 2024) yields on 20-year nominal UK gilts. Ofwat, in comparison, uses the yield on similarly long-dated gilts, but uses index-linked gilts so that the yield is a real yield (it does not include inflation). The original rationale for using real gilts in the regulatory framework was that it was consistent with the other elements of the system. The value of the gilt increases with inflation but the interest (yield) applied to it is real.95 This is the same concept as the RCV in the regulatory framework: it is increased every year with inflation and the return applied to it is set out in real terms. 3.56 The CMA has endorsed this approach as superior for the assessment of the cost of capital for a business whose revenues are also index-linked – as described above. 3.57 Mr Weerasinghe’s approach is standard for a normal business, but unsuited to a regulated entity such as Thames Water. The differences between yields on nominal and index-linked gilts will primarily reflect market expectations of inflation, which for CPIH is currently around 3.3%. This is higher than the CPIH assumptions built into Mr Weerasinghe’s valuation model (the Crabtree Model), and used to inflate both revenues and the RCV, which is close to 2%. 3.58 If market expectations for CPIH inflation are greater than 2% (as they are), but the CPIH inflation rate used in the nominal cash flow model is only 2%, then the use of a nominal discount rate applied to the essentially illustrative nominal cash flows, including the terminal value, will necessarily understate value. This is because those cash flows will be increased with actual inflation figures. Therefore, Mr Weerasinghe’s adoption of a nominal yield which incorporates higher inflation expectations than his modelled revenues and RCV leads to inconsistent assumptions. 3.59 In this case, the effect is that Mr Weerasinghe’s cost of equity is larger than it should be by more than 1% point (more than 100 bps) because of the mismatch between current market expectations and those built into the nominally-denominated model that Mr Weerasinghe uses. The effect is to reduce his valuation by an amount of the order of £1.7 billion.”

“NPV neutral regulation 2.18 Under Ofwat’s regulatory framework, a company’s future cash flows are NPV neutral if the present value of future cash flows and the increases in RCV equal the RCV. In other words, a water company that is NPV neutral will have an EV that is equal to its RCV. In Ofwat’s view, NPV neutrality is key to ensuring that investors are fairly compensated for the time value of money. 2.19 When a company performs exactly as Ofwat expects, it earns a rate of return equal to the allowed rate of return set by Ofwat. This is because Ofwat’s regulatory framework is designed so that all of the water companies’ costs are recovered, and investors are fairly compensated for investing their capital. NPV neutrality fails, however, when a company deviates from Ofwat’s expectations. This could happen, for example, if a company over or underperforms relative to its totex allowances, if a company has a different gearing ratio than the notional gearing set by Ofwat (55% in PR24), or if it otherwise over or underperforms in relation to the cost of the debt that it secures. Figure 2.4 shows a simple schematic of returns for a company that meets Ofwat’s expectations. Over the asset management period, it earns cash flows based on its allowed revenues less the costs it is required to incur, composed of both the fast money and slow money portions of totex. These cash flows, along with the increase in the RCV by the end of the AMP, allow it to recover cash flows that, when discounted back at the cost of capital, are exactly equal to the RCV at the beginning of the AMP, making it NPV-neutral.” “Incentives and penalties 2.21 In the stylised examples above, the RCV is always equal to the EV of the company. As noted in paragraphs 2.18-2.20, this is by design, provided that the company’s actual expenditure and cost of debt matches the allowances set by Ofwat, and provided that Ofwat’s assessment of shareholders’ required rate of return matches the expectations of investors. 2.22 By implication, if the company’s actual expenditure is expected to be lower, or higher, than the allowance set by Ofwat, the residual differences will cause a difference between the RCV and the EV. The same is true if Ofwat has underestimated, or over-estimated, the relevant costs of debt and equity for the company.”

“4.6.1 Dr Grunwald states that from My First Report, she notes that the only publicly traded Class B instrument is a £250 million bond, and the remaining £744 million are not publicly traded and that the conclusions that she can draw from their trading prices are, therefore, necessarily limited. I would like to point out that Dr Grunwald does not address the fact that the Class A debt, which is senior to Class B debt and has a greater number of observable data points, is also trading at a discount to its face value. Dr Grunwald also doesn’t address why the Class A debt trading price may not be a relevant indicator for the overall assessment of TWUL’s valuation. In my view, the observed trading prices for TWUL’s Class A and Class B debt instruments reflects the discount that investors attribute to its creditworthiness. 4.6.2 Dr Grunwald appears to disregard key market data on two grounds. First, she notes that there is only one publicly traded Class B bond in issue and drawing conclusions from a single bond is therefore limited. While I acknowledge that TWUL’s debt stack also includes non-traded Class B debt, however in the absence of private transactions or alternative observable data, the market pricing of the publicly traded bond remains the closest proxy for Class B’s perceived market value. Moreover, the argument that having “only one” publicly traded instrument somehow renders the data irrelevant, strikes me as inconsistent with standard market valuation techniques, which rely on any reliable reference point when appraising unlisted or thinly traded securities. 4.6.3 Second, Dr Grunwald states that the steep discount at which Class B bonds trade “is not troubling” because of the uncertainty surrounding TWUL’s restructuring and the relative subordination of the Class B debt. This reasoning overlooks the fact that Class A bonds and loans, of which there are over fifty instruments, are also trading at material discounts to their face value. 4.6.4 I emphasize that as of the Current Date, Class A bonds, with an outstanding amount of approximately £10.5 billion, are trading at a discount of around 21%. In contrast, Class A loans, with an outstanding amount of approximately £0.7 billion, are trading at a discount of around 26%. I understand that the total Class A debt instruments outstanding as of the Current Date are c. £15 billion and constitute approximately 85% of TWUL’s debt portfolio (which includes swaps, Class A and Class B debt instruments), whereas total Class B debt instruments outstanding are approximately £1 billion and constitute about 5% of TWUL’s debt portfolio. 4.6.5 As discussed in My First Report, market participants’ willingness to purchase or sell a security at a discount (or premium) to face value captures both the company-specific underperformance concerns and market interest rate economics. I observed that the publicly traded debt instruments of the majority of the other WASCs in the UK were trading at or above par value as of the Current Date. This suggests that the market has already accounted for the risks related to the current financing environment and the FD outcome, yet the publicly traded debt instruments of WASCs (except TWUL) continue to hold or exceed their par value Therefore, in my view, the observed discount of TWUL’s traded Class A and Class B bonds reflects the ongoing difficulties the Company is facing in operating the business according to the regulatory requirements set by Ofwat.”

