Prospectus • Mar 23, 2011
Prospectus
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IMPORTANT: You must read the following before continuing. The following applies to the prospectus following this page (the Prospectus) and you are therefore advised to read this carefully before reading, accessing or making any other use of the Prospectus. In accessing the Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access.
NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE SECURITIES OF BRISTOL WATER PLC. THE SECURITIES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR ANY STATE SECURITIES LAWS, AND ARE SUBJECT TO U.S. TAX LAW REQUIREMENTS. SUBJECT TO CERTAIN EXCEPTIONS, THE NOTES MAY NOT BE OFFERED, SOLD OR DELIVERED, DIRECTLY OR INDIRECTLY, WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSONS EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER AND, IN PARTICULAR, MAY NOT BE FORWARDED TO ANY U.S. PERSON OR TO ANY U.S. ADDRESS. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THE PROSPECTUS IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.
The Prospectus has been delivered to you on the basis that you are a person into whose possession the Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located. By accessing the Prospectus, you shall be deemed to have confirmed and represented to us that (a) you have understood and agree to the terms set out herein, (b) you consent to delivery of the Prospectus by electronic transmission, (c) you are not a U.S. person (within the meaning of Regulation S under the Securities Act) or acting for the account or benefit of a U.S. person and the electronic mail address that you have given to us and to which this e-mail has been delivered is not located in the United States, its territories and possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands) or the District of Columbia, (d) you have not duplicated, distributed, forwarded, transferred or otherwise transmitted the Prospectus or any other presentational or other materials concerning this offering (including electronic copies thereof) to any persons within the United States and agree that such materials shall not be duplicated, distributed, forwarded, transferred or otherwise transmitted by you, (e) you have made your own assessment concerning the relevant tax, legal and other economic considerations relevant to an investment in the securities of Bristol Water plc and (f) if you are a person in the United Kingdom, then you are a person who (i) has professional experience in matters relating to investments or (ii) is a high net worth entity falling within Article 49(2)(a) to (d) of the Financial Services and Markets Act (Financial Promotion) Order 2005 or a certified high net worth individual within Article 48 of the Financial Services and Markets Act (Financial Promotion) Order 2005.
The Prospectus has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of Bristol Water plc and HSBC Bank plc nor any person who controls any of them nor any director, officer, employee nor agent of any of them or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Prospectus distributed to you in electronic format and the hard copy version available to you on request from HSBC Bank plc.
(incorporated in England and Wales with limited liability with registered number 2662226)
The £40,000,000 Index-Linked Secured, Guaranteed Bonds (the "Bonds") will be issued by Bristol Water plc (the "Issuer") and guaranteed by Bristol Water Core Holdings Limited (the "Guarantor"). Interest on the Bonds is payable semi-annually in arrear on the Interest Payment Dates falling on 25 March and 25 September in each year, with the first payment being made on the Interest Payment Date falling on 25 September 2011. Payments on the Bonds will be made without deduction for or on account of taxes of the Issuer to the extent described under "Terms and Conditions of the Bonds - Taxation".
Unless previously redeemed or purchased and cancelled, the Bonds will be redeemed at their principal amount (as adjusted for indexation) on 25 March 2041. The Bonds are subject to redemption in whole at their principal amount (as adjusted for indexation), together with interest accrued to the date fixed for redemption, at the option of the Issuer at any time in the event of certain changes affecting taxation in the United Kingdom (see Condition 7(b) (Redemption for taxation reasons)) or in the event of the occurrence of an Index Event (as defined in the Conditions) (see Condition 7(c) (Redemption for Index Event)). The Bonds may also be redeemed at the option of the Issuer in whole at any time at a price which shall be the higher of their principal amount (as adjusted for indexation) and an amount calculated by reference to the relevant United Kingdom Government stock, together with any interest accrued to but excluding the date of redemption (see Condition 7(d) (Redemption at the option of the Issuer)).
The Bonds will constitute obligations of the Issuer. See "Terms and Conditions of the Bonds — Status".
Application has been made to the Financial Services Authority in its capacity as competent authority under the Financial Services and Markets Act 2000 (the "UK Listing Authority") for the Bonds to be admitted to the official list of the UK Listing Authority (the "Official List") and to the London Stock Exchange plc (the "London Stock Exchange") for such Bonds to be admitted to trading on the London Stock Exchange's Regulated Market (the "Market"). References in this Prospectus to the Bonds being "listed" (and all related references) shall mean that the Bonds have been admitted to the Official List and have been admitted to trading on the Market. The Market is a regulated market for the purposes of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments.
The denomination of the Bonds shall be £100,000 and integral multiples of £1,000 in excess thereof, up to and including £199,000.
The Bonds will initially be represented by a temporary global bond (a "Temporary Global Bond"), without interest coupons, which will be deposited with a common depositary on behalf of the Clearstream, Luxembourg and Euroclear systems on or about 25 March 2011 (the "Closing Date"). The Temporary Global Bond will be exchangeable for interests recorded in the records of Euroclear and Clearstream, Luxembourg in a permanent global bond (a "Global Bond"), without interest coupons, on or after a date which is expected to be 4 May, upon certification as to non-U.S. beneficial ownership. The Global Bond will be exchangeable for definitive Bonds in bearer form in the denomination £100,000 not less than 60 days following the request of the Issuer or the holder in the circumstances set out in it. No definitive Bonds will be issued with a denomination above £199,000. See "Summary of Provisions relating to the Bonds while in Global Form".
The Bonds are expected to be rated Baa1 by Moody's Investors Service Limited ("Moody's"). A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.
The credit ratings included or referred to in this Prospectus will be treated for the purposes of Regulation (EC) No 1060/2009 on credit rating agencies (the "CRA Regulation") as having been issued by Moody's upon registration pursuant to the CRA Regulation. Moody's is established in the European Union and has applied to be registered under the CRA Regulation, although the result of such application has not yet been determined.
Prospective investors should have regard to the factors described under "Risk Factors" in this Prospectus.
This Prospectus comprises a prospectus for the purposes of Directive 2003/71/EC and for the purpose of giving information with regard to the Issuer and the Guarantor and the Bonds which according to the particular nature of the Issuer, the Guarantor and the Bonds, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer and the Guarantor.
The Issuer and the Guarantor accept responsibility for the information contained in this Prospectus. To the best of the knowledge and belief of the Issuer and the Guarantor (having taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.
This Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer, the Guarantor or the Manager (as defined in "Subscription and Sale" below) to subscribe or purchase, any of the Bonds. The distribution of this Prospectus and the offering of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer, the Guarantor and the Manager to inform themselves about and to observe any such restrictions.
For a description of further restrictions on offers and sales of Bonds and distribution of this Prospectus, see "Subscription and Sale" below.
No person is authorised to give any information or to make any representation not contained in this Prospectus and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer, the Guarantor or the Manager. Neither the delivery of this Prospectus nor any sale made in connection herewith shall, under any circumstances, create any implication that there has been no change in the affairs of the Issuer or the Guarantor since the date hereof or the date upon which this Prospectus has been most recently amended or supplemented or that there has been no adverse change in the financial position of the Issuer or the Guarantor since the date hereof or the date upon which this Prospectus has been most recently amended or supplemented or that the information contained in it or any other information supplied in connection with the Bonds is correct as of any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same.
To the fullest extent permitted by law, the Manager accepts no responsibility whatsoever for the contents of this Prospectus or for any other statement, made or purported to be made by the Manager or on its behalf in connection with the Issuer, the Guarantor or the issue and offering of the Bonds. The Manager accordingly disclaims all and any liability whether arising in tort or contract or otherwise (save as referred to above) which it might otherwise have in respect of this Prospectus or any such statement.
The Bonds have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act") and are subject to U.S. tax law requirements. Subject to certain exceptions, Bonds may not be offered, sold or delivered within the United States or to U.S. persons.
In this Prospectus, unless otherwise specified or the context otherwise requires, references to "Sterling" and "£" are to the lawful currency for the time being of the United Kingdom.
In connection with the issue of the Bonds, HSBC Bank plc (the "Stabilising Manager") (or any person acting on behalf of any Stabilising Manager) may over-allot Bonds or effect transactions with a view to supporting the market price of the Bonds at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Bonds is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Bonds and 60 days after the date of the allotment of the Bonds. Any stabilisation action or over-allotment must be conducted by the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) in accordance with all applicable laws and rules.
This Prospectus should be read and construed in conjunction with the audited financial statements of the Issuer for the year ended 31 March 2010 and for the year ended 31 March 2009, together in each case with the auditors' report thereon, which have been previously published or are published simultaneously with this Prospectus and which have been approved by the Financial Services Authority or filed with it. Such documents shall be incorporated in, and form part of, this Prospectus, save that any statement contained in a document which is incorporated by reference herein shall be modified or superseded for the purpose of this Prospectus to the extent that a statement contained herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this Prospectus. Any documents themselves incorporated by reference in the documents incorporated by reference in this Prospectus shall not form part of this Prospectus.
Copies of documents incorporated by reference in this Prospectus may be obtained (without charge) from the registered office of the Issuer and may be viewed on the website of the Regulatory News Service operated by the London Stock Exchange at http://www.londonstockexchange.com/exchange/prices-and-news/news/marketnews/market-news-home.html. The contents of this website, other than copies of those documents deemed to be incorporated by reference into this Prospectus, are for information purposes only and do not form part of this Prospectus.
| Documents Incorporated by Reference | |
|---|---|
| Overview | |
| Group Structure of the Issuer | |
| Risk Factors | |
| Description of the Issuer | |
| Description of the Guarantor | |
| Terms and Conditions of the Bonds | |
| Summary of Provisions relating to the Bonds while in Global Form | |
| Intercreditor and Security Arrangements | |
| Use of Proceeds | |
| Taxation | |
| Subscription and Sale | |
| General Information | |
| Auditors' Report and Financial Statements of the Guarantor Part I – 2010 Audited Financial Statements 75 | |
| Part II - 2009 Audited Financial Statements | |
| Glossary | |
| Index of Defined Terms |
The following overview does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this Prospectus. Words and expressions not defined in this section shall have the same meanings as defined elsewhere in this Prospectus.
| Issuer: | Bristol Water plc, a company incorporated with limited liability under the laws of England and Wales (Registered Number 2662226), which holds an Instrument of Appointment dated 1 August 1989 under sections 11 and 14 of the Water Act 1989 (now Sections 6, 7, 11 and 12 of the Water Industry Act 1991) under which the Secretary of State for the Environment appointed Bristol Waterworks Company (now Bristol Water plc) as a water undertaker under the Water Industry Act 1991 for the areas described in the Instrument of Appointment. |
|---|---|
| Guarantor: | Bristol Water Core Holdings Limited, a company incorporated with limited liability under the laws of England and Wales (Registered Number 4637554). |
| Manager: | HSBC Bank plc |
| Bond Trustee: | Capita Trust Company Limited |
| Security Trustee: | Capita IRG Trustees Limited |
| Paying Agent: | Citibank, N.A., London Branch |
| Bonds: | £40,000,000 2.701 per cent. Index-Linked Secured, Guaranteed Bonds due 2041 |
| Issue Price: | 100.00 per cent. |
| Closing Date: | 25 March 2011 |
| Use of Proceeds: | The proceeds of the issue of the Bonds will be used by the Issuer for general corporate purposes. See "Use of Proceeds". |
| Status of Bonds: | The Bonds are senior and secured obligations of the Issuer and at all times shall rank pari passu with all Qualifying Debt. The Bonds are guaranteed by the Guarantor. |
| Status of Guarantee: | The guarantee by the Guarantor is a secured, unsubordinated and unconditional obligation of the Guarantor, and is secured by the Security Documents. |
| Form and Denomination: | The Bonds will be issued in bearer form in the denominations of £100,000 and integral multiples of £1,000 in excess thereof, up to and including £199,000. No definitive Bonds will be issued with a denomination above £199,000. |
| Maturity Date: | The maturity date of the Bonds is 25 March 2041. |
| Redemption and Purchase: | See "Terms and Conditions of the Bonds". |
| Artesian Financing: | In May 2003, the Issuer and the Guarantor entered into certain financing arrangements (the "Artesian Financing") pursuant to which loan facilities in aggregate of £45 million were made available to the Issuer by The Royal Bank of Scotland plc |
("RBS") and novated to Artesian Finance plc and Artesian Finance II plc (together, the "Artesian Companies") (each an "Artesian Loan" and together, the "Artesian Loans"). The Artesian Companies advanced a further £53.5 million to the Issuer in February 2004 and £50.1 million in June 2005 under the Artesian Loans. The Artesian Loans represent Qualifying Debt (as defined below) under the terms of the STID (as defined below) and, as at the date of this Prospectus, represent £167.6 million of the aggregate principal amount outstanding under all Qualifying Debt of the Issuer. The Artesian Companies are special purpose vehicles established to finance U.K. water companies through the issuance of bonds guaranteed by a monoline insurer, Assured Guaranty (Europe) Ltd (formerly Financial Security (U.K.) Limited) ("AGE"). As part of the Artesian Financing, the Issuer and the Artesian Companies agreed to establish a common covenant and common security package for the benefit of all Qualifying Debt (as defined below) issued by the Issuer from time to time (see "Intercreditor Arrangements" below). For a further explanation of the Artesian Financing, see the section entitled "Intercreditor and Security Arrangements – The Artesian Financing and Qualifying Debt".
Other Existing Qualifying Debt: In addition to the Artesian Loans, other Qualifying Debt of the Issuer as at 28 February 2011 comprises loans made to the Issuer by The Royal Bank of Scotland plc, loans made to the Issuer by HSBC Bank plc and certain finance leases, amounting to a total of £47.6 million (excluding, for the avoidance of doubt, the Bonds). The Bonds, when issued, will also constitute Qualifying Debt. For more information on the existing Qualifying Debt of the Issuer, see the section entitled "Intercreditor and Security Arrangements – The Artesian Financing and Qualifying Debt".
Intercreditor Arrangements: As part of the Artesian Financing, the Issuer, the Guarantor, the Artesian Companies and the Security Trustee entered into a security trust and intercreditor deed dated 7 May 2003 (as amended and restated on 12 February 2004 and 15 June 2006) (the "STID"). The Bond Trustee shall, for itself and on behalf of Bondholders, accede to the STID by executing a Deed of Accession on or before the Closing Date. The STID, among other things, sets out (i) the representations, warranties and covenants to which the Issuer is subject and (ii) the trigger events and acceleration events which apply to the Artesian Loans and any other indebtedness (including the Bonds) that ranks pari passu with the Artesian Loans (the "Qualifying Debt"). In addition, the STID provides that the exercise of acceleration and enforcement rights by the Secured Creditors (including the Bond Trustee) is subject to the discretion of the party that holds the greatest proportion of the aggregate principal amount outstanding under any Qualifying Debt (as
described in more detail in the sub-section entitled "Controlling Finance Party" of the section entitled "Intercreditor and Security Arrangements") (the "Controlling Finance Party"), subject to the application of Entrenched Rights and Reserved Matters. As at the date of this Prospectus, the Controlling Finance Party is the Artesian Security Trustee which, under the terms of the Artesian Financing, will act on the instructions of the controlling creditor of the Artesian Companies, being AGE. For a further explanation of the provisions of the STID, see the section entitled "Intercreditor and Security Arrangements – the STID".
Security Arrangements: Upon accession by the Bond Trustee to the STID, the Bonds will be secured by (i) the Issuer pursuant to a security document entered into with the Security Trustee and dated 7 May 2003 (the "Issuer Debenture") and (ii) the Guarantor pursuant to a security document entered into with the Security Trustee and dated 7 May 2003 (the "Guarantor Debenture").
Cross-acceleration: The Bonds will have the benefit of a cross-acceleration provision contained in the STID, whereby if any Indebtedness for Borrowed Money of the Issuer that is in excess of 2 per cent. of RAV is declared to be or otherwise becomes due and payable prior to its stated maturity by reason of default by the Issuer, this will constitute an Acceleration Event under the STID. For a further explanation of the Acceleration Events that apply in respect of the Bonds, see the section entitled "Intercreditor and Security Arrangements – the STID – Acceleration Events".
Other Covenants: The representations, warranties, covenants (positive, negative and financial), trigger events and acceleration events which apply to the Bonds, and all other Qualifying Debt, are set out in the STID and include, among others:
consequences of the occurrence of a Trigger Event include: (i) a restriction on dividends and (ii) at the request of the Controlling Finance Party, the commission of an independent review to examine the causes of the Trigger Event and to recommend corrective measures; and
Acceleration Events which occur upon breach of the financial covenants referred to above or upon a failure to pay principal or interest owed to a Qualifying Debt Holder, the revocation of the Instrument of Appointment or any other consent or licence, the appointment of a receiver, or insolvency or the making of a special administration order in respect of the Issuer. The consequences of an Acceleration Event include: the right of the Controlling Finance Party to direct (i) the acceleration of the Qualifying Debt and (ii) the enforcement of the Security.
For a further explanation of the provisions of the STID, see the section entitled "Intercreditor and Security Arrangements – the STID".
Taxation: All payments in connection with the Bonds will be made without withholding or deduction for or on account of any taxes, duties or other levies of whatever nature unless such withholding or deduction is required by applicable law. To the extent such withholding or deduction is in respect of tax, imposed or levied by or on behalf of the United Kingdom (the "U.K.") or any authority thereof or therein having power to tax, the Issuer will pay such additional amounts as will result in the receipt by the Bondholder or Couponholder of such amount as would have been received by such holder had no such withholding or deduction been so required, subject to customary exceptions. See Condition 9 (Taxation).
Rating: The rating on the Bonds addresses the timely receipt of scheduled interest payments and the ultimate payment of principal on the Bonds in accordance with the Issue Documents. The rating assigned to the Bonds by Moody's will reflect only the views of Moody's.
Issue Documents: The Bonds, the Trust Deed and the Paying Agency Agreement.
Governing Law: The Issue Documents and all non-contractual obligations arising out of or in connection with them will be governed by English law.
Listing and Trading: Applications have been made for the Bonds to be admitted to listing on the Official List and to trading on the regulated market of the London Stock Exchange.
Clearing Systems: Euroclear/Clearstream, Luxembourg.
Selling Restrictions: See the section entitled "Subscription and Sale".
Financial Information: In respect of the Issuer, see the section entitled "Documents
Incorporated by Reference" and, in respect of the Guarantor, see "Part I – 2010 Audited Financial Statements" and "Part II – 2009 Audited Financial Statements" of "Auditors Report and Financial Statements of the Guarantor".
The Issuer and the Guarantor believe that the following factors may affect their ability to fulfil their obligations under the Bonds. All of these factors are contingencies which may or may not occur and the Issuer and the Guarantor are not in a position to express a view on the likelihood of any such contingency occurring.
Factors which the Issuer and the Guarantor believe may be material for the purpose of assessing the market risks associated with the Bonds are also described below.
The Issuer and the Guarantor believe that the factors described below represent the principal risks inherent in investing in the Bonds, but the Issuer and the Guarantor may be unable to pay interest, principal or other amounts on or in connection with the Bonds for other reasons, and the Issuer and the Guarantor do not represent that the statements below regarding the risks of holding the Bonds are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this Prospectus (including any documents incorporated by reference herein) and reach their own views prior to making any investment decision.
The Issuer operates in an industry that is substantially influenced by the service levels, regulatory targets and price determinations set by its economic regulator, Ofwat, as well as Ofwat's assessment of its delivery against these.
The price determinations periodically made by Ofwat limit the prices the Issuer can charge its customers. Under the terms of the Issuer's Instrument of Appointment, Ofwat is required to review the Issuer's price limits periodically (currently every five years). Ofwat's determination of price limits may be appealed to the Competition Commission (the "CC"). The price limits were last reviewed and reset by Ofwat in 2009 for the five-year period from April 2010 and following rejection by the Issuer were subsequently amended by the CC. The conditions of the Issuer's Instrument of Appointment, including any condition relating to the prices the Issuer can charge its customers, can be modified by Ofwat either with the Issuer's agreement, or following reference to the CC on public interest grounds.
Implicit within the most recent price limits set by Ofwat (as amended by the CC) are assumptions concerning the Issuer's future operating expenditure and the achievement of operating cost savings. If these efficiencies are not achieved this may be reflected in less favourable outcomes in future profitability and cashflows or in Ofwat's future price determinations.
The regulated business requires significant capital expenditure, particularly in relation to new and replacement plant and equipment for water distribution networks and treatment facilities. Historically, the Issuer has financed this capital expenditure from operating cashflow, from external debt, an issue of irredeemable preference shares and retained profits. There can be no assurance that operating cashflows will not decline or that external debt financing and other sources of capital will be available or at similar cost to that assumed by Ofwat, in order to meet future capital expenditure requirements.
Delivery of capital investment programmes could also be affected by a number of factors including adverse legacy effects of earlier capital investments (such as increased maintenance or enhancement costs), failure to adequately deliver specified outputs or amounts funded in regulatory capital investment programmes proving insufficient to meet the actual amount required. This may affect the Issuer's ability to meet regulatory and other environmental performance standards, which may result in fines imposed by the Issuer's regulators of an amount of up to 10 per cent. of regulated business turnover for each infringement or other sanctions.
For the 2010-15 period, Ofwat has introduced a new comparative incentive mechanism to reward or penalise water companies' service performance, replacing the overall performance assessment ("OPA"). The service incentive mechanism ("SIM") compares companies' performance in terms of the quality of service that is delivered to customers. The SIM comprises both a quantitative measure of complaints and unwanted contacts, and a qualitative measure, based on survey evidence, that looks at how satisfied customers are with the quality of service that they receive. The SIM will be measured over the period 2011/12 to 2013/14. Depending upon the Issuer's relative performance under the SIM it could receive a reduced or increased revenue allowance when price limits are next reset in 2014.
The Issuer is required to maintain the serviceability of its water assets, ensuring they continue to deliver a level of service and performance at least as good as in the past. Where serviceability falls below required reference levels of performance Ofwat may impose a reduced revenue allowance at the next price-setting review. In addition, if performance were to decline, the Issuer may incur additional operating or capital expenditure to restore performance.
In recent years, the global banking crisis and economic downturn have impacted the bank lending environment, as well as the debt and equity capital markets. This has resulted in making the arranging of finance and issuance of new equity and debt capital potentially more expensive and difficult to secure.
A compounding challenge arises from the relationship between the regulatory asset value ("RAV") of the Issuer and the Retail Prices Index ("RPI"). The RAV is adjusted annually for inflation so, if RPI decreases, the RAV would be adjusted downward to reflect this. This may lead to pressure on gearing and other key financial ratios, which may have an adverse impact on the credit ratings of the Issuer, and increase the cost or limit the availability of credit. In the extreme, the Issuer may be required to increase its equity base by either reducing its dividend payments or raising new equity capital. The global economic environment continues to present difficult trading and financing conditions for customers, contractors and suppliers of materials and/or services to the Issuer.
The Issuer operates both defined benefit and defined contribution pension arrangements. Pension arrangements for the majority of the Issuer's employees are provided through the Issuer's membership of the Water Companies' Pension Scheme ("WCPS"), which provides defined benefits based on final pensionable pay. The Issuer's pension assets and liabilities are managed within a separate section of WCPS. The Issuer's section was closed to new employees in 2002. Since that closure all new employees are offered membership of a stakeholder pension scheme outside of WCPS. Estimates of the amount and timing of future funding for the Issuer's defined benefits scheme are based on various actuarial assumptions and other factors including, among other things, the actual and projected market performance of the scheme assets, future long-term bond yields, average life expectancies and relevant legal requirements. The impact of these assumptions and other factors may require the Issuer to make additional contributions to its pension scheme which, to the extent they are not recoverable under the regulatory price determination process, could materially adversely affect the Issuer's results of operations and financial condition.
The Issuer is subject to various laws and regulations in the U.K. and internationally. Regulatory authorities may, from time to time, make enquiries of companies within their jurisdiction regarding compliance with regulations governing their operations. In addition to regulatory compliance proceedings, the Issuer could become involved in a range of third party proceedings relating to, for example: land use, environmental protection and water quality. Amongst others, these may include civil actions by third parties for infringement of rights, nuisance claims or other matters.
Furthermore, the impact of future changes in laws or regulations or the introduction of new laws or regulations that affect the business cannot always be predicted and, from time to time, interpretation of existing laws or regulations may also change or the approach to their enforcement may become more rigorous. The government is currently developing a "Water White Paper" to be published early summer 2011 which may result in new legislation, including in relation to water charging, Ofwat and increased competition (see below).
If the Issuer fails to comply with applicable law or regulations, in particular in relation to its Instrument of Appointment, or has not successfully undertaken corrective action, regulatory action could be taken that could include the imposition of a financial penalty (of up to 10 per cent. of relevant turnover for each infringement) or the imposition of an enforcement order requiring the Issuer to incur additional capital or operating expenditure to remedy its non-compliance. In the most extreme cases, non-compliance may lead to revocation of the Issuer's Instrument of Appointment or the appointment of a person appointed by the High Court under Sections 23 to 25 of the WIA to manage the affairs, business and property of the company (the "Special Administrator").
