Creditor group aims to head off competition to acquire Thames

With news that other bidders are waiting in the wings if Thames Water enters the Special Administration Regime (SAR), the A creditor group is stepping up to improve its offer for the utility.

The group, which includes Elliott Management and Silver Point Capital, has set up a company, London & Valley Water, to demonstrate its commitment. The group said it is developing a “major new plan to invest, upgrade and turn around Thames Water’s operations”. It intends to submit this to Ofwat early next week. The revised plan may include £1bn of additional funding, including more debt to equity swaps than previously offered and additional equity.

In recent weeks Thames has agreed with Ofwat a phased payment of £104.5m in fines from the wastewater investigation, and £18.2m in relation to dividend payments. This more concessionary timetable may have provided a fresh incentive to the creditor group to offer more for Thames. It seems that they recognise that Ofwat is not going to agree the to significant waivers of up to £1bn of potential penalties that Thames is likely to incur over AMP8 as originally demanded.

If other prospective buyers of Thames, such as CKI, have indicated they would not ask for such extensive special pleading, the Thames’ creditors need to offer more concessions to remain competitive. They now want to see more “realistic” targets for key outputs such as reduced sewage spills and fewer pollution incidents from Ofwat.

Thames, in its Competition and Markets Authority (CMA) submission, considers that its final determination for 2025-2030 has a £2bn shortfall in enhancement expenditure relative to its request, much of which is for improvement in sewage treatment and phosphorus removal. Any acceptable offer from Ofwat will need to recognise the evidence that has been already submitted to the CMA.

In terms of a credible management for Thames, Mike McTighe is continuing to advise the creditors and is likely to be appointed chair of the utility’s board and tasked with bringing in fresh senior management.