Thames Water’s lenders have put forward a £10bn rescue plan that would involve paying off the troubled water company’s hundreds of millions of pounds-worth of fines for leaks and pollution, as part of an effort to stave off financial collapse.

A group of private equity firms and investment groups said they would inject about £3.35bn of cash into Thames Water and raise £6.65bn in debt, in exchange for the company not falling into a government-handled administration, effectively a temporary nationalisation.

Bills for Thames Water’s 16 million customers in south-east England are already due to rise steeply until 2030 but the rescue plan would, at least, hold them at that level rather than pushing them even higher.

Britain’s biggest water company has been on the brink of collapse for more than two years as it struggles under the weight of £17.6bn in debt, built up over decades since privatisation. It has effectively been in the hands of its lenders, which include the US hedge funds Elliott Management and Silver Point Capital, since shareholders pulled out in 2024.

The supplier has been dogged by poor environmental performance over the same period, with sewage leaks provoking public and political outrage and adding huge costs in the form of fines.

Last year, the Guardian revealed that bosses were asking to be spared billions of pounds-worth of costs and fines to try to attract new investors.

On Monday, its lenders said the new rescue plan would involve paying off all of its existing fines in full, and making an upfront payment to cover future underperformance against Ofwat’s targets. The company would still be subject to future fines for pollution and leaks from Ofwat and the Environment Agency.

The plan needs to be approved by Ofwat and the company’s board, but would involve about 30% of Thames’ existing debts to its senior creditors being wiped out in return for continuing to operate as a private company. Its smaller group of “class B” junior creditors would be wiped out entirely.

The plan would also mean that Thames Water would not pay dividends to its investors until at least 2035. Last year, the company was handed an £18m fine for breaking dividend rules, for paying out cash to investors despite having fallen short in its services to customers and its environmental record.

The consortium also said customers would receive a share of the proceeds if it sells Thames Water for a significant profit.

Last year, Thames Water, which employs about 8,000 people, was ranked the worst water company in England by the Environment Agency, after sewage pollution hit a new peak.

The pollution scandal has returned to the spotlight in recent weeks after the Channel 4 drama Dirty Business told the story of how private companies have been allowed to contaminate Britain’s rivers and waterways.

Thames Water came close to being taken into temporary government control in 2025 when it was forced to gain court approval for £3bn of high-interest loans. Since then, it has been working on a second deal to reorganise the rest of its debts and pass formal ownership to its lenders.

But talks have dragged on over months, with Thames surviving by gradually tapping into the £3bn of emergency funding. As well as the US hedge funds, the group of lenders also includes more traditional investors such as Aberdeen and Insight Investment.

The rescue package will also need the approval of Emma Reynolds, the environment secretary, as well as other regulators including the Drinking Water Inspectorate and the Environment Agency.

A spokesperson for the consortium of lenders, known as London & Valley Water (L&VW), said the plan came after “constructive discussion and detailed feedback from regulators”.

They said the plan was designed to “establish a route back to full compliance as quickly as possible” and would give “clear accountability” for reducing sewage spills.

The rescue deal is the latest attempt to avoid being placed into a special administration regime, a form of temporary nationalisation, after a previous buyout attempt by US private equity firm KKR collapsed last June.

Thames Water said there is “no certainty” that the plan would be accepted. “At this stage, the company’s board, Ofwat, other regulators and relevant investment committees have made no decision to accept and take forward the L&VW proposal to implementation,” the company said.

An Ofwat spokesperson said: “We continue to engage with L&VW and are reviewing their plans carefully to assess whether they deliver a turnaround in the company’s operational performance and strengthen its financial resilience to the benefit of customers and the environment.”