Thames Water preferred bidder KKR pulls out of rescue deal

The US private equity group KKR has pulled out of a deal to inject fresh equity into Thames Water, leaving the troubled supplier’s future in doubt and increasing the prospects of a temporary nationalisation.

The UK’s biggest water supplier had picked KKR as its preferred partner, but the company has “indicated that it will not be in a position to proceed”, Thames Water said. MPs said the company is now in a “perilous position”.

The New York-based private equity group was expected to acquire a stake worth £4bn in the embattled water company, which is struggling under debts of nearly £20bn.

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Thames said that, after completion of due diligence, KKR and the senior creditors had prepared detailed plans, including a turnaround strategy that had been shared with the company.

KKR and a group of creditors, including Elliott Management and Silver Point Capital had until last Friday to submit their plans to fix Thames to Ofwat.

Thames is now racing to hammer out an alternative plan with the regulator, Ofwat, and other stakeholders to stabilise its finances.

Sir Adrian Montague, the company’s chair, said: “While today’s news is disappointing, we continue to believe that a sustainable recapitalisation of the company is in the best interests of all stakeholders and continue to work with our creditors and stakeholders to achieve that goal.

“The company will therefore progress discussions on the senior creditors’ plan with Ofwat and other stakeholders. The board would like to thank the senior creditors for their continuing support.”

KKR’s proposal involved slashing about £8bn of Thames Water’s debt, Bloomberg reported last month.

Thames Water, which serves 16 million customers in London and south-east England, needs to secure fresh funding for its operations by the end of June.

If Thames Water fails to secure fresh funds it could be placed into a special administration regime by the UK government, effectively a temporary nationalisation.

Some of Thames Water’s bond prices slumped to record lows on Tuesday morning. KKR’s withdrawal sent Thames’ 2040 bond down 4p in the pound to 69p, while its euro-denominated April 2027 bond dropped 2 euro cents to just under 68 cents.

The Liberal Democrat MP Charlie Maynard had intervened in an earlier court case to argue that Thames Water should have been put into special administration rather than pursuing the KKR plan. He said Thames Water’s financial state may have put off KKR.

“It’s not surprising given the appalling state of the company’s finances,” he said. “The sooner Ofwat asks for Thames Water to be put in a special administration regime, the better. That is the only way of writing down the company’s debt to a sustainable level.” He added: “This demonstrates the case I’ve been making that the current restructuring process is deeply flawed.”