Thames Water rescue in peril as government opposes ‘weak’ deal | Money News

Thames Water is again facing down the prospect of being placed in temporary public ownership after the government raised objections to a proposed £10bn rescue by its lenders.

It was confirmed overnight that the environment secretary Emma Reynolds had outlined a number of concerns to the industry regulator Ofwat ahead of a final determination on the creditors’ plan.

A spokesperson for the Department for Environment, Food & Rural Affairs (Defra) said: “Our priority is protecting customers and the environment”.

Ms Reynolds was due to explain her reasoning to MPs later on Tuesday.

Money latest: Worrying signal for retirement

She is understood to have described the terms as “weak” and is hoping for an improved offer to the regulator while accepting the possibility that a deal may not be possible.

Thames has made the case for the creditors group, London & Valley Water, to assume control of Britain’s biggest water utility after three years of uncertainty over its financial future.

The company, which has 16 million customers across South East England, has a total debt pile of £20bn and been struggling to meet its key performance targets including over sewage spills and water leaks for many years.

It has attracted record regulatory fines as a result, pushing it further towards a so-called special administration regime that would place it under temporary public ownership at a time when its infrastructure needs long overdue investment.

But the Thames creditors want leniency over performance from Ofwat in the short term in return for preventing a messy collapse of Thames that would see its debts appear on the Treasury’s books.

The Times newspaper, which first reported Ms Reynolds’ concerns, reported that the regulator was close to a deal that would have spared London & Valley performance penalties for four years in exchange for higher investment levels.

Their latest rescue offer amounted to £3.35bn in new equity and up to £6.55bn of new debt.

Sky News reported earlier this year that more than £13bn of existing value was expected to be written off under the terms of the lenders’ debt-for-equity offer. The vehicles involved include Assured Guaranty, Invesco, Elliott Management, Silver Point Capital and Farallon Capital Management.

Thames has argued that their plans are the only alternative to public ownership.

A spokesperson for ⁠Thames Water said: “We remain of the view that ​a market-led solution is the best way ​to secure
the long-term stability needed to continue ​improving performance and advancing our turnaround plan, for the benefit ⁠of customers, the environment and our stakeholders.”

Ofwat and London & Valley Water were yet to comment.