Debt-hit Thames Water avoids public ownership

UK utility Thames Water is moving closer to a £16 billion ($22 billion) rescue agreement with its lenders that would prevent the company from entering temporary public ownership, Sky News reported on Saturday.

According to the report, a group of creditors holding around £13 billion of Thames Water’s £20 billion total debt aims to reach an in-principle agreement with the company and regulator Ofwat by the middle of next month.

Thames Water, which supplies water to about 16 million customers, has been under intense scrutiny following a major environmental scandal involving sewage discharges. The company has been fined more than £100 million for pollution incidents, while its heavy debt load has pushed it to the brink of financial collapse.

Ofwat told Reuters it continues to engage with the London & Valley Water investor group and is reviewing its proposals to determine whether they would improve the utility’s operations and financial stability. Reuters said it could not independently verify the Sky News report, and Thames Water did not immediately respond to a request for comment.

London & Valley Water is a creditor consortium made up of 15 institutions, including Aberdeen Investments, Elliott Management, PIMCO and Silver Point Capital. The group has pledged to retain ownership of the struggling utility until 2030 under the proposed rescue plan.

Under the latest proposal, lenders would accept a haircut of up to 30% on Class A debt, an increase from the 25% reduction outlined in October, Sky News reported. More than £13 billion in existing value is expected to be written off when a final deal is presented to participating investors, which include Assured Guaranty, Invesco, Elliott Management, Silver Point Capital and Farallon Capital Management.

In return, creditors would receive a minimum 10% equity stake in the recapitalised company. An outline agreement could be reached as early as the week after next, with the terms then submitted for review by Downing Street.

Thames Water last year secured court approval for a £3 billion debt lifeline, narrowly avoiding collapse and a government-led rescue. In December, the company began preparing for court proceedings to advance a recapitalisation plan led by senior lenders, pending agreement with the government on final terms.