The Cave review of competition and innovation in water markets was published in April 2009 (the "Cave Review"). If its recommendations are implemented, this could eventually expand the competitive market allowing retail competition to all non-household customers as an initial step in opening markets to competition. The Cave Review also proposed that the retail divisions of Regulated Companies should be made legally independent from the remainder of their regulated businesses, and included recommendations for reform in respect of abstraction and discharge, 'upstream' activities and water industry structure. The government has stated that its proposed Water White Paper will set out its conclusions on the Cave Review and other potential developments in the water sector. Ofwat and the Environment Agency ("EA") are considering the introduction of reforms to the regulation of water abstraction licences that would allow trading of licences. Ofwat is also examining the scope for 'upstream' competition in treated water supply.
Ofwat has taken steps to introduce competition into the water supply market through inset appointments and the water supply licensing regime (see the sub-section entitled "Competition in the Water Industry" in the section entitled "Description of the Issuer" below). Prior to 2007 (with one exception), inset appointees had all been granted to existing regulated companies. Since 2007, Ofwat has granted more inset appointments, none of which are within the Issuer's water supply area. Further inset appointments may be made in the future, resulting in increased competition.
Ofwat or the government may take steps that lead to changes in the vertically integrated structure of the water industry with potentially adverse consequences to the financial position of the Issuer.
The Issuer controls and operates a water network and maintains the associated assets with the objective of providing a continuous service. In exceptional circumstances, a significant interruption of service provision or catastrophic damage could occur resulting in: significant loss of life; and/or environmental damage; and/or economic and social disruption. Such circumstances might arise, for example, from energy shortages; the failure of an asset or an element of a network or supporting plant and equipment; human error; unavailability of access to critical sites or key staff; malicious intervention; failure by a supplier; labour disputes; pollution or contamination; or naturally occurring events.
The Issuer could be fined for breaches of statutory obligations or held liable to third parties, or be required to provide an alternative water supply of equivalent quality, which could increase costs. Insurance cover may be inadequate or unobtainable.
The Issuer is also dependent upon the ability to access, utilise and communicate remotely via electronic software applications mounted upon corporate information technology hardware and communicating through internal and external networks. The ownership, maintenance and recovery of such applications, hardware and networks are not wholly under the Issuer's control.
Management has limited control over future energy or chemical costs, abstraction charges, levels of customer bad debt or taxes. Changes in these costs from the current position could materially affect the Issuer's future profitability or financial position, and so financial ratios.
A Regulated Company's ability to grant security over its assets and the enforcement of such security are restricted by the provisions of the Water Industry Act 1991, as amended (the "WIA"), and its Instrument of Appointment. For example, the WIA restricts a Regulated Company's ability to dispose of Protected Land (as such term is defined in the WIA). Accordingly, an Instrument of Appointment restricts a Regulated Company's ability to create a charge or mortgage over Protected Land. The Issuer estimates that the vast majority of its assets of value are tangible property which is Protected Land and cannot therefore be effectively secured. This necessarily affects the ability of the Issuer to create a floating charge over the whole or substantially the whole of its business. Furthermore, in any event, there is no right of a floating charge holder under the WIA to block the appointment of a Special Administrator.
The Secretary of State and Ofwat have rights under the WIA to appoint a Special Administrator in certain circumstances in respect of the Issuer and its business. The appointment of a Special Administrator effectively places a moratorium upon any holder of security from enforcing that security (see the section "Special Administration" below).
There are also certain legal restrictions which arise under the WIA and the Issuer's Instrument of Appointment affecting the enforcement of the security created under the Issuer Debenture. For example, such enforcement is prohibited unless the person enforcing the security has first given 14 days' notice to Ofwat or the Secretary of State, giving them time to petition for the appointment of a Special Administrator.
Accordingly, the security provided over the assets of the Issuer in favour of the Security Trustee in respect of the Issuer's obligations under the Bonds affords significantly less protection to the Security Trustee (and, therefore, the Bondholders) than would be the case if the Issuer were not a Regulated Company subject to the provisions of the WIA and its Instrument of Appointment.
The considerations described above do not apply to the fixed and floating charges created under the Guarantor Debenture. The enforcement of the Security granted under the Guarantor Debenture over the shares in the Issuer would not be subject to the moratorium set out in the WIA neither would it be an event which would itself result in the making of the Special Administration Order. Notwithstanding this, given Ofwat's general duties under the WIA to exercise its powers to ensure that the functions of a Regulated Company are properly carried out, the Issuer anticipates that any intended enforcement of the Security granted by the Guarantor over, and subsequently any planned disposal to a third party purchaser of, the shares in the Issuer would involve consultation with Ofwat. In addition, it is anticipated that any intended enforcement of the Security created by the Guarantor under the Guarantor Debenture, to the extent that such enforcement would amount to a relevant merger situation for the purposes of the Enterprise Act 2002 (the "Enterprise Act") or a concentration with a European Community dimension for the purposes of the Regulation (EC) No 139/2004 on the control of concentrations between undertakings (the EC Merger Regulation), would require consultation with Ofwat and would be reviewable by the Office of Fair Trading in the United Kingdom or the European Commission.
The WIA contains provisions enabling the Secretary of State or Ofwat (with the permission of the Secretary of State) to secure the general continuity of water supply by petitioning the High Court for the appointment of a Special Administrator in certain circumstances (for example, where the Issuer is in breach of its principal duties under its Instrument of Appointment or of the provisions of a final or confirmed provisional enforcement order (and in either case the breach is serious enough to make it inappropriate for the Issuer to continue to hold its Instrument of Appointment) or is unable, or is unlikely to be able, to pay its debts). In addition, a petition by a creditor of the Issuer to the High Court for the winding-up of the Issuer might result in the appointment of a Special Administrator where the court is satisfied that it would be appropriate to make such a winding-up order if the company were not a company holding an appointment under the WIA. The duties and functions of a Special Administrator differ in certain important respects to those of an administrator of a company which is not a Regulated Company.
During the period of the Special Administration Order, the Issuer has to be managed by the Special Administrator for the purposes of the order and in a manner which protects the interests of shareholders and creditors. As noted above, while the order is in force, no steps may be taken to enforce any security over the property of the Issuer except with the consent of the Special Administrator or the leave of the court. A Special Administrator would be able to dispose of assets free of any floating charge existing in relation to them. On such a disposal, however, the proceeds would be treated as if subject to a floating charge which has the same priority as that afforded to the original security. A Special Administrator may not dispose of property which is the subject of a fixed charge without the agreement of the relevant creditor except under an order of the court. On such a disposal, the Special Administrator must account for the proceeds to the chargee, although the disposal proceeds to which the chargee is entitled are determined by reference to "the best price which is reasonably available on a sale which is consistent with the purposes of the Special Administration Order" as opposed to an amount not less than "open market value", which would apply in a conventional administration for a company which is not a Regulated Company under English insolvency legislation.
Due to the statutory purposes of a Special Administration Order, it is not open to a Special Administrator to accept an offer to purchase the assets on a break-up basis in circumstances where the purchaser would be unable properly to carry out the relevant functions of a Regulated Company. Where the Special Administrator determines that the business of the Regulated Company should be transferred to one or more different companies as a going concern, the transfer is effected by a transfer scheme which the Special Administrator puts in place, subject to the approval of the Secretary of State or Ofwat on behalf of the existing Regulated Company. The transfer scheme may provide for the transfer of the property, rights and liabilities of the existing Regulated Company to the new Regulated Company(ies) and may also provide for the transfer of the existing Regulated Company's Instrument of Appointment (with modifications as set out in the transfer scheme) to the new Regulated Company(ies).
There can be no assurance that any transfer scheme in the context of a Special Administration regime could be achieved on terms that would enable creditors to recover amounts due to them in full.
The Enterprise Act sets out certain reforms to corporate insolvency law contained in the Insolvency Act 1986, including the introduction of a prohibition on the appointment of an administrative receiver in relation to companies incorporated in England and Wales, such as the Guarantor. Unless a floating charge falls within one of the exceptions contained in the Enterprise Act, the holder of a qualifying floating charge will be prohibited from appointing an administrative receiver to a company and, consequently, the ability to prevent the appointment of an administrator to such company will be lost. Such ability will not be applicable in the case of the Issuer which is subject to the Special Administration regime (see the section "Risk Factors – English law security and insolvency considerations – Special Administration" above).
The Enterprise Act also provides that, on an insolvency of a company, a certain proportion of realisations in respect of certain classes of assets subject to a floating charge shall be made available for the satisfaction of unsecured creditors.
The law in England and Wales relating to the characterisation of fixed charges is unsettled. The fixed charges purported to be granted by the Issuer and the Guarantor (other than by way of assignment in security) may take effect under English law as floating charges only, if, for example, it is determined that the Security Trustee does not exert sufficient control over the assets subject to such charge. If the charges take effect as floating charges instead of fixed charges, then, as a matter of law, certain claims would have priority over the claims of the Security Trustee in respect of the floating charge assets.
The interests of the Secured Creditors in property and assets over which there is a floating charge will rank behind the expenses of any administration or liquidator and the claims of certain preferential creditors on enforcement of the Security. Section 250 of the Enterprise Act 2002 abolishes Crown preference in relation to all insolvencies and thus reduces the categories of preferential debts that are to be paid in "prescribed part" (up to a maximum amount of £600,000) of the floating charge realisations available for distribution to be set aside to satisfy the claims of unsecured creditors. This means that the expenses of any administration, the claims of preferential creditors and the beneficiaries of the prescribed part will be paid out of the proceeds of enforcement of the floating charge ahead of amounts due to Bondholders. The prescribed part will not be relevant to property subject to a valid fixed security interest or to a situation in which there are no unsecured creditors.
Set out below is a brief description of certain risks relating to the Bonds generally:
The Bonds will not be obligations or responsibilities of, nor will they be guaranteed by, any party other than the Issuer and the Guarantor. The guarantee by the Guarantor may be of limited value because it does not own, nor will it own, any significant assets other than its investment in the Issuer.
The Bondholders' rights against the Issuer are subject to the STID. The STID contains provisions pursuant to which each Secured Creditor, including the Bond Trustee, agrees that, subject to Entrenched Rights and Reserved Matters, it will only exercise any Finance Rights (including the right to accelerate the Bonds and to enforce the Security) at the behest of, and as instructed, or as consented to by, the Controlling Finance Party.
The Controlling Finance Party is the Artesian Security Trustee which, in accordance with the terms of the Artesian Financing, shall seek instructions from the controlling creditor of the Artesian Companies. As at the date of this Prospectus, such controlling creditor is AGE.
As a result, at any time that the Bond Trustee is not the Controlling Finance Party, it shall have no right, power or authority to enforce the performance of any covenant or obligation of the Issuer under the STID or any of the Issue Documents, accelerate the Bonds or to take any enforcement action in respect of the Charged Assets. Accordingly, decisions relating to and binding upon the Bonds may be made by persons other than the Bondholders and whose interests differ from the interests of Bondholders.
Notwithstanding the above, Bondholders' rights will not be subject to the discretion of the Controlling Finance Party:
The circumstances in which Bondholders are entitled to vote are limited under the STID. In the event that the Bondholders are entitled to vote (for example, if the Bond Trustee becomes the Controlling Finance Party or Bondholders are required to consider any matter that gives rise to an Entrenched Right or Reserved Matter or, as above, in the circumstances described in paragraph (b) of "Bondholders rights subject to the STID" above), Bondholders will vote on such matter in accordance with the Terms and Conditions of the Bonds, which contain provisions for calling meetings of Bondholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Bondholders including Bondholders who did not attend and vote at the relevant meeting and Bondholders who voted in a manner contrary to the majority. As a result, Bondholders can be bound by the result of a particular matter that they voted against.
The Terms and Conditions of the Bonds also provide that, subject to the STID, the Bond Trustee may, without the consent of Bondholders, agree to (a) any modification of any provision of the Trust Deed which is, in the opinion of the Bond Trustee, of a formal, minor or technical nature or is made to correct a manifest error, (b) any other modification (except as mentioned in the Trust Deed) or any waiver or authorisation of any breach or proposed breach of any provision of the Trust Deed which is, in the opinion of the Bond Trustee, not materially prejudicial to the interests of the Bondholders or (c) the substitution of another company as principal debtor under any Bonds in place of the Issuer, in the circumstances described in Condition 13 (Meetings of Bondholders, Modification, Waiver and Substitution).
Subject to the terms of the STID, which provides that the Issuer may only incur additional indebtedness provided that it satisfies certain conditions (see the section entitled "Intercreditor and Security Arrangements – the STID – Covenants"), there is no restriction on the amount of securities which the Issuer may issue which rank pari passu with the Bonds being offered hereby. The issue of any such securities may reduce the amount recoverable by holders of the Bonds in the event that the Issuer is wound up or becomes insolvent or may increase the likelihood of a deferral of payments under the Bonds.
The interest on the Bonds is indexed to an RPI formula, and accordingly, significant risks exist that are not associated with a conventional fixed rate or floating rate debt security. Such risks include fluctuation of the RPI and the possibility that an investor will receive a lower amount of principal, premium or interest and at different times than expected. The Issuer has no control over a number of matters, including economic, financial and political events that are important in determining the existence, magnitude and longevity of such risks and their results. Potential investors should be aware that:
The historical experience of an index should not be viewed as an indication of the future performance of such index during the term of the Bonds. Accordingly, each potential investor should consult its own financial and legal advisers about the risk entailed by an investment in the Bonds and the suitability of such Bonds in light of its particular circumstances.
In the event that amounts due under the Bonds are subject to U.K. withholding tax, the Issuer may not be obliged to pay additional amounts in relation thereto if Bondholders fall within certain exceptions to the obligation to pay such additional amounts. In addition, the Issuer may, in certain circumstances, redeem the Bonds (as described in Condition 7(b) (Redemption for taxation reasons)). The applicability of any U.K. withholding tax under current law is discussed under "Taxation - Withholding Tax".
The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (1) Bonds are legal investments for it, (2) Bonds can be used as collateral for various types of borrowing and (3) other restrictions apply to its purchase or pledge of any Bonds. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of Bonds under any applicable risk-based capital or similar risks.
The Terms and Conditions of the Bonds are based on English law in effect as at the date of issue of the Bonds. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of issue of the Bonds.
The Bonds have a denomination consisting of the minimum specified denomination of £100,000 plus a higher integral multiple of another smaller amount. As such, it is possible that the Bonds may be traded in amounts in excess of £100,000 (or its equivalent) that are not integral multiples of £100,000 (or its equivalent). In such a case a Bondholder who, as a result of trading such amounts, holds a principal amount of less than the minimum specified denomination will not receive a definitive Bond in respect of such holding (should definitive Bonds be printed) and would need to purchase a principal amount of Bonds such that it holds an amount equal to one or more specified denominations.
Unless the Global Bonds are exchanged for definitive Bonds, which exchange will only occur in the limited circumstances set out under the section entitled ''Summary of Provisions relating to the Bonds while in Global Form'' below, the beneficial ownership of the Bonds will be recorded in book-entry form only with Euroclear and Clearstream, Luxembourg. The fact that the Bonds are not represented in physical form could, among other things:
The ratings on the Bonds address the timely receipt of scheduled interest payments and the ultimate repayment of principal on the Bonds in accordance with the Issue Documents. A rating is not a recommendation to buy, sell or hold securities and will depend, among other things, on certain underlying characteristics of the business and financial condition of the Issuer and circumstances relating to the water industry generally.
There is no assurance that any such rating will continue for any period of time or that it will not be reviewed, revised, suspended or withdrawn entirely by Moody's as a result of changes in, or unavailability of, information or if, in Moody's judgment, circumstances so warrant. If any rating assigned to the Bonds is lowered or withdrawn, the market value of the Bonds may be reduced. Future events, including events affecting the Issuer and/or circumstances relating to the water industry generally, could have an adverse impact on the ratings of the Bonds.
Bonds may have no established trading market when issued, and one may never develop. If a market does develop, it may not be liquid. Therefore, investors may not be able to sell their Bonds easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. This is particularly the case for Bonds that are especially sensitive to interest rate, currency or market risks, are designed for specific investment objectives or strategies or have been structured to meet the investment requirements of limited categories of investors. These types of Bonds generally would have a more limited secondary market and more price volatility than conventional debt securities. Illiquidity may have a severely adverse effect on the market value of Bonds.
If the United Kingdom joins the European Monetary Union prior to the maturity of the Bonds, there is no assurance that this would not adversely affect investors in the Bonds. It is possible that prior to the maturity of the Bonds the United Kingdom may become a participating Member State and that the Euro may become the lawful currency of the United Kingdom. In that event: (i) all amounts payable in respect of the Bonds may become payable in Euro; (ii) the law may allow or require the Bonds to be re-denominated into Euro and additional measures to be taken in respect of such Bonds; and (iii) there may no longer be available published or displayed rates for deposits in Sterling used to determine the rates of interest on the Bonds or changes in the way those rates are calculated, quoted and published or displayed. The introduction of the Euro could also be accompanied by a volatile interest rate environment, which could adversely affect investors in the Bonds.
Under EC Council Directive 2003/48/EC on the taxation of savings income (the "Savings Directive"), each Member State is required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual or to certain other persons in that other Member State. However, for a transitional period, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other territories).
If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any Bond as a result of the imposition of such withholding tax. The Issuer is required to maintain a Paying Agent in a Member State that is not obliged to withhold or deduct tax pursuant to the Savings Directive.
On 15 September 2008, the European Commission issued a report to the Council of the European Union on the operation of the Savings Directive, which included the European Commission's advice on the need for changes to the Savings Directive. On 13 November 2008, the European Commission published a more detailed proposal for amendments to the Savings Directive, which included a number of suggested changes. The European Parliament approved amendments to this proposal on 24 April 2009. If any of those proposed changes are made in relation to the Savings Directive, they may amend or broaden the scope of the requirements described above. Prospective Bondholders who are in any doubt as to their position should consult their professional advisers.
The Issuer, as it exists today, is the result of over 160 years of amalgamation of water undertakings within the Bristol area. The Bristol Waterworks Company was incorporated as a statutory company by act of Parliament in 1846. After initially serving the needs of the City of Bristol, it grew by acquisition starting in 1952 with the take-over of the Portishead District Water Company. 18 further local water undertakings (owned by a variety of local rural and urban councils) were amalgamated into the Issuer between 1952 and 1964. Being already a listed company, the Issuer was not privatised in 1989 when the water and sewerage companies became listed entities for the first time and new systems of regulation were put in place.
Under a scheme of arrangement in 1991, the Bristol Waterworks Company became Bristol Waterworks plc and subsequently Bristol Water plc, as a subsidiary of the newly incorporated Bristol Water Holdings plc (now Bristol Water Holdings Ltd, "BW Holdings"). The capital of the Bristol Waterworks Company was restructured and shareholders were issued with shares in BW Holdings, in place of their shareholding in the Bristol Waterworks Company.
In 1992, the Issuer issued £12.5 million of irredeemable preference shares. These and four small tranches of debentures remain listed on the London Stock Exchange.
In 2003 Bristol Water Group plc ("BW Group") was established as the ultimate group parent company under a further scheme of arrangement in conjunction with the first of two returns of capital to shareholders. The returns were facilitated by the strategic exit from non-regulated businesses and utilisation of the Artesian Loans to provide long-term debt to the Issuer.
In June 2006, all of the shares of BW Group were acquired by Sociedad General de Aguas de Barcelona S.A. ("Agbar"). The Agbar group of companies ("Agbar Group") is dedicated to services, distribution and the treatment of water and wastewater in Spain and internationally. The Agbar Group comprises more than 200 companies, with the Issuer being the fifth largest individual business unit within the Agbar Group. BW Group was de-listed from the London Stock Exchange on 15 June 2006, re-registered as a limited company on 3 October 2006 and renamed Agbar UK Ltd ("Agbar UK") in 2009.
Following a long period of holding a substantial interest, Suez Environnement S.A. ("Suez Environnement") increased its holding in Agbar to 75.23 per cent. Suez Environnement is a French-based utilities company providing solutions in the drinking water, wastewater treatment and waste management fields around the globe and for the year ending 31 December 2010 had a turnover in excess of €13.8 billion. Worldwide, Suez Environnement supplies 90 million people with drinking water, 58 million people with sanitation services and 46 million people with waste collection services. GDF Suez S.A. ("GDF Suez") is the major shareholder of Suez Environnement, holding 35.4 per cent. of Suez Environnement.
Suez Environnement is now the ultimate Holding Company for the Agbar UK group of companies (comprising the Issuer, the Guarantor, BW Holdings and Agbar UK and a number of non-regulated subsidiaries and joint ventures, together the "Agbar UK Group"), the principal business of which is the Issuer, the Agbar UK Group's regulated water company.
Regulatory ring-fencing is common to each of the regulated water companies in England and Wales pursuant to their respective Instruments of Appointment. Ring-fencing conditions ensure that regulated businesses are treated as separate from other businesses within a corporate group structure. Important features are designed to ensure that the regulated business is protected from any adverse developments in other parts of the Agbar Group and that the Regulated Company (defined below in "The Issuer's Business") has the ability to manage and finance itself.
The Bristol Water group of companies was restructured in 2003, prior to and unassociated with the acquisition by Agbar, establishing a ring-fenced financing group comprising the Issuer and its immediate parent, the Guarantor (the "Group"), to separate (so far as practicable) the regulated business financially and operationally from the rest of what is now referred to as the Agbar UK Group.
Set out below is a structure diagram of the Group and its relationship to the Agbar Group, as of the date hereof:
Centred on the City of Bristol, the Issuer serves an area that stretches from Tetbury in the north to Street and Glastonbury in the south and Weston-super-Mare in the west to Frome in the east. The Issuer is one of eleven significant regulated water only supply companies in England and Wales. It provides water services to over 1.1 million people and businesses in an area covering approximately 2,400 square kilometres. The statutory accounts show, for the year ended 31 March 2010, the Issuer generated turnover of £99.7 million and its net cash inflow from operations was £48.0 million. For further details, see the audited financial statements of the Issuer for the year ended 31 March 2010. The unaudited results for the six months ended 30 September 2010 show turnover of £50.3 million and net cash inflow from operations of £19.4 million.
The directors of the Issuer and their functions within the Issuer are set out below. The business address of each of the directors is the Issuer's registered office, which is PO Box 218, Bridgwater Road, Bristol, BS99 7AU. The telephone number of the Issuer is 0117 966 5881.
| Name | Function |
|---|---|
| Moger Woolley DL | Non-Executive Chairman |
| Luis Garcia | Chief Executive |
| Alan Parsons | Director1 |
| Miquel Anglada | Finance Director |
| Robert Brito | Operations Director |
| Mike King | Regulatory Director |
| Peter McIlwraith | Independent non-Executive Director |
| Christopher Curling | Independent non-Executive Director |
| Robert Davis | Independent non-Executive Director |
| Juan Antonio Guijarro | Non-Executive Director |
| Manuel Cermerón | Non-Executive Director |
| Anthony Harding | Non-Executive Director |
There is no existing or potential conflict of interest between the directors' duties to the Issuer and/or their private interests or other duties. Where directors hold other directorships within the wider group, they take no part in authorising any related party transactions.
The company secretary of the Issuer is Stephen Robson.
The Issuer is a public limited company registered under the Companies Act under number 2662226. In England and Wales, almost all water and sewerage services are supplied by ten Water and Sewerage Companies ("WaSCs") and eleven Water Only Companies ("WOCs") which are all subject to the same regulatory regime (the "Regulated Companies" or a "Regulated Company"). The Issuer is a WOC and does
1 Alan Parsons, the former Managing Director, will retire from the Board on 30 September 2011.
not carry out wastewater collection and treatment. Sewerage services locally are mainly provided by Wessex Water Services Limited ("Wessex Water"). The Issuer and Wessex Water provide unified billing for customers for the Issuer's water supply service and Wessex Water's wastewater services under contract through a joint venture company, Bristol Wessex Billing Services Limited (50 per cent. owned by Agbar Solutions Limited and 50 per cent. by the Wessex Water group).
The Issuer also has some small non-appointed activities. These non-core activities include the operation of restaurants and fishing at the leisure facilities sited on the Issuer's reservoirs. A small plumbing and industrial service business is in the process of being transferred to another company in the Agbar UK Group.
Set out below is a schematic map of the Issuer's water supply area:
The Issuer's objective is to provide a reliable supply of water of a quality that meets statutory and regulatory requirements, delivered in a sustainable and affordable way. The Issuer works towards achieving this objective by:
creating value by operating as efficiently as possible and outperforming regulatory targets;
acting in a reasonable and sustainable manner taking all stakeholder views into account; and
In working to achieve such an objective, compromises must be made to find the right balance between the conflicting demands of keeping prices to a minimum while:
The Issuer's company policy is to pay an annual level of ordinary dividends comprising an amount equal to the post-tax interest receivable from Agbar UK in respect of intercompany loans of approximately £3 million per annum (paying half yearly in March and September) and a further dividend reflecting the cost of capital allowed by the regulatory system. All such distributions will, however, be subject to the needs of the business and maintenance of the key ratios. No dividend in respect of a return on the RAV is being paid in the year ended 31 March 2011 in order to retain cash within the business and support financial ratios. A return to a full dividend is expected before the end of the current five-year regulatory period. Dividends received by the Guarantor from the Issuer are immediately paid through to BW Holdings.
