The UK government has approached consultancies for a special administrator role, a sign that ministers are preparing for the upcoming renationalization of Thames Water.
Consulting firms including Teneo, Interpath and EY are potential candidates to run the so-called special administration regime, according to people familiar with the matter. The SAR is a temporary measure designed to keep services running, suppliers and staff on payroll if a company collapses.
"We are ready now and can take action today if necessary," an official said. "By the way, preparing for the special administrative region is also the most important thing we as a government can do to ensure that another market can be achieved. Powerful Leverage ” found privately led solutions. "
Thames Water is mired in debt of £19bn and has warned it will run out of money in March unless a controversial £3bn loan is signed off by the High Court at a hearing in early February. All cash.
Another administration official said there had been "informal contacts" with certain consulting firms for special management positions, but there was no formal interview process.
Environment Secretary Steve Reed said in October that he had "ruled out nationalization".
Officials insist that although it is a massive state intervention, bringing the company into the zone does not technically constitute nationalization.
But Thames Water's fall into special administration may be inevitable if a court blocks a loan deal with its senior creditors or the company runs out of cash earlier than expected. The £3bn loan is controversial because it carries an interest rate of 9.75% and also includes fees and incentives for existing Thames Water management.
The agreement is being challenged by another group of Thames Water's junior creditors - who have proposed a cheaper deal - and by environmentalists who believe the company would be better off under special administration.
The loan will buy the company time while raising at least £3bn of equity. Investment groups including Castle Water, Covalis and CK Infrastructure are lining up to bid for the utility.
Bidders and creditors are waiting to see whether the company appeals to the Competition and Markets Authority against regulator Ofwat's decision last month that water companies can increase levels of customer bills over the next five years. Thames Water has yet to decide whether to appeal Ofwat's decision to the CMA, according to people familiar with the matter.
Ofwat said Thames would be allowed to raise bills by 35%, well below the 59% rise it was seeking, with average bills rising to £588 between now and 2030 from around £436 now.
The Department for Environment, Food and Rural Affairs, Thames Water and Ofwat did not respond to requests for comment.
EY, Teneo and Interpath declined to comment.
In an update to the market on Wednesday, the company's chief restructuring officer Julian Geting said: "Our plans provide customers and stakeholders with the opportunity to unlock up to £3 billion of new funding and secure debt maturity extensions totaling £3.5 billion. Deliver services over the next two years and free up cash so we can continue to invest the billions of pounds needed to improve the resilience of our network.
"We believe this is the only implementable solution that can achieve the required equity investment to provide long-term stability and certainty without impacting customer bills."
The government's selection of a manager may be complicated by potential conflicts of interest. Teneo is already a consultant to Thames Water, having received fees of £5m since August 2023. The company also raked in at least £60m from the special administration of collapsed energy supplier Bulb, according to the National Audit Office.
It also wrote a report to the High Court in support of senior creditors' £3bn loan, while Interpath wrote a separate report on behalf of junior creditors.
Sir Dieter Helm, professor of economic policy at Oxford University, believes the SAR will allow Thames Water to focus on restructuring and improvements rather than negotiating a deal with creditors.