Investors attempting to rescue Thames Water are preparing a multibillion-pound legal battle with Andy Burnham if his incoming government forces the troubled company into public ownership.
The investors, who control £17billion of its £21billion debt, are negotiating a £10billion rescue deal to take over Britain’s largest water company, Sky News reports.
The investor group, known as the London & Valley Water consortium, has now hired Pallas Partners to prepare a potential legal challenge if its rescue proposal is rejected.
Pallas Partners, which describes itself as an “elite litigation and disputes firm”, will work alongside Akin Gump, which is already advising the consortium on its restructuring plans.
Without an agreement, Thames Water could enter a special administration regime, placing it under temporary state control while ensuring its water and wastewater services continue operating.
Such an outcome could sharply reduce the value of the lenders’ investments and potentially open the way for wider public ownership.
Investors attempting to rescue Thames Water are preparing a multibillion-pound legal battle with Andy Burnham
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Concerns among investors have grown following Sir Keir Starmer’s departure and Mr Burnham’s imminent arrival in Downing Street.
Mr Burnham has previously called for “public control” of water companies, although he has not confirmed whether this would involve fully nationalising the sector.
Speaking specifically about Thames Water last month, he said: “I would say for Thames Water, that [greater public ownership] is what should be done.”
City sources said Mr Burnham’s comments had prompted the group to accelerate its preparations for possible court action.
One banker who has worked with some of the funds involved said: “They are prepared to litigate for years if necessary.”
However, a person close to the consortium stressed that legal proceedings would be “a last resort” and described the preparations as “purely precautionary”.
London & Valley Water includes major fund managers Apollo Global Management, Elliott Management, Farallon Capital Management and Silver Point Capital.
Mr Burnham has previously called for “public control” of water companies
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The consortium says it wants to work with ministers on a rescue deal that would keep Thames Water solvent while addressing the Government’s concerns.
Its latest proposal to Ofwat includes injecting £3.35billion in fresh equity and raising £6.25billion of new debt, while writing off £9.6billion of existing borrowing.
Under the plan, shareholders would not receive any dividends until the 2030s, while the consortium would aim to return Thames Water to the public markets within approximately five years.
However, Environment Secretary Emma Reynolds raised concerns last month about whether the proposal would sufficiently protect customers.
Ofwat chairman Iain Coucher has since confirmed that a revised proposal is being developed
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GETTYIn a letter to Ofwat, she said: “I am not yet convinced that the Proposal demonstrates sufficient protection for consumers’ interests.”
She added: “I am concerned that consumers will ultimately bear an undue cost for these adjustments.”
Ofwat chairman Iain Coucher has since confirmed that a revised proposal is being developed.
However, the regulator would need to hold a three-month public consultation before approving any agreement, leaving limited time to reach a deal.
Thames Water warned this week that it could run out of money by the end of the year.