Thames Water lenders demand reprieve on fines in £17bn rescue deal
Thames Water's most senior lenders have demanded a reprieve on historical fines as part of its £17bn rescue package to save the struggling utility giant.
A group of creditors including aggressive US fund Elliot are asking Ofwat for a 'regulatory reset' to avoid hundreds of millions of pounds in fines and penalties as part of proposals to secure the company's future.
A source close to the group said they were urging regulators 'not to reach back into history' and instead focus on Thames Water's turnaround efforts moving forward.
The attempt to avoid penalties comes after Thames was hit with a record £122.7m fine last month for sewage leaks and breaching dividend rules. Fitch currently estimates that the water sector will face £900m in fines over the next five years.
Private equity giant KKR last week abandoned its £4bn takeover bid for Thames, in part because of concerns about future fines. The decision has plunged the debt-laden business into a fresh crisis, amid concern it could run out of cash within months.
Creditors have now put forward plans to immediately inject £5bn worth of funding into Thames to help repair its balance sheet, including £3bn of direct investment and £2bn of debt expected to be raised by the group.
If the new proposals go ahead, several billion pounds of debt will also be written off by creditors, valuing the total package of support at £17bn. The group claims the debt write-offs will deliver the largest financial loss ever suffered on an infrastructure investment in the UK.
However, creditors are targeting a future stock market listing that will ensure a profitable exit. Plans put forward envision a 15-year turnaround effort that will include direct investment in wastewater, sewer capacity, storm overflows, metering and leak detection.
A spokesman for the creditors said: 'These investors have the funding and experience required to deliver a transformation of the company's performance which is intended to mark a departure from past failings, creating a 'new' Thames Water that works effectively alongside Government, regulators, and customers to deliver for the environment and economic growth.'
Sources close to the creditors said they were hoping to have their package approved by early autumn, with the hope of taking full control of Thames by the end of the year.
The proposed rescue will also tee up a potential clear-out of Thames Water's management, as the creditors seek to enlist the relevant experts to improve its fortunes. The future position of Chris Weston, chief executive, is uncertain.
An Ofwat spokesman said the regulator had 'been engaging regularly with Thames Water as it has progressed its process to raise additional equity'.
The watchdog added it had begun a review of the submission from the creditors and was focused on assessing if the plans were realistic and deliverable.
A Thames Water spokesman said: 'Our focus remains on a holistic and fundamental recapitalisation, delivering a market-led solution which includes targeting investment grade credit ratings and returning the company to a stable financial foundation.
'The Board will consider in the weeks ahead the full recapitalisation and turnaround plan submitted by our creditors. Constructive discussions with our many stakeholders continue.'
A government spokesman said: 'The company is stable, and government is carefully monitoring the situation. We expect the company to continue to meet its obligations to both customers and the environment.'
Thames Water has been embroiled in a row over bonuses paid to its most senior staff members despite its perilous finances. Last week, the Government announced new measures to ban six firms, including Thames Water, from handing bonus payments to their top executives after falling short of standards set by Ofwat.
The company confirmed to the Environment, Food and Rural Affairs (EFRA) Committee that 21 members of its senior management team had received 'retention payments' of 50pc of their base salary.
In a letter to the EFRA committee Sir Adrian Montague, the chairman of Thames, said the company had promised bonuses totalling £18.5m, to be paid between 30 April 2025 and June 2026.
Thames said the additional payments had been paused but said it would not recoup the money already been paid out.
Alistair Carmichael, the chair of the EFRA committee, said: 'As a committee, we are trying to seek clarity as to whether these payments fall within the remit of the Government's ban and will be recouped, given that they were not paid to the company's CEO or CFO and are termed by Thames Water as 'retention payments' rather than bonuses.'
Thames Water said retention payments were 'commonplace in these types of deals', adding: 'None of the retention payments have been funded by customers.'
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