SECOND SUPPLEMENTAL AGREEMENT TO INSURANCE AND INDEMNITY AGREEMENT
EXHIBIT 99.6
| C L I F F O R D | LIMITED LIABILITY PARTNERSHIP | ||
| C H A N C E |
| ||
| EXECUTION COPY |
CE
ELECTRIC UK FUNDING COMPANY
AND
AMBAC
ASSURANCE UK LIMITED
SECOND
SUPPLEMENTAL AGREEMENT
TO
|
CONTENTS | ||
|
Clause |
Page | |
|
1. |
Definitions
And Interpretation |
1 |
|
2. |
Undertakings
By Ambac |
1 |
|
3. |
Amendments |
2 |
|
4. |
Miscellaneous |
7 |
THIS SECOND SUPPLEMENTAL AGREEMENT is made on 5 May 2005
BETWEEN
| (1) |
CE
ELECTRIC UK FUNDING COMPANY, a
company incorporated under the laws of England and Wales with company
registration number 3476201 (the "Issuer");
and
|
| (2) |
AMBAC
ASSURANCE UK LIMITED, a
company incorporated under the laws of England and Wales with company
registration number 3248674 ("Ambac").
|
WHEREAS
| (A) |
The
Issuer has issued £200,000,000 7.25% guaranteed bonds due 2022 (the
"Bonds")
constituted by a trust deed dated 15 December 1997 (the "Trust
Deed").
|
| (B) |
In
connection with the issue of the Bonds, the parties to this Second
Supplemental Agreement entered into an insurance and indemnity agreement
dated 15 December 1997 (the "Original
Agreement").
|
| (C) |
In
connection with, among other things, the sale by Northern Electric plc of
its entire interest in Northern Electric and Gas 2 Limited (and as more
fully described therein) the parties hereto entered into a first
supplemental agreement to the Original Agreement dated 19 September
2001.
|
| (D) |
The
Issuer's subsidiaries Northern Electric Finance plc and Yorkshire
Electricity Distribution plc each propose to incur additional indebtedness
in the amount of £150,000,000 and £200,000,000, respectively (together,
the "New
Bond Issuance").
|
| (E) |
In
order to permit the New Bond Issuance, and to effect certain other
amendments to the Original Agreement and to the terms and conditions (the
"Conditions")
of the Bonds, the parties have agreed to amend the Original Agreement as
set out herein, and Ambac has agreed to direct The Law Debenture Trust
Corporation p.l.c. as trustee of the Bonds (the "Trustee")
to consent to certain amendments to the Conditions.
|
IT
IS AGREED AS FOLLOWS:
| 1. |
DEFINITIONS
AND INTERPRETATION
|
| 1.1 |
Unless
the context otherwise requires or unless defined in this Second
Supplemental Agreement, words and expressions defined in the Original
Agreement as amended or supplemented (whether expressly or by
incorporation) shall have the same meanings when used in this Second
Supplemental Agreement.
|
| 1.2 |
Any
reference in this Second Supplemental Agreement to:
|
| 1.2.1 |
the
Original Agreement or any other agreement, instrument or document is a
reference to the Original Agreement or that other agreement, instrument or
document as amended, varied, supplemented or novated; and
|
| 1.2.2 |
a
provision of law is a reference to that provision as amended or
re-enacted.
|
| 1.3 |
Clause
and Schedule headings are for ease of reference only.
|
| 2. |
UNDERTAKINGS
BY AMBAC |
At the
request of the Issuer, and in consideration of the covenants given by the Issuer
herein, Ambac hereby undertakes, as the Controlling Party (as defined in the
Trust Deed), to give notice to the Trustee pursuant to Condition 16
(Controlling
Party) of the
Bonds and Clause 19 of the Trust Deed that it intends to exercise the Trust
Rights (as defined in the Trust Deed) and further undertakes to direct the
Trustee, pursuant to Condition 16 (Controlling
Party) and
Clause 19 (Controlling
Party) of the
Trust Deed, to direct the Trustee to (i) consent to the amendments to the Trust
Deed set out in a draft supplemental trust deed expected to be dated on or about
5 May 2005, a draft of which has been signed for the purposes of identification
by ▇▇▇▇▇▇▇▇ Chance and ▇▇▇▇▇▇▇ ▇▇▇▇▇ on behalf of, respectively, Ambac and the
Issuer (the "Supplemental
Trust Deed") and
(ii) enter into the Supplemental Trust Deed for the purposes of effecting such
amendments.
