Thames Water insolvency plans drawn up in case of collapse as utility giant thrown into 'crisis mode'

Environment Secretary Steve Reed signed off the appointment, with FTI Consulting set to act as an administrator if the heavily indebted water firm fails to secure funding from lenders.

The advisory role means FTI Consulting is the prime candidate to act as the firm's administrator if it cannot secure a private sector bailout, sources told Sky News.

However, approval of such an appointment would be decided in court.

Thames Water, which has 16 million customers, is nearly £20 billion in debt and MPs were told earlier this year that at one point it had about five weeks' worth of cash left before going bust.

That was before it secured an extra £3billion loan deal, which effectively stopped it from being renationalised and falling under Government control.

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Thames Water, its largest group of creditors and industry watchdog Ofwat have been locked in talks for months about a fresh deal that would guarantee the firm £5 billion of new capital from its lenders.

It would also write off roughly £12 billion of value across its capital structure.

Talks have reportedly been constructive but partially rely on the prospect of the firm being granted extra time to pay hundreds of millions of pounds for regulatory fines.

"The government will always act in the national interest on these issues.

"The company remains financially stable, but we have stepped up our preparations and stand ready for all eventualities, including applying for a Special Administration Regime if that were to become necessary," a company spokesperson told Sky News.

But insiders say the move does not mean the firm was about to collapse into insolvency processings.

A spokeswoman for the Department for Environment, Food & Rural Affairs (Defra) said: “The Government will always act in the national interest on these issues.

“The company remains financially stable, but we have stepped up our preparations and stand ready for all eventualities, including applying for a special administration regime if that were to become necessary.”

In June, private equity firm KKR pulled out of plans to inject around £4 billion of cash into the financially-stricken company in a bid to keep it afloat.

Thames Water chairman Sir Adrian Montague recently said the firm was still in “crisis mode” as it seeks to avoid special administration measures.

A spokeswoman for Thames Water said: “Our focus remains on a holistic and fundamental recapitalisation, delivering a market-led solution which includes targeting investment grade credit ratings and returning the company to a stable financial foundation.

“Constructive discussions with our many stakeholder continue.”

FTI Consulting has been contacted for comment.