Thames Water Part 2, Sink or Swim?

Welcome to the 154th Pari Passu Newsletter, 

We’re super excited to bring you Part 2 of our Thames Water series, a comprehensive deep dive into one of Europe’s most consequential workouts ever! If you missed Part 1, start there. We set out the 1989 privatization, Ofwat’s model (RCV, WACC, ODIs and ring fencing), and the ownership journey from RWE to Macquarie’s whole business securitisation. That context shows how value extraction, regulatory limits, and underinvestment laid the ground for today’s crisis.

In Part 2, we get into the nuts and bolts of the ongoing restructuring. We dive deep into the company’s multi-layered capital structure, which reveals a key driver of distress only really found in the UK. From there, we present our narrative of the roller-coaster that Thames Water has been through since 2023: shareholders backing out, cash lock-ups, parent companies’ defaults, and increasing government and regulatory intervention.

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Recap of Part 1

Let’s recap Part 1 and the story so far. We began with the privatization of the entire water sector in England & Wales in 1989. We outlined three major themes that have and will continue to run through our story: (i) water and sewage service providers are typically natural monopolies, (ii) the absence of competition means incentives for shareholders are misaligned with customers’ and the environment’s interests, and (iii) the need for a regulator to act as a substitute for competition and to ensure public needs are met. 

We then learned about the UK’s water regulator, Ofwat. There we produced a mental model to understand what is otherwise a complex regulatory framework: (i) Ofwat sets price limits for customer bills, (ii) one of the most important factors in price setting is determining what constitutes fair or allowed returns (estimated WACC x Regulatory Capital Value (RCV), the asset base subject to regulation) (iii) Outcome Delivery Incentives and (iv) Ofwat’s ringfencing rules, which trap cash in the operating company if credit ratings fall below Baa2. We then covered the RWE ownership period from 2001 to 2006, where we saw debt loaded onto Thames, but in the parent companies above OpCo, and over £1bn of dividends extracted by the ultimate German parent. 

Next came Macquarie in late 2006, which sparked the most consequential period for Thames’ present day crisis. They first put in place a Whole Business Securitization (WBS), and we broke down the key terms of the Common Terms Agreement (CTA) which governed the structure, binding all creditors across different instruments under one unified set of rules in the WBS. We also saw the host of parent companies outside of the ring-fence: the Kemble Group.  By 2017, this complex corporate structure protected Thames’ credit ratings and allowed Macquarie to redistribute and load debt onto the WBS (£2bn to almost £11bn) and extract £1.2bn in dividends and interest payments, all while missing several performance targets. And so, we left off with Thames looking very shaky, its statutory Gearing Ratio (RCV/Net Debt) at 83% and its Post Maintenance Interest Cover Ratio (PMICR) at 1.7x. 

Macquarie exit 2017

In March 2017, Macquarie completed its exit from Thames Water, selling its remaining 26.3% stake in the ultimate parent, Kemble Water Holdings Limited (KWHL). The buyers were Borealis Infrastructure (OMERS) and Wren House (Kuwait Investment Authority), who joined other long-term pension and sovereign investors already on the register [3]. Structurally, as the deal was an equity sale at the Kemble level, Thames Water’s debt stack remained untouched. 

In contrast to Part I, we are going to delve even deeper into the financial information Thames was publishing. We will move away from using statutory Net Debt to ‘covenant basis’ Net Debt. Some debts, like shareholder loans and certain intercompany loans, are not included in how Net Debt is defined in the Common Terms Agreement (CTA). This will provide us with the most accurate information on Thames’ financial health assessed against its covenants. 

Below is a cap table for the WBS entities. Due to the refinance risk mitigation clauses in the CTA, Thames’ capital structure is complex and consists of several different types of debt instruments across various entities. So, to help you make sense of Thames’ financial position, we have consolidated its capital structures, included corporate structure charts with debt labeled, and pulled debt maturity profiles. Let’s go through WBS’s capital structure first. 

You may have noticed that when looking at the cap table that the RPI-linked loans and bonds, their ‘debt balance’ is often significantly higher than their face value. For example, £775mm Class A RPI Bonds issued by TWUF had a debt balance of £1,080mm. The debt balance is the outstanding principal due, and in Thames’ case, has been increasing without any additional borrowing. The reason for this is that a significant portion of WBS debt is inflation-linked.

