28.8.1 Required drafting (including definitions) is as follows:
28.1 The Contractor shall obtain the Authority's prior written consent to any Qualifying Refinancing and both the Authority and the Contractor shall at all times act in good faith with respect to:
(a) any Refinancing or
(b) any potential or proposed Refinancing under Clause 28.97
28.2 The Authority shall be entitled to receive:
(a) where there is a reduction in the Margin from the Margin as shown in the Senior Financing Agreements as at Financial Close arising from a Qualifying Refinancing (or, in the case of a second or subsequent Qualifying Refinancing, from the Margin as shown in the immediately preceding Qualifying Refinancing) a 90% share of the Margin Gain arising from the Qualifying Refinancing; and
(b) a share of any further Refinancing Gain (arising otherwise than from a reduction in Margin) from a Qualifying Refinancing, in respect of any Refinancing Gain (when considered in aggregate with all previous Qualifying Refinancings) as follows:
(i) for a Refinancing Gain from £1 to £1 million, a 50% share;
(ii) for a Refinancing Gain of £1 million up to £3 million, a 60% share; and
(iii) for a Refinancing Gain in excess of £3 million a 70% share.
28.3 The Authority shall not withhold or delay its consent to a Qualifying Refinancing to obtain a greater share of the Refinancing Gain than that specified in Clause 28.18
28.4 The Contractor shall promptly provide the Authority with full details of any proposed Qualifying Refinancing, including a copy of the proposed financial model relating to it (if any) and the basis for the assumptions used in the proposed financial model. The Authority shall (before, during and at any time after any Refinancing) have unrestricted rights of audit over any financial model and documentation (including any aspect of the calculation of the Refinancing Gain) used in connection with that Refinancing (whether that Refinancing is a Qualifying Refinancing or not).
28.5 The Authority shall have the right to elect to receive its share of any Refinancing Gain (including any Margin Gain) as:
(a) a single payment in an amount less than or equal to any Distribution9 made on or about the date of the Refinancing;
(b) a reduction in the Unitary Charge over the remaining term of the Contract; or
(c) a combination of any of the above.
28.6 The Authority and the Contractor will negotiate in good faith to agree the basis and method of calculation of the Refinancing Gain (including any Margin Gain) and payment of the Authority's share of the Refinancing Gain (taking into account how the Authority has elected to receive its share of the Refinancing Gain under Clause 28.5 above). If the parties fail to agree the basis and method of calculation of the Refinancing Gain or the payment of the Authority's share, the dispute shall be determined in accordance with Clause 34 (Dispute Resolution).10
28.7 The Refinancing Gain (including any Margin Gain) shall be calculated after taking into account any breakage costs necessary to facilitate the Qualifying Refinancing together with the reasonable and proper professional costs that each party directly incurs in relation to the Qualifying Refinancing and on the basis that all reasonable and proper professional costs incurred by the Authority will be paid to the Authority by the Contractor within 28 days of any Qualifying Refinancing. Such costs shall be allocated as between the Margin Gain (if any) and the remaining Refinancing Gain (if any) pro rata.
28.8 Without prejudice to the other provisions of this Clause 28, the Contractor shall (a) notify the Authority of all Notifiable Financings on becoming aware of the same and again when they are entered into and provide full details of the same and (b) include a provision in the Financing Agreements (other than the Subordinated Refinancing Agreements) whereby it is entitled to be informed of any proposals which the Senior Lenders may have to refinance the Financing Agreements (other than the Subordinated Refinancing Agreements).
28.9. If the Authority (acting reasonably) considers the funding terms generally available in the market to be more favourable than those reflected in the Financing Agreements (other than Subordinated Financing Agreements), the Authority may, by notice in writing to the Contractor, require the Contractor to request potential funders to provide terms for a potential Refinancing (a "Refinancing Notice").
28.10 The Refinancing Notice shall set out in reasonable detail the grounds upon which the Authority believes such funding terms to be available. The Contractor and Authority shall meet to discuss the Refinancing Notice within 28 days. Such a meeting will consider the evidence available to both parties about the availability of funding terms for a potential Refinancing. The Authority shall be entitled to withdraw the Refinancing Notice at or before such a meeting, or within ten days following the meeting.