In July 2010, the government announced that it would, in future use the Consumer Price Index ("CPI") rather than the RPI, as the basis for determining the statutory minimum percentage increase for revaluation and indexation, in the Pensions Increase (Review) Order. This change is expected to be made law when the "Pension Increase Orders" are issued in March 2011. The Issuer expects to adopt CPI in its valuation of pension liabilities at 31 March 2011. This change in assumption is expected to have the effect of increasing net assets of the Issuer by approximately £7 million before taxation.
The Issuer's water supply services to customers consist of the abstraction of water and its subsequent treatment and distribution to homes and other premises. Abstraction involves the removal of water from surface sources, such as rivers, reservoirs and canals, and from underground sources, such as aquifers. All water is treated prior to being supplied to customers. In general, water abstracted from underground sources is of better quality and requires less treatment than water abstracted from rivers, canals and reservoirs which normally undergoes a complex sequence of advanced treatment processes.
The area served by the Issuer is a varied mixture of hills, valleys, plateaus and soil types. The Issuer has to deal with many challenges arising from the varied geology and topography in its area. These include having to use many different types of raw water and treatment processes and approximately 6,700 kilometres of mains of different ages, materials and sizes.
As the Issuer moves raw and treated water around its networks, it must accommodate the changing landscape. This has resulted in water mains either taking indirect routes in order to avoid hill ranges, or additional pumping stations and booster stations being required in order to maintain water pressure and keep the water flowing into service reservoirs. Pressure reduction systems may then be used to reduce pressure at customers' taps. The Issuer moves over 100 million tonnes of water each year, resulting in significant power consumption for pumping. As well as having one of the higher average pumping heads in the country, the Issuer also has one of the oldest average lives of water mains in the country.
The demand for water in future years compared to available supplies of raw water is forecast by considering the components of residential and commercial/industrial supplies and leakage. This is supported by extensive analysis of domestic water use, economic analysis of trends in industrial demand and the evaluation of the economic levels of leakage. The forecasts are revised periodically and presented to Ofwat and the EA. Forecasts of demand include the distribution and predicted growth of population at local level and the impact of climate on the peak demand for water. Although there is seasonal fluctuation in the total water put into supply, the quantity of treated water supplies fluctuates owing to a variety of factors, such as dry weather and burst pipes due to freeze/thaw cycles affecting the ground during winter months. The long-term strategy to maintain the balance between supply and demand is documented in the Issuer's Water Resources Management Plan, which is a required regulatory return. The Issuer has an obligation to maintain supply to its customers at all times. This overall security of supply obligation is supplemented by specific annual leakage targets. These are set by Ofwat and have been consistently met for all reporting periods to 31 March 2010.
Ofwat sets caps on price increases and minimum service standards to be achieved and/or assessed through its five-year periodic reviews of all water companies. This process is described in more detail in subsequent sections. The outputs for the review period to 31 March 2010 have been substantially met and no regulatory enforcement action by Ofwat has been taken.
Ofwat measures a broad range of performances to ensure customer service is maintained at high levels. The company's Board monitors these measures, and others, monthly as "Key Performance Indicators".
Performance for the year ended 31 March 2010 is set out below together with commentary. Fuller details are provided in the company's annual returns to Ofwat (the "Annual Return").
| Measure | Performance in 2009/10 |
Target met | Comment |
|---|---|---|---|
| Water quality compliance | 99.97 per cent. | Yes | As reported to the Drinking Water Inspectorate for calendar 2010 |
| Security of Supply index | 100 per cent. | Yes | |
| Leakage target | 53 ML/d | Yes | Target was 54 M/ld |
| Water use restrictions | None | Yes | |
| Infrastructure asset serviceability | Stable serviceability | Yes | |
| Non-infrastructure asset serviceability |
Stable serviceability | Yes | |
| DG2 – pressure standard | 0.01 per cent. | Yes |
| DG3 – interruptions | 0.38 | No | Target was 0.25 (weather affected 2009/10 performance) |
|---|---|---|---|
| DG6 – billing queries | 100 per cent. | Yes | |
| DG7 – complaint responses | 99.9 per cent. | Marginally below |
Target was 100 per cent. |
| DG8 – meter reading | 100 per cent. | Yes | |
| DG9 – customer satisfaction score | 96 per cent. | Yes | New measure with no target |
| DG9 – engaged tone | 0.6 per cent. | Yes | |
| DG9 – abandoned calls | 2.0 per cent. | N/A | Basis of measurement changed from original target setting |
| Overall Performance Assessment | 97.9 per cent. of maximum |
N/A | The score of 282 out of 288 placed the Issuer 9th in the industry on this measure |
Performance to date in 2010/11 is at high levels, similar to those of prior years. Although the calendar year 2010 was an abnormally dry year in the Issuer's water supply area, reservoir levels are adequate to ensure water use restrictions are unlikely during 2011. The extended cold period and related rapid thaw in December 2010 resulted in a significant increase in the number of mains bursts and in leakage. Ofwat reviews both of these measures carefully when the full year results are reported.
During the year ended 31 March 2010, the Issuer treated an average of 278 million litres of water per day for use by approximately 0.5 million properties in the Issuer's water supply area.
Approximately 73 per cent. of water delivered was used by domestic customers, of whom approximately 33 per cent. are charged by volume consumed with the balance charged by reference to their property's rateable value. The number of domestic connections has been growing by approximately 1 per cent. each year. All new properties are metered. Domestic customers can opt to be charged by meter at no direct cost to themselves. These two factors together have been increasing the proportion of domestic meter penetration by around 2 per cent. annually.
Since 2000 domestic customers cannot be disconnected from their supply for failure to pay their bill. This adds to debt collection costs and bad debt write offs. An allowance for bad debts is included when Ofwat sets price limits.
Non-domestic customers are predominately charged by metered volumes. The Issuer has around 33,000 nondomestic customers, however, no single customer accounts for more than 0.6 per cent. of the Issuer's revenues.
The Issuer owns five raw water reservoirs that store run off from the Mendip Hills. In addition it has five reservoirs directly ahead of treatment works. The Issuer owns and operates 16 water treatment works, 164 pumping stations, 139 treated water storage reservoirs and maintains some 6,700 kilometres of water mains of varied types and sizes.
The Issuer takes approximately half its raw water needs from the Gloucester to Sharpness Canal that is fed by inflow from rivers running off the Cotswolds and through a pumped abstraction from the River Severn. There is a long-term management agreement with British Waterways who control the canal. The balance of water needs are met primarily from the Issuer's Mendip reservoirs supplemented by approximately 15 per cent. of total needs from boreholes.
The Issuer has established a flexible system of water treatment and delivery that facilitates cost effective utilisation of sources whilst being able to manage reservoir levels to avoid, except in extreme or abnormal circumstances, restrictions on the use of water by customers.
The water industry invests heavily in maintenance and new assets in order to meet its obligations for service delivery and to meet required standards. The Issuer's level of capital investment in five-year periods has been or is projected to be (all figures are stated in 2009/10 values to aid comparison):
| AMP 1 | 5 years to 31 March 1995 | £136 million |
|---|---|---|
| AMP 2 | 5 years to 31 March 2000 | £134 million |
| AMP 3 | 5 years to 31 March 2005 | £124 million |
| AMP 4 | 5 years to 31 March 2010 | £159 million |
| AMP 5 | 5 years to 31 March 2015 | £244 million |
Ofwat takes account of these investment programmes when setting price limits, as described below under "Price control". The regulator's primary duties include a requirement to secure that Regulated Companies are able to finance the proper carrying out of their functions.
The Issuer's capital expenditure (including infrastructure renewals expenditure but after deducting contributions) ("capex") for the year to 31 March 2010 was £21.1 million. The Issuer has completed its 2005- 10 capital investment programme and commenced delivery of the next five-year capital investment programme. Forecast capital expenditure in the year to 31 March 2011 will be approximately £20 million. Capex will increase substantially for the remainder of the five-year period as the company now has certainty of its required outputs following the completion of the appeal to the CC described below.
The Issuer continually maintains and invests in its assets to ensure that a high standard of drinking water quality is maintained. To assess compliance with drinking water standards prescribed in the Water Supply (Water Quality) Regulations 2000, the Issuer monitors water quality through an extensive programme of plant and telemetry controls, regular sampling and analysis.
The Issuer operates within a highly regulated industry in England and Wales and its operations are strongly influenced by economic, drinking water quality and environmental regulation. In particular, the Issuer's business and results are affected by the regulated tariff rates which the Issuer may charge its customers as approved by the economic regulator as well as by drinking water quality and environmental regulations and the terms of its Instrument of Appointment (see "Price control" below). The Issuer has been appointed as a Regulated Company. Appointments were originally granted to each of the WaSCs and WOCs by the Secretary of State for the Environment in 1989. These Instruments of Appointment continue in force for an indefinite period, subject to potential termination rights as set out below. The statutory basis for the regulation of the activities of Regulated Companies is now the WIA as amended, including by the Water Act 2003 (the "WA"). The fundamental statutory duty of a Regulated Company in respect of its water business is to develop and maintain an efficient and economical system of water supply within its supply area.
Regulation pursuant to these Instruments of Appointment is currently the responsibility of Ofwat, the economic and customer service regulator for the water industry in England and Wales. The independent Consumer Council for Water represents the interests of the customers of Regulated Companies.
Ofwat is controlled by a board that currently consists of the chair, a chief executive, two executive board members and five non-executive directors. Appointments to the Ofwat board are made by the Secretary of State for Environment, Food and Rural Affairs in consultation with the Welsh Assembly Government.
Ofwat must comply with its statutory duties as primarily laid out in the WIA. It may receive guidance from the Government in relation to its contribution to social and environmental policies, and is obliged to have regard to any such guidance in exercising its statutory functions. It also receives views from the Government on matters such as the approach to price controls. However, Ofwat is not subject to direction about what its judgements should be and is independent of Government ministers.
Ofwat must exercise its powers and duties in the manner that it considers is best calculated to:
Ofwat also has secondary duties that include an obligation to promote efficiency and economy on the part of Regulated Companies in the carrying out of their functions as such and to contribute to the achievement of sustainable development. It also has duties in exercising its powers to have regard to the effect on the environment and to the desirability of preserving any rights of recreational access.
In addition to the WIA, Ofwat also exercises powers under competition legislation concurrently with the Office of Fair Trading, most significantly the Competition Act 1998, the Enterprise Act 2002 and under Articles 101 and 102 of the Treaty on the Functioning of the European Union.
The Issuer's Instrument of Appointment is subject to a range of conditions including (amongst other things):
a prohibition on undue discrimination or undue preference in setting charges for water supply;
restrictions on the payment of dividends. Dividends can only be declared or paid in accordance with a dividend policy approved by the board of the Issuer which will not impair its ability to finance its functions and will reward efficiency and the management of economic risk;
Instrument of Appointment conditions can be modified by Ofwat, either with the Regulated Company's agreement or following reference to the CC for a decision on public interest grounds. The Issuer understands Ofwat is minded to make further changes to Instruments of Appointment across the industry. Instrument of Appointment modifications can also result, in certain circumstances, from a merger or market investigation reference to the CC.
In September 2006 Ofwat proposed a modification to WOC and WaSC Instruments of Appointment in order to introduce cash lock-up provisions similar to those already applied to energy companies. These provisions prohibit, subject to certain limited exceptions, and without the regulator's prior consent, the transfer of cash or other assets to an associated company (including the payment of a dividend or other distribution out of distributable reserves) in certain circumstances where a Regulated Company's investment grade credit rating is threatened. These modifications were made to the Issuer's Instrument of Appointment in 2010. These Instrument of Appointment conditions, as amplified by explanatory side letters, contain provisions some of which are already included in substance within terms of the STID.
Ofwat regulates water charges by capping the average increase in charges to most customers that a company can impose in any year. Ofwat conducts a periodic review and sets price caps every five years. Following a consultation process in 2006, Ofwat announced that it intended to maintain this five-year review period of price controls but that it would also seek to place price limits within a longer-term framework. In particular, Regulated Companies were required to submit to Ofwat a strategic direction statement ("SDS") setting out the Regulated Company's plans and vision over the longer term (at least 25 years ahead). Regulated Companies were also required to include a 25-year forward looking plan as part of their draft and final business plans. The Issuer revisited and updated its SDS in December 2007.
The price cap is set by reference to inflation as measured by the RPI in the U.K. together with an adjustment factor known as 'K', which is specific to each company and which can vary for each year of the review period. The size of a Regulated Company's K factor (which can be positive, negative or zero) reflects the scale of its capital investment programme, its operating cost, its cost of capital and its operational and environmental obligations, taking into account the scope for it to improve efficiency.
'Price cap' regulation as operated in the U.K. is performance-related. Regulated Companies are incentivised to be efficient, both in terms of their operating costs and in the implementation of their capital expenditure programme. It is intended that the benefit of any efficiency savings achieved through effective management should be retained by the Regulated Companies for a period of up to five years, after which time the benefit should be passed to customers via the subsequent price setting process. The cost of any under-performance in operating costs is borne by the Regulated Companies.
For the 2009 price review, Ofwat introduced a new capex incentive scheme (the "CIS") under which companies bear the cost of under-performance for five years, giving symmetry with treatment of efficiency savings. The CIS is designed to provide incentives for companies to put forward challenging and efficient business plans. The lower the CIS ratio of requested to allowed investment, the greater the proportion of requested capex funded through price limits in the 2010-15 period. If a Regulated Company spends more capex than included in price limit assumptions, the actual expenditure, if approved by Ofwat, will be reflected in the future RAV.
Companies were also incentivised to provide a high quality of customer service through the OPA and guaranteed standards schemes. OPA scores in the period 2004-05 to 2008-09 were taken into account at the 2009 price review, and Regulated Companies have been penalised if they provided a poor quality of service by means of adjustments to the K factor at the price review. In the case of the Issuer, which scored comparatively well on the OPA, a price increment of 0.2 per cent. was allowed from April 2010 to March 2015. A Regulated Company that fails to meet the requirements of the guaranteed standards scheme must make a specified payment to the customers affected.
For the 2010-15 period, Ofwat has introduced a new comparative incentive mechanism to reward or penalise water companies' service performance, replacing the OPA. The SIM compares companies' performance in terms of the quality of service that is delivered to customers. The SIM comprises both a quantitative measure of complaints and unwanted contacts, and a qualitative measure, based on survey evidence, that looks at how satisfied customers are with the quality of service that they receive. The SIM will be measured over the period 2011/12 to 2013/14. Depending upon the Issuer's relative performance under the SIM it could receive a revenue penalty or reward when price limits are next reset in 2014 for the following five year regulatory period.
Unexpected capital costs or savings arising from changes in certain regulatory assumptions during a review period are recorded and notified by the Issuer to Ofwat. This process, known as 'logging up and down', allows prices to be adjusted up or down at the next periodic review to compensate Regulated Companies or customers respectively for the unexpected costs or savings, to the extent agreed by Ofwat. In addition, where certain defined categories of change, changes in capital and operating costs or revenues exceed a specified materiality threshold, the Issuer can request, and Ofwat can instigate, a re-setting of its price limit during the five-year period, known as an Interim Determination of K or "IDOK".
All Regulated Companies' Instruments of Appointment also include a 'shipwreck' or substantial effect clause, which allows Regulated Companies' price limits to be revised when events beyond their control have a significant effect (equivalent over 5 years to more than 20 per cent. of annual revenue).
On 26 November 2009, Ofwat published its final determination of price limits for the period 1 April 2010 to 31 March 2015. For the Issuer, this included an allowed level of investment of £244 million (2007/08 values) and average annual real price increase of 1.8 per cent. over the five-year period, with the following profile:
| 2010/11 | 2011/12 | 2012/13 | 2013/14 | 2014/15 | |
|---|---|---|---|---|---|
| K factor | 0.6 | 4.2 | 4.0 | 0.3 | -0.2 |
In January 2010, after a careful review, the Board of Directors of the Issuer rejected Ofwat's final determination.
As required by the WIA, Ofwat referred the Issuer's rejection to the CC. The rejection of Ofwat's final determination was based on the following principal points:
On 4 August 2010, the CC redetermined the prices set by Ofwat and set an average K for the Issuer of 3.2 per cent. per annum, with the following profile:
| 2010/11 | 2011/12 | 2012/13 | 2013/14 | 2014/15 | |
|---|---|---|---|---|---|
| K factor | 0.6 | 3.9 | 3.9 | 3.9 | 3.8 |
The K determined for 2010/11 matched that of Ofwat since the Issuer had already issued water bills. The CC smoothed the K factor over the remaining four years to assist the Issuer's customers, by avoiding the sharper increase in 2011/12 that was required to provide a projected constant return on capital. As a result, the average domestic customer bill will rise from £157 in 2009/10 to £180 by 2014/15 (in 2009/10 values), an increase in real terms of 15 per cent. over the five-year review period.
The Issuer is satisfied with the outcome of the appeal to the CC. Although the allowed cost of capital included in prices has been reduced from that set by Ofwat in its final determination, significant additional allowances for operating costs have been included together with higher levels of allowed investment, particularly for maintenance and for meeting improvements required by the DWI. Specific protection was included should the cost of bad debts materially escalate above the level allowed.
Over the five-year period to 2015, the RAV will increase by approximately 30 per cent. in real terms to £353 million in 2009/10 values.
Certain proposals to provide greater security of supply in emergencies to customers were not funded but consequently there is no obligation on the Issuer to carry out the related schemes.
Whilst the settlement is challenging, the Issuer considers that, within the price limits set by the CC, it can meet the obligations set by Ofwat and confirmed by the CC, including the reduction in leakage, maintenance of customer service standards and asset serviceability, whilst at the same time maintaining an investment grade credit rating.
The Issuer is not currently involved in any proceedings in any court or tribunal likely to have a significant effect on its business.
In practice, many regulatory issues arising between Regulated Companies and Ofwat are settled without the need to resort to formal enforcement proceedings. However, where Ofwat is satisfied that a Regulated Company is in breach of the conditions of its Instrument of Appointment or certain of its statutory obligations, it has powers to secure compliance by means of an enforcement order, and to impose financial penalties.
The imposition of financial penalties for breach of Instrument of Appointment conditions and other regulatory duties was introduced by the WA to bring Ofwat's powers into line with those of other regulators. Companies may face a penalty of up to ten per cent. of relevant regulated turnover for breaching Instrument of Appointment conditions, prescribed standards of performance or certain other statutory obligations. Ofwat has published a statement of the policy that it intends to apply to the imposition of any penalty and the determination of its amount. Such penalties can be appealed to the High Court on the grounds that their imposition is not within Ofwat's power, that Ofwat has failed to follow the procedure for imposing such penalties, or that the dates required for payment of such penalties are unreasonable.
Failure to comply with an enforcement order can lead to court action by Ofwat for an injunction and claims for compensation by any person who suffers loss or damage as a result of the breach. Alternatively, where actual or likely contravention of an enforcement order (or of one of a Regulated Company's principal statutory duties under the WIA) is so serious as to make it inappropriate for the Regulated Company to continue to hold its Instrument of Appointment, the Secretary of State or, with his or her consent, Ofwat, may apply to the High Court for the appointment of a Special Administrator. A Special Administrator may also be appointed in other circumstances such as where the Regulated Company is, or is likely to be, unable to pay its debts.
A Special Administrator has powers similar to those of an administrator under the Insolvency Act 1986, but with certain important differences. He is appointed only for the purposes of transferring to one or more different companies, as a going concern, so much of the business of the Regulated Company as is necessary to transfer in order to ensure the proper carrying out of its water supply functions, as the case may be, and, pending the transfer, of carrying out those functions (the "transfer purpose"). Once the relevant provisions of the Flood and Water Management Act 2010 are brought into force, where a Regulated Company is placed in special administration on the grounds that it is, or is likely to be, unable to pay its debts, the Special Administrator will be required to seek to rescue the Regulated Company as a going concern (the "rescue purpose") rather than to transfer its business in accordance with the transfer purpose. However, the Special Administrator must pursue the transfer purpose instead of the rescue purpose where he thinks that a rescue is unlikely to be possible or that the objectives of a Special Administration Order would be better achieved through a transfer.
On any application for the winding up of a Regulated Company the court is obliged (if it is otherwise satisfied that it would be appropriate to make the order) to make a Special Administration Order instead. A Regulated Company also cannot be wound up voluntarily, or have an administration order made in relation to it, unless fourteen days' notice is given to the Secretary of State or Ofwat (which gives them time to decide whether to apply for a Special Administration Order). Notice must also be given before any step is taken by any person to enforce security over the Regulated Company's property (See the sub-section entitled "Restrictions on the Enforcement of Security" below).
Under the WIA, there is a prohibition on Regulated Companies disposing of any of their Protected Land (as defined in the WIA) except with the specific consent of, or in accordance with a general authorisation given by, the Secretary of State. A consent or authorisation may be given on such conditions as the Secretary of State considers appropriate. For the purpose of these provisions, disposal includes the creation of any interest (including leases, licences, mortgages, easements and wayleaves) in or any right over land, and includes the creation of a charge (see the sub-section entitled "Restrictions on the Granting of Security" below). All land disposals are reported to Ofwat in the Annual Return. Ofwat applies its price controls to ensure that 50 per cent. of the net gain from land disposals is returned to customers in the form of lower charges.
A Regulated Company's ability to grant security over its assets and the enforcement of such security are restricted by the provisions of the WIA and its Instrument of Appointment. For example, all Instruments of Appointment (including the Issuer's Instrument of Appointment) restrict a Regulated Company's ability to dispose of Protected Land in this way (as described above in "Protected Land"). Accordingly, an Instrument of Appointment restricts a Regulated Company's ability to create a charge or mortgage over Protected Land.
In addition, provisions in a Regulated Company's Instrument of Appointment require the Regulated Company at all times:
These requirements must not be dependent upon the discharge by any other person of any obligation under or arising from any agreement or arrangement under which that other person has agreed to provide any services to the Regulated Company in its capacity as the Regulated Company.
These provisions further limit the ability of the Issuer to grant security over its assets, in particular assets required for carrying out its regulated business, and limit in practice the ability to enforce such security.
In the case of the Issuer, the substantial majority of the Issuer's assets by value is tangible property which is either Protected Land and/or assets that are required for carrying out the Issuer's regulated business and cannot therefore be effectively secured. This necessarily affects the ability of the Issuer to create a floating charge over the whole or substantially the whole of its business. However, in any event, there is no right under the WIA to block the appointment of a Special Administrator equivalent to the right that a holder of a floating charge over the whole or substantially the whole of the business of a non-Regulated Company may have, in certain circumstances, to block the appointment of a conventional administrator under the Insolvency Act 1986.
Under the WIA, the enforcement of security given by a Regulated Company in respect of its assets is prohibited unless the person enforcing the security has first given 14 days' notice to both the Secretary of State and Ofwat. If a petition for Special Administration has been presented leave of the Court is required before such security is enforceable or any administrative receiver can be appointed (or, if an administrative receiver has been appointed between the expiry of the required notice period and presentation of the petition, before the administrative receiver can continue to carry out his functions). These restrictions continue once a Special Administration Order is in force with some modification (see the sub-section entitled "Enforcement and Special Administration" above).
Once a Special Administrator has been appointed, he would have the power, without requiring the Court's consent, to deal with property charged pursuant to a floating charge as if it were not so charged. When such property is disposed of under this power, the proceeds of the disposal would, however, be treated as if subject to a floating charge which had the same priority as that afforded by the original floating charge.
A disposal by the Special Administrator of any property secured by a fixed charge given by the Regulated Company could be made only under an order of the Court unless the creditor in respect of whom such security is granted otherwise agreed to such disposal. Such an order could be made if, following an application by the Special Administrator, the Court was satisfied that the disposal would be likely to promote one or more of the purposes for which the order was made (although the Special Administrator is subject to the general duty to manage the company in a manner which protects the respective interests of the creditors and members of the Regulated Company). Upon such disposal, the proceeds to which that creditor would be entitled would be determined by reference to the "best price which is reasonably available on a sale which is consistent with the purposes of the Special Administration Order", as opposed to an amount not less than "open market value", which would apply in a conventional administration for a non-Regulated Company under the Insolvency Act.
Within three months of the making of a Special Administration Order or such longer period as the Court may allow, the Special Administrator must send a copy of his proposals for achieving the purposes of the order to, amongst others, the Secretary of State, Ofwat and the creditors of the Regulated Company. The creditors' approval to the Special Administrator's proposal is not required at any specially convened meeting (unlike in the conduct of a conventional administration under the Insolvency Act). The interests of creditors and members in a special administration are still capable of being protected since they have the right to apply to the Court if they consider that their interests are being prejudiced. Such an application may be made by the creditors or members by petition for an order on a number of grounds, including either: (i) that the Regulated Company's affairs, business and property are being or have been managed by the Special Administrator in a manner which is unfairly prejudicial to the interests of its creditors or members; or (ii) that any actual or proposed act of the Special Administrator is/or would be so prejudicial. Except as mentioned below, the Court may make such order as it thinks fit, and any order made by the Court may include an order to require the Special Administrator to refrain from doing or continuing an act about which there has been a complaint. The exception referred to above is that the Court may not make an order which would prejudice or prevent the achievement of the purposes of the Special Administration Order.
