A group of Thames Water’s creditors have proposed a multibillion-pound rescue deal for the struggling supplier, offering new investment in exchange for regulatory leniency.
The proposal, submitted to Ofwat, includes investment firms such as Aberdeen, Elliott Management, and BlackRock offering to overhaul £17 billion of Thames Water’s debts. The firms would invest £3 billion in new equity and a further £2 billion of funding.
The proposal would also involve writing off “several billion” pounds’ worth of debt and a “complete loss for existing shareholders” in what they claim would be the “largest financial loss suffered by investors on an infrastructure asset in British history.”
The creditors are asking for leniency on performance targets and compliance, and warned that without a “regulatory reset” Thames Water’s “pollutions, asset health deterioration, and customer service levels are likely to worsen.”
Under the proposals submitted to Ofwat, customer bills would not increase by more than the regulator has already approved over the next five years.
They are holding intensive talks with Ofwat in the hope of securing approval for their deal in early July.
The plans come after US private equity giant KKR last week pulled out of a rescue deal to inject much-needed cash into Britain’s biggest water supplier, which has 16 million customers and is sinking under £19 billion of debt.
It threw the future of Thames Water into doubt once more and raised the threat of temporary nationalisation by the Government if a deal cannot be agreed.
A spokesperson for the creditors said their turnaround plan was “designed to fix the root causes of Thames Water’s problems, restore its balance sheet, rebuild customer trust, and provide the financial investment and operational capabilities to fix the fundamentals of the business once and for all”.
They added: “The plan seeks to break from the patterns of the past by delivering customers’ priorities and improved outcomes for the environment in the shortest possible timeframe.
“The creditors include some of the largest investors in UK water companies, as well as UK and global infrastructure more broadly, with a proven track record of corporate turnarounds and long-term stewardship.
“These investors have the funding and experience required to deliver a transformation of the company’s performance which is intended to mark a departure from past failings, creating a ‘new’ Thames Water that works effectively alongside Government, regulators, and customers to deliver for the environment and economic growth.”
The creditors are the bondholders who effectively own Thames Water after the High Court earlier this year approved a financial restructuring through a loan of up to £3 billion to ensure it can keep running until the summer of 2026.
Other investment and pension firms in the group include Apollo Global Management, M&G and Silver Point Capital.
As part of their plans, the creditors would appoint a new board at Thames Water to run the utility.
They would commit to spending £20.5 billion over the next five years, as agreed under the current five-year plan with Ofwat.
But they are calling for a “pragmatic approach” to regulation – including “re-basing incentives and performance targets – and “realistic levels of compliance”.
“Without the regulatory support requested, the creditors believe that customers will remain exposed to the risk of a continued ‘doom loop’ of underperformance and non-compliance,” according to the creditors.
“A clean slate that would see Thames Water and investors held to account to deliver an ambitious trajectory for the company’s return to compliance,” they added.
A spokeswoman for Ofwat said the regulator had been “engaging regularly” with Thames over the funding plans.
“We have commenced a thorough review of the submission from the group of senior creditors,” Ofwat said.
“The submission includes their turnaround plans, approach to financial resilience and proposals for governance.
“Our focus is on assessing whether the plans are realistic, deliverable and will bring substantial benefits for customers and the environment.”
Liberal Democrat MP Charlie Maynard, who has previously appealed against a £3 billion rescue deal for the utility, said: “What will it take for the Government and the regulator to put a stop to this horror show Thames Water customers are forced to suffer through and pay for?
“Having created a mountain of debt, all at customers’ expense, this latest plan for Thames Water would let them continue to pollute with impunity.”
He said his party’s plan would be to put Thames Water into special administration and then have it become mutually owned by its customers.