“Q. Good, I am glad we are on the same page. That I then suggest does compare to Mr Weerasinghe's enterprise value of 14.729 billion, so he has priced the debt stack, it comes out at around 14 billion, that is close as a cross-check to his enterprise value of around 14 billion. Do you agree? A. The numbers agree, but, you know, the basis of which we are looking at the valuation is on the cash flow generation potential of the company. When we look at the enterprise value of this company, we are looking at the cash flow generation potential. What the market is looking at, let's look at for example the B bondholders, right, they are not pricing the debt according to the cash flow generation potential of the company, there are risks arising from this particular process, there are risks arising from potentially going into a SAR, there are risks arising from having 3 billion of super senior debt put above their head. So it is not the same basis on which we are assessing the value. The enterprise value is purely looking at what we were asked to assess, is purely looking at the cash flow generation potential and what an investor would pay for this company, looking at the debt -- Q. But this is -- A. -- the market value is on a completely different basis. This is uncomparable. Q. I am not suggesting it is not on a different basis, but what he has done is a cross-check, isn't it, so what he has produced is his DCF valuation. That comes out of an enterprise value and then as a cross-check he has looked at the figure you would get derived from the market price at which the debt is trading. Q. It is a cross-check, isn't it? A. It is on a completely different basis. Q. That's the value of a cross-check, isn't it, in many ways, it is done on a different basis? A. I think if you are looking at where the B bonds are priced now, that includes a lot more risks than what we are baking into the enterprise valuation. So it is not a comparable basis and therefore it is not a valid cross-check.”

“Creditor class impact • There is no distribution to the Liquidity Facilities as these are either cancelled or undrawn. • The Super-Senior funding and HMG funding are forecast to achieve a full recovery in Scenario 1 and Scenario 2, respectively. • The Interest Rate and Index Hedges are forecast to achieve a full recovery in both scenarios. • Given the Currency Hedges’ elevation in the waterfall under the Plan, they are forecast a full recovery in Scenario 1. • However, in Scenario 2, they are projected to only achieve a partial recovery as they would rank alongside Class A. • The value break falls in the Class A principal claims, meaning a partial recovery for the Class A Debt Make-Whole and Class A Debt Non-Make-Whole in both scenarios. • The only recovery to Class B occurs in Scenario 1 and is solely attributable to the cash interest received as part of the Plan which would not be paid in a SAR. • No value from any source is forecast for the TWL subordinated debt.”

“…this effectively gives holders of the Class A Debt early veto rights in respect of any future restructuring of the Group that will be undertaken (i.e., RP2). Pursuant to the June Release Condition, no Super Senior Funding can be released after 30 June 2025 unless holders of at least (i) 66 + 2/3% of the Plan Super Senior Funding; and (ii) 66 + 2/3% of the aggregate Class A Debt, have entered into a lock-up agreement to recapitalise the Group by way of either an equity raise or a creditor-led solution (each to be implemented via a restructuring plan, i.e., RP 2).”

“18. A key issue in relation to Objection 1 is whether the Class A Control Terms, and, in particular, the June Release Condition divert value away from the Class B Creditors such that they would be worse-off under the Plan than in the relevant alternative (whatever it is). 19. The evidence at trial was clear. The Class A Control Terms and, in particular, the June Release Condition, give the Class A Creditors control which they would not otherwise have in the relevant alternative (whatever it is), over the nature and outcome of the future Recapitalisation Transaction yet to be defined but implemented through RP2. That control is likely to be exercised to divert value away from the Class B Creditors. Notably, none of the witnesses giving evidence for the Company or the Class A AHG appeared to be aware that the Class B Creditors were not included in any of the contractual rights of information provision which give the Class A Creditors further advantages over any other bidders. This is concerning given the Company’s history of negotiating with the Class A Creditors thus far in the recapitalisation process.” “21. In other words, the June Release Condition will – particularly when married with the lack of information rights afforded to Class B Creditors—be the mechanism to replicate the predicament that the Group found itself in October 2024 (described above) that meant it could not agree to the Class B Proposal that it accepts is economically better for the Group, because the Class A Creditors will have control over the Group’s access to the crucial liquidity that it needs to restructure. This is an entirely avoidable predicament. 22. This is how the June Release Condition gives the Class A Creditors control which they would not otherwise have in the relevant alternative. It is also why, despite its professed interim nature, this first Plan matters and things cannot be left to be addressed in RP2. By that time, it will be too late. The Court and the Company’s other creditors would be presented with a fait accompli just as they have been with the Plan, the likely effect of which will be to divert value from the Class B Creditors.”

“Q. Let's assume you get your way and either the B plan was sanctioned or the A plan is there without the June release condition, let's assume that. Also assume that the STID is in place, and that the launch of RP2 would trigger an event of default. A. Yes. Q. In that world, you would accept the company would have to seek a default waiver under the STID to launch RP2, wouldn't it? A. Yes, I believe so. Q. That STID waiver would have to be sought from a majority of the Class A creditors, wouldn't it? A. Yes, I believe that is correct. Q. You would accept that the company would also try and negotiate a lock-up agreement in respect of RP2 with the Class A creditors, wouldn't you? A. Yes.”

“2.1.8 The A Plan contains a number of specific conditions relating to control of the process by the Class A Creditors and providers of the future super senior funding of £1.5 billion in the interim transaction proposed by the Class A AHG “A Super Senior Funding”

“Let's just get into that -- we will come back to that in a moment. One of the things you are doing in this report is you are expressing opinions about the effect of the June release condition, the refinancing block and the information provisions, aren't you? A. Yes. Q. You are an insolvency practitioner. What expertise do you have to express that opinion? A. I have come across these situations before. And I have been involved in M&A situations where there is a credit bidder and, sorry, we have not come on to that, but if you have a powerful secured lender who is potentially going to compete with buyers, I do believe that that would act as an inhibitor to value. I mean there are other aspects with which I am also familiar, and when you are in that situation, it can be quite difficult, because you are dealing with parties who are bidders, who are spending a lot of money on due diligence and so on, and don't want to find that they have wasted it, but on the other hand they know that effectively, you know, fundamentally their prices, as well as other things, are going to have to be revealed to the secured bidder. In my case, I would generally do it by bidder A, bidder B, bidder C, but there is still a lot of useful information and people would be nervous and that is where I refer to chilling.”

“Q. This extension renders your opinions about the June release condition entirely unsustainable, doesn't it, because the relevant super senior lenders can be required to give an extension? A. No, I don't think that is the case at all. I think it is one of the factors that is, you know, down the list as to what is important here. The most important thing is control. It is -- sorry, I am going off topic and please stop me if this is inappropriate, but you cannot say that that June timing issue is the most fundamental part of my opinion. The most fundamental part is the control exercised by the A creditor group, which means effectively it is and will be perceived, including by bidders, as an A creditor plan rather than a company plan. Therefore, bidders will be speaking to the A creditors, the A creditors will be responsible for the way that the plan is drawn up. For the offer which is made to creditors, or lack of it, and also the relevant alternative and other aspects of the plan. That is by far, I think, the most important aspect.”

