Published by Global Banking and Finance Review
Posted on June 17, 2025
By Sarah Young and Paul Sandle
TWICKENHAM, England (Reuters) -Fifteen times a year, the sheer volume of waste water entering Thames Water's Mogden sewage works in southwest London overwhelms its 90-year-old concrete tanks, forcing the utility to pump excrement into the River Thames.
Hidden by woodland, the plant illustrates the crisis at Thames, which supplies water and sewage services to 16 million customers in southern England. Loaded with debt after being privatised in 1989, the company is struggling to survive, let alone get to grips with the crumbling facilities in its care.
U.S. private equity firm KKR this month walked away from a plan to inject 4 billion pounds ($5.4 billion) of equity, leaving Thames' fate in the hands of senior creditors now negotiating a rescue deal with water regulator Ofwat.
The group including investment-grade lenders and hedge funds has offered to invest 5 billion pounds of new equity and debt and write off around 20% of the value of their existing debt, in return for a reset of the environmental and investment regime.
Without a deal, the British government - already struggling with constrained public finances - may have to take control of a business that caused outrage by polluting waterways while paying dividends and bonuses to its previous owners and managers.
The prospect Thames might collapse has unnerved investors and risks pushing up the cost of borrowing needed to upgrade electricity grids, transport and other UK infrastructure.
But the rescue deal would bring its own costs, financial and political.
Creditors say turning the company around will require leniency on some of the 1.4 billion pounds in pollution fines and penalties Thames Water expects from regulator Ofwat and the Environment Agency in this five-year cycle.
"Time is running out," a senior creditor involved in the plan told Reuters, adding that Ofwat was now listening to their proposal after months of no engagement.
"We're asking for a little bit of movement and we're there."
The creditor, who spoke on condition of anonymity because talks are private, is one of more than 100 who hold more than 13 billion pounds ($17.7 billion) of Thames's 20 billion pounds of debt, and who are promising to invest in sites like Mogden.
Dave Chowings, a Mogden plant manager, set out the scale of the challenge to Reuters on a recent visit. Pointing at storm tanks the size of Olympic swimming pools, he said: "All that concrete is 90 years old. It needs rebuilding."
DOOM LOOP
In months of due diligence, KKR visited plants like Mogden to assess how much money was needed to bring them up to scratch.
Water industry consultant Martin Young said Ofwat faced a pivotal moment in finding a solution, after it was criticised for failing to prevent the pollution scandal.
"If they don't move, then we do run the risk of being stuck in this doom loop. That's a doom loop for Thames, but also you can extend that out to the wider industry," he said.
Ofwat said it had started a review of the senior creditors' submission, including their turnaround plans, approach to financial resilience and proposals for governance.
"Our focus is on assessing whether the plans are realistic, deliverable and will bring substantial benefits for customers and the environment," a spokesperson said.
The government pointed to a previous statement saying Thames was stable and it was carefully monitoring the situation.
POLITICALLY TOXIC
According to critics of water privatisation, the failings at Thames reflect decades of regulatory and political failure, with successive governments focused on keeping customer bills down rather than driving investment.
And giving Thames Water the special treatment the creditor group is asking for on regulation would be politically toxic.
Ash Smith from campaigning group Windrush Against Sewage Pollution said the terms being demanded by the creditors showed that nationalisation was the only answer.
"Customers have had enough of owners who base their business model on being able to flout the law," he said.
The 20% "haircut" proposed by the senior creditors has also enraged junior debt holders, who face being wiped out.
Thames Water's 2040 bond is currently bid at 68.99 pence on the pound in scarce trading, according to Tradeweb data.
Whoever takes over Thames will face a huge challenge.
Mogden, which serves more than 2 million people across west and north London, has struggled to cope with population growth and storms associated with climate change.
Thames has spent 100 million pounds at the site in five years and will spend the same amount over the next five.
But four of its storm pumps were made in the 1930s by the company that built the Titanic, and it is getting harder to find people who know how to maintain them.
"Historically, funding for our asset renewal has not been sufficient to offset the deterioration of our assets," Thames Water Chief Executive Chris Weston said in a letter to a committee of lawmakers on May 30.
While customers want cleaner rivers, they say they should not have to pay out for the mismanagement of the company.
"I believe water has been too cheap for too long but on the other hand I'm not prepared to pay for what we've already forked out for," said Thames Water customer Laura Reineke, 52, a charity worker.
($1 = 0.7362 pounds)
(Reporting by Sarah Young and Paul Sandle; Editing by Kate Holton and Catherine Evans)
