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Thames Water’s creditors have offered to take a 25 per cent write-off on their debt and inject more than £5bn of new funds in return for more lenient environmental targets, as they seek approval to take control of Britain’s largest water company.
The senior creditors, which own the bulk of the company’s almost £20bn in bonds and include US private capital firm Apollo Global Management and hedge fund Elliott Management, also set out plans to eventually list the company on the stock market in proposals submitted to water regulator Ofwat.
The group of creditors said they would inject £3.15bn in equity and £2.25bn in new debt, on condition that Ofwat sets Thames Water lower targets for sewage spills and water leaks to reduce the risk of fines.
The creditors added that the deal would give them an at least 10 per cent shareholding in the utility.
Thames Water, which supplies water and sewage services to 16mn people in and around London, has been battling to avoid renationalisation for more than a year.
The utility has previously said that its ageing infrastructure is “a risk to public safety”, while its poor record on sewage spills has prompted a public outcry and millions of pounds in fines from Ofwat.
The creditors said on Wednesday that some Thames Water assets such as water treatment plants were vulnerable to “single points of failure” such as power blackouts.
As part of the turnaround, the creditors said that no dividends would be paid to shareholders and that they would not sell the business before March 2030.
Thames Water has said that the creditor group’s offer is the only credible one left after private equity firm KKR abandoned its bid, partly because it was concerned about government interference.
The government, which will need to sign off on the new plan, has said it favours a “market-led” solution. If the creditor plan does not go ahead, the company could become the first privately owned water company in England to be nationalised.
The Thames Water creditors are hoping to gain approval from Ofwat by October 22, the final deadline for companies to appeal to the Competition and Markets Authority for bill increases. Five water utilities have sought approval to increase bills, but Thames Water has delayed its request while it works through its own refinancing.
The creditors said they had not ruled out a CMA appeal over bill levels.
The company is already in effect in the hands of the senior creditor group, which has named itself the London & Valley consortium. The consortium has also already loaned Thames Water more than £3bn in rescue financing at an interest rate of 9.75 per cent. As part of that deal, senior managers, excluding chief executive Chris Weston, were offered multimillion pound retention payments.
Although the creditors have offered to take a 25 per cent write off on Thames Water’s near-£20bn debt, some of them bought the bonds at a bigger discount, meaning they would still profit even after the writedown.
The plan set out on Thursday would cut the company’s gearing — its debt-to-assets ratio — to 53 per cent and allow it to return to an investment grade rating in a process that could take 18 months. Thames Water’s gearing hit 84.4 per cent this year.