It is a failure of regulation first and foremost I think.
Macquarie came in and asset stripped Thames Water and the legal and regulatory framework allowed them to do it. They did it by loading up on debt and cutting expenditure to pay dividends.
It couldn't happen as easily now, regulator has started to introduce protections on gearing, dividends, exec pay & bonuses etc, tougher service improvement targets, and most recently mechanisms to ensure allowed expenditure is actually spent on what it's supposed to be spent on.
In the 90s and early 00s most water companies were publicly listed and shares openly traded. During this time dividend policies were reasonable, companies tended to spend what they were allowed and weren't beholden to the whims of a single investor. Then private equity started buying up these companies and things changed. I don't believe that should have been allowed to happen. An open shareholder model still works fine (as per the only three remaining publicly listed companies Severn Trent, United Utilities and South West Water). Of course they still pay dividends and have debt, but they aren't being exploited in the same way as Thames was.
Ultimately though most water companies despite being privately owned now, and operating under the same regulatory mechanisms, aren't in the same position as Thames. Thames went too far clearly and it was their Board and holding company Board that allowed it to happen.
Why, I don't know. Kickbacks too good to say no to, lack of willpower/morals to stand up to aggressive investors, or just bad luck finding themselves with investors like Macquarie who railroaded them. It's still a failure of regulation that it wasn't spotted and prevented sooner.
Welsh Water operates on a not for profit model, I personally like that approach. Thames now having lost its equity investors could switch to that model, it would still need to raise debt to fund itself and so still needs a good credit rating which will depend on the latest regulatory settlement and allowed revenues.
The main issue is it's gearing is high already, and so it's difficult to raise more debt to pay for future expenditure. That's why they'd want more equity injection but they will struggle to get it because of the deliberately curtailed returns that are now being imposed by the regulator in response to the historical issues.