Thames Water has said it risks running out of cash by December, as the troubled utility giant scrambles to delay billions of pounds in debt repayments.
The company warned investors of the looming cliff-edge in an update on Friday morning, having previously said it had enough liquidity to continue operations until May.
The warning threatens to become a significant problem for Sir Keir Starmer, weeks ahead of what the Prime Minister has already warned will be a “painful” Budget in October.
Thames is at serious risk of being taken into the Government’s special administration regime (SAR), a process that would allow it to continue providing essential services whilst being in administration. The cost to the taxpayer of such an outcome has been estimated at £10bn over five years, although it is not clear how long Thames would remain in the SAR.
A source close to Thames’ creditors said they were hopeful that an agreement to extend the company’s “liquidity runway” could be reached, as they seek to avoid a “costly, disorganised SAR outcome”.
The utility previously said publicly that it had enough funds to see it through until May 2025. However, bosses have now clarified that this spring 2025 deadline is contingent on freeing up more emergency funds. Separately, creditors are seeking to renegotiate a series of loan agreements to extend the company’s liquidity beyond May.
If the company runs out of cash by December, it will then enter a “standstill”, which means the creditors can’t come after the company.
During this standstill, the company will have access to a £550m loan and a separate £380m facility.
A source close to the company confirmed on Thursday evening that Thames Water is in talks to “push back the loans as they fall due to extend our liquidity runway”.
The company laid bare the impact of these talks failing on Friday morning. It said: “As contingency planning, we have entered into discussions with our financial stakeholders to release cash reserves under our financing. This would require majority creditor consent.
“If consent were not forthcoming [...] available cash and cash equivalents would expire at the end of December 2024.”
The end of December is a little more than 14 weeks away, underlining the urgency of Thames’ debt crisis.
The timing of this cliff-edge coincides with Ofwat’s looming decision on how much the utility can increase bills by over the next five years, which is expected by January at the latest.
Ofwat’s determination will prove crucial as to whether the company can raise fresh funds or not. Investors have warned that Thames will be uninvestable unless it is allowed to charge customers more and pay out more to shareholders.
A failure to raise fresh investment would make nationalisation almost inevitable as Thames struggles under the weight of a £16bn debt pile.
The company’s fate now lies largely in the hands of the creditors, who must agree on whether to free up hundreds of millions of pounds to extend Thames’ cash runway beyond December.
In addition to these crisis talks with creditors, Chris Weston, Thames Water chief, is separately trying to raise £3.3bn of fresh equity to keep the company afloat.
Bankers at Rothschild are helping stitch together a list of possible investors and have been working with Thames to sound out infrastructure giants in recent weeks.
The company on Friday said it expects to launch the formal fundraising process in the coming weeks.
The Government has drawn up plans to take the company into the special administration regime (SAR) should it be necessary, a process that was used when energy provider Bulb collapsed in 2021.
Thames is Britain’s largest water company, serving 16m customers across London and the South East.
In its latest update, it said it had £1.15bn of cash available at the end of August, with a further £400m in further undrawn loan facilities.
A Thames water spokesman said: “We, together with our financial stakeholders, are considering options for the extension of our liquidity runway to enable time to complete a recapitalisation transaction.”
A government spokesman said:“ The Government is closely monitoring Thames Water’s situation and the company remains stable.”
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