Bondholders of Thames Water have suddenly shown flexibility after 18 months of stalled negotiations, offering a golden share and enhanced supervisory structures to head off nationalisation. The move follows credible political threats of special administration from Labour, with losses for senior bondholders potentially reaching up to 60% according to Moody's.
Bondholders' sudden flexibility
The bondholders' new proposals include a golden share for the state, allowing ministers to veto slow capital expenditure plans, and supervisory structures that would give more influence to municipal authorities and mayors. These ideas echo the Cunliffe review of the water sector under Keir Starmer. The bondholders also promise material improvements to financial terms, responding to demands from former environment secretary Emma Reynolds.
The previous offer included a 30% haircut, £3.35bn of new equity, £3.25bn of fresh debt, and £700m for environmental penalties. With senior debt trading at about 62p in the pound, the haircut may need to rise to 40-50% to accelerate infrastructure spending. Moody's latest rating corresponds to an expected loss of 35-60% for senior bondholders.
Burnham's choices and risks
Andy Burnham, the new prime minister, has not clarified whether he favours full nationalisation or special administration. On the campaign trail, he said public ownership is 'what should be done' but left the method ambiguous. Both options risk prolonged legal battles with bondholders, who are already hiring lawyers. Special administration could reset Thames's balance sheet but take two years and limit government control, as the administrator answers to courts. Creditors could also bid in that process.
Burnham's spokesperson said on Tuesday: 'We’re prepared for all eventualities, including a special administration regime, if that were to become necessary.' This keeps options open, but the political pressure has forced creditors to move further than seemed likely weeks ago. The new PM now must choose what he really wants, as the situation cannot drag on much longer.
