Thames Water What happens if crisis-hit firm is temporarily renationalised?

When the environment secretary, Steve Reed, stood up in parliament last month, his message for the owners of struggling Thames Water appeared clear: there would be no leniency on fines for breaching environmental standards, despite the requests of the creditors who controlled the company.

- Jasper Jolly

Amid the standoff, Reed said the government had "stepped up" its preparations for the next stage: putting the company, a provider of water and sewerage services to 16 million customers in London and south-east England, into temporary nationalisation, known as a special administration regime (SAR).

Thames Water's perilous position stems from years of mismanagement, during which it built up unsustainable debts of about £20bn. Over the past year its problems have come to a head, with the company scrambling through a court battle in February to secure emergency funding, and now finding new owners.

Things have not gone smoothly. The US investor KKR pulled out of its bid, leaving a group of about 100 creditors in line to take over ownership. They include big institutional investors such as Aberdeen, BlackRock, Invesco and M&G, as well as US hedge funds such as Elliott Management and Silver Point Capital.

So what would temporary nationalisation actually involve?

Rather than selling off the business for parts, the special administrator's first priority is maintaining the essential water service. Similar regimes are in place for other crucial institutions such as energy companies, the Post Office and banks. The creditors would have a claim on proceeds of an eventual sale after that objective had been achieved.

Some of the most detailed cost estimates have come from consultants at Teneo hired by Thames Water. They said an SAR would require as much as £4.1bn in funding from the UK government - seemingly a daunting addition to government debt.