Image description: Aerial photo of a water treatment works. Photo by Bob Brewer on Unsplash
Thames Water is moving closer to a multibillion-pound rescue deal with its lenders according to Sky News, that would ultimately keep the utility out of temporary public ownership.
Industry sources have told Sky News that a creditor group holding £13bn of Thames Water’s £20bn total debt is aiming to sign an in-principle agreement with Ofwat and the company by mid-February. Under the agreement being discussed, lenders would accept a haircut on Class A debt of up to 30%, increased from the 25% disclosed in October, according to those same industry sources cited by Sky News.
Proposed deal structure
Sky News reports that more than £13bn of existing value is expected to be written off when a final deal is put to participating investors, including Assured Guaranty, Invesco, Elliott Management, Silver Point Capital and Farallon Capital Management. In exchange, creditors would receive a minimum 10% equity stake in the recapitalised company, with the planned £3.15bn new equity injection likely to increase if agreement is reached.
Last year, Thames Water’s creditors committed £3bn in emergency funding. Half has already been drawn, with the in-principle agreement needed to access the second £1.5bn tranche funding the company through restructuring completion.
Terms and commitments
According to Sky News, the potential new owners have committed not to sell Thames Water before 2030, with a stock market listing expected afterwards. They have pledged not to take any dividends during the Turnaround Oversight Regime period or until public listing and confirmed customer bills will not rise beyond increases already agreed with Ofwat.
The London & Valley Water consortium’s business plan proposes spending £20.5bn on infrastructure and service improvements over five years to address the company’s sewage pollution record—down from a previous £24.5bn blueprint Ofwat rejected.
One of the most complex corporate restructurings ever seen in Britain
Sky News reports that regulatory sources cautioned “gaps” remain between creditors and watchdogs over financial and other terms, meaning agreement could be delayed beyond mid-February.
The deal will require approval from Ofwat, the Environment Agency, the Drinking Water Inspectorate and Environment Secretary Emma Reynolds. If approved, it would then face public consultation due to modifications to the company’s operating licence and will also require court sanctioning. Sky News reports the terms will be submitted to Downing Street for review in coming weeks.
Recent polling found that the majority of Thames Water customers opposed the creditor deal that was previously outlined.
The wider political landscape
An announcement could come as soon as the week after next, Sky News reports, representing the clearest sign yet that Britain’s biggest water utility can remain out of government-orchestrated special administration regime (SAR), which the Treasury has reportedly strongly opposed.
The negotiations occur as ministers published a white paper this month confirming plans to abolish Ofwat and establish a new regulator with an ‘MOT-style’ supervision approach. Sky News revealed last August that then-Environment Secretary Steve Reed signed off FTI Consulting’s appointment for SAR contingency planning, though the firm has had little engagement since amid ongoing creditor-Ofwat talks.
An Ofwat spokesperson told Sky News: “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.”