“Q. We are concerned with a situation where RP2 comes before the court in September 2025. You have expressed the opinion in your report that the effect of the June release condition is to allow the Class A creditors to divert value from the Class B creditors. Do you remember saying that? A. Yes. Q. What you mean by that is the June release condition will allow the Class A creditor to put forward a restructuring which takes value away from the Class B creditors to which they are entitled, right? A. Yes. Q. My suggestion to you is that is completely fanciful, because at the time of RP2, the Plan Company will need to come to the court with a correct valuation. If that valuation, as found by the court, shows that value should go to the B creditors and that is not provided for under the plan, then the no-worse-off test is not going to be met, is it? A. The no-worse-off test is a comparison with the relevant alternative. In my instructions I am not asked to think about that, neither is Mr Cowlishaw, and nobody has looked at the alternative say of a SAR as a relevant alternative in June or September. Q. This is not my point, Mr Heis. My point is when RP2 comes to the court -- A. Yes. Q. -- it will be put forward by the Plan Company with valuation evidence. A. With what relevant alternative? Q. Valuation evidence, like the valuation evidence his Lordship has before him in this case from Mr Weerasinghe and Dr Grunwald. You follow? A. Yes. Q. If that valuation, as found by the court, shows that value goes to the Bs, but that is not reflected in the terms of the restructuring plan, then the court is not going to sanction the restructuring plan, is it? A. But you are saying it is a comparison between two valuations. It is a comparison between the deal that is put forward to the creditors and the relevant alternative. The no-worse-off test is applied between the relevant alternative. If, let's say, that is a SAR, as a reasonable assumption, then the SAR will be substantially reduced, as we have seen in this hearing, by all of those SAR costs and overlays that Mr Cowlishaw has talked about. Q. Let's assume for present purposes that the relevant alternative to RP2 is a SAR, because you have just mentioned. A. Okay. Q. What the court will have before it, in the context of RP2, is valuation evidence showing the returns to creditors in that SAR, agreed? A. Yes. Q. If that valuation evidence shows that the B creditors will get a return in SAR, the court is not going to sanction a restructuring plan that gives them nothing, is it? A. No, and I didn't say they would. Q. Well, with respect, you did, because your report, as we just saw, is premised, and this is your opinion, on the idea that somehow the June release condition can be used by the Class A creditors to divert value away from the Bs, ie take value away from them, do you follow? A. Yes, I do. Q. That is not the reality, is it, because under RP2, the As and the Bs will get the value they are entitled to on the valuation evidence at that time, won't they? A. Well, not necessarily, as I have said, Mr Smith. Because the comparison will not be a Grunwald-style valuation or a Weerasinghe-style valuation, it will be the returns that you might get out of a hypothetical SAR, versus the returns that you are getting from, you know, the plan itself. Q. Yes, and I have just explained to you, I think, when we get to RP 2, let's assume the relevant alternative is a SAR, there will be valuation evidence as to the returns in that SAR. If there is a dispute, there will be competing valuations but if the court finds that actually there would be a return to B creditors in that SAR, then the court will not sanction a plan that takes that value away from the Bs, will it? A. I completely agree with that, Mr Smith, but what I am saying is that the relevant alternative at that time will not be based on the same factors that we are looking at here today, they will be based on various kind of metrics and valuation data points, including the sale process, the M&A process, which has the effect of being chilled, which will have a number of valuations based on price, which may reduce the value. If you didn't have the June release conditions, then you would not be in that position. Q. Sorry, I just don't understand that at all. I am afraid, Mr Heis, let me -- A. I am happy to repeat it. Q. No, please don't.”

“Q. The outcome of that process will, I suggest to you, provide a pretty reliable guide as to the value of Thames, won't it? A. Subject to the point I mentioned about people being reluctant to put their best foot forward if they feel they are being used as a price marker or there is a credit bid that may cause them to have wasted their time. Q. Have you read the letter that Rothschild have put in in these proceedings? A. Yes. Q. They say there is no evidence of that at all, don't they? A. I think they point to some evidence, because I think one of the bidders has objected. Q. That is Covalis, isn't it? A. Reading between the lines, I suspect so. Q. Yes. Covalis who are aligned with the Bs. A. Well, they are still a credible bidder, as I understand it from the press they are aligned with Suez, who are a very credible organisation. Q. If we put Covalis to one side, because they might be in a special position, there is no evidence at all, is there, that any bidder has in any way been affected by the June release condition? A. Well, it is still at stage 1, or stage 1(b) as I think Rothschild call it, so it may be slightly early days. Q. Let's just go back to the sanction hearing of RP2. By that stage, the equity bid process will have come to conclusion and the court will have good valuation evidence in the form of those bids that will either show the Bs are in the money in the relevant alternative or that they are not, do you agree? A. Yes, there will be data points and you can do a simple calculation based on them, but would they be the same as the intrinsic value of the company on a Dr Grunwald-style basis? They would be compromised by the points that I have mentioned. Q. I have put it to you, Mr Heis, that ultimately, if the valuation shows that the Bs are in the money in the relevant alternative, there is no prospect of the court sanctioning a plan, whether or not it is supported by the As, that takes that value away from the Bs, do you accept that? A. Yes, I do. That was not my concern. Q. Can I just ask you another thing, whilst we are on this. Do you accept that if the Class B creditors are out of the money on the valuation evidence, then any restructuring in RP2 would in any event be dependent on the support of 75 per cent of the A creditors? A. Yes. Q. In practice, your point about control only arises if the Class B creditors are in the money, doesn't it? A. Yes. Everything is irrelevant otherwise, yes. Q. Yes, because if the Class B creditors are out of the money, the company is entirely dependent on the support of the Class A creditors in any event, isn't it? A. Yes. In that case, Mr Burlison's comment that they are the economic owners is true, so yes. Q. Yes. In that case, the June release condition adds absolutely nothing, doesn't it? A. Yes. Q. Yes. Why don't you mention anywhere in your report that your argument is dependent on the Class B creditors being in the money? A. Well, I didn't think it was necessary because I am required to use the Grunwald valuations, so that is the basis of everything.”

