Hanbury Strategy:

- A large group of senior creditors (Creditors) of Thames Water Utilities Limited (Thames Water) have submitted to Ofwat a £17 billion plan designed to fix the fundamentals, turn around Thames Water, and improve performance for customers and the environment once and for all.

- The proposal has been developed following an extensive due diligence process undertaken by Creditors and a significant team of industry specialists over several months. The Creditors’ proposal, which remains subject to further negotiation and refinement, would see £3 billion of equity and over £2 billion of debt funding committed from day one post completion, a complete loss for existing shareholders, and several billion of debt write-downs to restore financial resilience and improve services for the benefit of customers, employees and the taxpayer.

- The proposal would produce a balance sheet and credit metrics consistent with investment grade from day one post completion to establish a route to an investment grade credit rating as quickly as possible.

- Customer bills are not expected to rise further under the Creditors’ plan than under the Company’s Final Determination for the five-year period to 31 March 2030.

- Operational turnaround and enhanced governance are intended to reset the business and rebuild a new and resilient Thames Water that can deliver the high-quality service the public expects. The proposal seeks to deliver a transparent approach to corporate governance, in particular providing enhanced transparency to Ofwat and its nominated Independent Monitor for the duration of Thames Water’s turnaround.

- Creditors consider that their proposed new investment will deliver a strong foundation for the Company, laying the groundwork for a potential future public listing of Thames Water, and a focus on improving customer and environmental outcomes.

The Creditors have submitted to Ofwat a detailed long-term “Transformation and Turnaround Plan” that is intended to fix the root causes of Thames Water’s problems, rebuild customer trust and deliver improved environmental performance as quickly as possible whilst fixing the fundamentals of the business once and for all.

Following an exhaustive and rigorous 12-month equity raise process, the Creditors’ consider their plan to be the best route to recapitalising Thames Water and driving a turnaround that delivers significant and lasting benefits.

The proposed recapitalisation of Thames Water is expected to represent the largest financial loss suffered by investors on an infrastructure asset in British history.

Fixing the Fundamentals from Day One

Under the proposal, new funding would be committed from day one, post completion, with a view to ensuring that Thames Water is sufficiently capitalised through the current price control period AMP8 (2025 – 2030) and beyond and able to deliver, amongst other things, the huge and complex investment program Thames Water requires to improve its infrastructure. To fix the Company’s balance sheet and kick-start its transformation, the Creditors’ plan is expected to:

Deliver a £17 billion recapitalisation that puts Thames Water back on a sustainable financial footing to protect customers, employees and the taxpayer.
Commit over £5 billion of new funding (comprised of £3 billion of equity and over £2 billion of debt financing) to help drive a new business plan which focuses on delivering customers’ priorities and improving environmental outcomes.
See several billion pounds written off across the capital structure including all of the existing equity and a material write-down to the Class A debt.
Ensure significant deleveraging upon completion of the transaction to reduce gearing to below 60% and deliver a financially resilient capital structure which would be one of the lowest leverage levels in the sector.
Produce a balance sheet and credit metrics consistent with investment grade from day one post completion to establish a route to an investment grade credit rating as quickly as possible
Create a pathway to regain access to the debt capital markets, bringing down the cost of borrowing and enabling a return of Thames Water to the public markets with a public listing possible in the future.

Based on the proposal submitted by the Creditors, all the benefits outlined above are expected to be delivered without increasing customer bills above those contemplated by Ofwat’s Final Determination for the five-year period to 31 March 2030.

Building an Operational Engine to Deliver for Customers and the Environment

The Creditors’ turnaround plan seeks to fix the fundamentals of the Company to improve underlying asset health, prioritising public health and safety risks and focusing on delivering what matters most for customers. It is expected to:

Restore public trust with enhanced governance and leadership, and restore financial resilience, by re-establishing greater accountability and transparency alongside robust financial resilience with reduced leverage, robust liquidity and committed equity and debt.
Rebuild a strong foundation to improve Thames Water’s capital delivery capabilities and operational resilience, enabling Thames Water to deliver future capital investments at the best possible price for customers.
Deliver a Transformation and Turnaround Plan led by an experienced executive management team with a proven track record in both the infrastructure sector and the implementation of complex turnarounds to lay the groundwork for a potential public listing of Thames Water at a suitable point in the future.
Support economic growth, regional regeneration, and increased housing development through increased sewage and wastewater treatment capacity, accelerating the building of new strategic reservoirs, and the development of digital infrastructure required to power the future economy.

The Creditors’ plan is designed to allow £20.5 billion of strategically targeted operational expenditure over the next five years – mirroring Thames Water’s allowance for AMP8. This expenditure is intended to reduce pollution events and leakage, enhance power, cyber security and climate change resilience, and deliver improved digital customer service.

The operational transformation aims to deliver against customers’ priorities and improve environmental performance through:

A multi-AMP (10 – 15 year) programme of cleaning up rivers across London and the Thames Valley, including increased replacement and improvement of ageing assets and infrastructure.
Enhanced investment in cleaning and sewer lining to drive down the rate of pollutions and flooding incidents.
Increased investment in metering, mains replacement and leak detection to address broken pipes more efficiently and drive leakage reduction.
Prioritisation of investment in waste treatment capacity to enable the delivery of new housing developments and support economic growth.
Investment directed to focus on upgrades of high-risk sites where there is the highest customer and environmental impact, to de-risk critical asset issues and strengthen overall resilience.
Significant investment in digital solutions to substantially improve customer service and satisfaction.