28.11 If the Authority serves a Refinancing Notice which is not withdrawn pursuant to clause 28.9.2, then the Contractor shall:
(a) act promptly, diligently and in good faith with respect to the potential Refinancing; and
(b) use all reasonable endeavours to obtain the most favourable available terms from existing and/or new lenders for any potential Refinancing (provided that the Contractor shall not be required to propose refinancing in a manner which a prudent board of directors of a company operating the same business in the United Kingdom to that operated by the Contractor, in similar circumstances, would not approve), for the avoidance of doubt also being terms which are likely to generate a positive Refinancing Gain after the deduction of costs in accordance with the provisions of Clause 28.7; and
(c) either:
(i) as soon as reasonably practicable after receipt of the Refinancing Notice, provide to the Authority (i) full details of the proposed Refinancing, including a financial model and the basis for the assumptions used in the financial model and evidence to the reasonable satisfaction of the Authority that these assumptions represent the most favourable available terms for the potential Refinancing on the basis set out in Clause 28.11 (b) above and (ii) initial drafts of any changes to this Contract including in relation to potential compensation on termination which might be required to give effect to the proposed Refinancing; or
(ii) if the Contractor (acting reasonably) believes that it is not possible to obtain funding terms which are more favourable than those reflected in the Financing Agreements (other than the Subordinated Financing Agreements) in accordance with the requirements of Clause 28.11 (b), provide evidence to the reasonable satisfaction of the Authority for such belief and evidence to the reasonable satisfaction of the Authority that the Contractor has complied with its obligations in Clauses 28.11(a) and 28.11(b).
28.12 Following receipt of the information referred to in Clause 28.11 (c) (i), the Authority shall (in its absolute discretion) either:
(a) instruct the Contractor to implement the proposed Refinancing; or
(b) instruct the Contractor to discontinue the proposed Refinancing
provided that if the Authority reasonably considers that the requirements of clause 28.11 (c) (i) have not been satisfied, the Authority may require the Contractor to satisfy its obligations under Clause 28.11 (c) (i) whereupon the provisions of clauses 28.11 and 28.12 shall apply as if the Authority had served a Refinancing Notice.
28.13 If the Authority instructs the Contractor to implement the proposed Refinancing:
(a) the Contractor shall, as soon as reasonably practicable, use all reasonable endeavours to procure that such proposed Refinancing is implemented;
(b) such proposed Refinancing shall be deemed to be a Qualifying Refinancing; and
(c) the provisions of Clauses 28.1 to 28.7 shall apply.
28.14 If:
(a) the Authority instructs the Contractor to discontinue the potential Refinancing pursuant to Clause 28.12 (b); or
(b) the requirements of Clause 28.11 (c) (ii) are satisfied then, the Authority shall reimburse the Contractor for the reasonable and proper professional costs incurred by the Contractor in relation to the potential Refinancing, such costs to be paid to the Contractor by the Authority within 28 days after receipt of a valid invoice in respect of such amount. Such costs shall not include any internal management costs incurred by the Contractor except insofar as (a) it can be demonstrated to the reasonable satisfaction of the Authority that such costs have been incurred in place of professional costs which would in the normal course of such business have been paid to third parties and (b) the Authority has, by prior written agreement, approved the use of such internal management resource.
28.15 The Authority shall be entitled to issue a Refinancing Notice under clause 28.9 at any time but not more than once in any two-year period. For the avoidance of doubt, a Refinancing Notice that has been withdrawn under Clause 28.10 has been issued for the purpose of this Clause 28.15.
