Thames Water creditors near restructuring deal to ease takeover challenge

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Thames Water restructuring deal

Highlights

Class A creditors, including Silver Point Capital and Elliott Management, are revising takeover terms to offer junior bondholders equity and fees, avoiding a potential legal challenge.
Thames Water plans to increase its senior creditor loan facility by £2.4 billion to £5.4 billion, providing liquidity through autumn 2027 amid nearly 10 percent interest costs.
The creditor consortium, holding about £17 billion in Thames Water debt, seeks Ofwat penalty waivers until March 2030 in return for a one-off £800 million payment and may list shares by 2030.

Revised takeover terms for junior creditors

As first reported by the Financial Times, the group of class A creditors, including Silver Point Capital and Elliott Management, is discussing granting lower-ranking bondholders a slice of Thames Water's equity and other fees if its takeover plan succeeds. The proposed agreement would revise earlier restructuring terms under which class B creditors were expected to be wiped out completely, a position that risked triggering a fresh legal challenge.

The senior creditors have effectively controlled Thames Water since shareholders stepped away from the debt-laden group in 2024. They have been negotiating for more than 18 months with regulator Ofwat to take formal ownership of the business and avoid state control.

Under previous terms, class A creditors would accept a 30 percent writedown on their existing debt, alongside a full write-off of class B debt and any subordinated debt or equity held by current shareholders. Junior bondholders, many of whom bought the riskiest bonds at steep discounts, could now receive equity in a restructuring that recovers a single-digit percentage of their debt, as well as the right to join a new equity injection and receive additional fees.

Funding needs and pressure on the utility

Thames Water said on Thursday that it intends to increase its existing £3 billion loan facility from senior creditors by £2.4 billion to £5.4 billion. The company said the enlarged facility would provide enough liquidity to carry it through to autumn 2027.

The utility is being supported by an expensive £3 billion loan carrying an interest rate of nearly 10 percent, and it still needs to raise new debt to stay afloat. Class B creditors unsuccessfully tried last year to block that loan, pursuing their challenge to the Court of Appeal in London.

The senior creditor group is preparing a new restructuring proposal after previously pledging to inject £3.35 billion of new equity and up to £6.55 billion of fresh debt. It is also asking Ofwat to waive certain penalties until March 2030 in exchange for a one-off £800 million payment to the business.

The creditors, operating as London & Valley Water Consortium and representing holders of about £17 billion of Thames Water debt, are planning a stock market listing as early as 2030. They have also indicated they may provide an additional £2.4 billion bridging loan if talks with Ofwat are delayed, but say they need reassurance that the government remains committed to a market-based solution.

Earlier this year, Thames Water's lenders said they would offer a golden share to the UK government as part of an improved bid to take over the country's largest water and sewerage company, in an effort to avoid nationalisation under Prime Minister Andy Burnham. It remains unclear whether that would include a financial stake or simply give the government greater influence over governance.

According to Thames Water's latest annual report and projections shared with the Financial Times, the company will have incurred almost £2 billion in financing costs and advisory fees over the 18 months to the end of September. Thames Water and a representative for the senior creditors declined to comment.

Our earlier coverage looked at Chancellor John Healey’s commitment to sticking with deficit-reduction plans ahead of the October 28 Budget, alongside fresh data showing UK GDP grew 0.1% in August. We also outlined the political debate around how to balance fiscal discipline with measures to support growth, as the government faces ongoing pressure on households and businesses.

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