There are two main forms of competition in the water industry: (i) inset appointments and (ii) water supply licensing. An inset appointment is made when an existing undertaker is replaced by another as the supplier of water and services for one or more customers within its licensed area. The WA has extended opportunities for competition in the water industry in England and Wales by introducing a new water supply licensing regime. From 1 December 2005, Regulated Companies have been able to provide either retail supply (i.e. the supply by a licensee of water purchased from a water undertaker's supply system to an eligible customer) or combined supply (i.e. the introduction of water into an incumbent water company's existing network for retail by the licensee to an eligible customer, plus retail supply) to non-household users with an annual consumption of not less than 50 megalitres. A water undertaker is obliged to allow a licensed water supplier to use its network for this purpose, subject to payment of charges and certain conditions and rights of refusal. The previous government had accepted the recommendation of the Cave Review (see "Increased competition in the water industry could result in a reduced customer base and market share and could adversely affect profitability" in the section entitled "Risk Factors") to reduce the threshold for competition for non-household users to 5 megalitres a year, but there is currently no indication of when this lower threshold will be brought into effect.
The water industry in the U.K. is subject to substantial domestic and EU regulation, placing significant statutory obligations on the Issuer with regard to, amongst other factors, the quality of treated water supplied and the effects of the Issuer's activities on the environment, biodiversity and human health and safety. The ongoing development of environmental regulation could lead to additional obligations and restrictions being imposed on the Issuer which may adversely impact its operations and increase operating costs and/or capital expenditure.
All water companies have general duties, in exercising their functions, to conserve and enhance biodiversity and natural beauty and to promote efficient use of water. Environmental regulation is primarily the responsibility of the Secretary of State for Environment, Food and Rural Affairs together with:
EU directives including the Water Framework Directive and the Drinking Water Directive are implemented in the U.K. by primary and secondary legislation. The requirements of the Water Framework Directive, including the requirement on EU Member States to ensure that their waters achieve at least "good status" by 2015, may result in increased limitations on abstraction licences and restrictions on discharge consents. Any pollution of controlled waters or other environmental harm caused by the Issuer may result in liability for remedial or compensatory works under a number of statutory liability regimes, including that implemented in the U.K. pursuant to the EU Environmental Liability Directive.
Energy use in water treatment and other activities carried out by the Issuer results in indirect emissions of greenhouse gases. The Issuer is subject to the Climate Change Levy (which according to the Issuer's own estimate will result in an annual cost of approximately £20,000) and the CRC Energy Efficiency Scheme, a mandatory U.K. emissions trading scheme for significant consumers of energy (which according to the Issuer's own estimate will result in an annual cost of approximately £500,000).
The Guarantor is a private limited company registered in England and Wales. The Guarantor (then known as Precis (2332) Limited) was incorporated on 15 January 2003 under the Companies Act 1985 with registered number 4637554.
All of the Issuer's ordinary share capital is owned by the Guarantor, and the Guarantor is in turn a wholly owned subsidiary of BW Holdings.
The directors of the Guarantor and their functions within the Guarantor are set out below. The business address of each of the directors is the Guarantor's registered office, which is PO Box 218, Bridgwater Road, Bristol, BS99 7AU.
| Name | Function |
|---|---|
| Alan Parsons | Director1 |
| Miquel Anglada | Director |
1 Alan Parsons will retire from the Board on 30 September 2011.
There is no existing or potential conflict of interest between the directors' duties to the Guarantor and/or their private interests or other duties. Where directors hold other directorships within the wider group, they take no part in authorising any related party transactions.
The company secretary of the Guarantor is Stephen Robson.
The following are the terms and conditions substantially in the form in which they will be endorsed on the Bonds:
The issue of the Bonds was authorised by a resolution of the Committee of the Board of Directors of the Issuer passed on 9 March 2011 and the Committee was given its authority by the resolution of the Board of Directors of the Issuer passed on 25 January 2011. The Bonds are constituted by a trust deed (the "Trust Deed") dated 25 March 2011 between the Issuer and Capita Trust Company Limited (the "Bond Trustee" which expression shall include all persons for the time being the bond trustee or bond trustees under the Trust Deed) as bond trustee for the holders of the Bonds (the "Bondholders"). These terms and conditions (the "Conditions") include summaries of, and are subject to, the detailed provisions of the Trust Deed, which includes the form of the Bonds and the coupons relating to them (the "Coupons"). Copies of the Trust Deed, and of the paying agency agreement (the "Paying Agency Agreement") dated 25 March 2011 relating to the Bonds between the Issuer, the Bond Trustee, Citibank, N.A., London Branch as agent bank (the "Agent Bank" which expression includes the Agent Bank for the time being) and the initial principal paying agent and the other paying agents named in it and the STID (as defined below), are available for inspection during usual business hours at the principal office of the Bond Trustee (presently at 7th Floor, Phoenix House, 18 King William Street, London EC4N 7HE) and at the specified offices of the principal paying agent for the time being (the "Principal Paying Agent") and the other paying agents for the time being (the "Paying Agents", which expression shall include the Principal Paying Agent). The Bondholders and the holders of the Coupons (whether or not attached to the relevant Bonds) (the "Couponholders") are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed, the security trust and intercreditor deed dated 7 May 2003 (as amended and restated on 12 February 2004 and 15 June 2006) entered into between, amongst others, Capita IRG Trustees Limited (the "Security Trustee") and the Issuer (the "STID") and the other Security Documents and are deemed to have notice of those provisions applicable to them of the Paying Agency Agreement.
Capitalised terms used but not defined in these Conditions have the meaning ascribed to them in the STID and the Trust Deed. In the event of any inconsistency between the terms in the Trust Deed and the terms in the STID, the terms in the STID shall prevail.
The Bonds and Coupons constitute direct and unconditional obligations of the Issuer, are guaranteed and secured in the manner prescribed in Condition 4 (Security, Priority and Relationship with Secured Creditors), and shall at all times rank pari passu and without any preference among themselves.
For the purposes of this Condition 3:
"24 Month Aggregate Qualifying Debt" means all Qualifying Debt other than the Loans, unless the principal amount outstanding of the New Qualifying Debt and any Loans falls due within any period of 24 consecutive months (from and including the first day of any 24 month period to but excluding the day falling 24 months later), in which case, 24 Month Aggregate Qualifying Debt shall include those Loans which fall due within such 24 month period.
"24 Month Due Amount" means the aggregate principal amount outstanding of any 24 Month Aggregate Qualifying Debt which falls due within any period of 24 consecutive months (from and including the first day of any 24 month period to but excluding the day falling 24 months later) expressed as a percentage of RAV.
"Loans" means the loans under the Index-Linked Programme and Non Index-Linked Programme.
"Periodic Review Aggregate Qualifying Debt" means all Qualifying Debt other than the Loans, unless the principal amount outstanding of the New Qualifying Debt and any Loans falls due within the period from the first day of one Periodic Review to but excluding the first day of the next Periodic
Review, in which case, Periodic Review Aggregate Qualifying Debt shall include those Loans which fall due within such Periodic Review period.
"Periodic Review Due Amount" means the aggregate principal amount outstanding of any Periodic Review Aggregate Qualifying Debt which falls due within the period from the first day of one Periodic Review to but excluding the first day of the next Periodic Review expressed as a percentage of RAV.
"Relevant Aggregate Qualifying Debt" means an amount equal to the 24 Month Aggregate Qualifying Debt and / or the Periodic Review Aggregate Qualifying Debt as relevant less any Qualifying Debt falling due in the relevant period in respect of which the Issuer has a requirement to establish a sinking fund in accordance with Condition 3(b)(B) and the Loans (provided that no amount of Qualifying Debt shall be counted more than once).
"Rated Bond" means any bond issued by the Issuer to which a rating is ascribed by any of the Rating Agencies.
Security Documents whether as a result of any failure, omission or defect in registering or filing or otherwise protecting or perfecting such Security. The Bond Trustee and the Security Trustee have no responsibility for the value of any such Security.
In these Conditions:
the "WIA" means the United Kingdom Water Industry Act 1991 (as amended); and "Instrument of Appointment" means the instrument of appointment dated 1989 as amended under which the Secretary of State for the Environment appointed the Issuer as a water undertaker under the WIA for the areas described in the Instrument of Appointment, as modified or amended from time to time; and
"Post-Enforcement Payment Priorities" means the payment priorities set out at paragraph 6.1 (Borrower Security Trustee Application) of Schedule 3 (Security Trust Provisions) of the STID.
(a) Interest: The Bonds bear interest from and including 25 March 2011 at the rate of 2.701 per cent. per annum, adjusted for indexation in accordance with Condition 6 (Indexation), payable semi-annually in arrear on 25 March and 25 September in each year (each an "Interest Payment Date"). Each Bond will cease to bear interest from the due date for redemption unless, upon due presentation, payment of principal is improperly withheld or refused. In such event it shall continue to bear interest at such rate (both before and after judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Bond up to that day are received by or on behalf of the relevant holder, and (b) the day seven days after the Bond Trustee or the Principal Paying Agent has notified Bondholders of receipt of all sums due in respect of all the Bonds up to that seventh day (except to the extent that there is failure in the subsequent payment to the relevant holders under these Conditions).
Where interest is to be calculated in respect of a period which is equal to or shorter than an Interest Period (as defined below), the day-count fraction used will be the number of days in the relevant period, from and including the date from which interest begins to accrue to but excluding the date on which it falls due, divided by the product of (1) the number of days in the Interest Period in which the relevant period falls (including the first such day but excluding the last) and (2) the number of Interest Periods normally ending in any year.
In these Conditions, the period beginning on and including 25 March 2011 and ending on but excluding the first Interest Payment Date and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date is called an "Interest Period".
Interest in respect of any Bond shall be calculated per £1,000 in principal amount of the Bonds (the "Calculation Amount"). The amount of interest payable per Calculation Amount for any period shall be equal to the product of 2.701 per cent. (adjusted for indexation in accordance with Condition 6(b) (Application of the Index Ratio)), the Calculation Amount and the day-count fraction for the relevant period, rounding the resulting figure to the nearest pence (half a pence being rounded upwards).
(b) Calculation of amount of interest and other amounts: The Agent Bank will, as soon as possible on the first Business Day on which it is practicable to calculate the Index Ratio applicable to the relevant Calculation Date in accordance with Condition 6(a) (Definitions) or at such other times as the Agent Bank may be required to calculate any amount payable in accordance with Condition 7 (Redemption and Purchase) or Condition 10 (Acceleration Events), calculate the amount of interest payable per Calculation Amount for the relevant Interest Period and any amount of principal and accrued but unpaid interest payable in accordance with Condition 7 (Redemption and Purchase) or Condition 10 (Acceleration Events). The calculation of any such amount by the Agent Bank shall (in the absence of manifest error) be final and binding upon all parties.
"Affiliate" means in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company, including, for the avoidance of doubt, Agbar UK Limited;
"Base Index Figure" means (subject to Condition 6(c)(i) (Change in base)) 228.86452 (calculated as an interpolation between the U.K. Retail Price Index figures for December 2010 and January 2011);
"Calculation Date" means any date when a payment of interest or, as the case may be, principal falls due;
"Holding Company" means, in relation to a company or corporation, any other company or corporation in respect of which it is a Subsidiary;
"Index" or "Index Figure" means, in relation to any relevant month (as defined in Condition 6(c)(ii) (Delay in publication of Index)), subject as provided in Condition 6(c)(i) (Change in base), the U.K. Retail Price Index (RPI) (for all items) published by the Office for National Statistics (January 1987 = 100) or any comparable index which may replace the U.K. Retail Price Index for the purpose of calculating the amount payable on repayment of the Reference Gilt. Information on the U.K. Retail Price Index, including past and further performance of the U.K. Retail Price Index and its volatility, can be obtained from the Office for National Statistics and on the date of publication of the Prospectus
such information was accessible at the following website: http://www.statistics.gov.uk/rpi. The contents of this website are for information purposes only and do not form part of the Conditions;
Any reference to the "Index Figure applicable" to a particular Calculation Date shall, subject as provided in Condition 6(c) (Changes in Circumstances Affecting the Index) and Condition 6(e) (Cessation of or Fundamental Changes to the Index) below, be calculated in accordance with the following formula:
$$
IFA = RPI_{m-3} + \frac{(Day \ of \ Calculation \ Date - 1)}{(Days \ in \ month \ of \ Calculation \ Date)} \times (RPI_{m-2} - RPI_{m-3})
$$
and rounded to five decimal places (0.000005 being rounded upwards) and where:
"IFA" means the Index Figure applicable;
"RPIm–2" means the Index Figure for the first day of the month that is two months prior to the month in which the payment falls due;
"RPIm–3" means the Index Figure for the first day of the month that is three months prior to the month in which the payment falls due;
"Index Ratio" applicable to any Calculation Date means the Index Figure applicable to such date divided by the Base Index Figure;
"Reference Gilt" means the 0.625 per cent. U.K. Treasury Index-Linked gilt due March 2040 for so long as such stock is in issue, and thereafter such issue of index-linked Treasury Stock determined to be appropriate by a gilt-edged market maker or other adviser selected by the Issuer and approved by the Bond Trustee (an "Indexation Adviser"); and
"Subsidiary" means a subsidiary within the meaning of section 1159 of the Companies Act 2006.
(b) Application of the Index Ratio: Each payment of interest and principal in respect of the Bonds shall be the amount provided in, or determined in accordance with, these Conditions, multiplied by the Index Ratio applicable to the month in which such payment falls to be made and rounded to the nearest pence (half a pence being rounded upwards).
designated debt manager of Her Majesty's Treasury, from time to time) for the purposes of indexation of payments on the Reference Gilt or, failing such publication, on any one or more issues of index-linked Treasury Stock selected by an Indexation Adviser; or (2) if no such determination is made by such Indexation Adviser within 7 days, the Index Figure last published (or, if later, the substitute index figure last determined pursuant to Condition 6(c)(i) (Change in base)) before the date for payment.
Expert and of any Indexation Adviser and of any of the Issuer and the Bond Trustee in connection with such appointment shall be borne by the Issuer.
(c) Redemption for Index Event: Upon the occurrence of any Index Event (as defined below), the Issuer may, upon giving not less than 30 nor more than 60 days' notice to the Bondholders (which notice shall be irrevocable), the Bond Trustee, the Security Trustee and the Controlling Finance Party, redeem all (but not some only) of the Bonds referable to the Index the subject of the Index Event on any Interest Payment Date at the principal amount plus accrued but unpaid interest (each as adjusted in accordance with Condition 6(b) (Application of Index Ratio)). Before giving any such notice, the Issuer shall provide to the Bond Trustee, the Security Trustee and the Controlling Finance Party a certificate signed by two directors (a) stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred and (b) confirming that the Issuer will have sufficient funds on such Interest Payment Date to effect such redemption and that any such redemption would not cause an Acceleration Event to occur or subsist and the Bond Trustee and the Security Trustee shall be entitled to rely on such certificate without liability to any person.
"Index Event" means (i) if the Index Figure for three consecutive months falls to be determined on the basis of an Index Figure previously published as provided in Condition 6(c)(ii) (Delay in publication of Index) and the Bond Trustee has been notified by the Agent Bank that publication of the Index has ceased; or (ii) notice is published by Her Majesty's Treasury, or on its behalf, following a change in relation to the Index, offering a right of redemption to the holders of the Reference Gilt, and (in either case) the Indexation Adviser has not been able to recommend any amendment or substitution of the Index to the Issuer and become effective pursuant to Condition 6(e) (Cessation of Fundamental Changes to the Index) and such circumstances are continuing.
together, in each case, with interest (if any) accrued to but excluding the date of redemption.
Notices of redemption will specify the date fixed for redemption and the applicable Redemption Price. No such notice of redemption may be given by the Issuer unless it shall have delivered to the Bond Trustee a certificate signed by two directors of the Issuer (upon which the Bond Trustee may rely absolutely and without liability to any person) that it will have the funds, not subject to the interest of any other person, required to redeem the Bonds at the Redemption Price plus accrued interest on the date specified for redemption. Upon the expiry of any notice of redemption delivered in accordance with this Condition 7(d), the Issuer shall be bound to redeem the Bonds called for redemption in accordance with this Condition 7(d).
(e) Paying Agents: The initial Paying Agents and their initial specified offices are listed below. The Issuer reserves the right at any time with the approval of the Bond Trustee to vary or terminate the appointment of any Paying Agent and appoint additional or other Paying Agents, provided that it will maintain (i) a Principal Paying Agent, (ii) Paying Agents having specified offices in at least two major European cities approved by the Bond Trustee and (iii) a Paying Agent with a specified office in a European Union Member State that will not be obliged to withhold or deduct tax pursuant to any law implementing European Council Directive 2003/48/EC (the "Savings Directive") or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27 November 2000. Notice of any change in the Paying Agents or their specified offices will promptly be given to the Bondholders.
All payments of principal and interest by or on behalf of the Issuer in respect of the Bonds and the Coupons shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the United Kingdom or any authority therein or thereof having power to tax, unless such withholding or deduction is required by law. In that event the Issuer shall pay such additional amounts as will result in receipt by the Bondholders and the Couponholders of such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable in respect of any Bond or Coupon presented for payment:
"Relevant Date" means whichever is the later of (i) the date on which such payment first becomes due and (ii) if the full amount payable has not been received in London by the Principal Paying Agent or the Bond Trustee on or prior to such due date, the date on which, the full amount having been so received, notice to that effect shall have been given to the Bondholders. Any reference in these Conditions to principal and/or interest shall be deemed to include any additional amounts which may be payable under this Condition or any undertaking given in addition to or substitution for it under the Trust Deed.
If any Acceleration Event occurs and is continuing in relation to the Issuer, subject always to the terms of the STID, the Bond Trustee may at any time (in accordance with the provisions of the Trust Deed and the STID) and if so directed by an Extraordinary Resolution or if so requested in writing by holders of at least one fifth in principal amount of the Bonds then outstanding shall, in each case, subject to being indemnified and/or secured and/or prefunded to its satisfaction serve an Emergency Instruction Notice and/or give notice to the Issuer and the Security Trustee that the Bonds are, and they shall immediately become, due and payable at their principal amount together (if applicable) with accrued interest (each as adjusted in accordance with Condition 6(b) (Application of the Index Ratio)).
Claims in respect of principal and interest will become void unless presentation for payment is made as required by Condition 7 (Redemption and Purchase) within a period of 10 years in the case of principal and five years in the case of interest from the appropriate Relevant Date.
If any Bond or Coupon is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of the Paying Agent in London subject to all applicable laws and stock exchange or other relevant authority requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer may require (provided that the requirement is reasonable in the light of prevailing market practice). Mutilated or defaced Bonds or Coupons must be surrendered before replacements will be issued.
(a) Meetings of Bondholders: The Trust Deed contains provisions for convening meetings of Bondholders to consider matters affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of any of these Conditions or any provisions of the Trust Deed. Such a meeting may be convened by Bondholders holding not less than 10 per cent. in principal amount of the Bonds for the time being outstanding. The quorum for any meeting convened to consider an Extraordinary Resolution will be two or more persons holding or representing a clear majority in principal amount of the Bonds for the time being outstanding, or at any adjourned meeting two or more persons being or representing Bondholders whatever the principal amount of the Bonds held or represented, unless the business of such meeting includes consideration of proposals, inter alia, (i) to modify the maturity of the Bonds or the dates on which interest is payable in respect of the Bonds, (ii) to reduce or cancel the principal amount of, or interest on, the Bonds, (iii) to change the currency of payment of the Bonds or the Coupons, or (iv) to modify the provisions concerning the quorum required at any meeting of Bondholders or the majority required to pass an Extraordinary Resolution, in which case the necessary quorum will be two or more persons holding or representing not less than 75 per cent., or at any adjourned meeting not less than 25 per cent., in principal amount of the Bonds for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding on Bondholders (whether or not they were present at the meeting at which such resolution was passed) and on all Couponholders.
The Trust Deed provides that a resolution in writing signed by or on behalf of the holders of not less than 75 per cent. in principal amount of the Bonds outstanding shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Bondholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Bondholders.
The Security Trustee will act on the instructions of the Controlling Finance Party pursuant to the STID, and neither the Bond Trustee nor the Security Trustee shall be bound to take any such step, action or proceedings unless it is indemnified and/or secured and/or prefunded to its satisfaction against all fees, costs, expenses, liabilities, claims and demands to which it may thereby become liable or which it may incur by so doing. No Bondholder or Couponholder may proceed directly against the Issuer unless the Bond Trustee, having become bound so to proceed and permitted to do so under the STID, fails to do so within a reasonable time and such failure is continuing.
The Trust Deed contains provisions for the indemnification of the Bond Trustee and for its relief from responsibility, including provisions relieving it from taking any action (including taking any proceedings against the Issuer and/or any other person) unless indemnified and/or secured and/or prefunded to its satisfaction. The Bond Trustee is entitled to enter into business transactions with the Issuer and any entity related to the Issuer without accounting for any profit.
The Bond Trustee may rely without liability to Bondholders or Couponholders on a report, confirmation or certificate or any advice of any accountants, financial advisers, financial institution or any other expert, whether or not addressed to it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating thereto entered into by the Bond Trustee or in any other manner) by reference to a monetary cap, methodology or otherwise. The Bond Trustee may accept and shall be entitled to rely on any such report, confirmation or certificate or advice and such report, confirmation or certificate or advice shall be binding on the Issuer, the Bond Trustee and the Bondholders.
The Bond Trustee, in the absence of its own wilful misconduct, negligence or fraud, and in all cases when acting as directed by or subject to the agreement of the Controlling Finance Party or Borrower Finance Parties (or their representatives) (as appropriate), shall not in any way be responsible for any loss, costs, damages or expenses or other liability, which may result from the exercise or non-exercise of any consent, waiver, power, trust, authority or discretion vested in the Bond Trustee pursuant to the STID.
The Bond Trustee shall be entitled to rely absolutely (and without liability to any person for so doing) on instructions or directions given by the Controlling Finance Party as if any such instructions or directions had been given by way of an Extraordinary Resolution passed at a Bondholders' meeting.
Notices to Bondholders will be valid if published in a leading newspaper having general circulation in London (which is expected to be the Financial Times) or, if in the opinion of the Bond Trustee such publication shall not be practicable, in an English language newspaper of general circulation in Europe. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once, on the first date on which publication is made. Couponholders will be deemed for all purposes to have notice of the contents of any notice given to the Bondholders in accordance with this Condition.
No person shall have any right to enforce any term or condition of the Bonds under the Contracts (Rights of Third Parties) Act 1999.
The Temporary Global Bond and the Global Bond contain provisions which apply to the Bonds while they are in global form, some of which modify the effect of the terms and conditions of the Bonds set out in this document. The following is a summary of certain of those provisions:
The nominal amount of the Bonds shall be the aggregate amount from time to time entered in the records of Euroclear Bank S.A/N.V. ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream, Luxembourg") or any alternative clearing system approved by the Bond Trustee (each a "relevant Clearing System"). The records of such relevant Clearing System shall be conclusive evidence of the nominal amount of Bonds represented by the Temporary Global Bond and the Global Bond and a statement issued by such relevant Clearing System at any time shall be conclusive evidence of the records of that relevant Clearing System at that time.
The Temporary Global Bond is exchangeable in whole or in part for interests recorded in the records of the relevant Clearing Systems in the Global Bond on or after a date which is expected to be 4 May 2011, upon certification as to non-U.S. beneficial ownership in the form set out in the Temporary Global Bond. The Global Bond is exchangeable in whole but not in part (free of charge to the holder) for the definitive Bonds described below if the Global Bond is held on behalf of a relevant Clearing System and such relevant Clearing System is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so. Thereupon, the holder may give notice to the Principal Paying Agent of its intention to exchange the Global Bond for definitive Bonds on or after the Exchange Date specified in the notice.
On or after the Exchange Date (as defined below) the holder of the Global Bond may surrender the Global Bond to or to the order of the Principal Paying Agent. In exchange for the Global Bond, or on endorsement in respect of the part thereof to be exchanged, the Issuer shall deliver, or procure the delivery of, an equal aggregate principal amount of duly executed and authenticated definitive Bonds (having attached to them all Coupons in respect of interest which has not already been paid on the Global Bond), security printed in accordance with any applicable legal and stock exchange requirements and in or substantially in the form set out in Schedule 1 to the Trust Deed. On exchange of the Global Bond, the Issuer will, if the holder so requests, procure that it is cancelled and returned to the holder together with any relevant definitive Bonds.
"Exchange Date" means a day falling not less than 60 days after that on which the notice requiring exchange is given and on which banks are open for business in the city in which the specified office of the Principal Paying Agent is located and in the city in which the relevant clearing system is located.
No payment will be made on the Temporary Global Bond unless exchange for an interest in the Global Bond is improperly withheld or refused. Payments of principal and interest in respect of Bonds represented by the Global Bond will be made to its holder. The Issuer shall procure that details of each such payment shall be entered pro rata in the records of the relevant Clearing System and, in the case of payments of principal, the nominal amount of the Bonds will be reduced accordingly. Each payment so made will discharge the Issuer's obligations in respect thereof. Any failure to make the entries in the records of the relevant Clearing System shall not affect such discharge. Condition 8(e)(iii) (Paying Agents) and Condition 8(d) (Payments on business days) will apply to the definitive Bonds only. For the purpose of any payments made in respect of a Global Bond, Condition 8(d) (Payments on business days) shall not apply, and all such payments shall be made on a day on which commercial banks and foreign exchange markets are open in the financial centre of the currency of the Bonds.
