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Thames Water’s creditors are trying to appease the UK government and regulators by pledging to invest more money to deliver crucial infrastructure improvements if they take over the beleaguered utility.
The creditor group, which includes the US hedge funds Elliott Management and Silver Point Capital, announced on Wednesday that it had submitted a “major new plan to invest, upgrade and turn around Thames Water’s operations” to industry regulator Ofwat.
The group did not specify by how much more it would increase investment versus its initial bid. Bondholders intend to pledge an extra injection of hundreds of millions of pounds in equity into Thames Water as early as next week, according to people close to discussions.
The company, which provides water and sewerage services to 16mn households in London and surrounding areas, has been at the centre of a stand-off between the group of senior bondholders and officials over leniency sought on fines as part of a last-minute rescue of the near-insolvent utility to avert renationalisation.
Creditors are already propping up the company with an expensive £3bn loan and are seeking to formally take over the business after the company’s preferred bidder, the private equity firm KKR, walked away from a deal in June.
The creditors then submitted a plan to inject £3bn of equity into Thames Water, which would be increased by hundreds of millions of pounds under the new proposal. The revised offer on new funding and additional debt haircuts has not yet been finalised. The full proposal, including financial details, is expected to be put to Ofwat as early as next week and would require ratification in the courts this autumn.
The bondholder group, which stands to make larger losses if the privatised utility is taken over by the government, had faced pushback from officials due to earlier demands for waivers that would exempt the company from key environmental laws and hefty fines. People close to the creditors insist they are not seeking blanket releases on fines, but will ask for more “realistic” targets on sewage pollution and other issues in their full proposal that is expected next week.
Thames Water secured a deal with Ofwat last week under which almost £100mn of what Thames Water owes in fines could be delayed until 2030.
Thames Water has said that the creditor group, which has set up a company called London & Valley Water to pursue the deal, is the only credible offer for the teetering utility.
Other potential bidders, including Hong Kong’s CKI Infrastructure, are positioning themselves for a potential offer for the business if it is temporarily nationalised under the government’s special administration regime.
London & Valley Water said in a statement: “Billions of pounds of new funding from the investors will be absolutely critical to unlocking the plan and delivering the stretching operational turnaround without raising customer bills in the current five year regulatory period”.
Discussions are being held with Iain Coucher, the chair of Ofwat, after David Black, the chief executive of Ofwat resigned last month. The creditors are being represented by Mike McTighe, a Openreach executive, who is already advising creditors and is likely to be the utility’s new board chair under their proposal.
Steve Reed, the environment secretary, has insisted the government favours a “market solution”.
Ofwat said: “We continue to engage with the creditor group and will review their plan carefully. We expect to receive the full plan towards the end of next week.”
