Thames Water hit by £2bn bill for finance costs and advisers’ fees
Embattled UK utility faces mounting costs as government debates moving ahead with temporary nationalisation
Thames Water will have incurred almost £2bn in financing costs and advisory fees over the 18 months to the end of September, adding to concerns about the burden of keeping the UK’s largest water supplier in private hands.
The utility — which is fighting the threat of renationalisation under Prime Minister Andy Burnham’s Labour government — will have incurred £1.6bn in gross financing costs between April 2025 and the end of this month, according to its last annual report and projections provided to the FT.
The utility also had £235mn in exceptional expenses including advisory, legal and professional fees in the year to the end of March, with the projected cost for the following six months running to about £100mn.
The findings underscore the costs to the heavily indebted utility under its current ownership, with the issue of what to do with Thames likely to prove an early test for Burnham.
Thames is in effect in the hands of creditors including US hedge fund Elliott Management and private capital group Silver Point, after its previous owners walked away from the business in 2024 declaring it “uninvestable”.
Ministers must decide whether to allow the embattled utility to go ahead with an expensive private restructuring or place it into a Special Administration Regime (SAR) — a form of temporary renationalisation.
Under a SAR, an independent insolvency practitioner would ensure services keep running while the company’s massive debt stack and interest payments are frozen. This would allow cash from customer bills to be diverted straight into sewage and water infrastructure rather than servicing the debt.
Ian McNuff, a former adviser to private equity firm Star Capital and water campaigner who provided the projections based on Thames’s accounts, said the figures helped to show the true cost of avoiding government intervention, arguing that creditors have a vested interest in overstating the disruption of a SAR.
The government’s next move has been complicated by legal debates. Angela Eagle, the environment secretary, has previously said that because the utility is not yet “technically insolvent”, triggering an SAR remains legally complex.
Ewan McGaughey, professor of law at King’s College London, said that the state could intervene under the Water Industry Act 1991, citing breaches of statutory duties and neglect of infrastructure. “The government has solid legal grounds to take decisive action,” he said.
The cost of temporarily nationalising Thames under an SAR is disputed. Thames’s advisers had estimated that the process would cost the government about £4bn, while others have argued this is too high given the Treasury’s ability to recoup cash and divert interest payments.
Thames’s creditors, who have been in talks with Whitehall for more than a year over their formal takeover plan, are working up a revised proposal for regulator Ofwat.
The former secretary of state Emma Reynolds had expressed concerns over a previous offer that involved the creditors injecting £3.35bn of new equity and providing up to £6.55bn in new loan facilities to Thames, while facing a 30 per cent writedown on the value of their debt. Investors had also asked Ofwat to shield the company from certain regulatory penalties for sewage pollution and leakage over the next four years in exchange for a commitment to deliver £800mn to £1bn in asset improvements.
After approval by Ofwat, the agreement must undergo a three-month public consultation and receive final sign-off from the High Court.
Thames’s creditors, operating as London & Valley Water Consortium, have indicated they may be willing to offer an additional £2bn bridging loan to prevent the utility’s collapse if the deal is delayed. But they have added that they would need reassurance that the government remains committed to a “market solution”.
Thames Water, which receives all its revenues from customer bills, said: “We are working to secure a multibillion-pound recapitalisation in one of the most complex restructurings in UK history. The costs of this are not borne by our customers but by our investors.”
London & Valley Water Consortium said: “The costs of the restructuring will not impact customer bills. Creditors have stepped in to cover a significant revenue shortfall which has enabled Thames Water’s record capital investment programme to continue.”