Ministers have lined up insolvency practitioners to organize for the potential collapse of Thames Water, Britain’s largest water utility.
Sky Information can completely reveal that Steve Reed, the atmosphere secretary, has signed off the appointment of FTI Consulting to advise on contingency plans for Thames Water to be positioned right into a Particular Administration regime (SAR).
Sources mentioned on Tuesday that the advisory position established FTI Consulting because the frontrunner to behave as the corporate’s administrator if it fails to safe a personal sector bailout – though approval of such an appointment can be determined in courtroom.
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Thames Water, its largest group of collectors and Ofwat, the business regulator, have been locked in talks for months a couple of deal that might see its lenders injecting about £5bn of latest capital and writing off roughly £12bn of worth throughout its capital construction.
The discussions are mentioned to be progressing constructively, though they seem to rely partially on the prospect of the corporate being granted forbearance on tons of of tens of millions of kilos of regulatory fines.
Responding to an enquiry from Sky Information on Tuesday, a authorities spokesperson mentioned: “The federal government will at all times act within the nationwide curiosity on these points.
“The corporate stays financially secure, however we have now stepped up our preparations and stand prepared for all eventualities, together with making use of for a Particular Administration Regime if that had been to turn into obligatory.”
Insiders confused that FTI Consulting’s engagement by the Division for the Atmosphere, Meals and Rural Affairs (DEFRA) didn’t sign that Thames Water was about to break down into insolvency proceedings.
A SAR would make sure that prospects would proceed to obtain water and sewage companies if Thames Water collapsed, whereas placing taxpayers on the hook for billions of kilos in bailout prices – a situation the chancellor, Rachel Reeves, is eager to keep away from at a time when the general public funds are already severely constrained.
The SAR course of can solely be instigated within the occasion that an organization turns into bancrupt, can not fulfil its statutory duties or breaches an enforcement order, in response to insiders.
Mr Reed has repeatedly confused the federal government’s need to keep away from taking Thames Water into short-term public possession, however that it was able to take care of “all eventualities”.
“Thames Water should meet its statutory and regulatory obligations to its prospects and to the environment–it is just proper that the corporate is topic to the identical penalties as some other water firm.
The corporate stays financially secure, however we have now stepped up our preparations and stand prepared for all eventualities,” he informed the Home of Commons in June.
Thames Water, which has about 16m prospects, serves a couple of quarter of the UK’s inhabitants.
It’s drowning beneath near £20bn of debt, and was beforehand owned by Macquarie, the Australian infrastructure and banking behemoth.
Its most up-to-date consortium of shareholders, which included the Universities Superannuation Scheme and an Abu Dhabi sovereign wealth fund, have written off the worth of their investments within the firm.
The federal government’s SAR course of has solely been examined as soon as earlier than, when the vitality retailer Bulb failed in 2021.
Bulb was finally bought to Octopus Vitality with the taxpayer funding used to save lots of and run the corporate since having been repaid.
Thames Water is racing to safe a rescue plan involving funds reminiscent of Elliott Administration and Silver Level Capital, with a deadline of late October to enchantment to the Competitors and Markets Authority in opposition to Ofwat’s remaining willpower on its subsequent five-year spending plan.
Ofwat has dominated that Thames Water can spend £20.5bn throughout the interval from 2026, with the corporate arguing that it requires an additional sum of roughly £4bn.
Mike McTighe, a veteran company troubleshooter who chairs BT Group’s Openreach division, has been parachuted in to work with the funds.
The corporate mentioned in its accounts final month that there was “materials uncertainty” over whether or not it may very well be solvently recapitalised.
Earlier this yr, Thames Water was fined a report £123m over sewage leaks and the fee of dividends, with Ofwat lambasting the corporate over its efficiency and governance.
In latest weeks, Thames Water has been engulfed in a row over the legitimacy of bonuses paid to chief govt Chris Weston and different bosses, even because it makes an attempt to safe its survival.
Underneath new legal guidelines, Thames Water is amongst half a dozen water firms which have been barred from paying bonuses this yr due to their poor environmental information.
The creditor group was successfully left as the only real bidder for Thames Water after the personal fairness agency KKR withdrew from the method, citing political and reputational dangers.
The Hong Kong-based investor CK Infrastructure Holdings (CKI), which already owns Northumbrian Water, has sought to re-engage in talks a couple of rescue deal however has gained little traction in doing so.
Information of FTI Consulting’s appointment additionally comes on the identical day as a “nationally important” water shortfall was declared throughout swathes of the nation.
Final week, Sky Information revealed that David Black, the Ofwat chief govt, was to step down following the publication of a government-commissioned overview which really helpful the regulator’s abolition.
He has been changed by Chris Walters, one other Ofwat govt, on an interim foundation.