Inflation-Linked Debt is where the principal and interest payments rise with consumer prices. The face value of the debt will track an inflation index, and the interest payments will rise accordingly as a fixed percentage of this increasing principal [4]. RPI stands for the Retail Price Index, which is a measure of price inflation that, unlike CPI, includes mortgage interest payments, housing-related costs, council taxes, etc [5]. It is the inflation measure used on most of Thames’ indexed bonds.

The obvious advantage for investors is that it ensures their income streams do not lose value over time. Should inflation rise, the principal and interest they are owed rise accordingly. But why are they popular for water companies? Well, customer bills are tied to inflation. Within a five-year Asset Management Plan (AMP) cycle (the period between the water regulator’s price reviews), water prices move with inflation after the price review is complete. This allows the water company to hedge against fluctuations in earnings due to inflation [2]. Combined with the fact that there is no need to compensate investors for the risk of future inflation spikes eating into their returns, index-linked debt was attractive for water companies like Thames [2]. 

However, it is not a perfect hedge. From 2020 onwards, Ofwat only allowed customer bills to rise annually by CPI + H (housing costs), which normally is lower than RPI [6] [7]. This means debt accretion from inflation will generally be higher than the customer bill increases. Thus, if there is a significant spread between CPI + H and RPI, then that is problematic for Thames [6].

So there’s another reason now why Thames has so much debt! Between Part 1 and Part 2 thus far, we have highlighted why WBS debt has been increasing, and we assessed its gearing ratios, interest coverage, and credit ratings. However, it is time to ask the most important question: when is all this debt falling due?

Immediately, you will see that in 2017, there is a massive maturity wall. This mostly consists of the Class B £550mm Series 8 Bond that is maturing in July 2017. This was shortly refinanced right after FY 2017 into a Class B £300mm 2023 Bond and a Class B £250mm 2027 Bond.

Other than this, we can see how most of the debt is bunched up in the 2020s. Despite the refinance risk covenant in the CTA (recall that additional debt issuance cannot cause net debt to exceed 20% of RCV in any 24-month period or 40% of RCV within any five-year AMP [1]), approximately £4.5bn of the £10.6bn WBS falls due in the next nine years. 

Finally, let’s have a look at the Group’s capital structure, including the Kemble companies

The group carried £11.4bn net debt, and over 93% of it was pushed down into the WBS structure. The holding companies added only a thin layer on top, leaving the WBS to shoulder virtually the entire burden. With net debt almost identical to gross and cash buffers negligible, the balance sheet was already stretched. 

Reaching a Boiling Point FY 2017 – FY 2023

Before we look at the numbers, in early 2018, Thames moved to close its Cayman Islands finance subsidiary (TWUCF) [11], which had become politically toxic even though those offshore entities produced no direct tax advantage [12] [13]. All bonds were refinanced and effectively transferred to TWUF. 

The 2020 Turnaround Plan

In 2020, Sarah Bentley was appointed as CEO, marking the launch of an eight-year turnaround plan, backed by an enlarged £11.5bn investment programme for AMP7 (the seventh AMP cycle since privatization, for the period 2020–25), around £2bn above Ofwat’s (the water regulator’s) baseline in its price calculations [16] [17]. While positioned as a reset to “fix the basics” (reduce leakage, stop sewage pollution, etc.), the strategy leaned heavily on additional borrowing, with little to no concrete deleveraging focus [18] [19].

This period also coincided with Ofwat’s Price Review 2019 (PR19), which is when the water regulator sets its price limits for the sector. In PR19, Ofwat cut allowed returns (as part of their calculations for price setting) to record lows [20], which meant Thames’ revenue held flat at £2.1bn to £2.2bn between FY 2020 – 23. At the same time, the pandemic and the war in Ukraine inflated costs: particularly, soaring prices for energy and chemical inputs for water treatment drove operating profit down to £273mm in FY 2023, its lowest since the 1990s [23]. Operational failings compounded the picture. Leakage rose to 630 million litres/day in 2023 (that’s 250 Olympic-sized swimming pools!), performance targets were missed across the board, and Ofwat levied penalties of £36mm in FY 2022 and £82mm in FY 2023, further eating into revenue [23] [24]. Against this backdrop, capex surged under Bentley’s plan from £1.14bn in FY 2020 to £1.56bn in FY 2023, but there was little on the ground to show for it [23]. 