“Q. The company has to enter into a lock-up agreement to implement a transaction through a restructuring plan, yes? A. Yes, that’s correct. Q. That has to be entered into before 30 June? A. That is correct. Q. Not a scheme? A. Correct. Q. It assumes there will be a need to cramdown? A. Yes, I think that is correct. Q. If the company does not meet the requirements of the JRC, then the funding under the super senior facility will be withheld? A. Yes, that is correct. Q. That would include the 462 million we were just looking at; do you follow? A. I follow, yes, that would include that. Q. Thank you. That funding is required to take the company through to September? A. Yes, that's correct. Q. So the terms of the holistic restructuring must be acceptable to two-thirds of the Class A debt holders and the super senior funders in June in order to get the money you are going to need for July and August; do you follow? A. Yes, that’s correct. Q. In the negotiations, who first suggested the JRC? A. The Class A Ad Hoc Group. Q. Mr Burlison? A. I don’t know if it was Mr Burlison himself, but it would have been one of Jefferies and/or Akin. Q. Thank you. We know you had intensive negotiations over a four-month period, yes? A. Yes, that’s correct. Q. You have seen that what is now suggested is that you need the JRC going forward before the holistic restructuring, to ensure that you don’t let the Negotiations drift? A. I think the – as you will appreciate, in a context of negotiating the TSA and the term sheets for the restructuring plan, we had to negotiate a whole bunch of terms in the round. Q. Of course. A. One of those terms that was put on the table was the JRC, and I think what you are alluding to is that we got comfortable with the JRC on the basis that we felt very confident that we would have concluded all of the milestones that we would need to have concluded in advance of June, one of which would have been to have actually signed up the lock-up agreement, so we would be well on our way to the conclusion of RP2 in advance of June. That is how we got comfortable with the JRC. Q. Okay. Returning to the question I was asking, I will put it a different way. Will you and Mr Gething, the CRO, be focused on delivering RP2? A. Yes, we will. Q. Will you be focused on delivering RP2 regardless of whether you are subject to the JRC? A. Yes, we will. Q. Thank you. Thames is not curtailed from speaking to other investors, including the B class creditors on the holistic restructuring, that is right, isn’t it? A. That is correct, but we would want to have any discussions with any other class of creditors in a manner that ensures that we don’t breach any agreements that we have in place with other creditors. Q. Agreement? The one agreement you have is there is an obligation to speak to the A class creditors, follow? A. Yes. Q. The A class creditors will be entitled to information? A. Correct. Q. There is no obligation to give the B class creditors any information in good time, or at all? A. I don’t know the answer to that. Q. Well, perhaps you will take it from me. The B class creditors are what might be described as outside the tent in terms of engaging with investors when compared to the A class creditors, that is right, isn’t it? A. Could you repeat that question, please? Q. The B class creditors are outside of the tent, as compared to the A class creditors, during these negotiations for the holistic restructuring, do you follow? A. Yes, I follow. MR JUSTICE LEECH: Would you like to answer the question? You have understood it, what is the answer to it, are the B creditors outside the tent? A. I think our intention is to communicate with – well, I know our intention is to communicate with all of our creditors as we proceed through the next restructuring plan process.”

“Q. Okay. You have said that what you had in mind was for the senior creditors to be heavily involved in any equity process? A. That is correct. The existing equity had just walked away, the company needed substantial capital. The A class creditors represented 16 billion of the debt stack. They were essentially at that point in time the economic owners of the business, so, yes, they wanted to be heavily involved in the discussions. Q. They were the economic owners of the business? A. Yes. Q. Thank you. You wanted them to be heavily involved in any equity process, you tell us that? A. Yes, correct. Q. That process is going to involve an equity injection and it is going to involve a restructuring of the balance sheet? A. Correct. Q. Your aim in this process has been to ensure that the Class A creditors will be heavily involved in the negotiations and discussions towards an outcome, correct? A. That is absolutely correct. Q. Your aim is to ensure that the Class A creditors get to dictate the holistic restructuring; that's right, isn't it? A. My aim is to make sure the interests of my clients are looked after, and that the loss they take on this is minimised. Q. Thank you. Your shorthand for what you are trying to do is that they should be kingmakers? A. What they should be doing is playing a very proactive role in the restructuring. They are the senior creditors in the structure, there is 16 billion, there is 100 plus institutions there. They are the economic owners of this business as it currently stands, given the shareholders walked away, and the business needs a substantial recapitalisation and the losses that will result from that are going to fall in my, you know, in the creditors that I represent. So, yes, they want to be very proactive in any solution.”

“Q. You have seen all of that. You can see that there is a condition that, in respect of any loans to be made after 30 June, then they have to have entered into the supported LUA, and as you say, unless it has been extended? A. Unless it has been extended, correct. Q. We have seen, if we go forward to the schedule, that two of the clauses provide that the 462 million will be -- the 262 million would be payable after 30 June, so it depends upon it being extended for those to be -- A. Yes. Q. Right. Good, we got there in the end. You are aware that the amended and restated CTA also includes a covenant which prohibits the incurring of financial indebtedness which ranks senior or pari passu with the super senior funding? A. Correct. Q. What that effectively means is that the super senior funding cannot be refinanced. That is right, isn't it? A. The super senior funding can be repaid and refinanced with the approval of the A class creditors, which is in line with the current rights they have under the WBS structure. So there is no enhanced rights being granted. Q. So the answer to the question was yes, but it could be done with their agreement? A. Yes, I was just qualifying it to say that gives us no additional rights above and beyond where we are today. Q. So if they don't agree, any new money has to rank below the super senior funding? A. Yes, which would be the position today.”

“Q. If the LUA is not signed by the end of – by 30 June, and there is no extension, the funding stops on 30 June? A. The providers of the super senior funding are largely the same lenders that are in the A class; there is a big overlap. The size of the super senior funding is a fraction of their exposure under the A class and therefore their economic interests are to find a solution for this company. So the reason for that clause was, as long as the company is working towards a recapitalisation solution, then it is in their economic interests to give the extension. The reason for that June release clause was because this business is under significant operational and financial pressure. It needs a solution. It needs a solution quickly. You talk -- we have talked to Ofwat, we have talked to the regulators, we have talked to equity. Everybody needs a quick solution. The longer this business goes into the AMP period without a solution, the bigger the losses that will be incurred and it will be my clients that suffer those losses. So, yes, we want a quick solution to this, which was the rationale for the June release condition. Q. Let's get back to the question I was asking. If the A class choose not to sign up to the LUA, the company has no money to carry out the holistic restructuring. That is correct, is it not? A. Well, it is theoretically correct, but it would be completely against the interests of my clients to do that if the company is working towards a recapitalisation that protects our interests. Q. Were you in court yesterday? A. Yes. Q. Did you hear the evidence that was given by Mr Fraiser and by Mr Cochran? A. Yes. Q. Did you hear Mr Fraiser say that of course he is going to get on with it? A. Yes, I heard that. Q. Thank you. Now -- A. But with 16 billion at stake, we do want some controls in that process. Q. 37.1, you describe these as key conditions. You describe the controls as key conditions, yes? A. Yes. Q. And you said "We do want controls"? A. Yes, we do want controls. Q. You want control. A. No, I don't want control. We want controls. Q. You want controls. Thank you.”

