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Thames Water is on the hook to pay at least £100mn to cover the advisory fees of its creditors, in just one part of the mounting bill for lawyers and financial advisers facing the UK’s largest water company as it seeks to avoid being renationalised.
London’s water monopoly, which receives all of its income from the bills of its 16mn customers, has been paying out millions of pounds to cover the fees for the lawyers and financial advisers of its lenders, which are preparing for a messy restructuring of its £19bn debt pile.
The company will have spent £25mn on these “creditor advisory engagement costs” by December, according to an internal Thames Water document seen by the Financial Times, with the total fee bill stretching to £55mn by June and £100mn by September 2025.
Advisers to creditors include the investment bank Jefferies, the law firm Akin, DC Advisory and Quinn Emanuel.
Although it is standard practice for companies in restructuring negotiations to cover the advisory costs of their creditors, one person close to the debt discussions said that “the situation risks becoming a ‘fee feast’ for bankers, funds, advisers and lawyers.”
The creditors and their advisers declined to comment.
The creditors are one part of the hefty advisory bill facing Thames Water, which is paying around 30 consultancies and legal advisers. These include investment bank Rothschild, which is leading a parallel emergency equity raise for the utility; magic circle law firm Linklaters, which is advising Thames Water; and LEK Consulting, which was brought in by Ofwat to report on the company’s progress when Thames Water was put into special measures by the sector regulator.
The fees represent an additional drain on Thames Water’s dwindling cash. Meanwhile, customers are being asked to stump up for a 53 per cent increase in their bills by 2030.
The utility is in the process of raising an up to £3bn emergency loan from a group of creditors, having earlier warned that it risks running out of available cash just after Christmas without urgent intervention.
The loan, which requires approval in the courts, comes at an expensive 9.75 per cent interest rate and with £200mn of fees and other sweeteners that could take the total costs to more than £800mn in total over its 2.5 year lifespan.
These costs — which include up to £105mn in fees that Thames Water has to pay to draw down on the loan — are paid directly to the lenders and are on top of the fees charged by their advisers.
In a sign of the strain these fees are placing on its finances, Thames Water last week held a call with external advisers, including those of its creditors, to explain that it would have to defer paying a portion of their fees, in exchange for adding interest to the total bill.
During the call, Thames Water’s general counsel Andy Frasier said that the fees would ultimately be borne by bill payers, according to one person familiar with the matter.
Thames Water said in a statement about the call: “Our liquidity position hasn’t changed and remains as we announced on 25 Oct. Payment terms for our usual suppliers has also not changed. These terms relate only to the organisations working specifically on our financial restructuring plan. We remain focused on stabilising the business and delivering better results for our customers and the environment while seeking to attract new capital into the business.”
The utility declined to comment specifically on its bill for creditor advisory fees.
The £3bn loan aims to keep Thames Water operating long enough to attempt to raise billions of pounds of equity next year. However any agreement is dependent on the extent to which Thames is allowed to raise bills, with a decision expected by Ofwat by Christmas.
Thames Water’s top-ranking bondholders are being advised by Jefferies and Akin, while its bottom-ranking bondholders are being advised by DC Advisory and Quinn Emanuel. A group of the company’s banks are being advised by A & O Shearman and Perella Weinberg.
Moelis, Freshfields, and Alvarez & Marsal are advising Thames Water’s parent company Kemble, which has already defaulted on its debt. Meanwhile, Lazard is supporting Ofwat on Thames Water’s restructuring.
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