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) (Reporting by Sarah Young in London, Yamini Kalia in Bengaluru; Editing by Sherry Jacob-Phillips and James Davey)