Thames Water Creditors Approach £16bn Rescue Agreement
Britain's largest water utility, Thames Water, is moving closer to a multibillion-pound rescue deal with its lenders that would avert temporary public ownership. Sky News has learned that a group of creditors holding £13bn of Thames Water's total £20bn debt is aiming to sign an in-principle agreement with Ofwat and the company by mid-February.
Debt Write-Offs and Equity Stakes in Rescue Plan
Under the proposed agreement, lenders would accept a haircut of up to 30% on their Class A debt, an increase from the 25% disclosed in October. In total, more than £13bn of existing value is expected to be written off when the final deal is presented to participating investors, which include Assured Guaranty, Invesco, Elliott Management, Silver Point Capital, and Farallon Capital Management.
In exchange, these creditors would receive a minimum of 10% equity in the recapitalised company. A planned new equity injection of £3.15bn is also likely to be increased if an agreement is reached, according to industry sources.
Funding and Ownership Commitments
Last year, Thames Water's creditors committed £3bn in emergency funding to keep the utility operational. Half of this sum has already been drawn, with the in-principle agreement needed to access the second £1.5bn tranche, which would fund the company through the restructuring process.
The would-be owners have committed not to sell the company before 2030, with a stock market listing expected after that date. They have also pledged not to take any dividends during the Turnaround Oversight Regime or until the company goes public. Additionally, the consortium has assured that customer bills will not rise beyond increases already agreed with Ofwat.
Regulatory Hurdles and Industry Context
An announcement about an outline deal could come as soon as next week, representing the clearest sign yet that Thames Water can be recapitalised and avoid a government-orchestrated special administration regime (SAR). This outcome would relieve the Treasury, which aims to keep Thames Water's debt off government books.
However, regulatory sources caution that "gaps" remain between creditors and watchdogs over financial and other terms, potentially delaying agreement beyond mid-February. "There's still no guarantee that this gets done," one source noted.
The deal requires approval from Ofwat, the Environment Agency, and the Drinking Water Inspectorate. If approved by regulators and Environment Secretary Emma Reynolds, it would undergo public consultation due to modifications to Thames Water's operating licence. Court sanctioning is also required.
Infrastructure Plans and Industry Challenges
Under its business plan, the London & Valley Water consortium aims to spend £20.5bn on infrastructure and service improvements over the next five years to address Thames Water's poor record on waste and sewage pollution. Ofwat had previously rejected a blueprint proposing £24.5bn in spending over the next regulatory period.
Negotiations occur amid critical times for the UK water industry. A recent white paper confirmed plans to abolish Ofwat and establish a new regulator with an 'MOT-style' approach to supervising water infrastructure, alongside a regime to turn around struggling companies.
The privatised sector's challenges are highlighted by scandals at Thames Water's neighbour, South East Water, which faces calls to sack its CEO over outages affecting thousands of Kent households.
Background and Leadership
Thames Water's most recent shareholders, including the Universities Superannuation Scheme and an Abu Dhabi sovereign wealth fund, have written off their investments. Last August, Sky News revealed that Environment Secretary Steve Reed had appointed FTI Consulting for contingency planning for a SAR, a regime previously tested only with energy supplier Bulb's collapse.
Since then, FTI Consulting has had little engagement amid ongoing talks. KKR pulled out of talks to buy Thames Water last summer, while CK Infrastructure attempted to gatecrash the process unsuccessfully.
Mike McTighe, chair of BT Group's Openreach division, has been brought in to work with the creditor group as potential chairman. In October, he emphasised the need for billions in new investment and operational turnaround to benefit customers and the environment.
An Ofwat spokesperson stated: "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." DEFRA has been contacted for comment, while Thames Water and London & Valley Water declined to comment.
