Thames Water creditors hire litigators over £2bn nationalisation risk
A consortium holding £17bn of Thames Water's debt has retained litigation lawyers, signalling a potential multi-billion pound legal clash with the incoming government over plans to temporarily nationalise the utility.
London & Valley Water (L&VW), a consortium of 100 institutional investors holding £17bn of Thames Water’s £21bn debt, has retained Pallas Partners to prepare for a potential legal battle over the company's future. The move comes amid reports that Andy Burnham plans to place Britain’s biggest water company into a special administration regime (SAR) when he takes over as prime minister.
This form of temporary nationalisation would shift operational costs to the taxpayer, which creditors estimate at £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.
L&VW, which includes Apollo Global Management, Elliott Management, Farallon Capital Management and Silver Point Capital, is pushing a competing £10bn rescue deal. The consortium argues a solvent restructuring would avoid burdening taxpayers and allow creditors to maximise recoveries. “The consortium is trying to pursue a solvent restructuring,” said a person close to the consortium. “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.”
While no lawsuit has been filed, the hiring of Pallas Partners alongside existing counsel Akin Gump shows creditors are fortifying their position. “Creditors are assessing all potential routes that the situation regarding Thames Water may play out,” said the 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.”
A protracted legal confrontation would test the boundaries of state intervention in privately owned UK infrastructure. For investors holding utility debt across the sector, the outcome will clarify the level of political risk attached to rescuing failing monopolies burdened by legacy debt.
Mike McTighe, the corporate troubleshooter leading the consortium's governance overhaul, struck a conciliatory public tone despite the legal preparations. “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.
The consortium’s private recapitalisation plan faces significant regulatory headwinds regardless of its public posture. Environment secretary Emma Reynolds recently wrote to regulator Ofwat expressing concerns about the terms of the deal, casting doubt on its viability. McTighe, who is likely to become Thames Water’s chair if the rescue is approved, warned that delays carry their own costs. “We remain ready and willing to recapitalise Thames Water, return it to investment grade, and begin the long process of turning it around,” he said. “We urgently need government engagement to begin that process.”