means:
(a) whether in cash or in kind, any:
(i) dividend or other distribution in respect of share capital;
(ii) reduction of capital, redemption or purchase of shares or any other reorganisation or variation to share capital;
(iii) payments under the Subordinated Financing Agreements (whether of principal, interest, breakage costs or otherwise);
(iv) payment, loan, contractual arrangement or transfer of assets or rights to the extent (in each case) it was put in place after Financial Close and was neither in the ordinary course of business nor on reasonable commercial terms; or
(v) the receipt of any other benefit which is not received in the ordinary course of business and on reasonable commercial terms; or
(b) the early release of any Contingent Funding Liabilities, the amount of such release being deemed to be a gain for the purposes of any calculation of Refinancing Gain;
"EEA"
means from time to time the European Economic Area as created by The Agreement on the European Economic Area 1992 or any successor or replacement body, association, entity or organisation which has assumed either or both the function and responsibilities of the European Economic Area;
means the projected blended rate of return to the Relevant Persons over the full term of the Contract, having regard to Distributions made and projected to be made;
means:
(a) any Refinancing that was fully taken into account in the calculation of the Unitary Charge;12
(b) a change in taxation or change in accounting treatment;
(c) the exercise of rights, waivers, consents and similar actions which relate to day to day administrative and supervisory matters, and which are in respect of:
(i) breach of representations and warranties or undertakings;
(ii) movement of monies between the Project Accounts in accordance with the terms of the Senior Financing Agreements;
(iii) late or non-provision of information, consents or licences;
(iv) amendments to Sub-Contracts;
(v) approval of revised technical and economic assumptions for financial model runs (to the extent required for forecasts under the Financing Agreements);
(vi) restrictions imposed by the Senior Lenders on the dates at which the Senior Debt can be advanced to the Contractor under the Senior Financing Agreements and/or amounts released from the [Escrow Account] during the [Initial Availability Period], each as defined in the Senior Financing Agreements13 and which are given as a result of any failure by the Contractor to ensure that the construction work is performed in accordance with the agreed construction programme and which are notified in writing by the Contractor or the Senior Lenders to the Authority prior to being given;
(vii) changes to milestones for drawdown and/or amounts released from the [Escrow Account] during the [Initial Availability Period ] set out in the Senior Financing Agreements and which are given as a result of any failure by the Contractor to ensure that construction work is performed in accordance with the agreed construction programme and which are notified in writing by the Contractor or the Senior Lenders to the Authority prior to being given;
(viii) failure by the Contractor to obtain any consent by statutory bodies required by the Senior Financing Agreements; or
(ix) voting by the Senior Lenders and the voting arrangements between the Senior Lenders in respect of the levels of approval required by them under the Senior Financing Agreements;
(d) any amendment, variation or supplement of any agreement approved by the Authority as part of any Qualifying Variation under this Agreement;
(e) any sale of shares in the Contractor [or Holdco] by the shareholders or securitisation of the existing rights and/or interests attaching to shares in the Contractor [or Holdco provided that this paragraph (e) shall, in respect of shares in Holdco, only apply for so long as Holdco holds 100% of the issued share capital of the Contractor]; 14
(f) any sale or transfer of the Subordinated Lenders' existing rights and/or interests under the Subordinated Financing Agreements or securitisation of the Subordinated Lenders' existing rights and/or interests under the Subordinated Financing Agreements; or15
(g) any Qualifying Bank Transaction;
shall have the meaning given to it in the Senior Financing Agreements;
has the meaning given in the rules from time to time of the Financial Services Authority;
"Margin"
has the meaning given to it in the Senior Financing Agreements as at the date immediately prior to the relevant Qualifying Refinancing;
means an amount equal to the lower of:
(a) the Refinancing Gain; and
(b) the higher of:
i) Zero; and
ii) D - E
Where:
D = the Net Present Value of the Distributions projected immediately prior to the Refinancing (taking into account the effect of the change to the Margin only in relation to the Refinancing and the senior debt repayment profile immediately prior to the Qualifying Refinancing and using the Base Case as updated (including as to the performance of the Project) so as to be current immediately prior to the Refinancing) to be made to each Relevant Person over the remaining term of the Contract following the Refinancing save that, where the replacement finance is a bond, for the purpose of calculating the effect of the change to the Margin, the margin on the bond shall be the rate of interest on the bond less the yield on the relevant reference gilt in place on issue of the bond;
E = the Net Present Value of the Distributions projected immediately prior to the Refinancing (but without taking into account the effect of the Refinancing and using the Base Case as updated (including as to the performance of the Project) so as to be current immediately prior to the Refinancing) to be made to each Relevant Person over the remaining term of the Contract following the Refinancing;
