Thames Water creditors seek talks with Burnham as nationalisation looms | Thames Water

The group of investors pursuing a rescue bid for Thames Water said they were willing to discuss greater public control but were also preparing for a potential multibillion-pound legal battle amid reports that Andy Burnham could temporarily nationalize the company.

London & Valley Water (L&VW), a consortium of 100 institutional investors that holds £17bn of the company’s £21bn debt, said it was open to government involvement with Thames Water but said this did not include public ownership in the struggling company.

Corporate troubleshooter Mike McTighe, who is leading the governance overhaul and forming the proposed new board for Britain’s biggest water company Thames, said the consortium wanted to work constructively with Burnham when she takes over as prime minister.

“We want to meet the new ministers as soon as possible to discuss how we can work together in the interests of customers, including increasing public control over the company’s operations,” he said. “We will work with Andy Burnham, his government and local authority leaders to rebuild confidence in Thames Water and the wider industry.”

The comments by McTighe, who is likely to take over as chairman of Thames Water if the consortium’s £10bn rescue deal is approved by the government, follow reports that Burnham plans to transfer the company into a special management regime (SAR), a form of temporary public ownership, after taking over as prime minister.

Last month Burnham said there needed to be “more public control” of Thames Water and told the Guardian this could mean nationalisation.

The SAR proposal would transfer the costs of running the company to the taxpayer, with Thames Water’s creditors claiming the bill could be £2bn.

An ally of Burnham told The Sunday Times: “If it’s going to cost the taxpayer £2bn to keep the company afloat then the taxpayer needs to get something in return, which means control so we can repair the company and secure the water supply for thousands of families and businesses.”

L&VW, which includes fund managers such as Apollo Global Management, Elliott Management, Farallon Capital Management and Silver Point Capital, also took action to strengthen its legal position in order to be prepared for the possibility of nationalization of the Thames.

The consortium has hired top litigation and dispute firm Pallas Partners to work alongside law firm Akin Gump, which is advising the consortium on the terms of its restructuring proposals.

“Creditors are considering all potential ways in which the situation with Thames Water could continue,” a person close to the consortium said. “They want and need to be prepared. No legal action is being taken at this time. This is purely precautionary.”

Earlier this month, Thames Water’s creditors were said to be still willing to press ahead with their bid for the debt-laden company, even if Burnham places the company under temporary nationalisation.

“The consortium is trying to pursue a solvent restructuring,” the person said. “This would avoid a taxpayer-funded administration process and help creditors recover as much as possible. He could bid along with others, but that would drag the whole thing out.”

The future of Thames, which serves 16 million customers in London and the Thames valley and is crushed by interest payments on debts accumulated since privatization, will be one of the most pressing issues on Burnham’s agenda when she enters Downing Street.

“We are ready and willing to begin the long process of recapitalizing Thames Water, restoring it to investment grade and returning it to investment grade,” McTighe said. “We urgently need the government’s involvement to start this process.”

McTighe is chairman of Openreach, BT Group’s infrastructure arm, and previously chaired the publisher of the Daily Telegraph.

Lenders had been trying to take ownership and put it out of administration after a failed attempt last year to sell the utility to US investment group KKR.

But creditors’ plans were thrown into doubt last month when environment minister Emma Reynolds sent a letter to regulator Ofwat expressing concerns about the terms of the deal.