Here we are two years down the track and the distressed-debt specialists and some of the other bondholders of Thames Water (Thames), in their consortium London & Valley Water (L&VW), continue to pay out to their PR agents, and the multitude of other advisers. The company’s performance remains dire and the promised new management are yet to appear.
Desperate to get their deal over the line, L&VW’s rebuttals get more ridiculous. My last paper on this, “The Thames Water ‘market-led solution’”,[1] in which I commented on the company’s sad state of affairs, elicited the claim in an article in The Times, “Thames Water creditors defy Oxford don’s call for administration”[2], that I could not possibly comment because I am not privy to the private discussions and negotiations.
I hope that the Thames board did not pay L&VW’s advisers to come up with this. (There is confusion about who is directly and indirectly paying the advisers’ astonishing fees.) If only those party to the private negotiations with OFWAT and the government can comment, that rules out just about everyone else. Presumably MPs, academics, journalists, customers and those with a deep interest in the state of our rivers should not be listened to because they are not at the negotiating table?
It is not surprising that desperation is setting in, and notably now Andy Burnham has raised the prospect of nationalisation. L&VA has now come up with the remarkable claim that its preferred outcomes are better because it is not taking dividends for ten years (actually probably 4–5 years, when some of its members hope to sell the business). Isn’t this just what a nationalised Thames or a not-for-dividend Thames would do? And, if not paying dividends is fine, then why is equity important at all in the case of Thames or any other water company? The implication is that the equity incentives at the heart of private water companies are not needed after all – unless, of course, Thames envisages a massive dividend in 2035 to make up for ten years at zero? If the dividend represented a 10% return on equity per annum, that would roll up to a truly astonishing number.
But the clue as to why the PR is that no dividends are being taken is to be found in the implicit suggestion that the bondholders are going to take no return. This is disingenuous at best. Bondholders make their money out of bonds. That is why they are called “bondholders”. It is the interest on the bonds that they want. And a further clue as to how they get high interest rates is in the £3 billion short-term loan that they provided to the Thames board (which accepted it, presumably in part because it admitted that the bondholders controlled the company and hence the board). Making excess returns on debt is the way to gain supernormal profits between now and 2035. Debt and equity are not quite as distinct as L&VW would have us believe.
Next up in the latest PR spin is the argument that Special Administration would delay the turnaround. To this, there is the obvious answer that the bondholders’ “negotiations” have taken two years to still not quite get to the starting gate, and there is no good reason to think that: (a) other bidders might not be at least as quick to bring in a good enough new management team; (b) new owners might actually have a long-term interest in the company; and (c) new owners might have relevant knowledge and expertise. The current owners have had two years to get their act together – and they haven’t.
It is not hard to see the sense of panic at play, with the obvious threat that Burnham poses. The bondholders see that their game may be up in a matter of months. They can only blame themselves. The reason the Burnham threat looms over them is precisely because the failure mechanism – Special Administration – has been stymied. Had the Special Administrator been called in long ago, Thames would now be under new ownership, new management and may have been broken up and parts even listed. It might even be significantly improving its performance.
A further desperate throw of the dice is to claim that a Special Administrator cannot be brought in because the company is solvent, courtesy of the high-interest + high-cost loan that keeps it afloat. Missing is the other bit: that Thames may have failed to meet both the spirit and the letter of its licence. If there was no basis for calling in a Special Administrator, the bondholders would not have to pay all these advisers to try to head one off.
The reality is that this whole charade is coming to a head with the challenge from Burnham. The reason the government has not called in the Special Administrator – the precise mechanism designed to deal with the sorts of failure at Thames – is for fear that the Labour backbenchers might use the opportunity to demand full nationalisation, buying the company off the Special Administrator. Thames and now L&VA have finally brought about the very real possibility that the Starmer–Reeves team were precisely trying to prevent. What they have also achieved is to bring all the rest of the industry close to this precipice too. This is all the more likely because South East Water is also not being placed into Special Administration, despite the very clear and unequivocal conclusions of the Environment, Food and Rural Affairs Committee that South East Water has indeed failed to meet its licence conditions.[3]
The chances are that Thames will fail anyway. Its self-admitted failings are very unlikely to be turned around by a bondholder-controlled management by the time the main distressed-debt players want to get out. It would be ironic if the key players who are so expert at exploiting these sorts of distressed situations find they can’t get out in 2030, if Thames is not nationalised before then.
Very late in the day, the Special Administrator should be called in. Thames and L&VA should admit that they are wrong to claim that only those party to the private negotiations have a right to comment. These negotiations should in any event be opened up to the public. OFWAT will have to be completely transparent in its consultation if it approves the bondholders’ deal. There can be no redacted or private information for a monopoly, and especially in this case. Any failure to be completely transparent on all and every aspect of this deal would be against the public interest in any event, and doubly so given that the PR spin doctors claim that anyone not party to these private negotiations is in no position to comment.
[1] Helm, D. (2026), “The Thames Water ‘market-led solution’”, 24th April.
[2] The Times (2026), “Thames Water creditors defy Oxford don’s call for administration”, 26th April.
[3] Environment, Food and Rural Affairs Committee (2026), “Failures at South East Water”, 1st May.