So long as the Bonds are represented by the Global Bond and the Global Bond is held on behalf of a relevant Clearing System, notices to Bondholders may be given by delivery of the relevant notice to that relevant Clearing System for communication by it to entitled accountholders in substitution for publication as required by the Conditions.
Claims against the Issuer in respect of principal and interest on the Bonds while the Bonds are represented by the Global Bond will become void unless it is presented for payment within a period of 10 years (in the case of principal) and five years (in the case of interest) from the appropriate Relevant Date (as defined in Condition 9 (Taxation)).
The holder of the Global Bond shall (unless the Global Bond represents only one Bond) be treated as being two persons for the purposes of any quorum requirements of, or the right to demand a poll at, a meeting of Bondholders and, at any such meeting, as having one vote in respect of each Bond for which the Global Bond may be exchanged.
On cancellation of any Bond required by the Conditions to be cancelled following its purchase, the Issuer shall procure that details of such cancellation shall be entered pro rata in the records of the relevant Clearing Systems and, upon any such entry being made, the nominal amount of the Bonds recorded in the records of the relevant Clearing Systems and represented by this Global Bond shall be reduced by the aggregate nominal amount of the Bonds so cancelled.
In considering the interests of Bondholders while the Global Bond is held on behalf of a relevant Clearing System the Bond Trustee may have regard to any information provided to it by such relevant Clearing System or its operator as to the identity (either individually or by category) of its accountholders with entitlements to the Global Bond and may consider such interests as if such accountholders were the holder of the Global Bond.
The following is a summary of certain terms of the STID and the Security Documents. The information below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the terms of the STID (as amended from time to time) and the Security Documents.
On 7 May 2003, the Issuer originally entered into an index-linked loan facility and a fixed rate loan facility with RBS. RBS then novated (a) the £15 million index-linked loan facility to Artesian Finance plc (the "First Artesian Loan") and (b) the £30 million fixed rate loan facility to Artesian Finance II plc (the "Second Artesian Loan"). Artesian Finance plc advanced to the Issuer a further £26 million in February 2004 and £50.1 million in June 2005 under the First Artesian Loan. Artesian Finance II plc advanced to the Issuer a further £27.5 million in February 2004 under the Second Artesian Loan. Each of Artesian Finance plc and Artesian Finance II plc funded its respective Artesian Loan by the issuance of bonds guaranteed by AGE.
As part of the structure of the Artesian Financing, the Issuer entered into the STID through which it established a common covenant, intercreditor and security package for benefit of the First Artesian Loan, the Second Artesian Loan and any other Qualifying Debt raised by the Issuer from time to time. As at 28 February 2011, the aggregate principal amount outstanding of the Issuer's Qualifying Debt is as follows:
| TOTAL FOLLOWING ISSUE OF BONDS | £255,200,000 |
|---|---|
| Bonds | £40,000,000 |
| TOTAL | £215,200,000 |
| Other Qualifying Debt | £47,600,000 |
| Second Artesian Loan (Fixed Rate) | £57,500,000 |
| First Artesian Loan (Index-Linked) | £110,100,000 |
Pursuant to the terms of the STID, the Controlling Finance Party shall be the party that holds the greatest proportion of the aggregate principal amount outstanding under any Qualifying Debt (see the section entitled "Controlling Finance Party" below). As at the date of this Prospectus, the Controlling Finance Party is the Artesian Security Trustee. Under the terms of the Artesian Financing, the Artesian Security Trustee is required to act upon the instructions of the "controlling creditor" of the Artesian Companies which, as at the date of this Prospectus, is AGE.
The intercreditor arrangements in respect of the Issuer are contained in the STID. The STID regulates the claims of the Secured Creditors of the Issuer (including, upon execution by the Bond Trustee of a Deed of Accession, the Bond Trustee (for itself and on behalf of Bondholders)).
Unsecured creditors will not become parties to the STID and, although ranking behind the Secured Creditors in an administration or other enforcement, will have unfettered, independent rights of action in respect of their debts. However, the incurrence of unsecured Indebtedness is restricted under the STID.
The STID provides for the ranking in point of payment of the claims of the Secured Creditors, both before and after any enforcement of the Security, and for the subordination of all claims by any Subordinated Creditor.
On or after receipt by the Security Trustee of an Enforcement Notice, or upon any Qualifying Debt becoming immediately due and payable pursuant to the STID, the Security Trustee shall distribute all proceeds of enforcement towards payment of amounts due on the Debenture Stock; to satisfy fees, costs, charges, expenses and liabilities (together with accrued interest) payable to the Security Trustee and any Receiver; to make payments on the Liquidity Facility and, thereafter, on a pro rata basis in respect of all interest (including any interest on overdue amounts) and principal to the holders of the Qualifying Debt (including the Bonds).
The STID also contains certain (i) representations and warranties, (ii) positive, negative and financial covenants, (iii) trigger events and (iv) acceleration events, a summary of which is set out below in the sections entitled "Financial covenants", "Covenants", "Representations and warranties", "Trigger Events" and "Acceleration Events".
The Issuer is required on each STID Calculation Date to:
and, for the avoidance of doubt, immediately following any acquisition of assets made in respect of a water undertaker (as defined in the WIA), or any amalgamation, demerger, merger, consolidation, corporate reconstruction or any such like arrangement with the prior written consent of the Controlling Finance Party, the Issuer, or such merged entity shall maintain an Interest Cover Ratio and a Regulated Asset Ratio as provided in paragraphs (a) and (b) above, calculated on the basis of the financial statements of the newly merged entity from such date until the following STID Calculation Date.
The Issuer shall submit a business plan to Ofwat which reflects a revised price determination on each scheduled price determination date under the Instrument of Appointment so as to maintain:
in each case on each STID Calculation Date up to and including the Date Prior which is subsequent to the current Date Prior, save to the extent that, due to Ofwat guidance applicable at the time, the Issuer is not able to comply with this obligation. In such circumstances the Issuer shall notify Ofwat that it is prevented by the Ofwat guidance from fulfilling its obligations under the STID.
The Issuer shall apply to Ofwat for an IDOK when permitted under the Instrument of Appointment (or use any other means available to it to apply for an IDOK) in each case where consistent with prudent management if:
In the event that the aggregate changes to the Issuer's Financial Statements, as a result of changes to the Applicable Accounting Principles used therein, would or would reasonably be expected to lead to an increase or decrease in any of:
of 0.005 or more compared to what it would have been without such changes, then an amendment to the basis of calculation of, in the case of paragraph (a), the Historic Net Cash Flow, in the case of paragraph (b), the Forecast Net Cash Flow and, in the case of paragraph (c), Total Net Indebtedness will be made to ensure that the result is the same as if such changes to the Applicable Accounting Principles had not occurred. The Issuer and the Security Trustee (acting on the sole instructions of the Controlling Finance Party) (in each case, acting reasonably) shall agree in writing to the amendments required to such financial covenants and related definitions as described above, together with any other changes to the STID required as a consequence thereof, in accordance with the following guiding principles:
For the avoidance of doubt, any such modification may, subject as aforesaid, occur more than once and may occur each time there are any changes to the Applicable Accounting Principles which would or would reasonably be expected to have the effect as aforesaid.
The Issuer will also give certain covenants which (subject to agreed exceptions and materiality qualifications) include the following:
The Issuer shall not pay, make or declare, or otherwise make any payment in respect of, any Relevant Payment unless:
(b) as at the STID Calculation Date immediately following the applicable Relevant Payment assuming that the proposed Relevant Payment had been made:
(i) no Potential Trigger Event, Trigger Event, Potential Acceleration Event or Acceleration Event would occur and be continuing taking into account any developments in or changes to any information (financial or otherwise) which would have occurred since the immediately preceding STID Calculation Date;
The Issuer shall not create, incur, guarantee or otherwise become liable in respect of, or permit to subsist, any Indebtedness for Borrowed Money unless (A) such Indebtedness for Borrowed Money is Permitted Indebtedness (where in the case of Permitted Indebtedness falling within paragraphs (c), (e), (f) or (h) of the definition of such term, the party to whom such Indebtedness is owed has acceded to the STID) or (B) any of the following occur:
(a)
or
(b)
or
(c)
provided that, in each case, affirmations or confirmations by the Rating Agencies shall not be the only consideration for the Controlling Finance Party in granting its consent under paragraphs (b) and (c) above.
The Issuer shall not incur Qualifying Debt which is Restricted Debt except with the prior written consent of the Controlling Finance Party.
The Issuer shall not create or permit to subsist any encumbrance over all or any of its present or future revenues or assets other than Permitted Encumbrances.
Additional covenants set out in the STID include, in summary: (a) information covenants relating to the provision of financial information and compliance with financial covenants; (b) restrictions on certain disposals and acquisitions; (c) restrictions on certain transactions with Affiliates; (d) maintenance of insurance and compliance with laws (including environmental laws); and (e) the conduct of the Issuer's business in accordance with its Instrument of Appointment and good industry practice.
In addition, the Issuer and the Guarantor shall, on the date that the Bond Trustee executes the Deed of Accession, make to the Secured Creditors certain representations and warranties, subject to agreed exceptions and qualifications as to materiality and reservations of law, including in relation to the following: (a) its corporate status, power and capacity; (b) non-conflict with laws or regulation; (c) in the case of the Guarantor, its legal and beneficial ownership of all of the issued share capital of the Issuer; (d) no litigation proceedings, which if decided adversely would have a Material Adverse Effect on it, having been commenced or threatened; (e) no actual or Potential Trigger Event or Acceleration Event or default under any other agreement which would have a Material Adverse Effect having occurred in respect of it or being continuing; (f) its ownership of the assets over which security interests has been created under the Security Documents; and (g) there having been no change in its business, assets, financial condition or results of operation which would have a Material Adverse Effect.
The STID sets out certain Trigger Events, the occurrence of which will entitle the Controlling Finance Party under the STID to take certain actions. Trigger Events include the following:
The giving of a 25-year notice to terminate the Instrument of Appointment without an acceptable transfer scheme approved by the Secretary of State in accordance with the provisions of Schedule 2 of the WIA (Transitional Provision on Termination of Appointments) being in place within five years following the date of such notice.
In addition, the following are summaries of certain other Trigger Events:
(c) the issue of certain enforcement orders under the WIA in relation to the Issuer;
(d) the commencement of material litigation proceedings; and
Following the occurrence of a Trigger Event, unless it has been waived by the Controlling Finance Party or remedied to the satisfaction of the Controlling Finance Party, the Controlling Finance Party may take certain actions including all or some of the following: (a) restricting payments by the Issuer to any Affiliate; (b) requiring the Issuer to pay certain surplus funds into a designated account(s); (c) the commission of an independent review conducted by a person approved by the Controlling Finance Party to examine the cause of the relevant Trigger Event and to recommend corrective measures; and (d) requiring the delivery of additional financial information.
The STID also sets out Acceleration Events which (subject to agreed exceptions and materiality qualifications) include:
If on any STID Calculation Date:
The Issuer fails to pay principal or interest or any other sum due and payable from it under any of the Senior Finance Documents to which it is a party at the time, in the currency and in the manner specified therein unless (a) such non-payment is in respect of principal or interest and caused by administrative or technical error; and (b) such payment is made within three Business Days of its due date and (in the case of a sum other than principal or interest) such failure continues unremedied for a period of 10 Business Days after the due date for payment of such sum.
The Instrument of Appointment, any necessary licence, consent, authorisation or Environmental Approval:
is not obtained when required, is revoked, ceases to be in full force and effect or is altered in each case in a manner which would have a Material Adverse Effect and in the case of such necessary licence, consent, authorisation or Environmental Approval, the Controlling Finance Party is not reasonably satisfied within a period of 10 Business Days that it will be restored within such reasonable period as the Controlling Finance Party considers appropriate in the circumstances.
The commencement of the final reading of draft legislation in the House of Lords or the House of Commons (whichever occurs later) which is in substantially the same form as prior readings and the enactment of such legislation would have a Material Adverse Effect (taking into account the regulatory regime applicable to the Business of the Issuer at such time) or any of the following steps are taken:
An encumbrancer takes possession of, or a trustee, special administrator or administrative or other receiver or similar officer is appointed in respect of, all of the business or assets of the Issuer, or any part of the business or assets in excess of one per cent. of the regulatory asset base of the Issuer most recently published by Ofwat in current prices, or distress or any form of execution is levied or enforced upon or sued out against any such assets and is not discharged within 30 days of being levied, enforced or sued out.
Any Obligor makes any arrangement or composition with, or any assignment for the benefit of, its creditors generally or convenes a meeting of its creditors for the purpose of considering any such arrangement, composition or assignment.
A petition is presented, or a meeting is convened for the purpose of considering a resolution or other steps are taken for making an administration order against or for the winding up of the Obligor or for the appointment of a liquidator, receiver, administrator, special administrator, administrative receiver or similar official of it or any or all of its revenues or assets or a petition is presented under Section 24 of the WIA in respect of the Issuer or an administration order or a winding up order is made against any Obligor save for any such proceedings which are taken for the purpose of and followed by a solvent reorganisation or merger (which has received the prior written approval of the Controlling Finance Party pursuant to Clause 9.3 (Merger) of the STID) and save for such proceedings which are withdrawn, dismissed or discharged within 14 days of being commenced.
A Special Administration Order is made in respect of the Issuer under the WIA.
Following notice of the termination of the Instrument of Appointment, failure to put in place an approved transfer scheme as defined in Schedule 2 of the WIA by a date less than five years prior to the expiration of such notice.
Any Indebtedness for Borrowed Money in excess of two per cent. of the Issuer's RAV is declared to be or otherwise becomes due and payable prior to its specified maturity by reason of default by the Issuer.
Any litigation against the Issuer or its assets or revenues results in judgment (being both final and without the opportunity for the Issuer to appeal against it) is passed against the Issuer which has or would have a Material Adverse Effect.
In addition, the following shall also constitute Acceleration Events:
Upon the occurrence of an Acceleration Event which has occurred and has not been waived by, or remedied to the satisfaction of the Controlling Finance Party, and subject to Clause 11.3 (Acceleration Event Remedies) of the STID and Entrenched Rights and Reserved Matters, the Controlling Finance Party will have certain rights, including to: (a) direct the enforcement of the Charged Assets; (b) accelerate the repayment of the Artesian Loans and any other Qualifying Debt; (c) direct that steps be taken to perfect the Security; (d) direct that certain actions be taken (or not taken) by the Issuer; and (e) require that the net present value of the Issuer's obligations under the Artesian Loans and any other Qualifying Debt be defeased.
Upon the occurrence of an Acceleration Event which has not been waived by, or remedied to the satisfaction of the Controlling Finance Party, any Qualifying Debt Representative may instruct the Security Trustee to enforce the security constituted by the Security Documents provided that such instructions are accompanied by an Emergency Instruction Notice (as defined). An "Emergency Instruction Notice" means a notice given in writing by any Qualifying Debt Representative certifying that an enforcement event (however described) has occurred and is continuing unremedied and unwaived and that, in its opinion, acting reasonably and in good faith:
Upon receipt of an Emergency Instruction Notice, the Security Trustee shall comply with such instructions as soon as reasonably practicable, whether or not the Security Trustee receives subsequent instructions to the contrary from any person. Such Emergency Instruction Notice shall be irrevocable.
Each of the Secured Creditors agrees that, subject to:
the Controlling Finance Party is entitled (but not obliged), in respect of any of the Finance Documents, to direct the relevant Secured Creditors as to the exercise of any of such party's Finance Rights (including the right to accelerate the relevant Qualifying Debt and to enforce the Security). Each Secured Creditor agrees that (subject to its Reserved Matters and any Entrenched Rights) it will, and will only, exercise any Finance Right at the behest of, and as instructed, or as consented to, by the Controlling Finance Party (to the extent that such Finance Right is not already so restricted in any Finance Document).
Save where it is or becomes the Controlling Finance Party, none of the Secured Creditors shall, subject to their Reserved Matters and any Entrenched Rights, have any right, power or authority to veto or direct the actions of the Security Trustee or, subject to its Entrenched Rights and Reserved Matters, the Issuer or the Controlling Finance Party, nor any right to direct the exercise of any rights conferred on the Security Trustee under any of the Finance Documents or under law against the Charged Assets or to direct the Security Trustee to take any action with respect to the Charged Assets (including any assertion of any legal or equitable right to seek appointment of a Receiver) or require the Security Trustee to enforce the performance of any covenant or obligation by an Obligor or otherwise to direct the Security Trustee in the performance of its duties under the Finance Documents. Save where it is or becomes the Controlling Finance Party, none of the Secured Creditors shall have any independent power to enforce the Security Documents or to exercise any rights, discretions or powers or to grant any consents or releases under or pursuant to the Security Documents except through the Security Trustee. Save where it is or becomes the Controlling Finance Party, none of the Secured Creditors shall have any right to institute and shall be precluded from instituting any legal, judicial or administrative proceeding with respect to any rights it may have under the Relevant Documents or for the appointment of a Receiver or trustee or for any other remedy under the Relevant Documents other than, in the case of any Secured Creditor, in respect of any Reserved Matter or any Entrenched Right.
The provisions of the above paragraph shall not apply in relation to Reserved Matters, which may be exercised without the consent or control of the Controlling Finance Party. No Secured Creditor may exercise any Finance Right which is or would contravene an Entrenched Right unless it receives the prior written consent of the Finance Party having the benefit of such Entrenched Right.
Any consent or waiver given by the Controlling Finance Party in relation to the exercise of Finance Rights shall be deemed to be given by all the Secured Creditors.
The Controlling Finance Party shall be determined as follows:
provided that, for so long as more than one Artesian Loan is outstanding, "Qualifying Debt Representative in relation to the Artesian Loan" shall mean the Qualifying Debt Representatives in relation to the Artesian Loans acting jointly and in determining the Qualifying Debt Representative holding the greatest proportion of the aggregate principal amount outstanding of any Qualifying Debt, the Artesian Loans shall be aggregated.
Where the STID provides that the Security Trustee is to act on the instructions of the Controlling Finance Party given before the Discharge Date when the Controlling Finance Party does not hold or represent Qualifying Debt Holders who hold, more than 50 per cent. of the aggregate principal amount outstanding under the Qualifying Debt, the Security Trustee on receipt of instructions from the Controlling Finance Party shall supply a copy of such instructions to each Qualifying Debt Representative (including the Bond Trustee).
If, within 21 days of the date of such instructions being sent, the Security Trustee receives notices of objection to such instructions from Qualifying Debt Representatives whose aggregate outstanding amount under the Qualifying Debt, when aggregated with the outstanding debt of the provider of the instructions, exceeds 50 per cent. of the aggregate principal amount outstanding under the Qualifying Debt, the Security Trustee shall not act on the instructions of the Controlling Finance Party.
Entrenched Rights are rights that cannot be modified or waived in accordance with the STID without the consent of the Secured Creditor having the Entrenched Right.
The Entrenched Rights of the Qualifying Debt Representatives (including the Bondholders) are the following Finance Rights:
(d) a change to the quorum required at any meeting or the majority required to pass an Extraordinary Resolution (as such term is defined in the document or documents which constitute the Qualifying Debt);
(e) a release of the Security (unless equivalent replacement security is taken at the same time) unless such release is required in accordance with the terms of the relevant Security Document, or any alteration of the rights of priority and enforcement of the Qualifying Debt Holders under this Deed other than as expressly contemplated in the documents constituting such Security; and
Reserved Matters are matters which, subject to the STID, a Secured Creditor is free to exercise in accordance with its own finance arrangements and so are not exercisable by or by direction of the Controlling Finance Party.
The Reserved Matters of the Qualifying Debt Representatives (including the Bondholders) will include each and every right, power, authority and discretion of, or exercisable by a Qualifying Debt Representative (whether expressed as a right, power, authority or discretion of that Qualifying Debt Representative or obligation of any other party):
or to rely on any notice, certificate or other communication confirming, the existence or non-existence of any fact, circumstance or event);
Subject to the restrictions set out in the WIA and the Instrument of Appointment, the Issuer has, pursuant to the Issuer Debenture, created fixed and floating security over assets including, but not limited to, its bank accounts, its accounts receivables, its rights under certain contracts with third parties, its rights under the Finance Documents and its land and other property, but only to the extent that such security would not otherwise contravene the terms of the Act or the Instrument of Appointment. No notice of the creation of the security by the Issuer has been given to its customers. In addition, the Guarantor has created fixed and floating security over its assets, including a fixed charge over all its shares in the Issuer.
The enforcement of security granted by the Guarantor would not be subject to the same restrictions on enforcement applicable to security granted by a Licensed Undertaker under the WIA. However, given the duties of Ofwat under the WIA to exercise its powers and duties to, among other things, secure that the functions of a Licensed Undertaker are properly carried out, it is expected that any enforcement of the security over the shares of a Licensed Undertaker and subsequent disposal thereof would require consultation with Ofwat. In addition, depending on the circumstances, merger control provisions could also apply.
The net proceeds of the issue of the Bonds, expected to amount to approximately £39,811,025 after deduction of fees and expenses incurred in connection with the issue of the Bonds, will be used for general corporate purposes.
The total expenses related to the admission to trading are expected to amount to £8975.
The comments below are of a general nature based on current United Kingdom law and HM Revenue & Customs practice and are not intended to be exhaustive. Any Bondholders who are in doubt as to their own tax position should consult their professional advisers.
The Bonds issued will constitute "quoted Eurobonds" provided that they are and continue to be listed on a recognised stock exchange, within the meaning of Section 1005 Income Tax Act 2007. The London Stock Exchange is a recognised stock exchange for these purposes. Securities will be treated as listed on the London Stock Exchange if they are included in the Official List (within the meaning of and in accordance with the provisions of Part 6 of the Financial Services and Markets Act 2000) by the United Kingdom Listing Authority and are admitted to trading on the London Stock Exchange.
Whilst the Bonds are and continue to be quoted Eurobonds, payments of interest by the Issuer on the Bonds may be made without withholding or deduction for or on account of United Kingdom tax.
Interest on the Bonds may also be paid without withholding or deduction on account of United Kingdom tax where interest on the Bonds is paid by the Issuer and, at the time the payment is made, the Issuer reasonably believes (and any person by or through whom interest on the Bonds is paid reasonably believes) that the beneficial owner is within the charge to United Kingdom corporation tax as regards the payment of interest, provided that HM Revenue & Customs has not given a direction (in circumstances where it has reasonable grounds to believe that it is likely that the above exemption is not available in respect of such payment of interest at the time the payment is made) that the interest should be paid under deduction of tax.
In all other cases, interest will generally be paid by the Issuer under deduction of United Kingdom income tax at the basic rate (currently 20 per cent.), subject to the availability of other reliefs or to any direction to the contrary from HM Revenue & Customs in respect of such relief as may be available pursuant to the provisions of any applicable double taxation treaty. Persons in the United Kingdom paying interest to or receiving interest on behalf of another person who is an individual may be required to provide certain information to HM Revenue & Customs regarding the identity of the payee or person entitled to the interest and, in certain circumstances, such information may be exchanged with the tax authorities of the jurisdiction in which the Bondholder is resident for tax purposes. However, in relation to amounts payable on the redemption of such Bonds, HM Revenue & Customs published practice indicates that HM Revenue & Customs will not exercise its power to obtain information where such amounts are paid or received on or before 5 April 2011.
Under the Savings Directive, each Member State is required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual or to certain other persons in that other Member State. However, for a transitional period, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other territories).
On 15 September 2008, the European Commission issued a report to the Council of the European Union on the operation of the Savings Directive, which included the Commission's advice on the need for changes to the Savings Directive. On 13 November 2008, the European Commission published a more detailed proposal for amendments to the Savings Directive, which included a number of suggested changes. The European Parliament approved amendments to this proposal on 24 April 2009. If any of those proposed changes are made in relation to the Savings Directive, they may amend or broaden the scope of the requirements described above. Prospective Bondholders who are in any doubt as to their position should consult their professional advisers.
HSBC Bank plc (the "Manager") has, pursuant to a Subscription Agreement dated 25 March 2011, agreed with the Issuer, subject to the satisfaction of certain conditions, to subscribe the Bonds at 100.00 per cent. of their principal amount less a combined management, underwriting and selling commission. In addition, the Issuer has agreed to reimburse the Manager its expenses in connection with the issue of the Bonds. The Subscription Agreement entitles the Manager to terminate it in certain circumstances prior to payment being made to the Issuer. The yield of the Bonds is 2.701 on an annual basis. The yield is calculated as at 23 March 2011 on the basis of the issue price. It is not an indication of future yield.
Neither the Issuer nor the Manager has made any representation that any action will be taken in any jurisdiction by the Manager or the Issuer that would permit a public offering of the Bonds, or possession or distribution of this Prospectus (in preliminary, proof or final form) or any other offering or publicity material relating to the Bonds (including roadshow materials and investor presentations), in any country or jurisdiction where action for that purpose is required. The Manager has agreed that it will comply to the best of its knowledge and belief in all material respects with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Bonds or has in its possession or distributes this Prospectus (in preliminary, proof or final form) or any such other material, in all cases at its own expense. It will also ensure that no obligations are imposed on the Issuer in any such jurisdiction as a result of any of the foregoing actions.
