WWU Template by jolinmilioncherie


									Wales & West Utilities Limited
         Investor Update – October 2011
            Graham Edwards – Chief Executive

             Neil Henson – Director of Finance

 Adrian Breakspear – Head of Investor Relations & Treasury
Investor Presentation Disclaimer

The financing terms described herein are neither an offer to buy or sell securities, nor a solicitation to buy or sell securities. The summary contained in this document is
not a complete description of the terms of the transaction and is subject to change without limitation or notice. All information contained in the foregoing is qualified in
its entirety by the information to be provided in the final prospectus. Any investment decision should be based only upon such final documentation. The indicative
financing terms in this investor presentation and any other information supplied in connection with the Guaranteed Bonds to be issued in respect of the programme
described herein guaranteed by the Guarantors (as defined below) (the "Bonds") are not intended to provide the basis of any credit or other evaluation and should not
be considered as a recommendation by Wales & West Utilities Finance Plc (the "Issuer"), Wales & West Utilities Limited or Wales & West Utilities Holdings Limited
(together the "Guarantors"), or any other person that any recipient of this investor presentation should purchase any of the Bonds. Each investor contemplating the
purchase of any of the Bonds should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the
Issuer and the Guarantors. Potential investors are advised to consider the selling restrictions that will be set out in the final prospectus. This investor presentation may
not be distributed in any jurisdiction or to any person where such distribution would be prohibited by any applicable law, rule or regulation. This presentation does not
purport to identify or suggest all of the risks (direct and indirect), which may be associated with the proposed transaction.
If and when included in this presentation, the words “expects”, “projects”, “plans”, “believes”, “intends”, “anticipates”, “estimates”, “stabilised”, “underwritten”, “vision”,
“may”, “could”, “pro forma”, “budget”, “financial model” and analogous expressions are intended to identify forward-looking statements. Any such statements are
inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected and the actual outcome to differ
materially from that expected. Such risks and uncertainties include, amongst others, general economic and business conditions, competition, changes in political,
social and economic conditions, regulatory initiatives and compliance with governmental regulations, and various other events, conditions and circumstances (including
acts of god, war and terrorism). No assurance is given by the Issuer, the Guarantor, or any other member of the Guarantor group that the financing arrangements
described herein will be implemented. The Issuer, the Guarantors and each other member of the group expressly disclaim any obligation or undertaking to publicly
release any updates or revisions to any forward-looking statement contained herein to reflect any change in expectations or any change in events, conditions or
circumstances on which any such statement is based.
The information contained herein is not for publication or distribution in the United States. These materials do not constitute an offer of securities for sale in the United
States or an invitation or an offer to the public or form of application to subscribe for securities. The Issuer's securities have not been, and will not be, registered under
the U.S. Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold in the United States absent registration under the Securities Act or an
available exemption from it. The Bonds will be offered and sold outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act.
The Issuer, the Guarantors and each other member of the group expressly disclaim any obligation or undertaking to publicly release any updates or revisions to update
this presentation whether as a result of any change to the matters described herein or any change in any fact or circumstance subsisting at the date hereof or
This Presentation may not be passed on in the United Kingdom except to investment professionals or other persons in circumstances in which section 21(1) of the
Financial Services and Markets Act 2000 does not apply to the Issuer

1.   Overview of Wales & West Utilities

2.   Operating Performance

             -    Non Financial
             -    Financial

3.   Regulatory Framework

4.   Structure Overview

                                                                                            Company Overview

   WWU commenced trading on 1 June 2005, following
    £1.3bn acquisition from National Grid (NG) of Wales and
    South West gas distribution networks by a consortium of
    infrastructure fund investors
   Utility regulated by Ofgem
   Operates, maintains, repairs and develops gas distribution
   Provides the gas emergency service, which in 2010/11
          108,000 public reported escapes
          89,000 were domestic faults
          19,000 were network leaks
   Replaces circa 420km of old metallic mains/year
   Provides circa 13,000 new gas connections/year
   Undertakes circa 105,000 meter installation, repairs and

We don’t
   Sell gas
   Bill consumers
   Own a large fleet of meters – only approximately 35,000 meters
    (0.1% of supply points) with a net book value of £5.2m have      Key Stats                               35,000km of network
    been installed since 2005 under GDN ‘meter of last resort’        Covers 42,000km2 – 1/6 of UK          Regulatory Asset Value ~
    obligations                                                       Serves a population of 7.4 million   £1.7bn at 31 March 2011
                                                                      2.4 million supply points                                         4
                                                                             Group Ownership And Current
                                                                                       Finance Structure

All of the current investors were part of the initial consortium that purchased the business in 2005.
   Ownership – Equity £387.1m

    Macquarie Luxembourg Gas Sarl 44.6%

    AMP Capital Investors (MGN Gas) Sarl 12.5%

    CPP Board European Holdings Sarl 19.5%

    Codan Trust Company (Cayman) Limited 15.0%

    Macquarie Global Infrastructure Funds 2 SA 5.2%

    Whaley Pty Limited 3.2%

In addition to the listed bonds, WWU retains sufficient liquidity through its ancillary facilities.

