Thames Water given special administration warning by minister
The government has given the strongest indication yet that it is preparing to put Thames Water into administration.
Answering questions in the Commons, Steve Reed the environment secretary, was asked to comment on backbench unease that a consortium plotting a takeover of Thames Water is lobbying Ofwat, the regulator, to ease up on the fines and penalties it is levying against the company for past misdemeanours and ongoing poor performance.
In response Reed told MPs: 'Thames Water must meet its statutory and regulatory obligations to their customers and to the environment. It is only right that the company is subject to the same consequences as any other water company.'
He continued: 'The company remains financially stable but we've stepped up our preparations and stand ready for all eventualities, as I've said before, including [a] special administration regime if that were to become necessary.'
A special administration regime is the option of last resort for the troubled company and would involve the appointment of professional accountants and be likely to wipe out all creditors in an attempt to refinance the business.
A consortium of creditors of Thames Water who are already propping up the £19.25 billion in-debt London and Thames Valley supplier, have proposed a £5 billion refinancing over and above £3 billion of bridging loans that are currently keeping the company in business.
However, those creditors have made it plain that their proposals can work only if Ofwat is prepared to offer a 'recalibration' of Thames Water's five-year funding settlement and performance targets.
As the settlement currently stands, which demands reductions in environmentally-damaging pollution incidents and wasteful mains leakage plus other metrics, Thames could face up to £1 billion of fines and penalties for not hitting the targets in the coming years.
The creditors plotting the takeover include major UK institutions such as Aberdeen, Invesco and M&G, large international finance houses such as BlackRock and Apollo, as well as distressed-debt dealers such as Elliott and Silver Point Capital.
They have stepped in after the infrastructure investment arm of KKR, the American private equity house, walked away last month from a £4 billion recapitalisation plan.
A spokesman for the creditors backing the takeover said: 'Broad regulatory support is needed to unlock a market-led solution for Thames Water that will secure billions of pounds in fresh investment for its ageing network.
'This investor group is committed to working with the government and regulators to agree a pragmatic plan that recognises what Thames Water can realistically deliver and they expect to be held accountable for an ambitious trajectory for the company's return to compliance.
'More than £10 billion would be written-off to get the company back to investment grade, expected to be the largest financial loss on an infrastructure asset in British history.'
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