Thames Water's creditors are proposing a £749 million payment as part of a takeover deal, which includes offering £6.55 billion in new debt to gain formal control of the struggling utility. This move also involves a 25% debt write-off, seemingly in exchange for more lenient targets, as the company grapples with an approximate $20 billion debt burden and risks insolvency by November.
This creditor consortium, known as London & Valley Water (L&VW) and comprising 100 institutional investors holding £17 billion of Thames Water's debt, has put forward a rescue plan. They are suggesting a "golden share" for the British government to avoid nationalization and enhance public control and accountability. The proposed plan aims for environmental compliance, stricter oversight, and significant investment in water quality. They also plan to appoint new directors, including Liz Barber, former CEO of Yorkshire Water, and Clive Selley, former CEO of Openreach, with Mike McTighe, current chair of Openreach, slated to become the new chair if the rescue deal is approved.
The government, however, has expressed concerns. Environment Minister Emma Reynolds stated that the creditors' £10 billion rescue proposal, which includes injecting £3.35 billion and writing off £9.4 billion of debt, might not adequately protect consumers or the environment. She warned that nationalization is increasingly likely if the proposal doesn't improve. While Ofwat is still evaluating the plan, a source close to L&VW indicated they might pursue legal action to recover debts if the government takes control, potentially leading to a multi-billion-pound cost for the government under the Special Administration Regime (SAR). The government's SAR, a form of temporary public ownership, could cost taxpayers about $2 billion to sustain the utility for 18 months.
The creditors, including firms like Invesco, Elliott Management, and Silver Point Capital, have been trying to convince the government to back their rescue deal for months. They had initially proposed writing off about half of Thames Water's $27 billion debt and injecting £3.35 billion in new equity, in return for leniency on environmental fines. The government had previously rejected this deal, leading the creditors to work on improving their offer. Thames Water's financial results showed pre-tax profits of £226.4 million for the year to March 31, a significant improvement from the prior year's £1.65 billion loss, but debt still swelled to £19.77 billion from £17.73 billion.
This situation represents a significant stand-off between the creditors and the government, with the fate of Thames Water, which serves 16 million customers across London and the South East, hanging in the balance. The government's preference seems to be for a solution that secures public control and accountability, even if it means considering nationalization. Conversely, creditors are pushing for their rescue package, warning of legal repercussions and significant government costs if their plan is not accepted.