“Q. Right. If a lock-up agreement is entered into, then following that lock-up agreement, the Class A creditors would tell the company that if they were engaging with the Class B creditors, that they were acting in breach of the lock-up agreement, wouldn't they? A. Is this a hypothetical scenario in the future? Q. It is a scenario in the future, very much based on what we have just experienced. A. So from my clients' perspective, they want the best solution here. If there are parties such as the B creditors that are willing to put an offer on the table that sees their debt repaid in full, my clients would be absolutely delighted. If the Bs put a proposal on the table that requires my clients to be impaired, then yes, they want a say as to whether that is appropriate or not. Q. And they will tell the company whether or not the company should pursue an arrangement outside your lock-up agreement. So the hypothetical is you have entered a lock-up agreement. It says this is the restructuring plan that the company and we have agreed the company will enter into, will seek sanction of, let's put it that way, yes? A. But you missed a step, because to enter into a lock-up agreement, we would have had to have seen the proposals that are on the table and decided which proposal is the best for our clients. If one of those proposals is they are going to get repaid in full, then, absolutely, that would be, you know, no doubt the one we would take. If those proposals require our clients to take impairments or to do things with the debt that requires their consent, yes, we have a say in which proposal to go for, because without our consent, you wouldn't be able to implement those proposals.”

“Q. You give a reason, if we can look at 37.3 of B1, that is on page 2962, sanction hearing bundle. Has that come up? Okay. 17 Do you see where you say: "The June release condition is an important element of down side protection for the A class creditors, as it ensures that Thames Water management will be focused on delivering the required holistic recapitalisation." A. Yes. Q. You heard the evidence in relation to that, yes, yesterday? A. Yes. Q. You wouldn't be suggesting that Mr Fraiser or Mr Gething, the new CRO, will not be focused on RP2, correct? A. Yes. Q. If Thames had the benefit of interim finance without the June release condition, it would still need to deliver RP2 as quickly as possible, given the wider need to resolve their issues, would it not? A. It would still need to move towards RP2, yes. Q. In fact, without the JRC, it is possible that the company would have more time to work on the best bid and holistic restructuring? A. I completely disagree with that. I think the JRC was a fundamental point of the package that was put forward. We were hearing from both Ofwat and from equity investors at the time and all the way through this process that the restructuring needs to happen quickly, that value will continue to dissipate in this business the longer it goes on whilst it is not fully restructured with a new governance model, a new plan, et cetera. So an absolute -- an absolute requirement of our refinancing was the JRC, to make sure there was a key milestone in the process.”

“Q. You are aware that the amended and restated CTA also includes a covenant which prohibits the incurring of financial indebtedness which ranks senior or pari passu with the super senior funding? A. Correct. Q. What that effectively means is that the super senior funding cannot be refinanced. That is right, isn't it? A. The super senior funding can be repaid and refinanced with the approval of the A class creditors, which is in line with the current rights they have under the WBS structure. So there is no enhanced rights being granted. Q. So the answer to the question was yes, but it could be done with their agreement? A. Yes, I was just qualifying it to say that gives us no additional rights above and beyond where we are today. Q. So if they don't agree, any new money has to rank below the super senior funding? A. Yes, which would be the position today. Q. And the second tranche would be required, the second tranche, by which I mean the second 1.5 billion going forward, that would be required to fund an appeal to the CMA, amongst other things, wouldn't it? A. That's correct.”

“27.5.1 The Class B creditors are wholly excluded from information and engagement from Thames Water, which is notable as I would expect the company would wish for them to also submit a “creditor led solution” to the business for consideration. This omission cannot be justified by the flawed and premature assumption that the Class B creditors will be out of the money in a second restructuring plan, which is not accepted. Affording the Class B creditors these rights (in a manner which is practically enforceable by them) would simply treat all classes fairly and equally with respect to their ability to participate and/or protect their interests in a subsequent restructuring plan, increase competitiveness around potential outcomes and therefore does not prejudice anyone. 27.5.2 There ought to be a level playing field between creditor groups on access to information and involvement in the equity process especially as the Company Plan is meant to be an interim and bridging transaction.”

“The express equation of creditors with ‘no genuine economic interest in the company’ with an ‘out of the money class’ is striking. The logic of this point is that if creditors who would be out of the money in the relevant alternative could be bound to a plan which effects a compromise or arrangement of their claims without even being given the opportunity to vote at a class meeting, the fact that they have participated in a meeting which votes against the plan should not weigh heavily or at all in the decision of the court as to whether to exercise the power to sanction the plan and cram them down. Nor is it easy to see on what basis they could complain that the plan was ‘unfair’ or ‘not just and equitable’ to them and should not be sanctioned. That point was made expressly by Trower J at the end of para [51] of his judgment in DeepOcean.” end of para [51] of his judgment in DeepOcean.”

“Q. If I can move on to my final two topic, they are quite short I hope. Mr Thomas-Watson, can you go to paragraph 22 of your witness statement. A. Yes. Q. You say: "Given that the ability to participate in the super senior funding is pro rata, it is the holders of the Class A debt who disproportionately benefit from those returns." A. Yes. Q. What do you understand "pro rata" to mean? A. The point I am making here is that -- Q. Just tell me what you understand pro rata to mean first, that is the question? A. I understand the pro rata to mean in proportion with one's holdings of something. Q. Next question. You agree that the super senior funding under the plan is to be allocated pro rata between the Class A and Class B debt; don't you? A. Yes, I do. Q. When you say dispro- portionately and not equal given the pro rata basis, is it the Class B AHG's position that they should receive better than pro rata participation rights? A. When I say "disproportion-ately", I mean that 16/17ths of the super senior will be held by Class A creditors should they take up their rights to do the super senior and approximately 1/17 will be held by Class B creditors. Q. That is proportionate, isn't it? You work in a fund. A. Yes, it is proportionate, it is proportionate in the sense that that is what the proportions of the Class A and Class B are, but I mean by -- Q. My question is, when you say that would be disproportionate. I am asking you, is your position that the Class Bs should receive better than pro rata participation rights? A. My position is that the vast majority of the economic benefits of the super senior accrue to Class A creditors and those benefits are effectively being paid for via a value transfer from the Class B -- Q. I have not asked you about -- MR JUSTICE LEECH: That is a fair -- MR AL-ATTAR: It is not actually. I am asking him, is it his position that they should receive better than pro rata? Do you want better than pro rata treatment? Do you want special treatment? A. We are not asking for special treatment. In the Class B plan, which we have set forward, the proposal is for the financing to be offered pro rata to the Class A and Class B creditors. Q. Have you considered that the Class B creditors are already receiving special treatment? The Class B debt ranks below the Class A debt, doesn't it? A. Yes, it does. Q. To reflect that ranking, the Bs could have been allocated their new money as tier 2 super senior and the As tier 1, that could have been the deal structure, couldn't it? A. That is possible I understand, yes. Q. That means the equal participation rights under the plan, regardless of ranking, are better from that perspective, doesn't it? A. Compared to your counterfactual, yes.”