The Bonds have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.
The Bonds are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code and regulations thereunder.
The Manager has represented and agreed that, except as permitted by the Subscription Agreement, it has not offered, sold or delivered and will not offer, sell or deliver the Bonds, (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date (as defined in the Subscription Agreement) within the United States or to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells Bonds during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Bonds within the United States or to, or for the account or benefit of, U.S. persons.
The Manager has represented and agreed that:
(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the Bonds in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and
(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom.
The address of Euroclear is 1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium and the address of Clearstream, Luxembourg is 42 Avenue JF Kennedy L-1855 Luxembourg.
(a) the Trust Deed (which includes the form of the Global Bonds, the definitive Bonds and the Coupons);
This Prospectus will be published on the website of the Regulatory News Service operated by the London Stock Exchange at http://www.londonstockexchange.com/exchange/prices-andnews/news/market-news/market-news-home.html.
The directors present their report and the audited financial statements for the year ended 31 December 2010.
The principal activity of the company during the year was that of a holding company for Bristol Water plc, the principal trading subsidiary of the ultimate UK parent company, Agbar UK Limited.
The directors expect the current level of activity to be sustained for the foreseeable future.
The results for the year are set out in the Profit and Loss account on page 5. The company made a profit for the year of £2,904,000 (2009: £10,204,000).
The following dividends (total: £2,904,000) were paid during the year (2009: £10,204,000):
First interim - £1,448,000 - 24.14 pence per share paid on 29 March 2010 Second interim - £1,456,000 - 24.27 pence per share paid on 29 September 2010
The directors do not recommend the payment of a final dividend.
There have been no events since the balance sheet date which materially affect the position of the company.
The main risks facing the company are those related to its regulated subsidiary, Bristol Water plc. Bristol Water plc has adequate resources to continue in business for the foreseeable future in so far that it has significant cash resources and an unutilised committed borrowing facility of £30m. However, it is not immune from financial market uncertainties in the medium term.
Bristol Water plc is regulated by the Water Services Regulatory Authority ("Ofwat"). In 2010 Bristol Water plc rejected Ofwat's price limits for the five year regulatory period beginning 1 April 2010. Following due process, Ofwat referred the case to the Competition Commission ("CC") who announced its re-determination of prices on 4 August 2010.
The revised price limits (or 'K' factors) compound to 17.1% (before inflation) for the regulatory period and are significantly higher than the 9.1% in the rejected Ofwat determination. Bristol Water plc is pleased with the settlement in many respects, although in such a complex matter it is not surprising that it does not agree with all of the CC's conclusions. The distraction and uncertainty of the CC appeal is now in the past and Bristol Water plc is focused on delivering what is required by the price re-determination.
The directors report that, after making enquiries, they have concluded that the company will continue in operation for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis of accounting in preparing these accounts, as do the directors of Bristol Water plc in its accounts.
The company continued to act as a holding company for Bristol Water plc, an appointed water undertaker under the terms of the Water Industry Act 1991, as amended, including by the Water Act 2003
The risks and uncertainties faced by the company are essentially through ownership of its subsidiary Bristol Water plc. These risks and uncertainties cover three main areas:
Bristol Water plc has a range of risk management strategies to mitigate the impact of these risks and uncertainties.
The directors expect the current level of activity to be sustained for the foreseeable future as the company continues to act as a holding company for its subsidiary.
The directors of the company who held office during the year are as follows:
Mr A Parsons - Chairman Mr M Anglada
Mr A Parsons has stated his intention to retire from the company on 30 September 2011.
DIRECTORS' REPORT (continued)
Each of the persons who is a director at the date of approval of this report confirms that:
This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
Following the resignation of the former auditors, Deloitte LLP, on 13 September 2010, Ernst & Young LLP were appointed auditors.
By order of the Board
Wha
S Robson Secretary PO Box 218, Bridgwater Road Bristol 28 February 2011
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
for the year ended 31 December 2010
| Note | 2010 £000 |
2009 £000 |
|
|---|---|---|---|
| Operating profit | 2 | 儒 | Ξ |
| Income from shares in group undertaking | 2,904 | 10,204 | |
| Profit on ordinary activities before taxation |
2,904 | 10,204 | |
| Taxation | З | ||
| Profit for the year | 2,904 | 10,204 |
All activities relate to the continuing operations of the company.
The company has no recognised gains and losses other than the profit for the year stated above and therefore no separate statement of total recognised gains and losses has been presented.
The accompanying notes on pages 7 to 11 form an integral part of this statement.
at 31 December 2010
| Note | 2010 £000 |
2009 £000 |
|
|---|---|---|---|
| Fixed assets Investment |
5 | 5,998 | 5,998 |
| Total assets | 5,998 | 5,998 | |
| Capital and reserves Share capital Profit and loss account |
6 7 |
5,998 | 5,998 |
| Shareholders' funds | 7 | 5,998 | 5,998 |
The financial statements of Bristol Water Core Holdings Limited, registered number 4637554, were approved by the board of directors and authorised for issue on 28 February 2011.
$\frac{1}{2}$
A Parsons, Chairman
M Anglada, Director
The accompanying notes on pages 7 to 11 form an integral part of this statement.
The principal accounting policies adopted in the preparation of the accounts are summarised below. They have all been applied consistently throughout the year and the preceding period.
The accounts have been prepared on the going concern basis, under the historical cost convention and in accordance with applicable accounting standards in the United Kingdom.
The directors report that, after making enquiries, they have concluded that the company will continue in operation for the foreseeable future. Therefore they continue to adopt the going concern basis of accounting in preparing these accounts. Further information is provided in the Directors' Report.
The company has taken advantage of the exemption under section 400 of the Companies Act 2006, from preparing group accounts on the grounds that it is a wholly owned subsidiary and consolidated accounts are prepared by the ultimate parent company. Suez Environnement Company S.A.
The company is exempt from the requirements of Financial Reporting Standard (FRS) 1 'Cash Flow Statements' to prepare a cash flow statement as it is a wholly owned subsidiary.
The largest group in which this company is consolidated is Suez Environnement Company S.A., and copies of its consolidated annual report are available from 1, Rue D'Astorg 75008 Paris, France.
The smallest group in which this company is consolidated is Sociedad General de Aquas de Barcelona, S.A. (Agbar), and copies of its consolidated annual report are available from Torre Agbar, Avda. Diagonal, 211, Planta 19-08018, Barcelona, Spain.
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Investments in subsidiaries are stated at cost, less where appropriate, provision for impairment.
Dividends from investments are reflected in the financial statements when received.
Dividends and other distributions to shareholders are reflected in the financial statements when approved by shareholders in a general meeting, except for interim dividends which are included in the financial statements when paid by the company. Accordingly, proposed dividends are not included as a liability in the financial statements.
Audit fees totalling £1,575 for the year ended 31 December 2010 (2009: £1,750) have been borne by Agbar UK Limited.
| 2010 | 2009 | |
|---|---|---|
| £000 | £000 | |
| Directors' emoluments: | ||
| Aggregate emoluments of all directors being remuneration, | ||
| bonus and benefits in kind | 417 |
The average number of employees during the year was nil (2009: nil).
Directors' emoluments were paid by Bristol Water plc and Agbar UK Limited during the year.
None of the directors received any additional remuneration or benefits for their services to this company (2009: £nil).
During 2010 one director (2009; one director) accrued retirement benefits in the Bristol Water plc defined benefit scheme however this ceased at 31 December 2010.
The aggregate emoluments of the highest paid director during the year were £286,000 (2009: £256,000) paid by Bristol Water plc. At the end of the year the highest paid director had an accrued pension entitlement available on his normal retirement date of £71,000 (2009: £58,000).
No director waived emoluments in respect of the year ended 31 December 2010 (2009: none).
| 2010 £000 |
2009 £000 |
|
|---|---|---|
| UK corporation tax at 28% | $\overline{\phantom{a}}$ | 12 |
| Total current tax charge |
The company has no deferred tax liability (2009: £nil).
The current tax charge for the year is lower (2009: lower) than the standard rate of corporation tax in the United Kingdom (28%). The differences are explained below:
| 2010 £000 |
2009 £000 |
|
|---|---|---|
| Profit on ordinary activities before taxation | 2,904 | 10.204 |
| Profit on ordinary activities multiplied by standard rate of corporation tax in the UK at 28% |
813 | 2,857 |
| Effect of: Dividends not taxable |
(813) | (2.857) |
| Total current tax charge |
In the 2010 Budget the Chancellor announced a reduction in the corporation tax rate from 28% to 27% with effect from 1 April 2011. This change does not have any impact in these financial statements. The company is not aware of any other factors that may affect future tax charges.
| 4. | DIVIDENDS | 2010 £000 |
2009 £000 |
|---|---|---|---|
| On ordinary shares: | |||
| Dividend in respect of the 2009 trading period: | |||
| First interim dividend of 24.14 pence per share | 1,448 | ||
| Second interim dividend of 60.02 pence per share | 3,600 | ||
| Third interim dividend of 24.27 pence per share | 1,456 | ||
| Fourth interim dividend of 61.69 pence per share | 3,700 | ||
| Dividend in respect of the current trading period: | |||
| First interim dividend of 24.14 pence per share | 1,448 | ||
| Second interim dividend of 24.27 pence per share | 1,456 | ||
| 2,904 | 10,204 | ||
| 5. | INVESTMENT | ||
| 2010 | 2009 | ||
| £000 | £000 | ||
| Cost | |||
| At 1 January and 31 December | 5,998 | 5,998 | |
Bristol Water Core Holdings Limited owns all of the issued ordinary shares of Bristol Water plc, whose principal activity is the provision of water supply and related services, and which is registered in England and Wales
The last audited financial statements of Bristol Water plc at 31 March 2010 show a profit on ordinary activities after taxation of £18.6m (2009: £12.1m) and net assets of £84.9m (2009: £76.7m).
The issued, called up and fully paid share capital of the company comprises 5,998,027 (2009; 5,998,027) ordinary shares of £1 each.
Mr A Parsons has one nominee share (2009: one share) in this company held jointly with Bristol Water Holdings Limited (the immediate parent company).
| Share capital £000 |
Profit and loss account £000 |
Total 2010 £000 |
Total 2009 £000 |
|
|---|---|---|---|---|
| Opening shareholders' funds | 5,998 | 5.998 | 5,998 | |
| Profit for the year | 2,904 | 2.904 | 10.204 | |
| Dividends paid | $\langle \rangle$ | (2,904) | (2,904) | (10, 204) |
| Closing shareholders' funds | 5.998 | 5.998 | 5.998 | |
The company is a member of a VAT group and is jointly liable for the VAT liabilities of its principal subsidiary. The group has contingent liabilities in respect of contracts in the normal course of business. Other than as shown in these financial statements the directors are not aware of any other contingent liabilities that require disclosure.
Until 7 June 2010 the ultimate parent company was considered by the directors to be Sociedad General de Aguas de Barcelona S.A. (Agbar), a company incorporated in Spain. On 8 June 2010 Suez Environnement Company S.A. (partly owned by the French group GDF Suez) increased their control of Agbar to 75.23%, and are now regarded as the ultimate parent company.
The largest group in which this company is consolidated is Suez Environnement Company S.A. and copies of its consolidated annual report are available from 1, Rue D'Astorg 75008 Paris, France
The smallest group in which this company is consolidated is Agbar, and copies of its consolidated annual report are available from Torre Agbar, Avda. Diagonal, 211, Planta 19-08018, Barcelona, Spain.
The company has taken advantage of the exemptions within FRS 8 (Related Party Disclosures) and not disclosed transactions with other Agbar group undertakings with the exception of security for borrowings below.
The majority of Bristol Water plc's financial liabilities are partly secured by a fixed charge over Bristol Water Core Holdings Limited's shares (as its immediate parent) in Bristol Water pic
together with a floating charge over the whole of its undertaking.
Registered Number: 4637554
$\overline{z}$
We have audited the financial statements of Bristol Water Core Holdings Limited for the year ended 31 December 2010 which comprise the Profit and Loss Account, the Balance Sheet and the related notes 1 to 10. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Directors' Responsibilities Statement 4, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
In our opinion the financial statements:
In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
Emst & Young Let
Paul Mapleston (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Bristol 28 February 2011
The directors present their report and the audited financial statements for the year ended 31 December 2009.
The principal activity of the company during the year was that of a holding company for Bristol Water plc, the principal trading subsidiary of the ultimate UK parent company, Agbar UK Limited (formerly Bristol Water Group Limited).
The directors expect the current level of activity to be sustained for the foreseeable future.
The results for the year are set out in the Profit and Loss account on page 5. The company made a profit for the year of £10,204,000 (2008: £11,864,000).
The following dividends (total: £10,204,000) were paid during the year (2008: £11,864,000 - 197.80 pence per share):
First interim - £1,447,898 - 24.14 pence per share paid on 1 April 2009 Second interim - £3,600,000 - 60.02 pence per share paid on 28 September 2009 Third interim - £1,455,854 - 24.27 pence per share paid on 30 September 2009 Fourth interim - £3,700,000 - 61,69 pence per share paid on 20 November 2009
The directors do not recommend the payment of a final dividend.
There have been no events since the balance sheet date which materially affect the position of the company.
The directors report that, after making enquiries, they have concluded that the company will continue in operation for the foreseeable future.
The main risks facing the company are those related to its regulated subsidiary, Bristol Water plc. Bristol Water plc has adequate resources to continue in business for the foreseeable future in so far that it has significant cash resources and an unutilised committed borrowing facility of £30m. However, it is not immune from financial market and regulatory uncertainties in the medium term.
Ofwat set final determinations of price limits and regulatory output requirements for the five years ended March 2015 in November 2009 for all water companies in England and Wales. Bristol Water plc rejected Ofwat's final determination. As required by the relevant legislation, Ofwat has referred Bristol Water plc rejection to the Competition Commission ("CC"), primarily on the grounds that price limits were too low for the outputs required. The CC is in the process of re-determining the price limits for the period and is expected to publish its findings by 6 August 2010.
Bristol Water plc's directors are confident that the company's case is strong, and has been prepared robustly and thoroughly for the CC. For this reason, they are confident that the outcome of the CC review will be successful. In addition they note the legal obligations placed on CC to ensure that regulatory settlements can be funded appropriately.
After considering these matters, the directors of the company and of Bristol Water plc continue to adopt the going concern basis for preparing the accounts.
The company continued to act as a holding company for Bristol Water plc, an appointed water undertaker under the terms of the Water Industry Act 1991. Bristol Water plc's vision is 'to provide water in a sustainable and affordable way on a highly reliable basis that customers have confidence in and are happy to drink'.
The risks and uncertainties faced by the company are essentially those of its subsidiary Bristol Water plc. These risks and uncertainties cover three main areas:
Operational - contamination or interruption of water resources and/or supplies; failure of key assets to maintain expected outputs, adversely affecting the ability to maintain supplies to customers; climate/weather pattern change affecting resource availability and/or customer demand; retention and recruitment of key staff.
Requiatory - failure to meet existing requiatory requirements which could result in penalties or enforcement action by Ofwat, the EA or the DWI; increased costs of meeting regulatory requirements; impact of legislative changes including those related to environmental or drinking water quality requirements; significant development of competition within the water sector; impact of future periodic and/or interim determinations of price limits by Ofwat.
Financial - loss of major customers as a result of closure of their facilities; pensions - funding requirements of the scheme are subject to a range of factors including longevity assumptions, investment allocation and investment returns, additionally changes in pension regulations could have a significant impact on future company contributions; worsening debt collection experience, particularly in relation to household debt giving rise to increasing levels of bad debts; inflation or deflation affecting operating costs, the capital investment programme and index-linked debt: future increases in energy prices, changes in the taxation regime; failure to meet banking covenants; financial markets turmoil impacting the ability to raise additional future financing.
Bristol Water plc has a range of risk management strategies to mitigate the impact of these risks and uncertainties.
The directors expect the current level of activity to be sustained for the foreseeable future as the company continues to act as a holding company for its subsidiary.
The directors of the company who held office during the year are as follows:
Mr A Parsons - Chairman Mr S Pellegri (resigned 30 November 2009) (appointed 1 December 2009) Mr M Anglada Gali
Each of the persons who is a director at the date of approval of this report confirms that:
This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
Deloitte LLP have indicated their willingness to be reappointed for another term and appropriate arrangements have been put in place for them to be deemed reappointed as auditors in the absence of Annual General Meeting.
This directors' report has been prepared in accordance with the provisions applicable to companies entitled to the small companies exemption.
By order of the Board
Stylea
S Robson Secretary PO Box 218, Bridgwater Road Bristol 16 April 2010
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and requlations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
for the year ended 31 December 2009
| Note | 2009 £000 |
2008 £000 |
|
|---|---|---|---|
| Operating profit | 2 | ۰ | |
| Income from shares in group undertaking | 10,204 | 11,864 | |
| Profit on ordinary activities before taxation |
10,204 | 11,864 | |
| Taxation | 3 | ۰ | |
| Profit for the year | 10,204 | 11.864 |
All activities relate to the continuing operations of the company.
The company has no recognised gains and losses other than the profit above and therefore no separate statement of total recognised gains and losses has been presented.
The accompanying notes on pages 7 to 11 form an integral part of this statement.
as at 31 December 2009
| Note | 2009 £000 |
2008 £000 |
|
|---|---|---|---|
| Fixed assets Investment |
5 | 5,998 | 5,998 |
| Total assets | 5,998 | 5,998 | |
| Capital and reserves Share capital Profit and loss account |
6 7 |
5,998 | 5,998 |
| Shareholders' funds | 7 | 5,998 | 5,998 |
The financial statements of Bristol Water Core Holdings Limited, registered number 4637554, were approved by the broad of directors and authorised for issue on 16 April 2010.
Mar A
Trassist
A Parsons, Chairman
M Anglada Gali, Director
The accompanying notes on pages 7 to 11 form an integral part of this statement.
The principal accounting policies adopted in the preparation of the accounts are summarised below. They have all been applied consistently throughout the year and the preceding period.
The accounts have been prepared on the going concern basis, under the historical cost convention and in accordance with applicable accounting standards in the United Kingdom.
The directors report that, after making enquiries, they have concluded that the company will continue in operation for the foreseeable future.
The main risks facing the company are those related to its regulated subsidiary. Bristol Water plc. Bristol Water plc has adequate resources to continue in business for the foreseeable future in so far that it has significant cash resources and an unutilised committed borrowing facility of £30m. However, it is not immune from financial market and regulatory uncertainties in the medium term.
Ofwat set final determinations of price limits and regulatory output requirements for the five years ended March 2015 in November 2009 for all water companies in England and Wales. Bristol Water plc rejected Ofwat's final determination. As required by the relevant legislation, Ofwat has referred Bristol Water plc rejection to the Competition Commission ("CC"), primarily on the grounds that price limits were too low for the outputs required. The CC is in the process of re-determining the price limits for the period and is expected to publish its findings by 6 August 2010.
Bristol Water pic's directors are confident that the company's case is strong, and has been prepared robustly and thoroughly for the CC. For this reason, they are confident that the outcome of the CC review will be successful. In addition they note the legal obligations placed on CC to ensure that regulatory settlements can be funded appropriately.
After considering these matters, the directors of the company and of Bristol Water plc continue to adopt the going concern basis for preparing the accounts.
The company has taken advantage of the exemption, under section 400 of the Companies Act 2006, from preparing group accounts on the grounds that it is a wholly owned subsidiary and consolidated accounts are prepared by the ultimate parent company, Sociedad General de Aguas de Barcelona, S.A. (Agbar).
The company is exempt from the requirements of Financial Reporting Standard (FRS) No. 1 'Cash Flow Statements' (Revised) to prepare a cash flow statement as it is a wholly owned subsidiary undertaking of Agbar. A consolidated cash flow statement is included within the accounts of the ultimate parent company.
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Investments in subsidiaries are stated at cost, less where appropriate, provision for impairment.
Dividends from investments are reflected in the financial statements when received.
Dividends and other distributions to shareholders are reflected in the financial statements when approved by shareholders in a general meeting, except for interim dividends which are included in the financial statements when paid by the company. Accordingly, proposed dividends are not included as a liability in the financial statements.
The company participates in group operated defined benefit pension arrangements. Given that it has not been possible to identify the underlying assets and liabilities attributable to each participating company, multi-employer treatment is applied, which results in accounting on a defined contribution basis. Contributions payable to the scheme are charged to the profit and loss account and accrued when necessary.
Audit fees totalling £1,750 for the year ended 31 December 2009 (2008: £1,750) have been borne by Agbar UK Limited (formerly Bristol Water Group Limited).
| 2009 | 2008 | |
|---|---|---|
| Directors' emoluments: | £000 | £000 |
| Aggregate emoluments of all directors being remuneration, bonus and benefits in kind |
465 | 442 |
The average number of employees during the year was nil (2008: nil).
In total, at 31 December 2009 one director (2008: one director) was accruing retirement benefits in the Bristol Water plc defined benefit scheme.
Directors' emoluments were paid by Bristol Water plc and Agbar UK Limited (formerly Bristol Water Group Limited) during the year. All executive directors' service contracts are with Bristol Water plc.
The remuneration of each executive director is established by the Remuneration Committee of Bristol Water plc on the basis of duties and responsibilities held using market data for comparable positions in other companies. Bonuses relate to the achievement of corporate objectives and are subject to a maximum of either 30% or 50% (2008: 30% or 50%) of basic salary at the beginning of each financial year.
The aggregate emoluments of the highest paid director during the year were £256,000 (2008: £268,000) paid by Bristol Water plc.
At the end of the year the highest paid director had an accrued pension entitlement available on his normal retirement date of £nil (2008: £nil).
| 2009 £000 |
2008 £000 |
|
|---|---|---|
| UK corporation tax at 28% (2008: weighted average rate of 28.5%) |
۰ | |
| Total current tax charge | ٠ | $\blacksquare$ |
The company has no deferred tax liability.
The current tax charge for the year is lower (2008: lower) than the standard rate of corporation tax in the United Kingdom (28%). The differences are explained below:
| 2009 £000 |
2008 £000 |
|
|---|---|---|
| Profit on ordinary activities before taxation | 10,204 | 11.864 |
| Profit on ordinary activities multiplied by standard rate of corporation tax in the UK at 28% (2008: weighted average rate of 28.5%) |
2,857 | 3.381 |
| Effect of: Dividends not taxable |
(2, 857) | (3,381) |
| Total current tax charge |
The company is not aware of any other factors that may affect future tax charges.
| 4. | DIVIDENDS | 2009 | 2008 |
|---|---|---|---|
| On ordinary shares: | £000 | £000 | |
| Dividend in respect of 2007 trading period: Third interim dividend of 51.68 pence per share Final dividend of 98.37 pence per share |
3,100 5,900 |
||
| Dividend in respect of 2008 trading period: First interim dividend of 23.47 pence per share Second interim dividend of 24.27 pence per share |
1,408 1,456 |
||
| Dividend in respect of the current trading period: First interim dividend of 24.14 pence per share Second interim dividend of 60.02 pence per share Third interim dividend of 24.27 pence per share Fourth interim dividend of 61.69 pence per share |
1,448 3,600 1,456 3,700 |
||
| 10,204 | 11,864 | ||
| 5. | INVESTMENT |
| Cost | 2009 £000 |
2008 £000 |
|---|---|---|
| At 1 January and 31 December | 5.998 | 5.998 |
Bristol Water Core Holdings Limited owns all of the issued ordinary shares of Bristol Water plc, whose principal activity is the provision of water supply and related services, and which is registered in England and Wales.
The last audited financial statements of Bristol Water plc at 31 March 2009 show a profit on ordinary activities after taxation of £12.1m (2008: £14.5m) and net assets of £76.7m (2008: £78.5m).
The issued, called up and fully paid share capital of the company comprises 5,998,027 (2008: 5,998,027) ordinary shares of £1 each.
| Share capital £000 |
Profit and loss account £000 |
Total 2009 £000 |
Total 2008 £000 |
|
|---|---|---|---|---|
| Opening shareholders' funds Profit for the year Dividends paid |
5,998 $\overline{\phantom{a}}$ |
10.204 (10.204) |
5.998 10.204 (10.204) |
5.998 11,864 (11, 864) |
| Closing shareholders' funds | 5.998 | ۰. | 5.998 | 5.998 |
The company is a member of a VAT group and is jointly liable for the VAT liabilities of its principal subsidiary. The group has contingent liabilities in respect of contracts in the normal course of business. Other than as shown in these financial statements the directors are not aware of any other contingent liabilities that require disclosure.
Until 30 September 2009 the ultimate UK parent and controlling company was Agbar UK Ltd (formerly Bristol Water Group Ltd). The ultimate parent company was believed by the Directors to be Sociedad General de Aguas de Barcelona S.A. (Agbar), a company incorporated in Spain.
In October 2009 it was announced that Suez Environnement (partly owned by the French group GDF Suez) planned to take 75% control of Agbar, subject to shareholder and regulatory approvals. The outcome may change the identity of Bristol Water Core Holdings Ltd's ultimate parent company, which is currently considered to be Agbar.
