UK approaches potential managers for Thames Water

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The UK government has approached consultants about taking on the role of special administrator in a sign that ministers are bracing themselves for the imminent renationalisation of Thames water.

Consultants including Teneo, Interpath and EY are among the potential candidates to run a so-called special administration regime, according to people familiar with the process. SAR is a temporary measure designed to keep services running, and to pay suppliers and staff, in the event of a corporate collapse.

“We are ready now, we can do one (SAR} now, if we need to,” said an official. -led, private-led solution found.

Thames Water is struggling under its £19bn debt pile and has warned it will run out of cash by March unless the High Court signs off on a controversial £3bn loan at a hearing in early February.

Another government official said there was “informal engagement” with some consultancies for a special administrator role but no formal interview process.

Steve Reed, the environment secretary, said in October that he “rejects nationalisation”.

Officials insist that bringing the company to SAR is not technically a nationalization even though it is a massive state intervention.

But plunging Thames Water into special administration could be inevitable if a court blocks a loan agreed to by its senior creditors, or if the company runs out of cash earlier than expected. The £3bn loan is controversial as it will carry an interest rate of 9.75 per cent as well as fees and incentives for the existing management of Thames Water.

The deal was challenged by a separate group of junior creditors to Thames Water – who proposed a cheaper deal – and environmental campaigners who argued that the better the company in special administration.

The loan will buy the company time to raise at least £3bn of equity in the same process. Companies including Castle Water, Covalis and CKI Infrastructure are among the investment groups lining to place potential bids for the utility.

Bidders and creditors are waiting to see if the company appeals to the Competition and Markets Authority over regulator Ofwat’s decision last month at the level where Water companies may increase the customer’s bill in the next five years. Thames Water has not yet made a decision on whether to appeal Ofwat’s decision to the CMA, according to people familiar with the matter.

Ofwat said so Thames allowed to raise fees by 35 per cent – well below the 59 per cent rise it is seeking – taking average fees from around £436 today to £588 between now and 2030.

The Department for Environment, Food and Rural Affairs, Thames Water and Ofwat did not respond to requests for comment.

EY, Teneo and Interpath declined to comment.

In an update to the market on Wednesday, the company’s chief restructuring officer, Julian Gething, said: “Our plan delivers for customers and stakeholders by unlocking up to £3bn of new of money and securing a total of £3.5bn of debt maturity extensions over the next two years and cash releases, so we can continue to invest the billions of pounds needed to develop the strength of our network.

“We believe this is the only viable solution to make the equity investment needed to provide stability and security in the longer term and not impact customer bills.”

The government’s choice of administrator can be complicated by potential conflicts of interest. Teneo is now an adviser to Thames Water and has received £5mn in fees since August 2023. It has also received at least £60mn from running the special administration of collapsed energy supplier Bulbaccording to the National Audit Office.

It also wrote a High Court report supporting the £3 billion loan to senior creditors, while Interpath wrote a separate report for junior creditors.

Sir Dieter Helm, professor of economic policy at the University of Oxford, argued that a SAR would enable Thames Water to focus on a change and deliver improvements, rather than negotiating the a creditors’ agreement.

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