“28. As a result, the term sheet that was ultimately agreed with Thames Water had already been heavily negotiated as among the “restricted” (i.e. permitted to receive the non-public information which was required in order to enable the terms of the financing to be agreed) members of the Class A AHG (and the separate Bank Group) to appropriately reflect both what was felt were fair economics for those bearing the risk of providing the new finance, and the need not unduly to prejudice those who were unwilling or unable to participate. The terms that were agreed to in the final term sheet were those that it was expected would be necessary to get a minimum of 75% of the Class A Creditors to consent.”

“The reluctance of the Plan Company to provide parity of information to all creditors prematurely pre-judges the merits of a future plan and mistakenly mixes the merits (and potential merits) of the A Plan and a future plan together. The Plan Company has not put forward any prejudice that it might suffer as a result of providing parity of information to all creditors. This in particularly puzzling given Linklaters’ assertion in paragraph 1.7 of their letter dated 30 December 2024 that “It is likely to be important that RP2 can be implemented on as short a timetable as possible.”

“MR JUSTICE LEECH: That also gets a two-year extension, and I just want to understand the rationale. A. When we put the plan together and recognising it was just an interim plan, we felt the fairest way was to have the extension for all parties, so, you know, we were not treating different groups of creditors differently, and that was felt, you know, our judgment was that was the best way to achieve it. And given it got 98 per cent support, we believe we achieved that objective, my Lord. MR PHILLIPS: It is because you thought that that would be supported by the A class creditors with long-term maturing debt? A. Correct. Yes. Q. And that has been proved to be true? A. Correct. Q. If RP2 is not passed, all of that long-term debt has achieved a two-year extension to its maturity? A. Correct. Q. But the only debt you needed to extend was the debt that matured in the period during which you might be negotiating RP2; do you follow me? A. I follow what you are saying. Q. Your answer is that you didn't do that because that would not have achieved the support of the longer-term maturing creditors, as I understood your answer? A. No, I did not say that. I didn't say it wouldn't have achieved the support. In fact, we wouldn't know that, because that is not what we launched. The view was, in our view, and the view of Akin, it was the best way to launch this, as an interim measure.”

“58. I acknowledge that the court has some inherent power to effect amendments to a Part 26A plan after the second stage, at which it has been voted upon, but before the third stage at which it is sanctioned. There is no need for me in this judgment to seek to delineate the precise parameters of that power. However, the power to effect amendments cannot be divorced from the statutory context of Part 26A. In Re Kempe Ambassador Insurance Co [1998] 1 BCLC 234, Lord Hoffmann, sitting in the Privy Council made the following statement in connection with a scheme of arrangement under legislation in Bermuda that is similar to what is now Part 26 of CA 2006: “It is true that the sanction of the court is necessary for the Scheme to become binding and that it takes effect when the order expressing that sanction is delivered to the Registrar. But this is not enough to enable one to say that the court (rather than the liquidators who proposed the scheme or the creditors who agreed to it) has bias order made the scheme. It is rather like saying that because Royal Assent is required for an Act of Parliament, a statute is an expression of the Royal will. Under section 99 [the relevant legislation in Bermuda] it is for the liquidators to propose the scheme, for the creditors by the necessary majority to agree to it and for the court to sanction it. It is the statute which gives binding force of the Scheme when there has been a combination of these three acts just as the rules of the constitution give validity to act duly passed by the Queen in Parliament.” 59. All of the authorities I was shown touching on my power to amend the Plan were in a context where the court had power to sanction the Part 26 scheme or Part 26A plan in its unamended form. Here, as I have concluded, I have no such power. I consider that if I exercise, or purported to exercise, an inherent jurisdiction to amend the Plan I would be turning it from something that the court has no power to sanction into something that the court can sanction. I consider that to be a material amendment that either falls outside the scope of my power or would be an improper exercise of it.” “It is true that the sanction of the court is necessary for the Scheme to become binding and that it takes effect when the order expressing that sanction is delivered to the Registrar. But this is not enough to enable one to say that the court (rather than the liquidators who proposed the scheme or the creditors who agreed to it) has bias order made the scheme. It is rather like saying that because Royal Assent is required for an Act of Parliament, a statute is an expression of the Royal will. Under section 99 [the relevant legislation in Bermuda] it is for the liquidators to propose the scheme, for the creditors by the necessary majority to agree to it and for the court to sanction it. It is the statute which gives binding force of the Scheme when there has been a combination of these three acts just as the rules of the constitution give validity to act duly passed by the Queen in Parliament.”

“(1) Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom and which— (a) in the case of agreements, decisions or practices implemented, or intended to be implemented in the United Kingdom, may affect trade in the United Kingdom, or (b) in any other case, are likely to have an immediate, substantial and foreseeable effect on trade within the United Kingdom, are prohibited unless they are exempt in accordance with the provisions of this Part. (2) Subsection (1) applies, in particular, to agreements, decisions or practices which— (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. (4) Any agreement or decision which is prohibited by subsection (1) is void.”

“7. That no approach or contact direct or indirect in connection with or during our discussions or whilst any Confidential Information remains in the possession or under the control of any Relevant Person shall be initiated, accepted or made by or on behalf of any Relevant Person to or with any employee, client or supplier of yours or any government body or regulatory or other authority or to or with any other person who to our knowledge has any actual prospective connection with you without your prior written consent.”

