Image description: Aerial view of a water treatment facility. Photo by Patrick Federi on Unsplash
Thames Water has confirmed an improved rescue bid has been tabled by creditors for the UK’s largest water supplier but maintained talks are ongoing over the proposals.
Thames Water’s lenders have reportedly put forward a £10bn rescue plan that would involve paying off the struggling water company’s hundreds of millions of pounds-worth of fines for leaks and pollution, as part of an effort to stave off financial collapse.
The bidding consortium, comprised of private equity firms and investment groups, said they would inject about £3.35bn of new equity and raise £6.65bn in debt, in exchange for the company not falling into a government-handled administration, in effect a temporary nationalisation.
The planned bid marks an increase from the offer lodged in October last year by the consortium of Thames Water’s main creditors, including institutional investors such as Aberdeen, Elliott Management and Silverpoint Capital.
Thames Water on brink of collapse
Britain’s biggest water company has been on the brink of collapse for more than two years as it struggles under the weight of £17.6bn in debt, accrued in the decades since privatisation. Additionally, the utility has come under scrutiny for its poor environmental performance, with sewage leaks provoking public and political outrage and adding huge costs in the form of fines.
The rescue deal is the latest attempt to avoid being placed into a special administration regime, a form of temporary nationalisation, after a previous rescue deal with US private equity giant KKR collapsed in May last year. Administrators have also been lined up to step in if needed.
The new rescue deal on offer
Last year, the Guardian revealed that the water firm’s bosses were asking to be spared billions of pounds-worth of costs and fines to try to attract new investors.
Now its lenders said the new rescue plan would involve paying off all of its existing fines in full and making an upfront payment to cover future underperformance against Ofwat’s targets. The company would still be subject to future fines for pollution and leaks from Ofwat and the Environment Agency.
The plan needs to be approved by Ofwat and the company’s board, but would involve about 30% of Thames’ existing debts to its senior creditors being wiped out in return for continuing to operate as a private company. Meanwhile the smaller group of “class B” junior creditors would be wiped out entirely.
As well as an equity and debt injection, the bid proposal includes commitments from the creditors not to sell a significant proportion of their equity investment over the regulatory cycle through to 2030, and also prevents Thames Water from paying dividends to shareholders before April 2035. Its creditors are the bondholders who now effectively own Thames Water after the High Court approved a financial restructuring earlier this year through a loan of up to £3 billion to ensure it can keep running until the summer of 2026.
An Ofwat spokesperson said: “We continue to engage with London & Valley Water and are reviewing their plans carefully to assess whether they deliver a turnaround in the company’s operational performance and strengthen its financial resilience to the benefit of customers and the environment.”
Thames Water said there was “no certainty” that the plan would be accepted. “At this stage, the company’s board, Ofwat, other regulators and relevant investment committees have made no decision to accept and take forward the L&VW proposal to implementation,” the company said.
A spokesman for L&VW said it believes its proposed offer “is the fastest and most reliable route to stabilising and fixing Thames Water’s complex problems in the best interests of employees, customers, the environment and local communities, without any government funding or cost to taxpayers”.