Liquidity, Mounting Debt, and Inflation-Linked Accretion

One of the most noticeable points in Figure 6 is that Thames managed to increase its cash to over £1.8bn in FY 2023 from £420mm the previous year. Given the low profitability, how was this achieved? Alongside the controversial “equity” injection (we will explain later), Thames simultaneously raised over £5bn of new debt during the year, of which over £1.4bn was parked as cash [23]. In addition, the company expanded its revolving credit facilities from £1.8bn to £3.5bn, ensuring significant undrawn headroom (£3.1bn undrawn)[23]. Together, these steps lifted total liquidity to almost £5bn by year-end. But why was Thames increasing its liquidity so dramatically? Let’s take a closer look at the WBS debt.

By FY 2023, net WBS debt had risen to £14.7bn, about 50% higher than in 2017, while maturities bunched toward the next 10 years. Almost £7bn falls due by FY 2027, creating a refinancing cliff just as FCF fell to (£441mm) in 2023. With about £1.7bn maturing in FY 2024, Thames drew cash aggressively to meet near-term obligations.

A major driver was the inflation ratchet in index-linked bonds. About 58% of WBS debt is tied to RPI; when RPI surged into double digits after the pandemic, peaking above 14% in late 2022, balances grew even without new issuance [26] [27]. In FY 2023 alone, indexation added £1.1bn of debt. Because bills have moved with CPIH since 2020 (about 9.5% in late 2022), revenue lagged the RPI-driven accretion [28]. Coupled with a rapid capex ramp that outpaced operating cash, debt was exploding at the WBS level.

Thames paid no dividends to ultimate shareholders for six consecutive years (FY 2018 through FY 2023) [23]. But, as was the case in Part 1, TWUL was still paying around £50mm in dividends every year under new ownership to service the Kemble debt and interest payments, which relied on the OpCo dividends. Speaking of which, let's have a look at the Kemble debt stack.

Credit Downgrades, Ofwat gets stricter, and Shareholders Inject Equity(?)

Importantly, Ofwat made some significant changes to its ring-fencing rules for water companies in March 2023. 

Higher Minimum Credit Rating: Ofwat raised the minimum issuer credit rating threshold to Baa2 (with negative outlook) from Baa3. Therefore, any downgrade to Baa3 or below would automatically trigger a cash lock-up, preventing dividend distributions without Ofwat’s approval [29]. In FY 2023, the WBS had a credit rating of Baa2 (with a stable outlook); thus, Thames had very little headroom to operate in. 

Were a cash lock-up to be imposed, it would prevent Thames from paying interest on its Kemble debt, but also prevent it from repaying the fast-approaching £190mm Term Loan to KWFL that falls due in April 2024 (see Figure 9). Thus, the almost £5bn in liquidity in the WBS would become useless in servicing Kemble debt.

Dividend Policies: Additionally, Ofwat gained a new power, the ability to review and penalize TWUL’s dividend payments, even when credit ratings are above Baa3 and there is no cash lock-up. Where dividends from TWUL hamper the OpCo’s “investment needs and financial resilience over the longer term”, Ofwat can impose penalties and claw back the dividends via an adjustment in price control [54]. 

In Figure 10, you may have noticed that Shareholder loans also grew from £310mm (see Figure 4) to £1bn and moved up to KWHL from KWE. Two things happened just before FY 2023 ended [23]: 

1. The original £310mm loan at KWE capitalised as interest rolled up, reaching about £553mm by March 2023, and was shifted to KWHL.

2. In June 2022, the shareholders committed up to £500mm for the rest of AMP7 (2020-25), and in March 2023, KWHL issued about £515mm of 8% PIK convertible notes. These funds were moved down through KWE and KWFL before reaching the WBS. Thames announced this as an “equity” injection for TWUL, but really looks like a debt / hybrid instrument: interest is rolled up, conversion was optional, and the coupon was tax-deductible. Were the shareholders piling on more debt at the Kemble level, desperate for a return on their investment [40]? Regardless, almost £500mm in cash moved down to TWUL, bolstering its liquidity. However, it did not address the £190mm KWFL loan due in April 2024 which sits outside of the WBS, setting us up for a dramatic couple of years ahead…

Grab your Popcorn: The Crisis Begins (Jun - Dec 2023)

The start of Thames’s crisis was marked by CEO Sarah Bentley’s abrupt resignation in June 2023. This was only days after the leakage rate of the company was revealed to be at a five-year high, drawing intense public scrutiny [31]. This shake-up in the company’s leadership set off a set of alarm bells; of significance was that the UK government began consultations and drawing up the Water Special Administration Regime (WSAR), which would be introduced in January 2024 [32] [33]. We will break down this special insolvency/bankruptcy process later, but for now, note that it was a strong signal to the market that Thames was in deep trouble.