“41. The prohibition in Article 101(1) is disjunctive in its application to agreements that have the specified object or effect. Mr Hollander submits that this is an “object” case: it is clear that clause 7 is deliberately designed to limit competition for customers as between Ricoh and CMP. In my view, the position is not quite so simple: for example, the typical vendor covenant on the sale of a business not to supply goods of the same type for a period is literally a restriction on competition with the purchaser, but it may be necessary for the transfer of the business to be achieved; and where it is so limited in scope and duration it is not regarded as a restriction of competition at all and so falls outside Article 101(1): Case 42/84 Remia v Commission [1985] ECR 2545. But equally, it is well-established that the question of what is the “object” of an agreement is to be ascertained on an objective assessment of the aims of the agreement in question and does not depend on the parties’ subjective intentions. 42. Here, the object might at first sight appear to be to protect CMP’s confidential information that was being disclosed to Ricoh as part of their cooperative relationship. But it is manifest from the analysis above that even the restriction I have referred to as (i) in clause 7, on any objective interpretation, goes very far beyond any possible view of what could be needed for that purpose. In its range and scope, it is a naked restriction on any of the more than 150 Ricoh companies dealing with or seeking to deal with a client of CMP, whenever that client was acquired for so long as Ricoh has any of the wide category of “Confidential Information”

“In the UK the FCA considered syndicated loan markets as part of a wider market study into investment and corporate banking. The FCA did not identify any specific competition law concerns with these markets but did note generally in respect of syndication that it has benefits for borrowers where it enables greater access to investors. The FCA examined whether the size or composition of syndicates (for example because the syndicate is too large) might lead to material detriment through inefficiencies but concluded there was evidence of such.” “Cases related to bid-rigging In so far as the review of cases related to bid rigging is concerned we note that in several Member States there have been cases where, unsurprisingly, a feature of the bid-rigging arrangement is a mechanism to “compensate” any agreed loser of a bid/tender process, either by way of assistance in winning future bids or through appointment as a sub-contractor on the then bid in question. In some cases the compensation payment has been more direct e.g. by way of a direct payment between competitors or by way of another mechanism such as payment of a higher rent. Syndicated loans markets may display similar characteristics to those present in these cases in so far as the way in which banks are appointed to the various roles within a syndicate may facilitate a compensation mechanism. The frequency with which similar groups of banks participate in tenders in respect of loan origination or are otherwise involved in participating in syndicated loans together could facilitate compensation arrangements between them, either through arrangements related to future tenders or to the allocation of roles on a syndication (or a combination of the two). This might be further facilitated by the arrangements agreed with the borrower for the allocation of fees as between the various banks depending on their roles in the syndication process.

“224. The result is a restriction or distortion of competition in relation to the bidding process for participation in the recapitalisation transaction, because it is no longer the Company but other competitors in that bidding process (i.e. the Class A Creditors) who get to dictate the Company’s approach. The Company’s own evidence confirms that a competitive process is occurring in respect of third parties bidding to take part in the recapitalisation transaction; the Company relies on a letter from Rothschild’s which says at para. 20 that “there are a number of serious and motivated parties involved in the process”

“In summary, the clause in issue provides that: (i) the Plan Company, (ii) TWUL, (iii) TWUF, (iv) the Super Senior Issuer; (v) Holdco; (vi) the Plan Creditors, (vii) the Backstop Funding Parties, (viii) the Plan Creditor Funding Parties, (ix) the CF Creditor Parties and (viii) the administrative parties involved with the Plan (a list of which is scheduled to the Plan) (the “Administrative Parties”, and together with the other parties listed above, the “Releasing Parties”)” “(i) the same parties granting the releases; (ii) the Affiliates of: (a) the Plan Creditors, (b) the Backstop Funding Parties, (c) the Plan Creditor Funding Parties, (d) the CF Creditor Parties and (e) the Administrative Parties; (iii) the respective officers, directors, employees, executives and agents (or equivalents) of the parties referred to in sub-paragraphs (i) and (ii) above; and (iv) each Advisor (as defined in the Plan), each Affiliate of each Advisor and each of the current and former respective officers, directors, employees, executives and agents (or equivalents) of such parties, (the parties listed in sub-paragraphs (i) to (iv) above being the “Released Parties”)”

“16.1.2 pursuant to this Plan, waives, releases and forever discharges any and all actions, proceedings, claims, damages, counterclaims, complaints, liabilities, liens, rights, demands and set-offs, whether present or future, prospective or contingent, whether in this jurisdiction or any other or under any law, of whatsoever nature and howsoever arising, whether in law or in equity, in contract (including, but not limited to, breaches or non-performances of contract), in statute or in tort (including, but not limited to, negligence and misrepresentation) or in any other manner whatsoever, breaches of statutory duty, for contribution, or for interest and/or costs and/or disbursements, whether or not for a fixed or unliquidated amount, whether filed or unfiled, whether asserted or unasserted, whether or not presently known to the parties or to the law, in each case that it ever had, may have or hereafter can, shall or may have arising out of actions, omissions or circumstances on or prior to the Transaction Effective Date against each and any Released Party whatsoever or howsoever arising (and notwithstanding any subsequent facts or information becoming known following the Transaction Effective Date), in relation to or arising directly or indirectly out of or in connection with, the negotiation, preparation, sanction or implementation of the Plan and/or the Interim Platform Transaction (including, without limitation, the negotiation, preparation, sanction or implementation of any Transaction Documents); and 16.1.3 pursuant to this Plan, undertakes to the Released Parties that it will not commence or continue, or instruct, direct or authorise any other person to commence or continue, any Proceedings against any Released Party in respect of the actions ratified or the waivers, releases, and discharges granted under Clauses 16.1.1 and 16.1.2 respectively.”

