Thames Water Utilities has chosen KKR as its "preferred partner", moving into a new stage of talks where the US private equity giant could buy a majority stake.
The UK's largest water company said it hoped to agree terms for a share sale by the end of June, enabling it to raise rescue funds by the end of the year.
KKR has proposed a "material impairment", ie write-down, of senior bonds, while the talks are continuing over other details, with no certainty that a binding deal will be agreed.
It said this fundraising would put the company "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".
As KKR's diligence and regulatory approvals are still not confirmed, some other senior creditors are pursuing parallel alternative deal structures, the utility noted.
Earlier this month, Thames won court approval for an emergency £3 billion loan and said it had received six different approaches, mostly from existing bondholders.
KKR is known to UK investors recently as having agreed to take over healthcare property investor Assura, while also having last year bought UK small-cap software company IQGeo, and the previous year buying publisher Simon & Schuster and a large stake in battery storage company Zenobe.