Creditors to Thames Water are planning to inject more than £1 billion into the stricken utility before the end of the year as a lifeline while it tries to get its finances in order.

A group of hedge funds and institutions holding about £10 billion of Thames’s debt believe it needs a stop-gap infusion of cash to stabilise the company and pave the way for a full restructuring, which City sources said may not be completed until the end of June next year.

Thames has said it has enough cash to last only until May.

Sources said the finance were most likely to be in the form of loans or bonds with “super senior status”, meaning that the lenders would be first in the queue to repaid if the company failed. It could also give them more say in how a restructuring is eventually decided.

They would charge Thames a high rate of interest on these loans, with sources noting that the company’s “distressed” status, and the fact that other water companies have been raising debt at significantly higher interest rates than before. Thames raised its last bond, of £575 million, at 7.8 per cent in January.

It is thought the interim funding would take two to three months to secure.

Thames has long struggled to cope with a £16.5 billion debt pile and has been seeking fresh cash for some time.

At the start of this year, the company had been expecting an injection of equity from its owners, who include Canadian pension funds and the British university pension scheme USS. The owners had promised funds in tranches of £500 million and £750 million respectively. This money did not arrive as its investors declared in March that the business was “uninvestable” and refused to put in more cash.

The possible injection by creditors — who include Elliott and BlackRock — would be expected to fill the £1.25 billion gap left by its owners. It would be a precursor to a sweeping restructuring that could see Thames raise funds from new investors and potentially convert some of its debt into equity. Thames believes it needs about £3.3 billion in the long term to put itself on a firmer footing.

However, it is widely believed that no new investors will come aboard until the industry regulator, Ofwat, has published its final determination on how much Thames can bill its customers over the next five years. Only when this is published in December will potential investors have clarity on the types of returns they could expect from Thames.

Failure to refinance Thames could result in the company slipping into so-called special administration, where an administrator would attempt to find new investors and restructure its debt, while the government would have to cover any shortfall in its running costs.

Thames has lined up court dates in November that could allow its lenders to push through the additional funding with approval from 75 per cent of creditors, instead of the usual 100 per cent level.

Thames Water declined to comment.