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| 3. |
AMENDMENTS |
With
effect from the date hereof, the Original Agreement shall be amended as
follows:
| 3.1 |
Article
I (Definitions)
shall be amended by the addition of the following definitions:
|
"Capital
Investment" means
expenditure of a capital nature.
"Cash
Equivalents" means
investments in sterling demand or time deposits, certificates of deposit and
short term debt obligations (including commercial paper), synthetic sterling
deposits, shares in money market liquidity funds or a guaranteed investment
contract, provided
that in all
cases such investments have a maturity of not longer than nine months from the
date of their acquisition subject to meeting the following credit criteria: (1)
money market funds with a minimum credit rating of AAA or equivalent from any
two Rating Agencies (or, in the case of shares in money market liquidity funds,
from any single Rating Agency); (2) all other counterparties and other specific
instruments with a minimum short term credit rating of A-1 from S&P or of
P-1 from ▇▇▇▇▇'▇.
"Consolidated
EBIT" means,
for the Relevant Period, the profit shown in the consolidated financial
statements of the Issuer for that Relevant Period on the line entitled "profits
on ordinary activities before interest":
| (i) |
before
taking into account
any items treated as exceptional items;
|
| (ii) |
after
deducting
the amount of any profit of any member of the Group which is attributable
to minority interests;
|
| (iii) |
after
deducting the
amount of any profit of any investment or entity (which is not itself a
member of the Group) in which any member of the Group has an ownership
interest to the extent that the amount of such profit included in the
financial statements of the Group exceeds the amount (net of applicable
withholding tax) received in cash by members of the Group through
distributions by such investment or entity;
|
| (iv) |
before
taking into account any
realised and unrealised exchange gains and losses including those arising
on translation of currency debt;
|
| (v) |
before
taking into account
any gain or loss arising from an upward or downward revaluation of any
asset, |
in each
case, to the extent added, deducted or taken into account, as the case may be,
for the purposes of determining profits of the Group from ordinary activities
before taxation (and without double counting).
"Consolidated
Net Finance Charges" means,
for any Relevant Period, the aggregate amount of interest paid on Consolidated
Senior Total Net Debt (net of interest received and after taking account of
payments made and amounts received under any derivatives related to such
Consolidated Senior Total Net Debt) included in the consolidated cash flow
statement for the Issuer in respect of that Relevant Period.
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"Consolidated
Senior Total
Net Debt" means,
at any time, the aggregate amount (without double counting) of all obligations
of the Group for or in respect of Financial Indebtedness (other than between
members of the Group) which ranks at least pari
passu with the
Bonds but:
| (i) |
deducting
the aggregate amount of all obligations of any member of the Group in
respect of Project Finance Indebtedness;
|
| (ii) |
deducting
the aggregate amount of all obligations of any member of the Group in
respect of Financial Indebtedness to the extent that the repayment or
redemption of such Financial Indebtedness is provided for by the purchase
by a member of the Group of a GIC; and
|
| (iii) |
deducting the
aggregate amount of freely available cash and Cash Equivalents held by any
member of the Group at such time, |
and so
that no amount shall be excluded more than once.
"Final
Proposals" means
the final proposals document published by OFGEM for each electricity
distribution price control review.
