London & Valley Water (L&VW), a consortium of 100 institutional investors that holds £17bn of Thames Water’s £21bn debt, has said it is open to government involvement but not to public ownership of the struggling utility. The group is also preparing for a potential multi-billion pound legal battle amid reports that incoming Prime Minister Andy Burnham could temporarily nationalise the company.
Consortium willing to discuss greater public control
Mike McTighe, the corporate troubleshooter leading the governance overhaul and building the new board proposed for Thames Water, said the consortium wanted to work constructively with Burnham. “We are keen to meet new ministers as soon as possible to discuss how we can work together in the best interests of customers, including by enhancing public control of the company’s operations,” he said. “We will work with Andy Burnham, his government and local authority leaders to rebuild confidence in Thames Water and the wider sector.”
McTighe is likely to take over as Thames Water’s chair if the consortium’s £10bn rescue deal is approved by the government. His comments follow reports that Burnham plans to transfer the company into a special administration regime (SAR), a form of temporary public ownership, after becoming prime minister.
Burnham’s stance on nationalisation
Burnham said last month that there should be “greater public control” of Thames Water and told the Guardian this could mean nationalisation. The SAR proposal would transfer the costs of running the company to the taxpayer, with Thames Water’s creditors claiming the bill could reach £2bn. “If it is going to cost the taxpayer £2bn to keep the company afloat then the taxpayer needs to receive something in return; that means control, so that we can fix the company and secure the water supply for thousands of families and businesses,” a Burnham ally told The Sunday Times.
Legal preparations by creditors
L&VW, which includes fund managers such as Apollo Global Management, Elliott Management, Farallon Capital Management and Silver Point Capital, has moved to strengthen its legal position. The consortium has hired top litigation firm Pallas Partners to work alongside Akin Gump, the law firm advising on restructuring proposals. “Creditors are assessing all potential routes that the situation regarding Thames Water may play out,” said one person close to the consortium. “They want, and need, to be ready. There is no legal action being taken at this point. This is purely a precautionary measure.”
Creditors still willing to pursue rescue bid
Earlier this month, Thames Water’s creditors were said to be still willing to pursue their bid for the debt-laden company, even if Burnham were to bring it into temporary nationalisation. “The consortium is trying to pursue a solvent restructuring,” said the person. “This would avoid a taxpayer funded administration process and help creditors recover as much as possible. It can bid alongside any others, but that prolongs everything.”
Urgent need for government engagement
The future of Thames Water, which serves 16 million customers in London and the Thames valley and is buckling under interest payments on debt since privatisation, will be one of the most pressing issues for Burnham. “We remain ready and willing to recapitalise Thames Water, return it to investment grade, and begin the long process of turning it around,” said McTighe. “We urgently need government engagement to begin that process.”
McTighe is chairman of Openreach, BT Group’s infrastructure arm, and previously chaired the Daily Telegraph’s publisher. The lenders have been trying to take ownership and bring the company out of administration after a failed attempt to sell to US investment group KKR last year. However, the creditors’ plans were thrown into doubt last month when Environment Secretary Emma Reynolds wrote to regulator Ofwat, voicing concerns about the deal’s terms.
