Thames Water, the UK’s largest water utility currently teetering on the brink of financial collapse, paid more than £20 million to cover a private equity firm’s due diligence costs for a rescue bid that never materialized, according to recent reports. The substantial payment to KKR has raised fresh concerns about cash leakage from the troubled company at a time when it’s struggling under £20 billion of debt.
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Failed Rescue Attempt
Sources familiar with the situation indicate that Thames Water selected KKR as its preferred bidder earlier this year for what was intended as an emergency rescue operation. Under the deal terms, the utility was reportedly obligated to cover potential buyers’ costs for assessing the state of its infrastructure, operations, and finances. That due diligence exercise ultimately topped £20 million, largely consisting of fees paid to KKR’s advisory team.
KKR unexpectedly pulled out of the deal in June, reportedly citing concerns about potential government intervention. The private equity giant then passed its due diligence findings to lenders who are now pursuing their own takeover bid for Thames Water, which serves approximately 16 million customers across the UK.
Infrastructure Concerns Surface
The scale of the due diligence effort reportedly stemmed from Thames Water’s poor visibility into its own crumbling infrastructure. Documents revealed last year that the utility had failed to map almost a third of its sewage pipe network, creating significant uncertainty for potential investors.
Analysis conducted during the due diligence process apparently identified what’s known as “single point of failure risk” at several major facilities. According to people familiar with the matter, Coppermills water treatment works and Beckton sewage treatment works in East London emerged as the two sites most vulnerable to operational outages.
Meanwhile, the £20 million due diligence payment adds to what analysts suggest could become a massive fee bonanza for advisers, bankers, and lawyers involved in restructuring the company’s finances. The High Court heard earlier this year that total advisory bills might exceed £200 million before a debt restructuring is finalized—costs that Thames Water itself is covering from its already strained balance sheet.
Broader Financial Implications
These developments come amid growing concerns that customer water bills are effectively funding what some industry observers describe as excessive advisory fees. Thames Water receives all its income from customer payments, creating tension between necessary infrastructure investment and what critics call financial engineering costs.
Had KKR completed its rescue of Thames Water, the private equity firm would have covered its own due diligence costs, according to sources familiar with the arrangement. The collapse of that deal means Thames Water customers effectively absorbed the £20 million expense without any benefit.
In a statement, Thames Water said: “Advisor fees are part of an extensive, complex recapitalization; customers will not pay for these fees.” The company maintains it’s focused on securing a market-led recapitalization that establishes the financial foundation needed for future investments.
Ongoing Restructuring Efforts
Senior creditors, including US investment firms Elliott Management and Apollo Global Management, submitted their latest rescue proposal to regulator Ofwat earlier this month. Their plan reportedly includes £3.15 billion in equity and a 25 percent write-down of their exposure’s nominal value.
These creditors have also requested concessions on regulatory fines and targets, proposing what analysts describe as less ambitious environmental goals than government mandates. They’ve indicated “an ambition” to reduce sewage outflows by 30 percent by 2030, well below the government’s 50 percent target.
The situation continues to evolve as rival potential buyers claim they’ve been excluded from the bidding process. CK Infrastructure, owner of Northumbrian Water, has indicated it would bid for Thames Water if the government places it into special administration—suggesting the £20 million due diligence payment might represent just the beginning of a much larger financial restructuring saga.
