Thames Water has asked creditors for more time to pay back billions of pounds in debt, as the water company scrambles to keep itself afloat.

The UK’s largest water company said it had proposed an “interim” deal under which the deadline to pay off an unspecified portion of the £20bn of debt on its balance sheet would be extended from 2027 to March 2028.

The company, which serves 16 million customers across London and the Thames Valley, has been on the brink of collapse for several years after it became overwhelmed by debt. Its shareholders walked away in 2024, which in effect left the company under the control of its creditors, who are working out a deal to avoid bankruptcy.

The creditors gave Thames Water a separate £3bn lifeline in February last year to try to see it through negotiations on a deal to reduce its debts and inject more money. The creditors, collectively called the London & Valley Water company, are led by a group of US hedge funds, including Elliott Management and Silver Point Capital, and institutional investors, including BlackRock and M&G.

Last month, Thames Water asked creditors for a further £2.4bn emergency loan, as it warned it would be unable to reach a longer-term deal to sort out its debt before running out of cash by “the end of 2026 or the start of 2027”. The company on Monday said it had started the process of raising the first £600m of that funding.

The prime minister, Andy Burnham, faces a decision on whether to allow a takeover deal by the water company’s creditors, which would involve writing off fines and reducing the company’s environmental commitments. He is also considering whether to nationalise Thames Water or approve another form of state control.

Labour politicians and environmental campaigners have said Burham should instead put Thames Water into special administration, a form of temporary government control while a new buyer is sought.

On Monday, the Liberal Democrats called on Burnham to tell parliament what he is doing to fix the water industry if he does not publish a full plan by the end of the year.

The party’s environment spokesperson, Tim Farron, said Burnham had “talked up water in his conference speech earlier this year, but speeches don’t stop sewage, and families paying every higher bills can’t wait years for a 10-year plan to start”.

The industry regulator, Ofwat, recently announced that water companies could increase annual tariffs by an extra £3.4bn, on top of the 36% average rise agreed over five years to 2030. Customer bills are rising to pay for long-overdue investments to fix leaking pipes and treatment works, as well as new assets, such as reservoirs.