Thames Water is engaged in discussions with some of its creditors to secure a £1 billion ($1.34 billion) funding lifeline. This would provide the company time to
restructure its £16 billion debt and avoid the risk of entering administration, according to two sources familiar with the situation.
Last week, the UK's largest water provider warned that it could run out of funds within three months unless most of its creditors agree to additional borrowing. Without a rescue plan, the government or water regulator may place Thames Water into a special administration regime (SAR) to ensure it continues serving 16 million customers in London and surrounding areas.
The situation arises as the new Labour government faces demands for billions of pounds to upgrade the country’s infrastructure, with water systems among many priorities, including power grids, rail, and roads.
If Thames Water enters administration, potential losses for debt holders could undermine broader investor confidence and increase financing costs for other water companies. To avoid SAR, the company is negotiating with one group of creditors for a short-term liquidity facility of up to £1 billion, with a deal expected within weeks, according to the sources.
This interim line of credit would help Thames Water stay operational while it pursues a long-term debt restructuring plan and aims to raise up to £3.25 billion in new funds, the sources added. Meanwhile, holders of approximately £10 billion of Thames Water bonds are also exploring equity solutions, seeking to partner with a well-capitalized infrastructure investor in case the company cannot resolve the issue independently.
The company is also working with investment bank Rothschild and law firm Linklaters to raise the needed capital and has reached out to potential investors, according to five sources.
Thames Water and its largest group of creditors aim to finalize their rescue plans soon, with court hearings scheduled for November and December to approve a potential restructuring deal, three sources confirmed.
Adding urgency to the situation, the company faces £530 million in debt maturing next month, though a source close to the matter expressed confidence that this debt would be rolled over.
Regulatory Complexities
Restructuring discussions are further complicated by the involvement of three main creditor groups and a pending decision by water regulator Ofwat, which will determine Thames Water’s investment plan and customer tariff rates.
There are ongoing discussions between Ofwat and Thames Water's main creditors about the final decision, one source said. The regulator’s new framework was expected to be finalized by December but may be delayed until January. Creditors are seeking improvements to Ofwat’s draft plan published in July, sources revealed.
Reaching an agreement with Ofwat that avoids SAR could spare the government a significant challenge. The rules governing water companies in financial distress, which require the High Court to appoint a special administrator, were revised earlier this year and remain untested. The outcome could involve Thames Water or its assets being transferred or even liquidated.
To maintain its current structure, Thames Water must regain its investment-grade credit rating, which it lost in breach of its operating license. On Wednesday, Moody's downgraded Thames Water’s rating further into junk status, citing concerns about the company’s ability to secure new equity funding.
“In the medium term, failure to attract new equity could lead to creditor-led debt restructuring or one imposed as part of a special administration process,” Moody’s noted.
Additionally, a second group of creditors, including nearly 20 commercial banks with a combined exposure of over £3.5 billion, is being advised by Perella Weinberg and A&O Shearman. A third group, consisting of banks and pension funds holding around £1.5 billion in debt at Thames Water's junior holding company Kemble, is being represented by Moelis and Freshfields, according to three sources. Photo by Jim Linwood, Wikimedia commons.