"Financial
Indebtedness" means,
at any time, the outstanding principal, capital or nominal amount and any fixed
or minimum premium payable on prepayment or redemption of any indebtedness for
or in respect of:
| (i) |
moneys
borrowed and debit balances with financial institutions;
|
| (ii) |
any
amount raised by acceptance under any acceptance credit
facility;
|
| (iii) |
any
amount raised pursuant to any note purchase facility or the issue of
bonds, notes, debentures, loan stock or any similar
instrument;
|
| (iv) |
the
amount of any liability in respect of any lease or hire purchase contract
which would, in accordance with UK GAAP, be treated as a finance or
capital lease;
|
| (v) |
receivables
sold or discounted (other than any receivables to the extent they are sold
on a non-recourse basis);
|
| (vi) |
any
counter-indemnity obligation in respect of a guarantee, indemnity, bond,
standby or documentary letter of credit or any other instrument issued by
a bank or financial institution (excluding any given in respect of trade
credit arising in the ordinary course of business);
|
| (vii) |
any
amount raised by the issue of redeemable shares which are redeemable prior
to 15 December 2022;
|
| (viii) |
any
amount raised under any other transaction (including any forward sale or
purchase agreement) having the commercial effect of a borrowing;
and
|
| (ix) |
(without
double counting) the amount of any liability in respect of any guarantee
or indemnity for any of the items referred to in paragraphs (i) to (viii)
above. |
"GIC" means
each of (i) the investment agreement dated on or about 28 April 2005 between
Ambac Capital Funding, Inc., Ambac Assurance UK Limited and NEDL and/or NEF,
(ii) the investment agreement dated on or about 28 April 2005 between Ambac
Capital Funding, Inc., Ambac Assurance UK Limited and YEDL and (iii) any other
guaranteed investment contract or similar investment agreement with a maturity
of 60 months or less from the date of purchase and which is provided by a
counterparty which has, or whose obligations under such guaranteed investment
contract or other agreement are guaranteed by an entity that has, a credit
rating of at least AA- from S&P and Aa3 from ▇▇▇▇▇'▇.
-3-
"Interest
Coverage Calculation
Date" means
each of 30 June and 31 December in any year save that the first Interest
Coverage Calculation Date shall be 31 December 2005.
"NEDL" means
Northern Electric Distribution Limited.
"NEF" means
Northern Electric Finance plc.
"OFGEM" means
the Gas and Electricity Markets Authority and/or the Office of Gas and
Electricity Markets, including their successor office or body, as
appropriate.
"Operating
Company Bonds" means
the bonds described in paragraphs (g) and (h) of the definition of "Permitted
Financial Indebtedness" set out below.
"Permitted
Financial Indebtedness" means
each and all of the following:
| (a) |
Financial
Indebtedness of the Issuer under the Bonds;
|
| (b) |
Financial
Indebtedness of any member of the Group outstanding on 5 May 2005 and not
otherwise referred to in this definition of "Permitted Financial
Indebtedness";
|
| (c) |
Financial
Indebtedness which cannot and shall not be accelerated and/or repaid if
any Issuer Event of Default has occurred and, in each case, is
continuing;
|
| (d) |
Financial
Indebtedness owed by one member of the Group to another member of the
Group;
|
| (e) |
Financial
Indebtedness of NEDL from time to time which does not exceed an aggregate
working capital amount of £50,000,000 (or the equivalent amount in one or
more currencies);
|
| (f) |
Financial
Indebtedness of YEDL from time to time which does not exceed an aggregate
working capital amount of £75,000,000 (or the equivalent amount in one or
more currencies);
|
| (g) |
Financial
Indebtedness under the £150,000,000 bonds due 2035 issued or to be issued
by NEF on or about 5 May 2005 and guaranteed by NEDL and Ambac;
and
|
| (h) |
Financial
Indebtedness under the £200,000,000 bonds due 2035 issued or to be issued
by YEDL on or about 5 May 2005 and guaranteed by Ambac.
|
"Regulated
Asset Value" or
"RAV" means
the aggregate of the regulatory asset value of NEDL and YEDL, as set out in the
most recent Final Proposals, adjusted for inflation, as of the 31 March nearest
to the date on which the relevant member of the Group proposes to incur any
further Financial Indebtedness other than Permitted Financial Indebtedness or to
make any Distribution, provided
that there
shall be included in any determination of RAV the value of any assets which were
included in RAV as at 31 March 2005 but which (i) subsequently are excluded from
RAV by OFGEM, (ii) have become subject to a separate price control arrangement,
and (iii) are still owned by NEDL or YEDL as of the date of determination of
RAV, and provided
further that if at
any time OFGEM alters its methodology of determining RAV in a manner which
results in a change in RAV, the Issuer and Ambac shall promptly in good faith
negotiate appropriate adjustments to this definition (and to other terms defined
or described herein solely for the purposes of this definition) so that the
original intent of the undertakings set forth in Sections 2.02(j), 2.02(k) and
2.02(o) hereof is preserved and in the absence of agreement between the Issuer
and Ambac within 60 days, such adjustments shall be determined by an independent
accountant experienced in the regulated electricity distribution market selected
by the Issuer.
