The 23-year-old will stay with the Sky Bet League Two U’s until the end of the season and is eligible to make his debut in Saturday’s clash with Mansfield.
Cambridge head coach Shaun Derry told the club’s official website: “It’s been well-documented that we have been looking to add a different dimension to our attacking options in this window. We are therefore delighted that we have been able to secure Billy’s services for the rest of the season.”
Waters began his career at Crewe before his form with Cheltenham earned him a move to League One Northampton last summer.
However, he has struggled with Jimmy Floyd Hasselbaink’s Cobblers, failing to score in 17 league outings this season.
“He hasn’t played as much first team football as he would have liked in the last few weeks and this is an ideal chance for him to go and hopefully play regular first team football,” Hasselbaink told ntfc.co.uk.
“Billy has got a first class attitude and we wish him well with his loan spell. As with any of our players who go out on loan, we will monitor his progress closely.”
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