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Thames Water faces a summer of uncertainty as regulator Ofwat deliberates on a backup plan by the utility’s senior creditors to provide fresh equity of nearly £4bn to rescue the utility.
The group of Thames Water’s top-ranking bondholders is now the de facto frontrunner to take control of the UK’s largest water company after US private equity firm KKR walked away from its proposal to recapitalise the company earlier this week.
The “class A” bondholders — which include large US investment firms such as Apollo Global Management and UK asset managers such as Aberdeen — have signed new equity commitments approaching £4bn, according to several people familiar with their proposal.
This constitutes new funding they would inject into the company, in addition to a parallel emergency £3bn loan for which Thames Water secured court approval earlier this year. The funds stopped it from toppling into temporary renationalisation under the government’s special administration regime.
The creditors’ plan would also apply a writedown to Thames Water’s existing debt and would have the potential to allow new lower-cost loans to replace old ones.
However, the plan requires both sign-off from Ofwat and the courts. The emergency loan was only approved after a lengthy legal battle from rival bondholders.
People close to both the company and Ofwat acknowledged that the approval process could take at least two months. High Court hearings to approve the restructuring would then be expected to begin in the autumn.
The headline equity injection and other elements of the plan are broadly similar to KKR’s proposal, some of the people added. KKR had envisaged £4bn of new equity, but also opened the door for creditors to provide nearly 50 per cent of this total.
The senior creditors, which own a majority of the £17bn of debt that sits at the top of Thames Water’s near-£20bn debt pile, submitted a 380-page turnaround plan to the utility and Ofwat last week.
The group ran an intensive due-diligence process alongside KKR and also attended a number of site visits in and around London. KKR’s due diligence package has also now been made available to the creditors, several people familiar with the process confirmed.
Mike McTighe, who led the turnaround of BT’s Openreach after becoming chair in 2016, is acting as a senior adviser to the creditor group.
“The Creditors have submitted a detailed, long-term turnaround plan that will fix the root causes of Thames Water’s problems, restore its balance sheet, rebuild customer trust and fix the fundamentals of the business once and for all,” the creditor group said on Tuesday.
Several people involved in negotiations said it would not be feasible to reopen the equity process to other bidders that were jilted when Thames Water granted KKR exclusivity in March.
However, some of those bidders are still seeking an opportunity to take part in a rescue.
Castle Water — a supplier of water to businesses — said on Tuesday it was “ready, willing and able to support the business with the requisite financing in place”.
CK Infrastructure, which submitted a preliminary £7bn bid for Thames Water in February, has approached the creditor group’s advisers to see if the firm can play a role in their recapitalisation of Thames Water, according to people familiar with discussions.
The creditors are not actively seeking new partners, however, and have enough committed funding in place from their group to cover their plan, according to people familiar with their position.
CKI did not immediately provide a comment. Thames Water and Ofwat declined to comment.
