(Bloomberg) -- Thames Water is working with a group of its creditors to try to avoid running out of money.
The UK’s biggest water and sewage company is exploring options to delay a cash crunch, including the release of reserves, according to a statement on Friday. It currently only has enough money to last until the end of May next year.
A group of creditors holding about £10 billion ($13.2 billion) of the firm’s debt is drawing up a rescue package that could involve injecting equity, but needs more time to work out a restructuring plan.
At the same time, Thames is also seeking a new equity injection from an infrastructure fund to provide some or all of the £3.3 billion it needs to fix chronic leaks, sewage spills, cope with a growing population and climate change. Thames has already started pre-marketing for the equity raising, and the formal process is due to start in the coming weeks.
The utility is seen as too big to fail and without new funds, would likely be temporarily nationalized. Existing investors want to avoid nationalization because a prolonged period under government control could mean they recover less of the money they lent.
Time is not on Thames’s side. It won’t be able to agree any new equity funding until after regulator Ofwat makes a final decision on the industry’s price controls for the next five years, including the rate of return for investors. But that decision could be pushed into January because this year’s election delayed the process.
Separately, Thames Water is working on maximizing its cash available. At the end of August, Thames had £1.57 billion of liquidity available. That’s made up of £1.15 billion of cash and equivalents, together with £420 million of credit lines that Thames hasn’t drawn down from yet.
Under the terms of the debt, £380 million of the cash must be held as reserves. Thames said it’s discussing releasing those reserves as part of its contingency planning, but needs the permission of the majority of its creditors.
If a majority of creditors can’t reach agreement to release cash reserves early, there would be a crunch point at the end of December, when the company would enter standstill. Under that emergency scenario, it would gain access to the £380 million of cash, on top of an additional £550 million of credit lines.
Thames has reserved dates at the High Court in November to prepare for a major debt restructuring, which could bind creditors to accept steep losses on their investment.
(Updates with details throughout)
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