In July 2023, Thames rushed to obtain an equity support letter from its shareholders, who agreed to inject a further £750mm of new equity, with the initial £500mm due by March 2024 [34]. However, this agreement was non-binding and was subject to unspecified conditions at the time. 

Fast-forward to October 2023, these conditions were effectively revealed when Thames Water published its 2025 – 2030 business plan ahead of Price Review 2024 (PR24). PR24 sets the price level for AMP8 (the period lasting between 2025 – 2030). The business plan is Thames giving its view on what price level is necessary for it to run its business. Recall our Ofwat Primer in Part 1; when Ofwat decides the price level, it takes into account the following considerations:

• Totex (total expenditure, opex + capex): the efficient amount that Ofwat thinks the company should need to operate and invest.

• A fair return for investors on the asset base (RCV)

• Performance adjustments: increase or decrease the caps depending on specific performance targets (ODIs)

Thames’s business plan outlines, among other things, what it thinks is the appropriate totex and returns for investors for AMP8. In doing so, it produces an argument for Ofwat to increase price limits. Three headline points in the plan are of concern to us [35] [36]:

• Average Customer Bill Increases of 40%: During AMP7, the average household spent £436 on bills a year, which Thames wanted to increase to £610 a year during AMP8. As Thames wanted to invest £18.7bn in AMP8, £8bn more than it invested in AMP7, it argued that without such bill increases, it cannot meet its leakage reduction, pollution cuts, or network upgrades targets to overcome a £6.6bn ‘asset deficit’ (outdated infrastructure)

• Assumed 6.3% Returns on Capital: Thames argued that Ofwat’s methodology “does not produce financeable outcomes” when setting price limits for customer bills. In AMP7 (2020 - 2025), the regulator assumed a 2.9% WACC  and a 4.2% allowed return on equity. Thames argued this was unfeasible going forward: returns on investment-grade corporate bonds were 6.3% as of June 2023, making it almost irrational for an investor to take on the extra risk in equity for a 4.2% return. Therefore, Thames assumed a 4.3% return on capital and 5.6% return on equity in reaching its 40% price increase to make the company financeable.

• £2.5bn of Equity Injections needed: This was on top of the £750mm in the equity support letter. Citing Ofwat, Thames acknowledged that the regulator’s stance was that “shareholders must bear the costs of past underperformance”. Combined with gearing being 77%, the £18.7bn investment programme needed to be partly equity funded (the £2.5bn injection making up 13% of the programme), as opposed to being entirely financed by debt. This provided another argument for bill increases; in order for Thames to obtain equity investment for its investment programme, which Ofwat would’ve been encouraging, it needed customer bills to increase so shareholders would be comfortable injecting £2.5bn during AMP8.

The business plan also committed to no external dividends to shareholders in AMP8. However, the plan did not rule out dividends to service Kemble debt and interest payments, hence why you will still see TWUL still report dividends [35]. Thus, the business plan proposals were necessary to increase the company’s long-term value. All eyes were now on PR24 in Spring 2024 to see how Ofwat would respond to these demands.

However, before that, the £190mm facility due to KWFL was drawing closer, as it was due in April 2024. In October 2023, TWUL paid an internal dividend of £37.5mm up to KWFL to service its external interest payments, and Thames began discussions with lenders to extend the £190mm term loan, concluding that it would not be possible to repay it [37] [39]. The net finance costs for KWFL and TW(K)F in 2023 were (£70mm) on almost a £1.4bn debt pile between the two Kemble entities. 

Water Special Administration Regime (WSAR) Primer, Jan 2024

This is a good place to stop and outline what the WSAR is and how it works (spoiler: it is not nationalization!). Firstly, the UK has a bankruptcy process called Administration. Here, an insolvency practitioner (the ‘administrator’, akin to a bankruptcy trustee) is put in place to run the business for the benefit of creditors as a whole, with some enhanced powers. However, for sectors where services are too essential to be disrupted in an ordinary insolvency process, like energy, banking, and healthcare, the UK has Special Administration Regimes (SARs) [41]. As households must still get water, and sewage must still be treated, the water sector has a SAR, hence the WSAR! The WSAR had existed for some time, but it had never really been tested. However, with Thames’ severely deteriorating situation,  in January 2024, the UK government updated the WSAR toolkit to provide a backstop if Thames fails. Here’s the speedrun:

Under the WSAR, Ofwat or the Secretary of State can apply to court to appoint a ‘special administrator’ to take control of the business. There are two grounds on which a WSAR can be put in place [41]: 

1. Insolvency: Where the company runs out of cash and liquidity, or there is an enforcement/acceleration event.

2. Performance: Where there is a serious breach of the Water Industry Act 1991 or of its license conditions. For example, Moody’s credit rating falling below Baa3 is sufficient grounds.