Enhanced Governance and Accountability

A new Board of Directors is expected to be established consistent with Ofwat’s governance principles and the Wates Code.

Mike McTighe has been appointed by the Creditors as a Senior Adviser. He has extensive experience in business transformation, complex turnarounds and regulated assets. McTighe is working closely with the Creditors to identify the mix of skills and experience necessary to oversee an improved governance structure that drives an effective turnaround of the Company.

The new Board is expected to have the requisite experience and expertise needed to help transform the business, with experience spanning UK regulated water, delivery of large capital projects, business transformation, capital markets, economic regulation, and public policy.

A Supportive Regulatory Environment to Reset the Business and Launch the Turnaround

Alongside an anticipated investment of billions of pounds in new committed capital, the Creditors consider that regulatory support is required for a transformation and turnaround of this scale and complexity to succeed, so that asset health and performance can be improved to the levels that customers and the environment deserve.

The regulatory support requested has been calibrated based on the extensive due diligence exercise undertaken to reflect the Creditors’ views of what Thames Water can actually deliver with its current asset base. It includes the Creditors’ proposals for ambitious, but realistic, targets to be set based on achievable compliance and what Thames Water is currently able to physically deliver. The proposal includes a request for:

Totex reprioritisation to allow a focus on fixing the core business fundamentals, allowing investment to be reprioritised and re-phased to enable Creditors to focus on fixing the core fundamentals, customer priorities, and delivering tangible improvement in environmental performance as quickly as possible.
Re-basing incentives and performance targets to allow an ambitious compliance trajectory.
An enhanced aggregate sharing mechanism with an appropriate risk-return balance to reduce the inherent risks that Creditors anticipate Thames Water will face during a highly uncertain turnaround period and with the vast majority of any outperformance under that mechanism returned to customers.
Full transparency and alignment between owners, the public, and regulators.
A pragmatic approach to historic and future legal and regulatory compliance while Thames Water is undergoing its turnaround, reflecting realistic levels of compliance that the Company can achieve now and during delivery of the turnaround.
A clean slate that would see Thames Water and investors held to account to deliver an ambitious trajectory for the Company's return to compliance.

The Creditors’ proposal is intended to deliver a fundamental reset of Thames Water, allowing the Company to move forward from past failures, make it possible to chart a clear path to success, and rebuild a stronger culture within the Company based on high performance and customers’ priorities. The proposal is designed to rebuild public trust and ensure that the Company can deliver the extensive programme of work ahead as efficiently as possible for its customers. To mitigate against the risk of moral hazard, the proposed regulatory reset is intended to be a tailored package of support and commitments that would only be available to a water company that is in turnaround and the subject of a fundamental financial restructuring in which equity has been, or will be, materially impaired.

Without the regulatory support requested, the Creditors believe that customers will remain exposed to the risk of a continued “doom loop” of underperformance and non-compliance, and Thames Water’s rate of pollutions, asset health deterioration, and customer service levels are likely to worsen.

A Spokesman for the Creditors said:

“The Creditors’ turnaround plan is designed to fix the root causes of Thames Water’s problems, restore its balance sheet, rebuild customer trust, and provide the financial investment and operational capabilities to fix the fundamentals of the business once and for all.

“The plan seeks to break from the patterns of the past by delivering customers’ priorities and improved outcomes for the environment in the shortest possible timeframe.

“The Creditors include some of the largest investors in UK water companies, as well as UK and global infrastructure more broadly, with a proven track record of corporate turnarounds and long-term stewardship.

“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.”

-ENDS

Notes to Editors:

About the Creditor Group

The Creditors are a large and representative sub-group of a wider Creditor Group that holds over £13bn Class A and super senior debt and is made up of more than 100 financial institutions. The Creditors restricted themselves from trading in the Company’s debt to conduct detailed due diligence and build the Creditor’s proposal.
As committed lenders to Thames Water, the Creditors have a strong economic interest in driving and delivering a successful, market-led solution that delivers stability to the wider sector, avoiding the risk of a highly value-destructive SAR, which was not designed for, nor well suited to, a company in need of a significant operational turnaround.
The Creditors also hold substantial debt holdings in other regulated UK water companies and in the broader UK and global infrastructure sectors, representing a significant proportion of the debt capital markets in the sector.
Stabilising Thames Water is expected to boost confidence of debt capital markets and international investors participating in the sector.
New Investors to Provide the Stewardship and Expertise Required
The Creditors that have developed the Transformation and Turnaround Plan are made up of pension and insurance funds, asset managers, and investment funds with a strong track record of helping complex businesses grow through committed capital and long-term stewardship.
These investors have extensive experience in successfully delivering financial recapitalisations and operational turnarounds for companies facing financial distress, restructurings, and insolvency.
Deep-dive meetings with Ofwat have begun with the Creditors aiming to have a transaction and the terms of their proposal agreed upon in early July, with the implementation process expected to begin immediately thereafter.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250610867407/en/

Niamh Fogarty, Hanbury Strategy
niamh.fogarty@hanburystrategy.com
+44 07946 813843

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