Thames Water Nears £16 Billion Rescue Agreement with Lenders
Thames Water is approaching a crucial multibillion-pound rescue agreement with its lenders to avert temporary public ownership. The deal involves a group of creditors managing £13 billion of the company’s £20 billion debt. Reports indicate that an in-principle agreement with Ofwat and Thames Water could materialize by mid-February.
Details of the Rescue Agreement
The proposed arrangement suggests lenders could accept a haircut of up to 30% on their Class A debt, an increase from 25% disclosed earlier. This could see over £13 billion of existing value written off, surpassing the previously anticipated £12.5 billion.
Investor Involvement
Key investors in this deal include:
- Assured Guaranty
- Invesco
- Elliott Management
- Silver Point Capital
- Farallon Capital Management
In return, these investors would receive a stake of at least 10% in the recapitalized company. An additional equity injection of approximately £3.15 billion may also increase if the agreement takes shape.
Financial Assistance and Future Plans
Last year, Thames Water’s creditors pledged £3 billion in emergency funding. Half of this amount has already been utilized, and the remaining £1.5 billion will only be accessible upon confirming the in-principle agreement.
The consortium of creditors has committed to not selling Thames Water before 2030. They also plan to implement a stock market listing in the years following this period.
Rate Adjustments and Regulatory Compliance
According to the consortium, customer bills will not exceed previously agreed increases with Ofwat. An announcement regarding the outline deal may arrive shortly, possibly indicating Thames Water’s potential to remain solvent without entering a government-administered special administration regime.
This development is seen as a relief for the UK Treasury, keen to keep Thames Water’s debt off government accounts. However, regulatory sources caution that unresolved matters may delay the agreement past the mid-February target.
The Broader Regulatory Context
The impending negotiations coincide with significant changes in the UK water industry. Recently, officials announced plans to abolish Ofwat and establish a new regulatory framework. This new approach aims to supervise water infrastructure more effectively and enable struggling water companies to recover.
Thames Water’s restructuring is one of the most intricate corporate reconfigurations in Britain’s history. Required approvals will come from Ofwat, the Environment Agency, and the Drinking Water Inspectorate, with public consultations needed for modifications to the operating license.
Challenges Ahead
Increased scrutiny is expected concerning regulatory penalties and the financial terms of the agreement. London & Valley Water has affirmed its commitment to paying all outstanding fines owed by Thames Water.
The situation is highly dynamic, given recent scandals in the water sector, including outages experienced by South East Water, which led to calls for dismissal of its chief executive.
As negotiations continue, Thames Water faces heightened pressure to improve its services and environmental accountability while managing a substantial restructuring effort. The involvement of Mike McTighe, a seasoned corporate troubleshooter, highlights the urgency of stabilizing Thames Water’s operations effectively.