Unlike in regular administrations, where administrators owe their duties to the creditors, in a WSAR, the special administrator owes their duties to the company’s customers first, and then to creditors second. In controlling the company and balancing their duties, there are only four options they may pursue:

a) Rescue the Company
b) Restructure the Company’s Debt to Rescue the Company
c) Transfer to Third-Party Purchaser
d) Hive-Down the Assets  

Option (a) is to rescue the company as a going concern, such that the special administrator works towards making the company trade as a viable business. Option (b) allows the special administrator to use corporate rescue tools like the Company Voluntary Arrangement (CVA), Part 26 Scheme of Arrangement, and the Part 26A Restructuring Plan to restructure the company’s debts to rescue it as well [42].

Options (a) and (b) are available only if WSAR is triggered on insolvency; if WSAR is used on performance grounds, the special administrator cannot rescue or restructure the company [41]. Option (c) is a sale of the business as a going concern to a third party [41]. Option (d) Hive Down moves the regulated TWUL assets and key contracts into a new subsidiary, leaves legacy debts and liabilities behind in the old entity, and then sells the new subsidiary’s shares free of those liabilities. This means existing lenders risk being left secured on an empty shell [41] [42]. Hive Down is a powerful backstop and would typically follow attempts at the other routes [41]. Across all options, water and wastewater services must continue, and cash can be redirected to investment rather than debt service to protect customers [41]

Finally, the special administrator can use government revenues to fund the company and grant it indemnities in pursuit of all options, (a) to (d). Public revenues, where necessary, could be used to sustain day-to-day operations or invest in it to make it more attractive for an eventual sale or to rescue the company outright [43]. To protect the taxpayer, government funding is given super priority over all other claims and expenses on the proceeds of a sale, effectively priming the existing capital structure [43].

All in all, you can imagine why the WSAR would be disastrous for existing creditors. A WSAR puts customers first, could strand liabilities through a hive-down, and allows the government to inject super-priority funding that primes the entire capital structure. Hence, even for the most senior creditors, a consensual workaround is most desirable. Let’s now return to the Thames narrative with the WSAR in mind.

Kemble Woes and Ofwat gets strict, March – July 2024

We start in March 2024, so we have another set of financial results. 

It’s crunch time (the £190mm facility at KWFL is due April 30), so let’s focus on the cash. In FY 2024, Thames generated £1,382mm from operations but spent a record £1,959mm on capex (1.4x operating cash flow!), leaving FCF deeply negative (£557mm). Other than the £37.5mm October 2023 dividend, two more dividends totalling £158.3mm were taken in March 2024 to settle group-relief amounts owed to the TWUL and to fund pension contributions to Thames’ pension schemes at TWL. With Net Cash Interest Expense at (£143mm), it meant that after finance costs, there was a cash outflow of (£916mm). 

You may have noticed that TWUL Net Debt rose by £1.4bn in FY 2024, the highest YoY increase so far. However, this time the Gearing Ratio jumped 4%, as opposed to declines in the last two years. This would imply that most of the increase in debt was not funding investments to grow RCV; we have a cash outflow of (£916mm) and a cash down by (£554mm) from FY 2023, which meant only £362mm of new borrowing was needed to bridge the gap. The remaining £1bn was actually the result of non-cash debt accretion: index-linked debt grew by around £270mm while rolled-up interest led to approximately £600mm, with the rest being FX & fair value adjust. Evidently, rolling-up interest payments showed Thames was desperate for breathing room.

Last, but certainly not least, Moody’s credit rating fell to Baa3 at FY 2024 end. This is the most significant development to take away, as Thames was now in breach of Ofwat’s issuer credit rating and a cash lock-up was going to be imposed after a three month grace period [47].  Upstreaming dividends to service Kemble debt would no longer be possible [47].