means the aggregate of the discounted values, calculated as of the estimated date of the Refinancing, of each of the relevant projected Distributions, in each case discounted using the Threshold Equity IRR;
means any Refinancing described in paragraph (a) or (c) of the definition of Refinancing and any other arrangement which has or would have a similar effect or which has or would have the effect of limiting the Contractor's or any Contractor's Associated Company's ability to carry out any such refinancing or other arrangements that would have a similar effect;
means the nominal post-tax (i.e. post-tax with respect to the Contractor, pre-tax with respect to Shareholders) Equity IRR calculated immediately prior to the Refinancing;
means accounts referred to in and required to be established under the Senior Financing Agreements;
"Qualifying Bank Transaction" 16 17
means:
(a) the syndication by a Senior Lender, in the ordinary course of its business, of any of its rights or interests in the Senior Financing Agreements;
(b) the grant by a Senior Lender of any rights of participation, or the disposition by a Senior Lender of any of its rights or interests (other than as specified in paragraph (a) above), in respect of the Senior Financing Agreements in favour of (i) any other Senior Lender (ii) any institution which is recognised or permitted under the law of any member state of the EEA to carry on the business of a credit institution pursuant to Council Directive 2006/48EC relating to the taking up and pursuit of the business of credit institutions or which is otherwise permitted to accept deposits in the United Kingdom or any other EEA member state (iii) a local authority or public authority (iv) a trustee of a charitable trust which has (or has had at any time during the previous two years) assets of at least £10 million (or its equivalent in any other currency at the relevant time) (v) a trustee of an occupational pension scheme or stakeholder pension scheme where the trust has (or has had at any time during the previous two years) at least 50 members and assets under management of at least £10 million (or its equivalent in any other currency at the relevant time) (vi) an EEA or Swiss Insurance Undertaking (vii) a Regulated Collective Investment Scheme [(viii) any Qualifying Institution or ] (ix) any other institution in respect of which the prior written consent of the Authority has been given; and/or
(c) the grant by a Senior Lender of any other form of benefit or interest in either the Senior Financing Agreements or the revenues or assets of the Contractor [or Holdco], whether by way of security or otherwise, in favour of (i) any other Senior Lender (ii) any institution specified in paragraphs (b)(ii) to (vii) above (iii) any Qualifying Institution or (iv) any other institution in respect of which the prior written consent of the Authority has been given;
means:
[ ];18]
means any Refinancing that will give rise to a Refinancing Gain greater than zero that is not an Exempt Refinancing;
means:
(a) any amendment, variation, novation, supplement or replacement of any Financing Agreement (other than any Subordinated Financing Agreement);
(b) the exercise of any right, or the grant of any waiver or consent, under any Financing Agreement (other than any Subordinated Financing Agreement);
(c) the disposition of any rights or interests in, or the creation of any rights of participation in respect of, the Financing Agreements (other than the Subordinated Financing Agreements) or the creation or granting of any other form of benefit or interest in either the Financing Agreements (other than the Subordinated Financing Agreements) or the contracts, revenues or assets of the Contractor whether by way of security or otherwise; or
(d) any other arrangement put in place by the Contractor or another person which has an effect which is similar to any of (a)-(c) above or which has the effect of limiting the Contractor's or any Associated Company's ability to carry out any of (a)-(c) above;
means an amount equal to the greater of zero and [(A - B) - C], where:
A = the Net Present Value of the Distributions projected immediately prior to the Refinancing (taking into account the effect of the Refinancing and using the Base Case as updated (including as to the performance of the Project) so as to be current immediately prior to the Refinancing) to be made to each Relevant Person (without double counting) over the remaining term of the Contract following the Refinancing;
B = the Net Present Value of the Distributions projected immediately prior to the Refinancing (but without taking into account the effect of the Refinancing and using the Base Case as updated (including as to the performance of the Project) so as to be current immediately prior to the Refinancing) to be made to each Relevant Person (without double counting) over the remaining term of the Contract following the Refinancing; and
C = any adjustment required to raise the Pre-Refinancing Equity IRR to the Threshold Equity IRR;
"Regulated Collective Investment Scheme"
has the meaning given in the rules from time to time of the Financial Services Authority;
means a Shareholder and any of its Affiliates;
means any person from time to time holding share capital in the Contractor or [Holdco19];
means [•]% 20
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7 The Authority may terminate the Contract for a wilful breach of this clause. In such circumstances, the amount of compensation payable to the Contractor shall be the same as that paid to the Contractor if the Contract is terminated under Clause 23.4 (Termination on Corrupt Gifts and Fraud). See Section 23.6 (Termination for Breach of the Refinancing Provisions).
