Thames Water creditors prepare for legal fight as nationalisation seems likely

A group of investors who want to help Thames Water has said they are open to discussing more public involvement in the company. However, they are also preparing for a potential legal fight that could cost billions of pounds. This comes amid reports that the new prime minister, Andy Burnham, might take the company into temporary public ownership.

The investors' group, known as London & Valley Water (L&VW), represents 100 financial organisations that own £17bn of the company’s £21bn debt. They have stated that they are willing to work with the government on Thames Water, but this does not mean they agree with putting the struggling company under public ownership.

Mike McTighe, who is leading the planned changes and the new board for Thames Water, Britain’s largest water company, said the investor group wants to work cooperatively with Burnham when he becomes prime minister. He mentioned that they are eager to meet with government officials soon to discuss how they can cooperate for the benefit of customers, which includes increasing public oversight of the company’s activities.

McTighe, who is expected to become the chairman of Thames Water if the investor group’s £10bn rescue plan is approved by the government, made these comments following reports that Burnham intends to place the company under a special administration regime (SAR). This is a type of temporary public ownership that would take effect after Burnham takes office.

Last month, Burnham stated that there should be more public control over Thames Water and suggested that nationalisation could be a possibility. If the SAR plan goes ahead, the cost of running the company would fall on taxpayers. The creditors of Thames Water estimate this could cost around £2bn.

A source close to Burnham indicated that if the taxpayer has to spend £2bn to keep the company running, then the taxpayer should gain control to fix the company and ensure water supply for many families and businesses. The L&VW group, which includes large investment firms, has also taken steps to strengthen its legal standing in case Thames Water is nationalised.

The consortium has hired a well-known law firm, Pallas Partners, to assist Akin Gump, the firm already advising them on their financial restructuring plans. A person connected to the consortium stated that the creditors are exploring all possible outcomes for the Thames Water situation and need to be ready. They emphasized that no legal action has started yet and this is just a precaution.

Earlier this month, it was reported that Thames Water’s creditors were still ready to continue with their plan to take over the company, even if Burnham were to bring it under temporary nationalisation. The consortium aims for a restructuring that keeps the company financially healthy, avoiding a taxpayer-funded administration process and helping creditors recover their money. However, their plans were put in doubt last month when the environment secretary, Emma Reynolds, expressed concerns to the regulator, Ofwat, about the terms of the proposed deal.