Thames Water has taken its biggest step yet away from the brink, signing a transaction support agreement with creditors across its capital structure, including holders of more than 60 per cent of its junior Class B debt.
The agreement, confirmed on Friday evening, commits both senior Class A lenders and junior creditors to a recapitalisation of the utility's holding companies, known in the jargon as RP2, through the London and Valley Water consortium. It opens the way for what the company calls the SPP Extension Transaction, designed to stretch the stable platform that has kept Britain's biggest water firm out of special administration beyond its current expiry in March 2027.
Bringing the juniors inside
The inclusion of Class B creditors is the significant development. Earlier rescue blueprints, built around a consortium of more than 100 institutions, risked foundering on resistance from junior lenders who stood to be wiped out. With more than three fifths of that class now signed up, the consortium believes it has the numbers to force the plan through even if a rump holds out.
The company, which serves some 16 million customers across London and the Thames Valley, has been kept alive by emergency loans from its creditors while ministers and the regulator Ofwat weigh its future. Under the emerging deal, a substantial slice of the group's borrowings would be written off in return for ownership of the business.
The Deal at a Glance
- Thames Water has signed a transaction support agreement with Class A and Class B creditors.
- Holders of more than 60 per cent of junior Class B debt are on board.
- The recapitalisation would run through the London and Valley Water consortium.
- The stable platform keeping the company out of special administration expires in March 2027.
- Ofwat has separately ordered 107 million pounds back to customers across the industry for missed targets.
The nationalisation shadow
The talks are proceeding under the explicit threat of state seizure. Reports this week that the Treasury has refreshed its contingency planning for special administration, and that a downgrade of the company's credit rating could add around 40 pounds a year to customer bills, have concentrated minds on both sides of the table. Ministers insist that taking Thames into public hands remains a last resort, a line repeated even as Mark Carney, the Canadian prime minister, publicly warned London that expropriation without compensation would chill the foreign investment Britain depends upon.
A rebate, and a reminder
The rescue manoeuvres landed in the same week as a dose of regulatory reality. Ofwat confirmed that 107 million pounds is being returned to customers across England and Wales through lower bills after companies missed performance targets, with Thames customers due around 7 pounds off and Yorkshire Water customers some 27 pounds. A hosepipe ban remains in force across much of the Thames region despite the autumn rain, a reminder that the company's problems are measured in leaking pipes as much as in loan agreements.
For the 16 million households who turn on the tap each morning, the alphabet of Class A debt, Class B debt and SPP extensions boils down to a simpler question: whether the bills keep rising and the water keeps running. Friday's agreement suggests the creditors, at least, now believe both can be true.