It’s sink or swim for Thames Water’s last ditch restructuring proposal as the UK’s largest water utility attempts once again to avoid special administration. Thames Water’s senior creditor group has put forward a comprehensive restructuring proposal to secure the company’s long term survival after the approval of its restructuring plan in February of this year. The group has offered a £5.4bn package comprising £3.15bn in equity and £2.25bn in new debt, alongside a 25% write-down on nearly £20bn of existing liabilities. The plan aims to reduce Thames Water’s gearing from 84.4% to 53%, which would be the lowest in the industry. If successful, the restructuring would also restore its investment-grade status within 18 months and suspend shareholder dividends until 2030. These measures are designed to stabilise the business and reassure financial stakeholders, while granting Thames Water access to use debt markets more cheaply in future. 

However, the latest proposal, as ever, hinges on regulatory approval. Creditors have requested more lenient environmental targets, including around sewage spills and leakage, to reduce the risk of fines. If agreed, the regulator risks undermining public trust and its own credibility, especially given Thames Water’s poor environmental track record. With many other financially distressed water companies lining up to request price increases, Ofwat will no doubt be concerned about opening the floodgates.

If the restructuring is not approved, Thames Water looks likely to be forced into special administration (SAR), an insolvency process which would effectively put Thames Water into public ownership in the short term, setting an unpopular precedent for future interventions in the utility sector. A SAR would likely involve a comprehensive operational overhaul, potentially at the expense of existing financial stakeholders. Special administration prioritises continuity of service over creditor recovery, with administrators appointed by the government to run the company in the public interest. For creditors and customers the special administration regime presents significant issues: loss of control, uncertain recoveries, taxpayer cost burden and a process shaped by political rather than commercial imperatives.

In contrast, the creditor-led plan offers a structured, market-based solution aligned with government preferences. It would prevent public sector involvement, inject fresh capital, and set a long-term recovery plan. If executed effectively, this restructuring could restore Thames Water’s financial and operational stability. However, at the end of a marathon process to seek to secure the survival of Thames Water, does the regulator have the appetite to entertain another series of requested concessions? And if so, what would that mean for the numerous other water companies in financial difficulty? Time is short; the deadline for Ofwat’s approval is approaching in three short weeks. Can one final life raft secure the long-term viability of Thames Water?