Full disclosure of the affairs of the Agbar UK Limited group of companies is made in the annual report of Agbar, Copies of its consolidated annual report are available from Torre Agbar, Avda. Diagonal, 211, Planta 19-08018, Barcelona, Spain.
The company has taken advantage of the exemptions within Financial Reporting Standard 8 (Related Party Disclosures) and not disclosed transactions with other Agbar UK Limited group undertakings with the exception of security for borrowings below.
The majority of Bristol Water plc's financial liabilities are partly secured by a fixed charge over Bristol Water Core Holdings Limited's shares (as its immediate parent) in Bristol Water plc together with a floating charge over the whole of its undertaking.
We have audited the financial statements of Bristol Water Core Holdings Limited for the year ended 31 December 2009, which comprise the Profit and Loss Account, the Balance Sheet and the related notes 1 to 10. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the company's members, as a body, in accordance with chapter 3 of part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed: the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
In our opinion the financial statements:
In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
S.N.Woodward
Stuart Woodward (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors Bristol, United Kingdom 16 April 2010
"Acceding Creditor" means any creditor of the Issuer which becomes or has become a party to the STID pursuant to a Deed of Accession.
"Acceleration Event" means the occurrence of any of the events described as such in Clause 11 (Acceleration Events, their Consequences and Remedies) of the STID.
"Acceptable Letter of Credit" means a letter of credit which:
provided that if at any time the provider of any such Acceptable Letter of Credit ceases to be a Qualifying Bank, the relevant letter of credit shall not cease to be an Acceptable Letter of Credit until the date which is one month after the Issuer becomes aware that the provider ceases to be a Qualifying Bank.
"Account Bank" means National Westminster Bank plc in its capacity as holder of, inter alia, the Accounts and/or such other bank(s) as may be appointed replacement holder in accordance with the Account Bank Agreement.
"Account Bank Agreement" means the agreement dated 7 May 2003 between the Issuer, the Account Bank and the Security Trustee in relation to the establishment and operation of the Accounts held with the Account Bank together with any bank mandate, fee letters or safekeeping agreements between the Issuer and the Account Bank in relation thereto as such agreement may be amended and/or restated from time to time.
"Accounts" means the Operating Account, the Proceeds Account, the Debt Service Payment Account, the Sinking Fund Account and all amounts (including interest) standing to the credit thereof from time to time, the right to receive interest in respect thereof and the debts represented by each of the foregoing and "Account" means any one of them.
"Administration Agreements" means (i) the administration agreement dated 19 June 2002 between Artesian Finance plc and the Administrator in respect of the Index-Linked Programme and (ii) the administration agreement dated 16 April 2003 between Artesian Finance II plc and the Administrator in respect of the Non Index-Linked Programme, each an "Administration Agreement".
"Administrator" means The Royal Bank of Scotland plc as administrator under the Administration Agreements.
"Affiliate" means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company, including, for the avoidance of doubt, Agbar UK Limited.
"AGE" means Assured Guaranty (Europe) Ltd (formerly Financial Security Assurance (U.K.) Limited).
"Agent" means The Royal Bank of Scotland plc in its capacity as agent in respect of the Artesian Loans to which the issue of Artesian Bonds under the Index-Linked Programme and the Non Index-Linked Programme relate.
"Agreed Updated Capital Expenditure Programme" means an Updated Capital Expenditure Programme which, if the Capital Expenditure shown in the Updated Capital Expenditure Programme is less than 85 per cent. of the Capital Expenditure shown in the Original Capital Expenditure Programme (excluding the reduction in Capital Expenditure referred to in Clause 5.18.2 of the STID), is reviewed by the Controlling Finance Party against the Issuer's most recent operating budget, the Financial Statements and the Original Capital Expenditure Programme, and if the Controlling Finance Party, acting reasonably, is not satisfied with the Updated Capital Expenditure Programme within 2 weeks of receipt of the Updated Capital Expenditure Programme, an Updated Capital Expenditure Programme which is agreed or determined pursuant to either (i) a recalculation by the Issuer of the ratios specified in Clauses 9.12.2 (iii) and 10.1.1(ii) of the STID on the basis that RAV is reduced by the difference between the Updated Capital Expenditure Programme and the Original Capital Expenditure Programme or (ii) a referral of the matter by the Controlling Finance Party for determination in accordance with the procedure set out in Schedule 8 (Alternate Dispute Resolution Procedure) of the STID.
"Applicable Accounting Principles" means accounting principles, standards and practices generally accepted in the United Kingdom as applied from time to time to any entity carrying on the Business.
"Artesian Bonds" means guaranteed, secured, index-linked bonds or guaranteed, secured, fixed rate bonds issued under the Index-Linked Programme or the Non Index-Linked Programme, respectively.
"Artesian Bond Trust Deeds" means (i) the bond trust deed dated 19 June 2002 (as amended, supplemented or replaced from time to time) between Artesian Finance plc, AGE and the Artesian Bond Trustee in respect of the Index-Linked Programme and (ii) the bond trust deed dated 16 June 2003 (as amended, supplemented or replaced from time to time) between Artesian Finance II plc, AGE and the Artesian Bond Trustee in respect of the Non Index-Linked Programme, each an "Artesian Bond Trust Deed".
"Artesian Bond Trustee" means Capita IRG Trustees Limited as bond trustee under the Artesian Bond Trust Deeds.
"Artesian Calculation Agent" means Citibank N.A. as calculation agent under the Artesian Paying Agency Agreements.
"Artesian Debenture" means, as applicable, (i) the debenture dated 19 June 2002 (as amended, supplemented or replaced from time to time) between Artesian Finance plc and the Artesian Security Trustee in respect of the Index-Linked Programme or (ii) the debenture dated 16 April 2003 (as amended, supplemented or replaced from time to time) between Artesian Finance II plc and the Artesian Security Trustee in respect of the Non Index-Linked Programme.
"Artesian Paying Agency Agreements" means (i) the paying agency agreement dated 19 June 2002 (as amended, supplemented or replaced from time to time) between the Artesian Principal Paying Agent, Artesian Finance plc and the Artesian Bond Trustee in respect of the Index-Linked Programme and (ii) the paying agency agreement dated 16 April 2003 (as amended, supplemented or replaced from time to time) between the Artesian Principal Paying Agent, Artesian Finance II plc and the Artesian Bond Trustee in respect of the Non Index-Linked Programme, each an "Artesian Paying Agency Agreement".
"Artesian Paying Agents" means the paying agents under the Artesian Paying Agency Agreements.
"Artesian Principal Paying Agent" means Citibank N.A. as principal paying agent under the Artesian Paying Agency Agreements.
"Artesian Security Trustee" means Capita IRG Trustees Limited in its capacity as the security trustee under the Artesian STIDs.
"Artesian STIDs" means (i) the security trust and intercreditor deed dated 19 June 2002 (as amended, supplemented or replaced from time to time) between, among others, Artesian Finance plc, AGE and the Artesian Security Trustee in respect of the Index-Linked Programme and (ii) the security trust and intercreditor deed dated 16 April 2003 (as amended, supplemented or replaced from time to time) between, among others, Artesian Finance II plc, AGE and the Artesian Security Trustee in respect of the Non Index-Linked Programme.
"ASUP" mean Anglo Scottish Utilities Partnership 1, acting by its partners Lloyds Portfolio Leasing Limited, Capital Bank Leasing 9 Limited, Wood Street Leasing Limited and RB Leasing (September) Limited.
"ASUP Entrenched Rights" means, in accordance with paragraph 7 (Exercise of Finance Rights) of Schedule 2 (Intercreditor Arrangements) of the STID, the following Finance Rights which may not be exercised without the prior written consent of ASUP: (i) any amendment to any provisions in the ASUP Finance Lease relating to the calculation of rental payments and/or any sums due upon termination of the ASUP Finance Lease; and (ii) any amendment to any provisions relating to the provision of insurance in connection with the ASUP Finance Lease.
"ASUP Finance Lease" means the equipment lease dated 13 January 1993 between the partners of ASUP and the Issuer, as amended pursuant to an amendment agreement entered into on 19 May 2006 between ASUP and the Issuer, together with the two side letters in respect of that lease, each dated 13 January 1993 from the Issuer to ASUP.
"ASUP Reserved Matters" means each and every right, power, authority and discretion of, or exercisable by ASUP (whether expressed as a right, power, authority or discretion of ASUP or obligation of any other party) to: (i) make calculations relating to rental payments and/or sums due upon termination of the ASUP Finance Lease in accordance with its provisions; and (ii) receive any sums owing to it for its own account relating to any insurance entered into in connection with the ASUP Finance Lease.
"Backward-looking ICR" means, in relation to a STID Calculation Date, the ratio of:
and in respect of the determination of (b) above, only the net payments made or received under any swap, collar, option, cap, floor or other derivative or hedging instrument shall be taken into account.
"Bank Facility" means any bank facility entered into by the Issuer and any Qualifying Debt Holder.
"Bondholders" means the persons who, for the time being, are holders of the Bonds.
"Bonds" means the £40,000,000 2.701 per cent. index-linked secured, guaranteed bonds due 2041.
"Bond Trustee" means Capita Trust Company Limited.
"BW Group" means Bristol Water Group plc incorporated and registered in England and Wales under the Companies Act 1985 with registered number 4789566.
"BW Group Intercompany Loan" means (i) the £47,000,000 intercompany loan from the Issuer to Agbar UK Ltd on or about 12 February 2004 and (ii) any other intercompany loan dated after 12 February 2004 from the Issuer to Agbar UK Ltd or any of its Affiliates (other than a Permitted Loan), made in accordance with the STID, including Clause 9.12 (Relevant Payments) of the STID.
"Business" means the business of a water undertaker (as that term is defined in the WIA and the Instrument of Appointment) in England and Wales.
"Business Day" means a day (other than a Saturday or Sunday) on which banks and foreign exchange markets are open for business in London and New York.
"Capital Expenditure" means the capital expenditure (as such term is used in and calculated in accordance with the methodology used in the most recent final price determination made by Ofwat) of the Issuer, net of capital grants and contributions.
"Capital Expenditure Programme" means the programme for Capital Expenditure to be delivered by the Issuer in the form set out in Schedule 10 (Capital Expenditure Programme) of the STID or as otherwise agreed to by the Controlling Finance Party.
"Cash and Cash Equivalents" means, at any time the aggregate of the amounts represented by:
in each case, to which the Issuer is beneficially entitled at that time and which is capable of being applied against its obligations under each Loan. An "acceptable bank" for this purpose is a commercial bank or trust company which has a rating of A or higher (or equivalent rating) issued by one of the Rating Agencies.
"Cash Flow Forecast" means a forecast of revenues (including investment income, the net proceeds of asset disposals, the proceeds of loss of anticipated revenue and loss of revenue (business interruption and delay in start up) insurance, tax rebates and projected changes in forecast Total Net Indebtedness) and expenditure of the Issuer for each STID Calculation Period from the date of such forecast to the next water charges review date prepared and delivered in accordance with the terms of the STID.
"Cash Management Agreements" means (i) the cash management agreement dated 19 June 2002 (as amended, supplemented or replaced from time to time) between the Cash Manager and Artesian Finance plc in respect of the Index-Linked Programme and (ii) the cash management agreement dated 16 April 2003 (as amended, supplemented or replaced from time to time) between the Cash Manager and Artesian Finance II plc in respect of the Non Index-Linked Programme, each a "Cash Management Agreement".
"Cash Manager" means The Royal Bank of Scotland plc as cash manager under the Cash Management Agreements.
"Charged Assets" means the Issuer Charged Assets and the Guarantor Charged Assets and references to the Charged Assets include reference to any part thereof.
"Competent Authority" includes any court of competent jurisdiction and any local, national or supranational agency, inspectorate, department, local authority, minister, ministry, official or public or statutory person (whether autonomous or not) in or of the government of the United Kingdom or of the European Union having authority.
"Corporate Services Agreements" means (i) the corporate services agreement dated 19 June 2002 between Artesian Finance I plc and the Corporate Services Provider in respect of the Index-Linked Programme and (ii) the corporate services agreement dated 16 April 2003 between Artesian Finance II plc and the Corporate Services Provider in respect of the Non Index-Linked Programme.
"Corporate Services Provider" means Capita Trust Company Limited in its capacity as corporate services provider under the Corporate Services Agreements.
"Date Prior" means at any time the date which is one day before the next Periodic Review under and as defined in the Instrument of Appointment.
"Debenture Stock" means: (i) the 4 per cent. consolidated irredeemable debenture stock in an amount of £1,405,218; (ii) the 4 per cent. perpetual irredeemable debenture stock in an amount of £54,875; (iii) the 4.25 per cent. perpetual irredeemable debenture stock in an amount of £36,740; and (iv) the 3.50 per cent. perpetual irredeemable debenture stock in an amount of £72,900 (in each case, as at 7 May 2003 (or with such amendments as the Controlling Finance Party shall have given its prior written consent to)).
"Debt" means the Issuer's obligations under and in connection with each Artesian Loan and the relevant Facility Agreement.
"Debt Service Payment Account" means the Account designated as the Debt Service Payment Account in the name of the Issuer and having sort code 56-00-05 and account number 21015945 opened with the Account Bank and maintained pursuant to Clause 15 (Accounts) of the STID.
"Deed of Accession" means a deed in substantially the form set out in Schedule 4 (Form of Deed of Accession) of the STID.
"Discharge Date" means the date the Senior Liabilities and the Non-Group Subordinated Liabilities have been discharged in full.
"Enforcement Date" means the date upon which the Security Trustee (acting on the instructions of the Controlling Finance Party) enforces the Security or any part thereof or, having indicated to the Issuer that it will seek to enforce the Security if any secured amounts are not paid, demands the payment or discharge of all or any part of the secured amounts or takes any other action all as permitted by Clause 11.2 (Consequences of Acceleration Events) of the STID following an Acceleration Event.
"Enforcement Proceeds" means all and any sums of money received or recovered on or after the Enforcement Date or after any Qualifying Debt becoming immediately due and payable from or on behalf of an Obligor by the Security Trustee or any other Secured Creditor or by any insolvency officer on its or their behalf and any distribution on or after the Enforcement Date in cash or in kind on account of any or all of the secured amounts, whether through enforcement of any Security Document, the exercise of set-off, the receipt or recovery of payments through unsecured claims or otherwise and any consideration received on or after the Enforcement Date by or for the account of a Secured Creditor for a discharge or agreement not to enforce any of the secured amounts.
"Entrenched Rights" means, in respect of any Qualifying Debt Representatives, the rights listed in Appendix B Part I of Schedule 2 (Intercreditor Arrangements) of the STID, in respect of the Security Trustee, the rights listed in Part II of Appendix B to Schedule 2 (Intercreditor Arrangements) of the STID, in respect of any Non-Group Subordinated Creditors, the rights listed in Part III of Appendix B to Schedule 2 (Intercreditor Arrangements) of the STID, in respect of ASUP, the ASUP Entrenched Rights, in respect of Lombard, the Lombard Entrenched Rights and in respect of RB Leasing, the RB Leasing Entrenched Rights, and for the avoidance of doubt, the ASUP Entrenched Rights, the Lombard Entrenched Rights and the RB Leasing Entrenched Rights shall be in addition to, and not to the exclusion of, any Entrenched Rights enjoyed by ASUP, Lombard and RB Leasing respectively in their capacity as Qualifying Debt Representatives.
"Environmental Approval" means any permit, licence, authorisation, filing, registration, consent or other approval required under Environmental Laws in connection with the Business or part of the Business.
"Environmental Laws" means the common law and any applicable law, statute and subordinate legislation, European Community Regulations and Directives, judgments and decisions, notices, orders, circulars and codes of practice and guidance notes issued thereunder, with which the Issuer is legally obliged to comply and including any amendment, re-enactment, consolidation or other legislation (whether or not applicable at the date hereof including Part II and schedule 22 of the Environment Act 1995) to the extent they relate to:
"Facility" means the secured term credit facility made available under a Facility Agreement.
"Facility Agreement" means each facility agreement dated 7 May 2003 between the Issuer, the Guarantor and The Royal Bank of Scotland plc (acting as arranger, original lender and agent).
"Fee Letter" means any letters dated on or about 7 May 2003 signed by the Issuer in respect of fees payable, inter alia, in connection with the transactions contemplated by the respective Facility Agreements.
"Final Forecast Date" means the later of (a) the Date Prior and (b) the last day of the STID Calculation Period falling on or immediately prior to the date two years after the most recent STID Calculation Date.
"Finance Documents" means the STID, the Facility Agreements, the Fee Letters, the Account Bank Agreement, the Security Documents, the ASUP Finance Lease, the Lombard Finance Lease, the RB Leasing Finance Lease, the documents establishing a Liquidity Facility (if any), any document giving rise to Indebtedness for Borrowed Money of the Issuer the counterparty to which has become an Acceding Creditor (including, from the date of the Secured Creditor Accession Deed, the Issue Documents), any Deed of Accession to the STID and any other document as may from time to time be agreed between the Controlling Finance Party and the Issuer to be a Finance Document.
"Finance Leases" means:
"Finance Rights" means, in respect of any Secured Creditor, all rights, claims, discretions and benefits which it has under each Relevant Document including:
"Financial Statements" means, in respect of an Obligor, the most recent annual audited statements of the Obligor delivered to the Controlling Finance Party pursuant to the STID.
"Financial Year" means, for the Issuer, the period of 12 months ending on 31 March in each year and for the Guarantor means the period of 12 months ending on 31 December in each year or, in each case, such other period as may be approved by the Controlling Finance Party (acting reasonably).
"Forecast Net Cash Flow" means in relation to any period an amount equal to:
(as such terms are used in, and each calculated in accordance with the methodology used in, the Issuer's Financial Statements), less
in the case of both (a) and (b) as projected and estimated in the Cash Flow Forecast in respect of the relevant period which is to be delivered to the Controlling Finance Party within 60 days of the STID Calculation Date falling immediately after the commencement of that period.
"Forecast Net Tax Payable" means, in relation to any period, an amount equal to:
"Forward-looking Interest Cover Ratio" or "Forward-looking ICR" means, in relation to a STID Calculation Date, the ratio calculated in respect of each STID Calculation Period ending after such STID Calculation Date, up to and including the Final Forecast Date or such other period expressly stated, of:
and in respect of the determination of (b) above, only the net payments projected to be made or received under any swap, collar, option, cap, floor or other derivative or hedging instrument shall be taken into account.
"FSMA" means the Financial Services and Markets Act 2000.
"Group" means the Guarantor and its subsidiaries from time to time.
"Guarantor" means Bristol Water Core Holdings Limited.
"Guarantor Charged Assets" means all of the present or future rights, claims, property, undertaking, revenues and assets of the Guarantor which are for the time being comprised in or subject to the Security and references to the Guarantor Charged Assets include reference to any part of it.
"Guarantor Debenture" means the fixed and floating security document dated 7 May 2003 between the Guarantor and the Security Trustee.
"Historic Debt Service" means, in relation to any STID Calculation Date, the aggregate of interest (adjusted for indexation where relevant in accordance with the relevant Finance Document) due and payable on all Senior Liabilities during the STID Calculation Period ending on such STID Calculation Date (such period to be extended or shortened, if necessary, to ensure it includes only two Scheduled Payment Dates).
"Historic Net Cash Flow" means, in relation to any period, an amount equal to:
(as such terms are used in, and each calculated in accordance with the methodology used in, the Issuer's Financial Statements), less
in each case as calculated by reference to the audited or unaudited financial statements of the Issuer (as the case may be) relating to the relevant period delivered to the Secured Creditors.
"Historic Net Tax Payable" means in relation to any period an amount equal to:
"Holding Company" means, in relation to a company or corporation, any other company or corporation in respect of which it is a Subsidiary.
"IDOK" means an Interim Determination (as that term is defined in paragraph 13.1 of Condition B of the Instrument of Appointment) of K (as that term is defined in the Instrument of Appointment).
"Indebtedness" means any obligation (whether incurred as principal or as surety) for the payment or repayment of money whether present or future, actual or contingent.
"Indebtedness for Borrowed Money" means any Indebtedness of the Issuer for or in respect of:
"Index-Linked Programme" means the £750,000,000 programme for the issue of guaranteed secured indexlinked bonds established by Artesian Finance plc.
"Insolvency Officer" means any liquidator, provisional liquidator, administrator, special administrator, administrative receiver, receiver, trustee in bankruptcy, supervisor of a voluntary arrangement or any similar or equivalent official in any relevant jurisdiction.
"Instrument of Appointment" means the Instrument of Appointment dated August 1989 made under Sections 11 and 14 of the Water Act 1989 (as in effect from 28 August 1989) as subsequently modified and varied by Ofwat under Sections 11 to 17 of the WIA appointing the Issuer as a water undertaker.
"Interest Cover Ratio" (or "ICR") means the Backward-looking ICR and the Forward-looking ICR.
"Intra-Group Subordinated Creditors" means (A) the Guarantor; (B) Bristol Water Holdings Limited; and (C) any Affiliates of the Issuer to which the Issuer owes any Indebtedness for Borrowed Money.
"Investment Grade" means a rating of at least BBB- by S&P or Baa3 by Moody's.
"Issue Documents" means the Bonds, the Trust Deed and the Paying Agency Agreement.
"Issuer" means Bristol Water plc.
"Issuer Charged Assets" means all of the present or future rights, claims, property, undertaking, revenues and assets of the Issuer which are for the time being comprised in or subject to the Security and references to the Issuer Charged Assets include reference to any part of it.
"Issuer Debenture" means the fixed and floating security document dated 7 May 2003 (as varied, amended and restated from time to time) entered into between the Issuer and the Security Trustee.
"Lender Administration Costs" means such amount, payable semi-annually in arrear on each Scheduled Payment Date and on any other date notified by the Agent, calculated:
other than any such fees or charges which relate to issues of Artesian Bonds under the relevant Programme where the related borrower is not the Issuer and which are or will be due and payable on such Scheduled Payment Date and divided by the number of borrowers contributing to the costs as notified to the Issuer by the Agent pursuant to the relevant Facility Agreement but without double counting any costs included in the definition of STID Administration Costs or any costs for which Artesian Finance plc is indemnified pursuant to the applicable indemnification clause of the relevant Post Novation Facility Agreement or for which Artesian Finance plc is indemnified for by other borrowers whose borrowing relates to the relevant Programme pursuant to any provision which is of similar effect to the applicable indemnification clause of the relevant Post Novation Facility Agreement; and
(b) in respect of the Non Index-Linked Programme, by reference to costs and expenses of the Issuer payable to:
other than any such fees or charges which relate to issues of Artesian Bonds under the relevant Programme where the related borrower is not the Issuer and which are or will be due and payable on such Scheduled Payment Date and multiplied by a fraction the numerator of which is the principal amount of Artesian Bonds issued under that Programme in relation to which the Issuer is the relevant borrower and the denominator of which is the principal amount of all Artesian Bonds issued under that Programme from time to time as notified to the Issuer by the Agent pursuant to the relevant Facility Agreement but without double counting any costs included in the definition of STID Administration Costs or any costs for which Artesian Finance II plc is indemnified pursuant to the applicable indemnification clause of the relevant Post Novation Facility Agreement or for which Artesian Finance II plc is indemnified for by other borrowers whose borrowing relates to the relevant Programme pursuant to any provision which is of similar effect to the applicable indemnification clause of the relevant Post Novation Facility Agreement.
"Licensed Undertaker" means the Issuer in its capacity as a licensed water undertaker as appointed by the Secretary of State for the Environment under the Instrument of Appointment.
"Liquidity Facility" means an available committed liquidity facility with the prior consent of the Controlling Finance Party.
"Lombard" means Lombard Corporate Finance (June 2) Limited.
"Lombard Entrenched Rights" means, in accordance with paragraph 7 (Exercise of Finance Rights) of Schedule 2 (Intercreditor Arrangements) of the STID, the following Finance Rights which may not be exercised without the prior written consent of Lombard: (i) any amendment to any provisions in the Lombard Finance Lease relating to the calculation of rental payments and/or any sums due upon termination of the Lombard Finance Lease; and (ii) any amendment to any provisions relating to the provision of insurance in connection with the Lombard Finance Lease.
"Lombard Finance Lease" means the master leasing agreement dated 10 May 2001 between W&G Equipment Leasing Limited and the Issuer, as amended pursuant to an amendment agreement entered into on 19 May 2006 between Lombard and the Issuer, and any Lease Contracts (as defined in the master leasing agreement) entered into pursuant thereto including (i) Lease Contract no. WE200-0002-0 dated 10 May 2001 between W&G Equipment Leasing Limited and the Issuer and (ii) Lease Contract no. WE200-0003-0 dated 10 May 2001 between W&G Equipment Leasing Limited and the Issuer (together, the "Lombard Lease Contracts") each of the master leasing agreement and Lombard Lease Contracts as assigned to Lombard pursuant to a deed of sale, assignment and amendment dated 28 February 2003 and made between W&G Equipment Leasing Limited, Lombard and the Issuer.
"Lombard Reserved Matters" means each and every right, power, authority and discretion of, or exercisable by, Lombard (whether expressed as a right, power, authority or discretion of Lombard or obligation of any other party) to: (i) make calculations relating to rental payments and/or sums due upon termination of the Lombard Finance Lease in accordance with its provisions; and (ii) receive any sums owing to it for its own account relating to any insurance entered into in connection with the Lombard Finance Lease.