“86. At the same time, however, and while acknowledging that the overall equation for the Scheme Creditors was between an overall settlement on the one hand, or no settlement and liquidation on the other, it seems to me important to acknowledge that achieving the hoped-for overall settlement is not a foregone conclusion, and is certainly not achieved by means of the present Scheme alone. 87. On the contrary, other, and significant steps, will be required in order for the Steinhoff Group Settlement to be successfully implemented. Mr du Preez’s descriptions of the Scheme as a “stepping stone” and a “key gating item” were carefully phrased. The present Scheme is not the culmination of the intended settlement process, but only the beginning of it. It is the key that unlocks the door to allow the remainder of the process to unfold, including the further anticipated court approval processes in South Africa and the Netherlands. Those processes will involve seeking input and approvals from much wider constituencies of interested parties than the present process, including not only other financial creditors aside from the Scheme Creditors, but also the various parties whose disputes are intended to be compromised. The relevant Courts will need to determine whether to approve or not approve the Steinhoff Global Settlement having regard to those wider interests. One cannot be certain how all these further elements in the process will develop. 88. It follows, as it seems to me, that the question to be addressed by the Scheme Creditors was not so much about giving final approval for the Steinhoff Global Settlement, but about whether it was in their interests to allow the remainder of the process a chance to run its course, or whether it was better to stop it in its tracks. 89. This question of future uncertainty, even in the event of approval of the present Scheme by the Scheme Creditors, was addressed in the Judgment of Sir Alastair Norris at [25]. Sir Alastair was concerned with the question whether the future uncertainty, arising in particular from the need for further Court approval processes to be conducted in South Africa and the Netherlands, was such that there was no utility in convening the requested meetings of creditors. Sir Alastair considered that, despite the admitted uncertainty, the meetings should nonetheless continue. He said: “The question has arisen in the context of whether the court should grant sanction where the scheme is a part of an overall restructuring which involves a CVA where the CVA is under challenge. The point was before Zacaroli J in Re New Look Financing plc, [2020] EWHC 2793 (Ch) and before me in Re PizzaExpress Financing 2 plc [2020] EWHC 2873 (Ch), both sanction hearings. Zacaroli J and I shared the view that the desirable position was to put the pieces of the jigsaw on the table and then to see whether in the events it was possible to slot them together. The test to apply is to assess whether acceptance of the CVA in that case or acceptance of the group settlement agreement in this case is a fanciful prospect. At this stage it is certainly not fanciful, and uncertainty is not an obstruction in the way of convening meetings.” 90. The analogy of putting the pieces of the jigsaw on the table is an interesting and apposite one. It suggests that the better approach, in a case where a threshold or “gating” issue arises, will usually be to allow the step to be taken which at least allows an opportunity for the remaining pieces of the puzzle to be assembled, rather than shutting the gate and foreclosing the opportunity entirely.” “The question has arisen in the context of whether the court should grant sanction where the scheme is a part of an overall restructuring which involves a CVA where the CVA is under challenge. The point was before Zacaroli J in Re New Look Financing plc, [2020] EWHC 2793 (Ch) and before me in Re PizzaExpress Financing 2 plc [2020] EWHC 2873 (Ch), both sanction hearings. Zacaroli J and I shared the view that the desirable position was to put the pieces of the jigsaw on the table and then to see whether in the events it was possible to slot them together. The test to apply is to assess whether acceptance of the CVA in that case or acceptance of the group settlement agreement in this case is a fanciful prospect. At this stage it is certainly not fanciful, and uncertainty is not an obstruction in the way of convening meetings.”

“I have one more thing to say at the outset, which has troubled me throughout. I was horrified to discover that the Plan Company has spent around US$150 million on professional fees in negotiating with its secured creditors from December 2022 and then putting forward the Plan and taking it to this hearing. That is an enormous sum of money, even taking account of the fact that it includes the costs of the supporting creditors as well. The Group actually raised US$250 million of new money while the Plan was being negotiated, but that was principally to fund the professional fees for getting the Plan through. The witness from a member of the AHG, Mr Richard Carona, said that he was deeply uncomfortable with this and I agree with his comment that there seems to be something wrong with the restructuring industry, particularly in the US, where the costs appear to be out of control. Obviously the fact that the Plan has been opposed has added to the costs, but it should have been apparent from an early stage that Reficar was not going to just accept an extinguishment of its debt. I think all I can say is that I hope there can be a better way to do these financial restructurings because costs of that magnitude could be a barrier to the sort of restructurings that Part 26A was meant to encourage.”

“MR PHILLIPS: Absolutely, my Lord. I was not intending, but I understand. A. So where we sit here today is that, you know, the business is going to need a recapitalisation of somewhere in the region of, you know, 6 to 10 billion let's say, to right size the balance sheet, to bring in the required equity. We know the existing shareholders have walked away and they have said they are not prepared to put any more money into this. We know that there is an equity process continuing with some very credible parties in there, which we are very comfortable with, but at the end of the day, we don't know whether those equity parties are going to come up with a bid at all or are going to come up with a bid on terms that are appropriate. So just like in any restructuring situation, we have been working with our clients to say if there is no alternative solution, what could we do as a creditor group in terms of fixing the balance sheet, coming up with the equity and putting in place a new governance structure and plan. So, yes, that is being worked on in parallel. And we have been in discussions with Ofwat on that. Q. When you say "appropriate", make sure everyone understands it: appropriate means acceptable to the A class creditors? Amongst other things? A. Actually, predominantly, as a first step, acceptable to the regulator, who is the one that ultimately needs to approve this plan. And we have been told by the regulator that they would expect to see substantial -- an element of pain being taken by the capital structure and the A creditors as part of any proposal that is being put forward. So, yes, it has to be acceptable to the A creditors but first of all it needs to be acceptable to the regulator, who are the ones that can approve it.” “Q. Your evidence is A support is the key? A. Yes, correct. Q. To everything? A. The rights within the existing WBS structure give our lenders those rights. Q. Even if it is worse for the company as a whole? A. I don't see it as being worse for the company in an interim solution. What is going to happen here, there is a stepping stone to get to a final solution, with money going in on an interim basis. That broader recapitalisation, when it happens, has to right size the debt structure, has to get back to an investment grade rating, has to bring in the required level of equity. It is our clients that are going to absorb all that cost ultimately because, you know, this -- the stepping stone to get there means that the new money has to be taken into account in the final restructuring.” “MR PHILLIPS: Ultimately, this is going to have to be paid by Thames? A. I would actually argue, ultimately, it gets paid by the creditors. Q. Because? A. Because on a recapitalisation, new money will go in, the balance sheet will be right sized and therefore all this will get factored into the final restructuring and therefore it is the creditors that end up paying this. Q. Of course that depends where the value breaks? A. That depends where the value breaks. Q. Can I just ask in relation to two other things before we reach the short adjournment, my Lord.” “Q. Given that there might not be an RP2, and that this could just result in increased borrowing by the company? A. Yes, but I come back to the point, even if you put -- extrapolate this and say this then goes into a SAR, in a SAR, if you cannot get to a rescue in a SAR, the business can be -- the assets of the business can be sold. All this comes back to our clients again. So we end up absorbing that cost, because it reduces the amount that can go back through the waterfall and it falls wholly on my clients again.”

“The restructuring plan procedure is a statutory one. The legislature has decided that there is a public interest in facilitating the rescue of struggling companies through reconstructions, assuming of course that the statutory pre-conditions are met and the court, in the exercise of its discretion, thinks fit. Counsel for the Objectors argued that there is no presumption in favour of sanction of a particular scheme and relied on Consort Healthcare at [11]. Richards J was saying there no more than that each case turns on its facts. In the same paragraph he accepted that Part 26A was enacted to enable companies in financial distress to propose restructuring plans. In my view the purpose of the legislation is to facilitate restructurings because this is often a better outcome for the creditors as a whole than the alternative. It appears to me that if a plan would otherwise be sanctioned, a simple and unqualified appeal to the equitable jurisdiction to enforce a promise to exclude a particular creditor would have to give appropriate weight to the public policy in favour of rescuing struggling companies (as well as the public policy embodied in the pari passu principle referred to above).”