The holding company behind Thames Water has told creditors it has defaulted on some of its debts.
It comes after Kemble Water Finance Limited failed to meet a deadline to pay interest payments due on the firm’s debt.
Thames Water’s financial struggles worsened last month when it said its investors had pulled a £500 million funding lifeline that was due to be paid at the end of April.
Some of that was understood to be earmarked to pay the loans owed by Kemble.
On Friday, Kemble, which is entirely funded through dividends received from Thames Water, sent a formal notice of default to the holders of around £400 million of company bonds.
In the notice, it is requested that its lenders and noteholders take “no creditor action” in order to “provide a stable platform while all options are explored with all key stakeholders”.
Kemble added: “The company expects that it will be in a position to provide a further update in the coming weeks.”
It follows reports earlier this week that two Chinese state-owned banks and Dutch bank ING are among a group of lenders who could play an important role in the stability of Thames Water.
It is understood the banks are owed around £190 million from the loans given to Kemble, which are due to expire at the end of the month.
The deadline could be extended after Thames Water said it would not be able to repay it.
ING, Bank of China, Industrial and Commercial Bank of China, and Allied Irish Banks are among the lenders behind the loan, according to new information reported by Sky News and the Financial Times.
It means they could take a stake in Thames Water if the loan is not repaid and Kemble is in default, which would be expected to result in a restructuring process.