Lenders holding £12bn of Thames Water's debt have held face-to-face talks with Ofwat this week to pitch a rescue deal that they believe would avert the nationalisation of Britain's biggest water utility.
Sky News has learnt that a creditor group advised by Jefferies, the investment bank, met officials from the industry regulator on Tuesday to present the outline principles of a business plan that could buy the company vital breathing space.
City sources said that the group now accounted for over £12bn of Thames Water's borrowings - roughly two-thirds of its total debts - and comprised 100 separate lenders.
The syndicate is racing to find a solution that would allow a restructuring that would incorporate a massive debt-for-equity swap and see fresh equity injected into the crisis-hit utility, which serves about 15 million customers in London and the South East.
A deal needs to be agreed by the middle of November because Ofwat is due to sign off its final regulatory determination for the company's business plan at a board meeting in the second half of the month.
Creditors argue that Ofwat needs to demonstrate flexibility in its consideration of Thames Water's business plan in order to make the company investible.
Further details of the creditor group's proposals were unclear on Wednesday, although flexibility in relation to customer bill increases will inevitably be a component.
Thames Water is also facing a litany of regulatory fines over its poor customer service performance and dire record on sewage and water leaks.
Plans for an emergency liquidity facility of more than £1bn are also being drawn up, although they are yet to be finalised.
That finalising would buy Thames Water several months more to finalise a rescue plan.
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Bankers at Rothschild have been trying to drum up investment in new Thames Water stock in recent months, but with little success amid a lack of visibility about the company's survival prospects.
Sky News reported last month that Carlyle, the American investment giant, has become the latest global fund to weigh an investment in Thames Water.
Thames Water's woes deepened recently when its credit rating was downgraded further into junk territory by two leading rating agencies.
Its future remains so shrouded in uncertainty because the industry watchdog, Ofwat, has rejected the company's initial spending plans for the next five-year regulatory period.
Ofwat is expected to sign off on the appointment of an independent monitor within days to scrutinise the company's progress against its turnaround plan.
If new investment into Thames Water is not forthcoming before it runs out of cash, the government will have little choice but to sanction the temporary nationalisation of the company.
This would be done through a Special Administration Regime (SAR), a procedure tested only once before when Bulb Energy collapsed in 2021.
As part of its contingency planning for implementing a far-reaching restructuring, Thames Water has booked court dates in November to progress a rescue deal.
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Shareholders have long since written off their investment in the company and will not play a role in any rescue deal.
These include a number of sovereign wealth funds and pension funds which plan to attend next week's International Investment Summit in London.
A spokesperson for the creditor group declined to comment, while Ofwat has been contacted for comment.
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