"Relevant
Period" means
each period of twelve months ending on an Interest Coverage Calculation
Date.
"YEDL" means
Yorkshire Electricity Distribution plc.
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| 3.2 |
Section
2.02 (Covenants
of Issuer)
of the Original Agreement shall be amended as follows:
|
| 3.2.1 |
by
the deletion of Section 2.02(j) in its entirety and the substitution of
the following as Section 2.02(j): |
"it will
not incur any further Financial Indebtedness other than Permitted Financial
Indebtedness unless the following conditions are satisfied:
| (i) |
if
such Financial Indebtedness is incurred:
|
| (1) |
in
the period commencing on 5 May 2005 and ending on 30 December 2006, the
ratio of Consolidated Senior Total Net Debt (as at the end of the month
immediately preceding the date on which the Financial Indebtedness is to
be incurred and after giving effect to the gross proposed Financial
Indebtedness on a pro
forma
basis but less cash raised to the extent that it is retained for (i)
redemption of existing indebtedness or (ii) Capital Investment) to RAV
does not exceed 0.79:1; or
|
| (2) |
in
the period commencing on 31 December 2006 and ending on 30 December 2007,
the ratio of Consolidated Senior Total Net Debt (as at the end of the
month immediately preceding the date on which the Financial Indebtedness
is to be incurred and after giving effect to the gross proposed Financial
Indebtedness on a pro
forma
basis but less cash raised to the extent that it is retained for (i)
redemption of existing indebtedness or (ii) Capital Investment) to RAV
does not exceed 0.77:1; or
|
| (3) |
on
or after 31 December 2007, the ratio of Consolidated Senior Total Net Debt
(as at the end of the month immediately preceding the date on which the
Financial Indebtedness is to be incurred and after giving effect to the
gross proposed Financial Indebtedness on a pro
forma
basis but less cash raised to the extent that it is retained for (i)
redemption of existing indebtedness or (ii) Capital Investment) to RAV
does not exceed 0.75:1; and
|
| (ii) |
such
Financial Indebtedness (save for any Financial Indebtedness which in
aggregate does not exceed 5% of RAV) ranks no higher than pari
passu
with the Bonds;"
|
| 3.2.2 |
by
the deletion of Section 2.02(k) in its entirety and the substitution of
the following as Section 2.02(k): |
"it will
procure that none of its Subsidiaries will incur any further Financial
Indebtedness other than Permitted Financial Indebtedness save that any
Subsidiary that carries on any regulated distribution business (a "distribution
Subsidiary"), or
any Subsidiary that guarantees any Financial Indebtedness of any distribution
Subsidiary, may incur Financial Indebtedness other than Permitted Financial
Indebtedness where the following conditions are satisfied:
| (1) |
if
such Financial Indebtedness is incurred:
|
| (i) |
in
the period commencing on 5 May 2005 and ending on 30 December 2008, the
ratio of Consolidated Senior Total Net Debt (as at the end of the month
immediately preceding the date on which the Financial Indebtedness is to
be incurred and after giving effect to the gross proposed Financial
Indebtedness on a pro forma basis but less cash raised to the
extent that it is retained for (i) redemption of existing indebtedness or
(ii) Capital Investment) to RAV does not exceed 0.68:1; or
|
| (ii) | on or after 31 December 2008, the ratio of Consolidated Senior Total Net Debt (as at the end of the month immediately preceding the date on which the Financial Indebtedness is to be incurred and after giving effect to the gross proposed Financial Indebtedness on a pro forma basis but less cash raised to the extent that it is retained for (i) redemption of existing indebtedness or (ii) Capital Investment) to RAV does not exceed 0.65:1; and |
-5-
| (2) |
such
Financial Indebtedness (save for any Financial Indebtedness which in
aggregate does not exceed 5% of RAV) ranks no higher than pari
passu
with the present and future unsecured payment obligations of the relevant
Subsidiary;"
|
| 3.2.3 |
by
the deletion of Section 2.02(m) in its entirety and the substitution of
the following as Section 2.02(m): |
"it will
ensure that its Interest Cover for each Relevant Period is not less than 2.00:1
(where, for these purposes, "Interest
Cover" means,
in respect of any Relevant Period, the ratio of Consolidated EBIT for that
