LONDON, March 31 (Reuters) -

Thames Water named U.S. investment firm KKR as the

frontrunner to invest new equity into Britain's biggest water

supplier and help it avoid a state rescue.

A poster child for Britain's broken water sector, Thames

Water has been battling against financial collapse since last

year. To survive beyond 2026, it needs 3 billion pounds ($3.9

billion) of new equity and to restructure its debt.

The company said KKR's proposal includes financial

metrics which indicate "a material impairment" of senior debt

and discussions were ongoing between the parties, with no

certainty a deal would be done.

KKR emerged as the preferred partner from the six

bidders it said were interested in mid-March. The timetable for

the deal remains reaching agreement in the second quarter and

completing the deal in the second half of 2025, Thames Water

said.

The announcement on progress with the equity raise comes

three days after Thames Water announced that chief financial

officer Alastair Cochran was

leaving abruptly

. The company said the focus was on financial stability.

"The company remains focused on putting Thames Water on

a more stable financial foundation, implementing its turnaround

plan and delivering a market led solution that is in the best

interests of customers, UK taxpayers and the wider economy," the

statement on Monday said.

Some senior creditors continued to progress "alternative

transaction structures" for the recapitalisation in parallel,

the company added.

($1 = 0.7717 pounds)