A quick guide to Thames Water’s serpentine capital structure

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Thames Water is a mess. A day after CEO Sarah Bentley resigned with immediate effect, the government is on standby for its potential collapse. As our MainFT colleagues report:

Defra, the environment ministry, is holding emergency talks with industry regulator Ofwat to examine contingency plans in case the company is unable to raise private finance in the coming weeks, according to government officials.

One option is placing Thames, the biggest water company in the UK, into a special administration regime (SAR), they said.

Here, courtesy of JPMorgan, is the Thames Water company schematic that’s currently sitting in some poor civil servant’s inbox:

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RWE sold Thames Water in October 2006 to Kemble Water Holdings Ltd, a consortium led by Macquarie. Almost immediately the buyers formed a Whole Business Securitisation (WBS) that allowed the group to be loaded with more debt, boosting shareholder returns while insulating the structurally senior bits of the company.

There are three main ring-fenced debt entities — Thames Water Utilities Holdings Ltd, opco Thames Water Utilities Ltd and Thames Water Utilities Finance PLC. The debt they issue is secured by all the assets in the WBS and there are cross-guarantees in place, as well as covenant protections to prevent cash leaking upwards.

But holding companies outside the WBS ringfence have also issued debt, most notably Thames Water Kemble Finance PLC. These holdcos don’t own any of Thames Water’s operating assets so are completely reliant on dividends from the WBS.

In March, regulator Ofwat announced ..

… new powers that will enable it to stop the payment of dividends if they would risk the company’s financial resilience, and take enforcement action against water companies that don’t link dividend payments to performance.

The change will require company boards to take account of their performance – for customers and the environment – when deciding whether to make dividend payments. It will also require companies to maintain a higher level of overall financial health.

The big problem for Thames Water was a rule that from April 2025, regulated opcos couldn’t pay dividends if their credit rating is Baa2/BBB with a negative outlook. Since Moody’s has the Thames Water holdco at Baa2 with a stable outlook, that’s more than a bit hairy for holders of the Thames Water Kemble Finance high-yielder.

At pixel time, Kemble’s 2026 bonds are trading below 60p in the pound. Credit once again to JPMorgan for the capitalisation table:

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What the point is of all this complexity, and how it helps get water into the right pipes, is something for regulators and politicians to consider in the months and years ahead. For now, it’s probably best that they concentrate on making sure we can still turn on a tap.

Further reading:
— Thames Water: the murky structure of a utility company (FT, 2017)
— Privatising water was never going to work (FT)