Relevant Period to Consolidated Net Finance Charges for that Relevant
Period);"
| 3.2.4 |
by
the addition of a new Section 2.02(o) with the following
text: |
"it will
not make any Distribution unless:
| (i) |
in
the period commencing on 5 May 2005 and ending on 30 December 2006, the
ratio of Consolidated Senior Total Net Debt (as at the end of the month
immediately preceding the date on which the Distribution is to be made and
calculated on a pro
forma
basis as if the Distribution had been made) to RAV does not exceed 0.79:1;
or
|
| (ii) |
in
the period commencing on 31 December 2006 and ending on 30 December 2007,
the ratio of Consolidated Senior Total Net Debt (as at the end of the
month immediately preceding the date on which the Distribution is to be
made and calculated on a pro
forma
basis as if the Distribution had been made) to RAV does not exceed 0.77:1;
or
|
| (iii) |
on
or after 31 December 2007, the ratio of Consolidated Senior Total Net Debt
(as at the end of the month immediately preceding the date on which the
Distribution is to be made and calculated on a pro
forma
basis as if the Distribution had been made) to RAV does not exceed
0.75:1;"
|
| 3.2.5 |
by
the addition of a new Section 2.02(p) with the following
text:
|
"if OFGEM
alters its methodology for determining RAV in a manner which results in a change
in RAV, it will use its reasonable endeavours to ensure that any adjustments to
the definition of RAV that are agreed with Ambac for the purposes of the Bonds
shall be made, mutatis
mutandis, to the
definition of "RAV" in each of the Operating Company Bonds."
| 3.2.6 |
by
the addition of the following text at the end of Section
2.02(c): |
"provided
further that the Issuer shall only be bound by the covenants set out in Sections
2.02(i) to 2.02(p) (inclusive) and Section 2.02A (a) for so long as any of the
Bonds remain outstanding and (b) for so long as no Ambac Event of Default has
occurred and is continuing save that (without prejudice to (a)) the Issuer shall
continue to be bound by such covenants where any Ambac Event of Default under
paragraph (i)(a) of the definition of "Ambac Event of Default" is caused solely
by an administrative or technical error which is cured within two business days
of such Ambac Event of Default first arising."
| 3.2.7 |
by
the deletion of Section 2.02A in its entirety and the substitution of the
following as Section 2.02A: |
"Ratios. For the
purposes of calculating any Leverage Ratio pursuant to Section 2.02 (i),
references to "Measurement Date" in the definition of "Leverage Ratio" shall be
deemed to be replaced by references to "Calculation Date" and be construed
accordingly. Each calculation of any Leverage Ratio pursuant to Section 2.02 (i)
shall be certified by a Director of the Issuer and each such certificate shall
be delivered to Ambac on a date falling no later than 60 days after the
Calculation Date to which the relevant Leverage Ratio relates. Each calculation
of the Interest Cover pursuant to Section 2.02 (m) shall be certified by a
Director of the Issuer and each such certificate shall be delivered to Ambac on
a date falling no later than 60 days after the last day of the Relevant Period
to which the relevant Interest Cover relates."
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| 4. |
MISCELLANEOUS
|
| 4.1 |
The
terms of this Second Supplemental Agreement may be enforced only by a
party hereto and the operation of the Contracts (Rights of Third Parties)
▇▇▇ ▇▇▇▇ is excluded.
|
| 4.2 |
The
provisions of Section 7.01 (Amendments,
Etc),
Section 7.02 (Notices),
Section 7.03 (Severability),
Section 7.04 (Governing
Law)
and Section 7.05 (Counterparts)
of the Original Agreement shall apply mutatis
mutandis to
this Second Supplemental Agreement save that references in such provisions
to the "Insurance
Agreement"
shall, for the purposes of this Clause 4.2, be construed as references to
this Second Supplemental Agreement. |
AS
WITNESS the hands of the parties the day and year first above
written.
-7-
SIGNATURES
CE
ELECTRIC UK FUNDING COMPANY
| By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ | |
| ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ |
AMBAC
ASSURANCE UK LIMITED
| By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ | |
| ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ |
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