Thames Water lenders submit new rescue plan to avoid nationalisation

A group of Thames Water investors has offered a sweetened rescue deal for the struggling supplier, vowing to invest an extra £1 billion and write off more than a quarter of debts in return for more lenient performance targets.

London & Valley Water – a consortium of the supplier’s main creditors, including investors and financial institutions – said it would write off around £4 billion, or 25%, of the debt it holds, up from 20% in the previous proposal, plus debts held by other creditors.

Including an extra £150 million of new equity, the lenders said they are pumping in a further £1 billion of investment, on top of the proposal submitted to regulator Ofwat in May.

The new bid is “more ambitious, delivers greater value for customers and follows three months of discussion with and feedback from Ofwat” to help turn around Thames Water and stave off the need for temporary nationalisation, according to the group.

Thames Water – Britain’s biggest water supplier with 16 million customers and 8,000 employees – is on the brink of collapse as it struggles under a near-£20 billion debt mountain.

The creditors are looking to secure backing for their plans to avoid the company being put into a temporary special administration regime (SAR), which would effectively wipe out their investments.

They said the additional investment will would “ensure long-term financial resilience” and also cover existing fines Thames Water must pay for regulatory and pollution failures, it added.

London & Valley Water outlined plans to eventually float Thames Water on the stock market, but vowed not to sell the company before March 31 2030 to ensure a focus on the turnaround.

However, the proposal comes with an effective ultimatum to Ofwat for it to accept renegotiated targets on pollution incidents and water leaks in return for the investment.

The group is also pressing for a swift decision, cautioning delays would “increase the challenges of delivering the company’s turnaround”.

Ofwat is now reviewing the latest proposal, alongside other regulators.

The 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.

The firms involved – including UK and US investment companies such as Elliott Management, Aberdeen Investments and American private capital firm Apollo Global Management – submitted their improved bid plans to regulator Ofwat on Wednesday.

Infrastructure expert Mike McTighe has been named as the proposed new chairman of Thames Water should the bid be accepted, replacing incumbent Sir Adrian Montague, with five non-executive directors earmarked to join the board.

It is thought the refreshed board would make a decision on whether to retain the executive team, including chief executive Chris Weston.

Mr McTighe said: “From day one, we will inject billions in new investment, strengthen Thames Water’s balance sheet, transform the company for thousands of hard-working frontline staff and begin the delivery of an operational turnaround that puts 16 million customers and the environment first.

“Together with committed and experienced new investors, the collective focus of the new board under London & Valley Water’s plan will be on fixing the foundations, reducing pollution and rebuilding public trust so that by the end of this decade Thames Water can once again be a reliable, resilient, and responsible company.”

Ofwat said it would “continue to engage with them and are reviewing their plans carefully”.

Thames Water boss Mr Weston said: “Today is an important milestone in our ongoing work with creditors and stakeholders to secure a market-led recapitalisation that establishes the financial and regulatory foundations required to support the investment and performance improvements our customers expect.”

The consortium said they would pump in £3.15 billion of new equity into Thames Water and are committed to providing £2.25 billion in new debt.

As well as their debt impairment, they would also write-off about £1 billion of the debt held by so-called class B bondholders, as well as a further £2.5 billion of debts amassed by Thames Water’s holding company.

The creditor group set out plans last month on how they would deliver £20.5 billion in planned spending, without the need for bill rises above those agreed by Ofwat, though this included more “realistic” performance targets.

Thames Water’s current management has previously said it would need over £24 billion of investment allowance for the next five years and to increase bills by more than Ofwat had agreed.

A previous proposed rescue deal with US private equity giant KKR collapsed in May, leading to fears of an impending temporary nationalisation, but the Government has stressed its preference is for a “market-based solution”.

The GMB Union said any turnaround plan “has to guarantee jobs, pay and pensions and clean up the environment” with the onus on the Government and Ofwat to ensure lenders invest in these areas.