In June 2023, I wrote about Thames Water, the UK’s largest water supplier, which was buckling under £14 billion of debt—a load that had long crippled its ability to upgrade its pipes and serve 15 million customers across London and the South East.
Last week, on February 18, 2025, an English High Court judge approved a £3 billion emergency loan to prevent the imminent collapse of the utility company. The company was set to run out of cash by the end of March and would have likely been placed into temporary nationalisation to keep services running.
This lifeline, while a stopgap, lays bare the risks of excessive debt in utility operators—a lesson New Zealand must heed as it turns to debt in order to fund much-needed infrastructure upgrades.
Back in 2023, Thames Water’s cracks were glaring: leaking 630 million litres daily, spilling sewage 22 times a day, and racking up £30 million in fines, while servicing its debt meant there was no free cashflow for upgrades to its aging infrastructure.
Critics have long pointed to its shareholders, who employed a model based on excessive debt and dividend extraction, which the UK’s water regulator, Ofwat, eventually blocked in 2017–18 as debt soared. Shareholders were then forced to make a £500 million equity injection in March 2023 and faced calls for another injection of £1 billion, which were rebuffed.
Now, this court-approved £3 billion rescue loan refinances some of the existing debt. However, the utility operator still needs to raise £5 billion in new equity by September 2025—a daunting task given that shareholders balked at the need for another equity injection 18 months ago.
Reports have, however, emerged that the Hong Kong company CK Infrastructure has made a £7 billion offer for a majority stake in Thames Water which surpasses preliminary offers from KKR and Castle Water. These offers could potentially solve the £5 billion equity challenge.
But the court ruling—balancing creditor fights and public outcry—shows the chaos that excessive leverage creates. Thames Water’s £19 billion of debt, up £2 billion in 18 months, mirrors my 2023 caution: debt balloons, upgrades stall, and ratepayers pay ever more.
Mr Justice Leech called the costs of the restructuring “eye-watering” and warned that customers would be “horrified” at the bill. This deal, backed by creditors like Assured Guaranty (advised by Kirkland & Ellis), buys time but it isn’t salvation.
In reality, this £3 billion rescue financing is simply one chapter in a saga that will undoubtedly run for years as the utility provider wrestles with its shareholders and creditors in an effort to restructure its balance sheet.
Meanwhile, customers will face ongoing service disruptions and increasing prices: in January 2025, Ofwat capped bill rises at 35% over the next five years—far below Thames Water’s 59% request—which won’t offset the £80–90 million of annual fines through to 2030, nor fix leaks and sewage spills that have plagued the utility operator for years.
In 2022, I asked the Department of Internal Affairs whether it wanted to comment on Standard & Poor’s view that Crown support (i.e. a taxpayer bailout) for the water entities under the Three Waters reforms was “highly likely” in the event of financial distress. A spokesperson told me that, “WSE (Water Services Entities) financial distress is a very unlikely outcome. Their failure is even more unlikely.”
Some in New Zealand have assumed that high levels of debt don’t pose a threat to utilities because rates can always rise—Thames Water shows why that’s a fallacy.
Even with strong revenue, excessive debt will crush cashflow, leaving no room for operational upgrades or maintenance. In New Zealand, infrastructure upgrades—pipes, roads and rail—will lean heavily on debt; the trick is doing it wisely with expert structuring and debt management.
In 2023, I called Thames Water a cautionary tale for New Zealand—its 2025 debt restructuring underlines that point.
Lawyer and writer Philip Crump explores political, legal and cultural issues facing New Zealand. Sometimes known as Thomas Cranmer. This article was published HERE
This lifeline, while a stopgap, lays bare the risks of excessive debt in utility operators—a lesson New Zealand must heed as it turns to debt in order to fund much-needed infrastructure upgrades.
Back in 2023, Thames Water’s cracks were glaring: leaking 630 million litres daily, spilling sewage 22 times a day, and racking up £30 million in fines, while servicing its debt meant there was no free cashflow for upgrades to its aging infrastructure.
Critics have long pointed to its shareholders, who employed a model based on excessive debt and dividend extraction, which the UK’s water regulator, Ofwat, eventually blocked in 2017–18 as debt soared. Shareholders were then forced to make a £500 million equity injection in March 2023 and faced calls for another injection of £1 billion, which were rebuffed.
Now, this court-approved £3 billion rescue loan refinances some of the existing debt. However, the utility operator still needs to raise £5 billion in new equity by September 2025—a daunting task given that shareholders balked at the need for another equity injection 18 months ago.
Reports have, however, emerged that the Hong Kong company CK Infrastructure has made a £7 billion offer for a majority stake in Thames Water which surpasses preliminary offers from KKR and Castle Water. These offers could potentially solve the £5 billion equity challenge.
But the court ruling—balancing creditor fights and public outcry—shows the chaos that excessive leverage creates. Thames Water’s £19 billion of debt, up £2 billion in 18 months, mirrors my 2023 caution: debt balloons, upgrades stall, and ratepayers pay ever more.
Mr Justice Leech called the costs of the restructuring “eye-watering” and warned that customers would be “horrified” at the bill. This deal, backed by creditors like Assured Guaranty (advised by Kirkland & Ellis), buys time but it isn’t salvation.
In reality, this £3 billion rescue financing is simply one chapter in a saga that will undoubtedly run for years as the utility provider wrestles with its shareholders and creditors in an effort to restructure its balance sheet.
Meanwhile, customers will face ongoing service disruptions and increasing prices: in January 2025, Ofwat capped bill rises at 35% over the next five years—far below Thames Water’s 59% request—which won’t offset the £80–90 million of annual fines through to 2030, nor fix leaks and sewage spills that have plagued the utility operator for years.
In 2022, I asked the Department of Internal Affairs whether it wanted to comment on Standard & Poor’s view that Crown support (i.e. a taxpayer bailout) for the water entities under the Three Waters reforms was “highly likely” in the event of financial distress. A spokesperson told me that, “WSE (Water Services Entities) financial distress is a very unlikely outcome. Their failure is even more unlikely.”
Some in New Zealand have assumed that high levels of debt don’t pose a threat to utilities because rates can always rise—Thames Water shows why that’s a fallacy.
Even with strong revenue, excessive debt will crush cashflow, leaving no room for operational upgrades or maintenance. In New Zealand, infrastructure upgrades—pipes, roads and rail—will lean heavily on debt; the trick is doing it wisely with expert structuring and debt management.
In 2023, I called Thames Water a cautionary tale for New Zealand—its 2025 debt restructuring underlines that point.
Lawyer and writer Philip Crump explores political, legal and cultural issues facing New Zealand. Sometimes known as Thomas Cranmer. This article was published HERE
1 comment:
This is the 'Corporate Empires' by design transfer of wealth mechanism from the people to them. A model that works well for the corporate empire, capitalise the profits and socialise the losses.
If you want to know what else the Empire has in store for you, you may want to read ‘The Great Taking by David Rogers Webb.
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