56.5  [Economic Test]122

56.5.1  If all of the Assets are destroyed or substantially destroyed in a single event and the insurance proceeds (when taken together with any other funds available to the Contractor) are equal to or greater than the amount required to repair or reinstate the Assets, then the Contractor shall calculate the senior debt loan life cover ratio as used in the Base Case (on the assumption that the Assets are repaired or reinstated in accordance with Clause 56.3).

56.5.2  If the calculation referred to in Clause 56.5.1 above shows that the senior debt loan life cover ratio is greater than or equal to the event of default level, then the Contractor shall be subject to the procedure set out in Clauses 56.1 to 56.4.

56.5.3  123Subject to Clause 56.5.5 if the calculation referred to in Clause 56.5.1 above shows that the senior debt loan life cover ratio is less than [event of default level], then an amount equal to the lesser of:

(a)  the insurance proceeds; and

(b)  the Base Senior Debt Termination Amount, or if any Additional Permitted Borrowing has been advanced, the Revised Senior Debt Termination Amount,

shall be released from the Joint Insurance Account to the Contractor.

56.5.4  If, pursuant to Clause 56.5.3 above, insurance proceeds are released from the Joint Insurance Account, the Contractor shall be in breach of its obligations under this Contract and shall not, pursuant to Clause 40 (Relief Events), be relieved of its obligations unless it can demonstrate, to the satisfaction of the Authority, that it can carry out the works necessary to repair, reinstate or replace the assets which are subject to the relevant claims in accordance with Clause 56.4 (Works carried out) and within a reasonable timescale.

56.5.5  Where Clause 56.5 (Economic Test) applies, the Contractor shall notify the Authority that the Loan Life Cover Ratio is less than event of default. The Authority may within twenty (20) Business Days of receiving such notice elect to implement the following provisions, in which case Clause 56.5.3 shall cease to apply:

(a)  the Contractor shall be subject to the procedure set out in Clauses 56.1 to 56.4;

(b)  the Authority shall provide relief from appropriate provisions of this Agreement (on such terms as are agreed with the Contractor as appropriate) to the extent required to ensure that the Loan Life Cover Ratio is equal to event of default level (on the basis that the Contractor receives the insurance proceeds it would have been entitled to receive had such relief not been granted) until the earlier of:

(i)  the date on which the [Assets] are repaired or reinstated in accordance with the Reinstatement Plan (as defined in Clause 56.3.1); or

(ii)  the date on which the [Assets] are scheduled to be repaired or reinstated in accordance with the Reinstatement Plan.

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122  The requirement for an Economic Reinstatement Test is to be justified on a project specific basis.  If Bidders require an ERT, and the Authority agrees to its inclusion, Authorities must refer to the matter to WIDP. It is market practice to include an ERT for thermal treatment facilities (and not MBT facilities) provided that the wording at Clause 56.5.5 is included, although Authorities should note that the comfort afforded by Clause 56.5.5 is limited as it is subject to the agreement of the Contractor, which will be controlled by the Senior Lenders as a reserved discretion.

123  If an ERT applies then the Direct Agreement needs to be amended to reflect this.