"Material Adverse Effect" means the effect of any event or circumstance which is or would be reasonably likely to be materially adverse to:
"Member State" means the 27 countries within the European Union.
"Minimum Long-term Rating" means, in respect of any person, such person's long-term unsecured debt obligations being rated, in the case of Moody's, Aa3 and in the case of S&P, AA-.
"Minimum Short-term Rating" means, in respect of any person, such person's short-term unsecured debt obligations being rated, in the case of Moody's, P-1 and in the case of S&P, A-1.
"Moody's" means Moody's Investors Service, Inc., a Delaware corporation, and any successor thereto and, if such corporation shall for any reason no longer perform the functions of a securities rating agency, Moody's shall be deemed to refer to any other internationally recognised rating agency designated by the Controlling Finance Party.
"Non-Group Subordinated Creditors" means any creditor (other than an Intra-Group Subordinated Creditor) to which the Issuer owes any Indebtedness for Borrowed Money and the incurrence of such Indebtedness for Borrowed Money was made on the basis that such creditor accedes to the STID as a Non-Group Subordinated Creditor.
"Non Index-Linked Programme" means the £500,000,000 programme for the issue of guaranteed secured fixed rate bonds established by Artesian Finance II plc.
"Obligor" means the Issuer or the Guarantor.
"Ofwat" means the Water Services Regulation Authority, including any successor office or body.
"Operating Account" means the accounts designated as the Operating Account in the name of the Issuer listed in Schedule 12 of the STID opened with the Account Bank and maintained pursuant to Clause 15 (Accounts) of the STID.
"Original Capital Expenditure Programme" means the Capital Expenditure Programme from and in accordance with the most recent final price determination made by Ofwat on a five yearly basis, as subsequently adjusted by agreement with Ofwat.
"Original Lender" means The Royal Bank of Scotland plc, in its capacity as an Original Lender under each Facility Agreement.
"Original Qualifying Debt Holder" means The Royal Bank of Scotland plc, in its capacity as an Original Lender under each Facility Agreement.
"Original Qualifying Debt Representative" means The Royal Bank of Scotland plc, in its capacity as Agent under each Facility Agreement.
"Overdraft Facility" means the overdraft facility, if any, on the Operating Account provided to the Issuer in an amount of up to 125 per cent. or one twelfth of annual turnover (shown in the most recent audited annual financial statements of the Issuer) in accordance with the Finance Documents.
"Paying Agency Agreement" means the paying agency agreement dated 25 March 2011 between the Issuer, the Bond Trustee, the Principal Paying Agent, the Agent Bank and the Paying Agents.
"Periodic Review" means the periodic review of K (as that term is defined in the Instrument of Appointment) made by Ofwat and currently occurring every five years.
"Periodic Review Effective Date" means the date with effect from which the new K (as that term is defined in the Instrument of Appointment) will take effect, following a Periodic Review.
(h) encumbrances arising under the existing Finance Leases;
(i) encumbrances in relation to taxes not yet assessed or, if assessed, not yet due or actively contested in good faith by appropriate proceedings (and for the payment of which adequate reserves have been made, if appropriate to do so, or when required in order to pursue such proceedings an adequate bond has been provided); or
"Permitted Incurrence" means any refinancing of the Debt as the Controlling Finance Party shall in its absolute discretion agree with the Issuer.
"Permitted Indebtedness" means indebtedness incurred which, inter alia:
"Permitted Loans" means any loans made by the Issuer to its customers or employees or Affiliates (other than a BW Group Intercompany Loan), provided that at any one time the aggregate principal amount of such loans shall not exceed 2 per cent. of the regulated asset base of the Issuer most recently published by Ofwat in current prices in aggregate.
"Post Novation Facility Agreement" means a Facility Agreement at any time after a transfer of such Facility Agreement in accordance with the applicable assignment clause therein.
"Potential Acceleration Event" means any event which would (with the expiry of any relevant grace period or the giving of notice hereunder or the making of any determination hereunder or any combination thereof) if not remedied or waived become an Acceleration Event.
"Potential Trigger Event" means any event which would (with the expiry of any relevant grace period or the giving of notice or any combination thereof) if not remedied or waived become a Trigger Event.
"Preference Shares" means preference shares of the Issuer from time to time.
"Proceeds Account" means the account designated as the Proceeds Account in the name of the Issuer and having sort code 56-00-05 and account number 21015937 with the Account Bank and maintained pursuant to Clause 15 (Accounts) of the STID.
"Programme" means the Index-Linked Programme and the Non Index-Linked Programme.
"Projected Debt Service" means the aggregate of interest (adjusted for indexation where relevant in accordance with the relevant Finance Documents) due and payable on all Senior Liabilities during any STID Calculation Period.
"Protected Land" means (as the term is defined in the WIA), in relation to a Regulated Company, any land which, or any interest or right in or over land which:
as such definition may be amended by statute or law.
"Qualifying Bank" means any bank which is authorised to accept deposits (for the purposes of the Financial Services and Markets Act 2000) and whose short term debt is rated at least A-1 by S&P and P-1 by Moody's and whose long-term debt is at least AA by S&P and at least Aa3 by Moody's, or in the case of a bank whose long-term debt is not rated, a bank of equivalent standing approved by the Controlling Finance Party or any bank specifically approved in writing by the Controlling Finance Party, provided that such bank has at all times its short term debt rated at least A-1 by S&P and P-1 by Moody's.
"Qualifying Debt" means each Loan, any Indebtedness for Borrowed Money under the ASUP Finance Lease, any Indebtedness for Borrowed Money under the Lombard Finance Lease, any Indebtedness for Borrowed Money under the RB Leasing Finance Lease, and any Bank Facility or any other Indebtedness for Borrowed Money which, in each case, ranks pari passu with the Loans.
who in each case has not ceased to be a holder of any Qualifying Debt and "Qualifying Debt Holders" means all such parties.
(a) in relation to each Loan, the Original Qualifying Debt Representative or such other facility agent appointed by the relevant Qualifying Debt Holder (as lender) or instructing group acting on behalf of the Qualifying Debt Holders (as lenders) in accordance with the terms of the relevant Facility Agreement or, if Artesian Finance plc or Artesian Finance II plc is the sole Qualifying Debt Holder in relation to the relevant Loan, the Artesian Security Trustee;
who in each case has not ceased to be the representative of the relevant Qualifying Debt Holders and "Qualifying Debt Representatives" means all such persons.
"Rating Agencies" means S&P and Moody's.
"RB Leasing" means RB Leasing (September) Limited.
"RB Leasing Entrenched Rights" means, in accordance with paragraph 7 (Exercise of Finance Rights) of Schedule 2 (Intercreditor Arrangements) of the STID, the following Finance Rights which may not be exercised without the prior written consent of RB Leasing: (i) any amendment to any provisions in the RB Leasing Finance Lease relating to the calculation of rental payments and/or any sums due upon termination of the RB Leasing Finance Lease; and (ii) any amendment to any provisions relating to the provision of insurance in connection with the RB Leasing Finance Lease.
"RB Leasing Finance Lease" means the equipment master leasing agreement dated 29 September 1995 between RB Leasing and the Issuer, as amended pursuant to an amendment agreement entered into on 19 May 2006 between RB Leasing and the Issuer, and any Lease Contracts (as defined in the master leasing agreement) entered into pursuant thereto including the Lease Contract dated 29 September 1995 between RB Leasing and the Issuer in respect of certain specified equipment.
"RB Leasing Reserved Matters" means each and every right, power, authority and discretion of, or exercisable by, RB Leasing (whether expressed as a right, power, authority or discretion of RB Leasing or obligation of any other party) to: (i) make calculations relating to rental payments and/or sums due upon termination of the RB Leasing Finance Lease in accordance with its provisions; and (ii) receive any sums owing to it for its own account relating to any insurance entered into in connection with the RB Leasing Finance Lease.
"Receiver" means any person or persons appointed and any additional person or persons appointed or substituted as receiver, administrative receiver, receiver and manager or similar insolvency officer appointed by the Security Trustee pursuant to any of the Security Documents.
"Regulated Asset Ratio" or "RAR" means, in relation to a STID Calculation Date, the ratio of:
on such STID Calculation Date and as forecast for any subsequent STID Calculation Dates up to and including the Final Forecast Date or in such other period expressly stated in each case, based on the best information available and provided that, where a draft Ofwat determination is available prior to the publication of a final Ofwat determination, the figures set out in such draft Ofwat determination shall be used, unless otherwise agreed by the Controlling Finance Party.
"Regulated Asset Value" or "RAV" means the regulatory asset base of the Issuer most recently published by Ofwat for the applicable Financial Year end, adjusted for inflation to that Financial Year end, based on the best available information and provided that where a draft Ofwat determination is available, the figures set out in such draft Ofwat determination shall be used, adjusted for inflation, unless otherwise agreed by the Controlling Finance Party.
"Regulated Company" means a company appointed as a water undertaker or a water and sewerage undertaker under Section 6 of the WIA.
"Relevant Documents" means in relation to any person each of the Finance Documents to which that person is expressed to be a party and any other document which is agreed by the Controlling Finance Party, the Issuer and such person to be a Relevant Document.
"Relevant Payments" means (i) any payment to the Guarantor or any other Affiliate of the Issuer made by or on behalf of the Issuer whether by way of dividend, loan (or repayment of any loan), redemption, purchase, discharge by way of set-off, counterclaim, other distribution of any sort, or otherwise, whether in cash or in kind, and whether pursuant to the terms of any agreement or otherwise or by way of gift, (ii) the payment of any rebate (but excluding any compensation payments to any class of customers) to any customer of the Issuer made by or on behalf of the Issuer, (iii) the payment of any Subordinated Liabilities and (iv) the payment of any dividends, redemption amounts or any other amounts in respect of the Preference Shares and for the purposes of Clauses 9.12 (Relevant Payments) and 10.2.1 (Payments) (and any related provisions) of the STID. "Relevant Payments" shall mean the maximum aggregate amount that would (if were it not for the operation of those Clauses and the other relevant provisions of the STID) have been capable of being paid as a Relevant Payment. Relevant Payments do not include any payments to Wessex Water Limited or Wessex Water Services Ltd in respect of the joint billing arrangements between Wessex Water Limited, Wessex Water Services Limited, the Issuer and the Guarantor as set out in the Shareholders Agreement dated 28 June 2001.
"Reserved Matters" means, in respect of any Qualifying Debt Representative, the matters listed in Part I of Appendix A to Schedule 2 (Intercreditor Arrangements) of the STID, in respect of the Security Trustee, the matters listed in Part II of Appendix A to Schedule 2 (Intercreditor Arrangements) of the STID, in respect of any Subordinated Creditor, the matters listed in Part III of Appendix A to Schedule 2 (Intercreditor Arrangements) of the STID, in respect of ASUP, the ASUP Reserved Matters, in respect of Lombard, the Lombard Reserved Matters and in respect of RB Leasing, the RB Leasing Reserved Matters, and for the avoidance of doubt, the ASUP Reserved Matters, the Lombard Reserved Matters and the RB Leasing Reserved Matters shall be in addition to, and not to the exclusion of, any Reserved Matters in respect of ASUP, Lombard and RB Leasing respectively in their capacity as Qualifying Debt Representatives.
"Restricted Debt" means any Qualifying Debt the terms of which include events of default, acceleration events, events entitling acceleration of repayment obligations or analogous events (however described) which relate to any third party which is not an affiliate of the Issuer or which relate to any affiliate of the Issuer, other than any such events which relate to the Guarantor and which are the same as those relating to the Guarantor as set out in the relevant Facility Agreement.
"S&P" means Standard & Poor's Rating Services, a division of Standard & Poor's Credit Market Services Europe Ltd. and any successor thereto, and, if such corporation shall for any reason no longer perform the functions of a securities rating agency, S&P shall be deemed to refer to any other internationally recognised rating agency designated by the Controlling Finance Party.
"Schedule 11 Finance Leases" means the primary and secondary finance leases listed in Schedule 11 (Finance Leases) of the STID.
"Scheduled Payment Date" means 31 March and 30 September in each year until and including 30 September 2032 in the case of the Loan to which the issue of Artesian Bonds under the Index-Linked Programme relates and 30 September 2033 in the case of the Loan to which the issue of Artesian Bonds under the Non Index-Linked Programme relates (except that if any Scheduled Payment Date would otherwise fall on a day which is not a Business Day, it will instead be the first following day that is a Business Day unless that day falls in the next calendar month, in which case that date will be the first preceding day that is a Business Day).
"Secretary of State" means one of Her Majesty's principal secretaries of state.
"Secured Creditors" means the Security Trustee, any Acceding Creditor, any Qualifying Debt Holder and any Qualifying Debt Representative but, for the avoidance of doubt, excludes any Obligor and "Secured Creditor" means any of them.
"Secured Creditor Accession Deed" means the Deed of Accession entered into by the Bond Trustee on or around the Closing Date.
"Secured Liabilities" means all monies, liabilities and obligations which may be due, owing or payable by the Issuer and/or the Guarantor actually or contingently, as principal or as surety on any account, pursuant to the Finance Documents.
"Security" means the encumbrances created or contemplated by the Security Documents.
"Security Documents" means:
"Security Trustee" means Capita IRG Trustees Limited.
"Senior Finance Documents" means each of the Finance Documents other than the Subordinated Documents.
"Senior Liabilities" means all present and future sums, liabilities and obligations (actual or contingent) payable, owing, due or incurred by the Issuer or the Guarantor to the Secured Creditors (other than the Subordinated Creditors) under, in respect of or in connection with the Finance Documents, together with:
"Shadow Rating" means the rating that would be assigned to the relevant Facility by the Rating Agencies from time to time as notified by the Rating Agencies to the Controlling Finance Party.
"Sinking Fund Account" means the account designated as the Sinking Fund Account in the name of the Issuer to be opened with any Qualifying Bank and maintained pursuant to Clause 15 (Accounts) of the STID.
"Special Administration" means the insolvency process specific to Regulated Companies under Sections 23 to 25 of the WIA.
"Special Administration Order" means an order of the High Court under Sections 23 to 25 of the WIA under the insolvency process specific to Regulated Companies.
"Special Administrator" means the person appointed by the High Court under Sections 23 to 25 of the WIA to manage the affairs, business and property of the Regulated Company during the period in which the Special Administration Order is in force.
"STID" means the security trust and intercreditor deed dated 7 May 2003 (as amended and restated on 12 February 2004 and 15 June 2006) entered into between, amongst others, the Secured Creditors and the Issuer.
"STID Administration Costs" means in respect of any period, any amount which falls due or which has fallen due to be paid to the Security Trustee and any Receiver appointed by it or any Qualifying Debt Representative under any Finance Document and all fees, costs, expenses, charges and liabilities and other amounts, together in each case with interest, VAT and any other tax payable in respect of such amounts but without double counting any costs included in the definition of Lender Administration Costs.
"STID Calculation Date" means 31 March and 30 September in each year until the final Scheduled Payment Date.
"STID Calculation Period" means each period of 12 months commencing on 1 April in each year.
"Subordinated Creditors" means Intra-Group Subordinated Creditors and Non-Group Subordinated Creditors.
"Subordinated Documents" means any document evidencing indebtedness between the Issuer and a Subordinated Creditor.
"Subordinated Liabilities" means all present and future sums, liabilities and obligations (actual or contingent) payable, owing, due or incurred by the Issuer to (i) any Intra-Group Subordinated Creditor (and in the case of the Guarantor, whether in the Guarantor's capacity as a guarantor of the Issuer pursuant to the Guarantor Debenture or otherwise) and (ii) any Non-Group Subordinated Creditor in respect of or in connection with Indebtedness for Borrowed Money, together with in each case:
"Subscription Agreement" means the subscription agreement entered into between the Issuer and the Manager on or around the Closing Date.
"Subsidiary" means a subsidiary within the meaning of section 1159 of the Companies Act 2006 and, for the purpose of Clause 7 (Financial Information Covenants) of the STID and in relation to financial statements of the Group, a subsidiary undertaking within the meaning of section 1162 of the Companies Act 2006.
"Third Party Guarantee" means any guarantee, indemnity or other assurance against financial loss (whether actual or contingent, future or present) given in respect of the Indebtedness for Borrowed Money of another person.
"Total Net Indebtedness" means, as at the relevant date, each Loan (indexed in the case of each Loan to which an issue of Artesian Bonds under the Index-Linked Programme relates) and any other Indebtedness for Borrowed Money of the Issuer (including drawings under the Overdraft Facility and excluding any Subordinated Liabilities) less Cash and Cash Equivalents other than Cash and Cash Equivalents credited to the Operating Account on such date.
For the avoidance of doubt, no component of Total Net Indebtedness will be calculated on a fair value basis but instead will be calculated on face value basis subject to indexation as appropriate.
"Trigger Event" means any of the events identified as such in Clause 10 (Trigger Events, their Consequences and Remedies) of the STID.
"Trust Deed" means the Trust Deed dated 25 March 2011 between the Issuer and the Bond Trustee.
"Updated Capital Expenditure Programme" means an updated Capital Expenditure Programme prepared by the Issuer and delivered to the Controlling Finance Party no less than seven weeks and no more than nine weeks prior to each STID Calculation Date, reflecting the then current Capital Expenditure programme (including aggregate Capital Expenditure from the Periodic Review Effective Date and forecast Capital Expenditure up to the Date Prior and expressed at a similar price base to the Original Capital Expenditure Programme).
"VAT" means value added tax as provided for in the Value Added Tax Act 1994 and any other tax of a similar nature.
"WIA" means the Water Industry Act 1991, as amended.
| Acceding Creditor | |
|---|---|
| Acceleration Event | |
| Acceptable Letter of Credit | |
| Account | |
| Account Bank | |
| Account Bank Agreement | |
| Accounts | |
| Administration Agreements | |
| Administrator | |
| Affiliate | |
| Agbar | |
| Agbar Group | |
| Agbar UK | |
| Agbar UK Group | |
| AGE | |
| Agent | |
| Agent Bank | |
| Agreed Updated Capital Expenditure Programme | |
| Annual Return | |
| Applicable Accounting Principles | |
| ARA 2010 | |
| Artesian Bond Trust Deeds | 102 |
| Artesian Bond Trustees | |
| Artesian Bonds | |
| Artesian Calculation Agent | |
| Artesian Debentures | |
| Artesian Paying Agency Agreements | |
| Artesian Paying Agents | |
| Artesian Principal Paying Agent | |
| Artesian Security Trustee |
| Artesian STIDs | |
|---|---|
| ASUP | |
| ASUP Entrenched Rights | |
| ASUP Finance Lease | |
| ASUP Reserved Matters | |
| Authorised Investments | |
| Backward-looking ICR | |
| Bank Facility | |
| Base Index Figure | |
| Bond Trustee | |
| Bondholders | |
| Bonds | |
| Business | |
| business day | |
| Business Day | |
| BW Group | |
| BW Group Intercompany Loan | |
| BW Holdings | |
| Calculation Amount | |
| Calculation Date | |
| capex | |
| Capital Expenditure | |
| Capital Expenditure Programme | |
| Cash and Cash Equivalents | |
| Cash Flow Forecast | |
| Cash Management Agreements | |
| Cash Manager | |
| Cave Review | |
| Charged Assets | |
| CIS | |
| Clearstream, Luxembourg | |
| Competent Authority |
| Conditions | |
|---|---|
| Corporate Services Agreements | |
| Corporate Services Provider | |
| Couponholders | |
| Coupons | |
| CPI | |
| CRA Regulation | |
| date for payment | |
| Date Prior | |
| Debenture Stock | |
| Debt | |
| Debt Service Payment Account | |
| Deed of Accession | |
| Enterprise Act | |
| Entrenched Rights | |
| Environmental Approval | |
| Environmental Laws | |
| Euroclear | |
| Exchange Date | |
| Expert | |
| Facility | |
| Facility Agreement | |
| Fee Letter | |
| Final Forecast Date | |
| Finance Documents | |
| Finance Leases | |
| Finance Rights | |
| Financial Statements | |
| Financial Year | |
| Forecast Net Cash Flow | |
| Forecast Net Tax Payable | |
| Forward-looking ICR |
| Forward-looking Interest Cover Ratio | |
|---|---|
| FSMA | |
| GDF Suez | |
| Global Bond | |
| Group | |
| Guarantor | |
| Guarantor Charged Assets | |
| Guarantor Debenture | |
| Hazardous Substances | |
| Historic Debt Service | |
| Historic Net Cash Flow | |
| Historic Net Tax Payable | |
| Holding Company | |
| ICR | |
| IDOK | |
| Indebtedness | |
| Indebtedness for Borrowed Money | |
| Index | |
| Index Event | |
| Index Figure | |
| Index Figure applicable | |
| Index Ratio | |
| Indexation Adviser | |
| Index-linked Programme | |
| Instrument of Appointment | |
| Interest Cover Ratio | |
| Interest Payment Date | |
| Interest Period | |
| Intra-Group Subordinated Creditors | |
| Investment Grade | |
| Issue Documents | |
| Issuer |
| Issuer Charged Assets | |
|---|---|
| Issuer Debenture | |
| Lender Administration Costs | |
| Licensed Undertaker | |
| Liquidity Facility | |
| Lombard | |
| Lombard Entrenched Rights | |
| Lombard Finance Lease | |
| Lombard Lease Contracts | |
| Lombard Reserved Matters | |
| London Stock Exchange | |
| Manager | |
| Market | |
| Material Adverse Effect | |
| Member State | |
| Minimum Long-term Rating | |
| Minimum Short-term Rating | |
| Moody's | |
| Non Index-linked Programme | |
| Non-Group Subordinated Creditors | |
| Obligor | |
| Official List | |
| Ofwat | |
| OPA | |
| Operating Account | |
| Original Capital Expenditure Programme | |
| Original Lender | |
| Original Qualifying Debt Holder | |
| Original Qualifying Debt Representative | |
| Overdraft Facility | |
| Paying Agency Agreement | |
| Paying Agents |
| Periodic Review | |
|---|---|
| Periodic Review Effective Date | |
| Permitted Encumbrance | |
| Permitted Incurrence | |
| Permitted Indebtedness | |
| Permitted Loans | |
| Post Novation Facility Agreement | |
| Post-Enforcement Payment Priorities | |
| Potential Acceleration Event | |
| Potential Trigger Event | |
| Preference Shares | |
| Principal Paying Agent | |
| Proceeds Account | |
| Programme | |
| Projected Debt Service | |
| qualified | |
| Qualifying Bank | |
| Qualifying Debt | |
| Qualifying Debt Holder | |
| Qualifying Debt Representative | |
| Qualifying Debt Representatives | |
| RAR |
|
| Rating Agencies | |
| RAV | |
| RB Leasing | |
| RB Leasing Entrenched Rights | |
| RB Leasing Finance Lease | |
| RB Leasing Reserved Matters | |
| Receiver | |
| Reference Gilt | |
| Regulated Asset Ratio | |
| Regulated Asset Value |
| Regulated Companies | |
|---|---|
| Regulated Company | |
| relevant Clearing System | |
| Relevant Date | |
| Relevant Documents | |
| relevant month | |
| Relevant Payments | |
| rescue purpose | |
| Reserved Matters | |
| Restricted Debt | |
| RPI | |
| $RPI_{m-2}$ | |
| $RPI_{m-3}$ | |
| S&P | |
| Savings Directive | |
| Schedule 11 Finance Leases | |
| Scheduled Payment Date | |
| SDS | |
| Secretary of State | |
| Secured Creditor | |
| Secured Creditor Accession Deed | |
| Secured Creditors | |
| Secured Liabilities | |
| Securities Act | |
| Security | |
| Security Documents | |
| Security Trustee | |
| Senior Finance Documents | |
| Senior Liabilities | |
| Shadow Rating | |
| SIM | |
| Sinking Fund Account |
| Special Administration | |
|---|---|
| Special Administration Order | |
| Special Administrator | |
| Stabilising Manager | |
| Sterling | |
| STID | |
| STID Administration Costs | |
| STID Calculation Date | |
| STID Calculation Period | |
| Subordinated Creditors | |
| Subordinated Documents | |
| Subordinated Liabilities | |
| Subscription Agreement | |
| Subsidiary | |
| Suez Environnement | |
| Temporary Global Bond | |
| Third Party Guarantee | |
| Total Net Indebtedness | |
| transfer purpose | |
| Trigger Event | |
| Trust Deed | |
| U.K. | |
| UK Listing Authority | |
| Updated Capital Expenditure Programme | |
| VAT | |
| WA | |
| WaSCs | |
| WCPS | |
| Wessex Water | |
| WIA | |
| WOCs | |
PO Box 218 Bridgwater Road Bristol BS99 7AU
PO Box 218 Bridgwater Road Bristol BS99 7AU
The Paragon Countership Bristol BS1 6BX
7th Floor, Phoenix House 18 King William Street London EC4N 7HE
7th Floor, Phoenix House 18 King William Street London EC4N 7HE
Citigroup Centre Canada Square, Canary Wharf London, E14 5LB
To the Issuer as to English law
Exchange House Primrose Street London EC2A 2HS
To the Manager and the Bond Trustee as to English law
Linklaters LLP One Silk Street London EC2Y 8HQ
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