Shareholders pull the plug and Kemble goes under

Another domino fell at the end of March 2024, as Thames’ shareholders withheld the £500mm tranche in the non-binding equity support letter. Recall, the equity support letter proposed £750mm of equity support, with £500mm of cash being due in March 2024. Behind the scenes, Ofwat, Thames, and its Shareholders were privately discussing PR24 draft determinations which would be published later in July. The ‘draft determination’ is when Ofwat sets out its initial price limit and plans for AMP8. This gives an opportunity for water companies to negotiate with Ofwat ahead of the ‘final determination’ at year end.  However, here Thames’ shareholders, who were discussing the PR24 draft determinations with Ofwat ahead of them being published, argued that Ofwat’s proposed price limit made Thames uninvestable [47]. 

With the shareholders backing out, combined with the cash lock-up, the KWFL was unable to pay interest on its term loans. Thames’ only option was to extend the £190mm term loan due in April, but negotiations failed [47]. A cash lock-up meant rolling the Kemble debt would only delay the inevitable. Simultaneously, Ofwat was using its new powers to review the £37.5mm dividend paid in October 2023 and the £158.3mm paid in March 2024, which only hurt Thames’ case for an extension  [47].  Therefore, after missing an interest payment on the £190mm term loan, a cross-default was triggered across KWFL and TW(K)F [47].

KWFL held 100% of shares in TWL, the HoldCo above the WBS. The lenders opted not to enforce their collateral and take control of TWL, as it would place them under further regulatory obligations with limited access to distributions if Ofwat maintained the lock-up [47] [48]. Faced with this situation and the risk of being stranded in a WSAR hive-down, Kemble creditors agreed to an informal standstill and opted for negotiation rather than acceleration to preserve value [47] [48].

PR24 Draft Determinations

In July 2024, Ofwat released its PR24 draft determinations and it was here it became clear why the shareholders pulled out of the equity support letter in late March... But shortly before the draft was published, Thames updated its 2025 – 2030 business plan, increasing AMP8 totex from £18.7bn to £21.9bn,  and a customer bill increase to 44% instead of 40% [50]. 

Ofwat’s draft determinations did not support that plan: they approved only £16.9bn of spend for AMP8 and allowed bill increases of about 23% [49] [51]. Essentially, the company’s proposed spending was cut by roughly 23% while the bill hike was cut by 48%, signaling that any investment gap would require new funding rather than tariffs [49] [51]. The assumed returns underscored this point. Ofwat set a WACC of about 3.7% and an allowed return on equity of around 4.8%, compared to Thames’s requests of about 4.3% and 5.6%. With five-year government bonds returning around 4.5% at that time, a 3.7% WACC appeared uninvestable which helps explain why the £500mm tranche under the equity support letter was withheld [49] [51]. Ofwat stood firm, arguing that a higher WACC (thus higher prices) risks being unfair to consumers.

Credit Downgrade and WSAR eligibility

To end July on a very low note, Moody’s downgraded the WBS bonds from Baa3 to Ba2 [52]. While the regulator’s automatic cash lock-up is already being enforced, the downgrade to Ba2 is a serious enough breach of license conditions such that Thames Water could now be placed into the WSAR on performance grounds [52]. Once again, the government was pushing for a private market solution, hoping for the WSAR to be a last resort.

As of 31^st March 2024, Thames had £2.4bn of liquidity (cash and undrawn facilities), which Thames forecasted at the time to last until May 2025. However, it was later revealed that access to these facilities was limited, resulting in the cash runway only lasting till year-end. Figure 14 shows us that approximately £600mm was falling due in FY 2025, before a further £1.8bn+in FY 2026. 

Conclusion 

Thames is in a world of hurt. With no shareholder support, a cash lock-up on the business, and WBS's net debt over £17.4bn, attracting the much needed equity would be a very difficult task. One thing is for sure: if Thames was to attract new equity, something had to be done about the debt pile. The onus now moves onto the WBS creditors, who must make compromises to help Thames deleverage and attract new money. Or else, Thames risks falling into the WSAR, which could prove to be disastrous for the existing creditors. However, competing interests begin to emerge within the capital structure, and cooperation is not so straightforward.

As Thames Water becomes a “battleground for hedge funds”, the PR24 final determination is on its way and it could end the war before it has even begun [55]. All this, and so much more in Part 3 of our Thames Water series, and we can’t wait to show it to you on Friday!

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