Thames Water and the majority of its lenders want to see the company, which already has a £20bn debt pile, borrow another £3bn to prevent collapse while it completes a restructure.
Thames Water and Ofwat, the water regulator, have argued taxpayers will suffer if the loan is not granted – but environmental campaigners say the consequences will be much worse if it is.
The £3bn emergency loan was approved last month following a High Court battle, but Liberal Democrat MP Charlie Maynard and other campaigners launched an appeal, arguing that piling on more debt was not in the public interest.
If it collapses, it would be temporarily nationalised.
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Ofwat, the regulator, has not commented on the figure, but Environment Secretary Steve Reed previously said government intervention would “cost billions and take years”.
In court documents seen by the BBC, the water regulator rejected these claims and insisted Thames Water would be barred from paying additional interest payments using customers’ bills.
Current and former Thames Water employees could also see their pensions impacted if the loan is not agreed.
If the company collapsed, those members would probably be transferred to a lifeboat Pension Protection Fund, which provides lower future benefits than those promised by the original scheme.
How will water bills be affected if the loan goes ahead?
The environmental groups trying to block the loan include Windrush Against Sewage Pollution, the Rivers Trust, the Angling Trust and We Own It.
William Day, the lawyer representing Maynard, said the cost of special administration would be cheaper – at less than half the costs of the bail-out loan that has been approved.
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The loan carries a 9.75 per cent annual interest rate and will cost £898m over six months in consultancy fees and interest payments. This includes £210m Thames Water has paid financial advisers to come up with the bail-out plan.
Day told The Guardian Thames Water had offered no evidence the emergency debt package would help it raise billions of pounds of additional equity to repair its finances.
The firm said higher bills are needed to provide “safe and resilient” water supplies that could cope with the impact of climate change.
Thames Water says its restructuring plan “does not financially impact taxpayers across the UK or our customers” and will allow it to invest in its network.
Thames Water has been approached for comment.
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