Following the collapse of a potential deal by investment group KKR to buy Thames Water, a series of protracted negotiations between the company’s senior creditors, regulator Ofwat and the government have been ongoing to try and organise a rescue deal for the company.
The most recent version of the deal, as reported by The Guardian, involves nearly £10bn of investment, £3.35bn of which is in cash and another £6.65bn in long-term debt secured against the creditors to allow for favourable interest rates.
Some concessions in this deal have been made to try to get an agreement with Ofwat, but there are still a lot of questions which need to be answered and likely further bargaining either by the regulators or the creditors in the London & Valley Water consortium.
Here are the biggest questions that need to be answered, in order to get a picture as to how any potential rescue deal will help or hurt business water customers.
Should Thames Water Be Allowed To Bypass Existing Water Pollution Rules?
In 2025, Thames Water received the largest fine Ofwat has ever given to a water company in history, following persistent breaches of its wastewater permits.
This fine and the risk of further penalties have been a constant bone of contention for L&VW, which has claimed that the risk of further penalties is scaring away investment, as any money invested is perceived as paying off fines rather than investing in future infrastructure.
According to the BBC, one of the reasons why KKR pulled out of the deal to rescue Thames Water was due to “regulatory risk”.
One concession to the rescue plan is that all existing fines would be paid in full, and an upfront payment would be made to cover expected underperformance as part of a bespoke turnaround regime.
At present, the publicly stated offer is described as “significant”, but without any concrete statements to explain how much money and how it will be ringfenced, there is little trust in what is an undefined target.
What Are The Minimum Expectations And Performance Targets Thames Water Would Have to Follow?
Another related question that has not been fully addressed is what the new expectations will be and how diluted they will be from the targets that L&VW have claimed are too ambitious, particularly given that water rates continue to go up.
There is no clarity with regard to targeted investments or priorities for spending, what the “route to full compliance” would look like, nor what “clear accountability” would entail. Without these elements, there are concerns about what customers already dealing with chronic underperformance will have to continue to deal with.
How Will Customers Benefit From A Future Sale Of Thames Water?
Another promise that has been made is that customers would receive a share of the proceeds of any sale of Thames Water once the rescue plan concludes and L&VW have the authority to sell their stakes.
However, the “agreed level” has not, ironically enough, been agreed to at present, and so there are concerns that customers will receive a nominal sum whilst late investors make significant profits with relatively minimal investment both into Thames Water’s stock and Thames Water’s infrastructure.
Many of the leading parts of L&VW, such as hedge fund Elliott Management, bought their way into Thames Water ownership by buying junk debt for far less than its nominal value. In some cases, it is as little as 60p in the pound.
Given that water bills are still significantly increasing, there are concerns that the exact same problems caused by Macquarie and other investors can happen again following the end of the restrictions on Thames Water, with the customer once again coming out worse.
Would This Benefit Water Customers More Than A Thames Water Special Administration Regime?
The main leverage this deal has is that it avoids the only other potential outcome, barring some kind of last-minute miracle deal; if Thames Water runs out of money without a rescue plan in place, it enters a special administration regime.
This has been characterised as “nationalisation”, although it differs greatly from true public ownership. An SAR would lead to either Ofwat or the relevant Secretary of State appointing a specialist administration firm to manage the business to ensure that water kept flowing.
The system has only been tested once with Bulb Energy, where it acted as a means for a more organised transition of customers to other providers and ultimately made money for the government when the sale to Octopus Energy was completed.
Exactly how an SAR would look in the water sector has not been truly tested, and the government has tried to avoid finding out at all costs. However, if key questions are not answered or the answers are found wanting, they may find out that answer sooner rather than later.
