Thames Water’s debt has been downgraded as the struggling utility company seeks to secure £3bn in emergency funding to stave off collapse, after it emerged that the government has approached potential administrators.

The rating agency Moody’s downgraded the company’s debt rating, and increased its view of the probability of default, changing its outlook on Thames Water from stable to negative.

Moody’s said that it downgraded Thames as it believes its proposed financial plans “do not provide an attractive risk-return balance for existing or new investors”.

In a market note, Moody’s said: “This may deter new equity funding and increases the likelihood of a more severe haircut to senior debt than embedded in the previous ratings. Either through a potential future creditor-led debt restructuring or one that is imposed as part of a special administration process, should the company meet the criteria for special administration to be called.”

Thames Water, which provides water and sewerage services to 16 million customers in London and south-east England, has been on the brink of collapse for months as it struggles under a £15bn debt pile.

Late last year, a Guardian investigation revealed that Thames had £23bn of assets that were in urgent need of repair; it was using technology that has long been declared obsolete; and the supply of water to its customers was “on a knife-edge”.

On Thursday it emerged that the UK government had approached multiple restructuring advisers for the role of special administrator for Thames Water if the troubled utility fell into bankruptcy.

Teneo, Interpath and EY are among the companies contacted by the government as it prepares contingency plans should Britain’s largest water company be forced into nationalisation.

A special administration regime, or SAR, would take the company into temporary government ownership in order to ensure that vital water supplies continue to function even if the company becomes bankrupt. The government previously appointed Teneo to run the SAR for Bulb, an energy supplier that collapsed in late 2021 after a sharp rise in wholesale gas prices.

It is understood that the government has not reached the stage of carrying out formal interviews with consultancies over special administration.

Thames Water is trying to secure £3bn in emergency funding to stave off imminent collapse, plus at least £3.25bn more in equity investment after that to prevent its failure.

London’s high court will decide in February if the company can proceed with the £3bn plan. That plan, which is favoured by Thames Water, has the backing of 90% of one group of existing creditors to the utility.

“We are developing a market-based solution which will see Thames Water rebuilt with robust financial resilience and operational expertise,” a spokesperson for the class A creditor group said. “This solution will see billions in new capital invested in the company which will create jobs, drive growth, improve customer service and improve the local environment.

“If the company goes into special administration it would be a regulatory failure and risks immediate financial market contagion which would raise costs for taxpayers and bill payers.”

Before Christmas, the water industry regulator for England and Wales, Ofwat, announced that Thames could raise bills by 35% by 2030, although the company said that was not enough for it to return to a sustainable footing.

Thames has until 18 February to decide whether to appeal to the Competition and Markets Authority against a limit on bill increases by Ofwat.

Thames Water was also fined £18.2m in December for paying “unjustified” dividends, even as it seeks to raise more cash after its previous investors wrote down the value of their stakes to zero.

Separately on Friday, Severn Trent said it plans to give shareholders a higher dividend for the next year as trading remains in line with targets.

The water supplier said it expects to hand out a dividend of 126.02p to shareholders for the next financial year, an inflation-based increase from the 121.71p dividend it already announced for the current financial year. The company, which serves a large area from the Bristol Channel to the Humber and mid-Wales to the East Midlands, plans to increase bills by 47% over the next five years.