Case Studies
Delivering successful outcomes for our clients

Affinity Water STID Proposal

A number of changes were implemented by Ofwat for AMP 6 in connection with its methodology for assessing the returns earned by and capital structures of water companies. The rating agencies and in particular Moody’s were concerned that if the financial covenants applicable to many water companies were not adapted to reflect the new regulatory approach, cash flow for debt service would be overstated. This would have reduced the effectiveness of the covenant structures which in turn would most likely have impaired the credit quality of several water companies, including Affinity Water, with the risk of a downgrade in credit rating. In order to avoid this, AW decided that an amendment to its Security Trust and Intercreditor Deed (STID) was essential. This required the support of AW’s Class A creditors who were asked by the security Trustee to vote on the proposed STID amendment.

In April 2015 AW appointed Centrus to advise on drawing up the STID amendment in conjunction with AW’s lawyers, identifying AW’s creditors which comprised exclusively AW’s Class A bondholders and drafting a presentation explaining the changes to bondholders. Centrus’ role was to ensure that AW’s approach to its bondholders resulted in strong support for the amendment to the STID without incurring any unnecessary costs.

Centrus arranged a series of one-on-one meetings with selected bondholders together with a group meeting to AW’s banks and other bondholders so that the need for and benefits of the STID amendment could be presented and explained to AW’s bondholders.

These meetings took place in May 2015 and shortly afterwards a formal proposal was circulated by the security trustee to all holders of AW’s Class A bonds comprising, in aggregate, £730m nominal of debt.

The approach to AW’s bondholders proved to be very successful with over 90% of AW’s Class A bonds voting in favour of the STID Proposal and with no votes against. Following the voting process, the relevant changes weremade to AW’s documentation and the formal process was completed in June.