8 Please see Section 12. (Changes to Documents) in relation to requests made to the Authority for increases in its termination liabilities.
9 Any Distributions projected to be made after the Refinancing will be net of any payment to be made to the Authority on or about the date of the Refinancing. If a Distribution is made on or about the date of the Refinancing which would have been made if the Refinancing had not occurred, the amount of that Distribution will not be taken into account for the purposes of paragraph (a).
10 Any dispute should be determined under the dispute resolution process (see Section 34 (Dispute Resolution)/
11 To the extent a Holdco is used, an equivalent exemption will need to be reflected in the drafting.
12 See Section 28.4.2 above.
13 These definitions should follow those contained in the Senior Financing Agreements - the Initial Availability Period being the construction phase drawdown period. These will need to be checked.
14 This Clause therefore means that any grant of new rights over the Contractor's assets, cashflows or contracts in conjunction with this transfer would not be exempt.
15 See footnote 14.
16 A broad purposive approach shall be taken to the interpretation of this Clause 28. Any attempt by banks to attempt to conceal refinancings behind elaborate avoidance structures will be regarded as a serious breach of these provisions and dealt with accordingly.
17 Where non-bank lenders may enter the lending market (such as institutional investors offering private placements) this definition will be updated to reflect the agreed position of the Parties.
18 If there are particular institutions which for particular reasons do not come within the other heads of Qualifying Bank Transaction, bidders may propose to the Authority that such institutions be included as Qualifying Institutions. In the light of the broad drafting of the other provisions in the definition of Qualifying Bank Transaction, any such proposal must be specific and limited. Broad group definitions will not be entertained. For a listed bond transaction, however, the following may be inserted:
(a) any holder in due course of any security arising under or constituted by the Senior Financing Agreements in respect of which an application has been made for such security to be admitted to listing, either:
(i) on the Official List of the Financial Services Authority in its capacity as competent authority for the purposes of Part IV of the Financial Services and Markets Act 2000 (and to trading on the London Stock Exchange); or
(ii) to the competent authority in any other EEA state; or
(b) in a situation where any security arising under or constituted by the Senior Financing Agreements is no longer admitted to listing as described in paragraph (a) above, any person whose ordinary activities involve them in acquiring, holding or disposing of investments (as principal or agent) for the purposes of their business where the acquisition of the rights of a Senior Lender in the Senior Financing Agreements takes place in accordance with all applicable securities legislation other than where such acquisition, grant or disposition is made in concert with the Shareholders and/or the Subordinated Lenders for the purpose of giving rise to a Refinancing Gain; or
(c) a trustee for any other entity listed in paragraph (b)(ii) to (viii) or (c)(ii) or (iii) of the definition of Qualifying Bank Transaction other than a trustee whose acquisition, grant or disposition is made in concert with the Shareholders and/or the Subordinated Lenders for the purpose of giving rise to a Refinancing Gain."
19 This definition should include any intermediate special purpose company between the Contractor and the investors in the Project. If any of these is a partnership or other legal entity, the definition should be revised so as to include all equity investors such as the General Partner and Limited Partner in the case of a Limited Liability Partnership.
20 This is the nominal post-tax (i.e. post tax with respect to the Contractor, pre-tax with respect to the shareholders in the Contractor). Equity IRR set out in the Base Case, which excludes the effects of any anticipated refinancing.