Existing Bonds                                                                             Ancillary Facilities
  Nominal          Coupon            Class             Rating     Issue       Redemption   Term Loan              £200m
   £200m           5.125%              A                A-/A-    2 Dec 09        2016      Class A Capex/Repex    £125m

   £115m            6.75%              B               BBB/BBB   31 Mar 10    2018/2036    Class B Capex/Repex    £25m

   £250m            6.25%              A                A-/A-    31 Jul 09       2021      Working Capital        £30m
                                                                                           Letter of Credit       £15m
   £300m            5.75%              A                A-/A-    31 Mar 10       2030
                                                                                           O&M Reserve            £20m
   £100m          2.496% IL            A                A-/A-    31 Mar 10       2035
                                                                                           DSR                    £50m    5
                                                                            Performance Highlights

Continued improvement in financial and non-financial indicators

Some headlines…
   Achieved all regulatory and safety standards
   Managed two price reviews, and influenced the regulator on key issues
   Gas Industry Awards
        Utility Week - “Utility Company of the Year” – 2010
        SBGI - “Customer Services” – 2009, 2010 & 2011
        SBGI - “Network Operator of the Year” – 2008
   Continued out performance of regulatory targets
   Improved financial performance
        EBITDA
        Cashflow from operations
        Reduction in operating costs
        RAV growth
   Comfortably compliant with financial covenants
Maintaining WWU as a respected business in our sector                                                6
                                                                                         Non-Financial KPIs

  All standards of service have been met since acquisition despite severe winter conditions in 2009/10 and 2010/11

                                                      Non-Financial KPIs
  WWU continues to perform strongly in all league tables for Customer Satisfaction
  ISO 14001 for environmental performance

Standards of Service
                                           Target   2010/11   2009/10   2008/09
Responding to gas escapes
  1 hour target for uncontrolled escapes    97%     98.5%     97.6%     97.8%
  2 hour target for controlled escapes      97%     99.4%     99.1%     99.2%

Standards of performance
  Issuing quotations                        90%     99.2%     99.1%     98.7%
  Offer dates for work start & finish       90%     99.9%     99.9%     99.8%
  Jobs completed on agreed dates            90%     94.3%     95.9%     96.5%
  Responding to complaints                  90%     99.1%     99.4%     99.1%

                                                                                                         Non-Financial KPIs

WWU have been awarded the Gas Industry’s Customer Services Award in 2009, 2010 and 2011 and
continues to achieve high customer satisfaction scores across all three categories of activity:
           Emergency response
           Planned work
           Connections work

2008/2009                                                        2009/2010                                2010/2011
Network                           Average Score*                Network                 Average Score*    Network                 Average Score*
Wales & West                           7.94                     Wales & West                 8.13         Wales & West                 8.23
Scotland                               7.81                     Scotland                     7.98         Scotland                     8.11
Southern                               7.63                     Southern                     7.76         Northern Gas Networks        7.97
East of England                        7.59                     Northern Gas Networks        7.75         Southern                     7.79
West Midlands                          7.46                     East of England              7.69         East of England              7.24
North West                             7.42                     West Midlands                7.60         West Midlands                7.09
Northern Gas Networks                  7.40                     North West                   7.57         North West                   7.08
London                                 6.82                     London                       7.16         London                       6.77

* Max average score is 10 across three activity areas
Source: Collated from publication of scores on individual GDN websites

                                                                                                              Comparative Performance for
                                                                                                                        2008/09 & 2009/10

WWU continues to outperform the operating allowances set by Ofgem

                                                                                                                          WWU 13.7% out-

                                                                                                                          GDN average 4.1% out-

                                                                                                                           EoE – East of England
                                                                                                                           Lon – London
                                                                                                                           NW – North West
                                                                                                                           WM – West Midlands
                                                                                                                           No – Northern
                                                                                                                           SC – Scotland
                                                                                                                           SO – Southern
*Totex is the aggregate of capital, operating and replacement expenditure                                                  WW – Wales & West
Source: Data sourced from Ofgem document "Decision on Strategy for the Next Gas Distribution Price Control"
                                                                                   EBITDA Performance

                                           Year      Year       Year       Year   EBITDA has increased by £36m over the three years from 31 March
                                          ended     ended      ended      ended   2008 demonstrating continued strong performance
Wales & West Utilities Limited         31 March   31March   31 March   31 March
                                           2011      2010       2009       2008   In the year ended 31 March 2011:
                                            £’m       £‘m        £‘m        £’m
                                                                                   Turnover fell slightly to £312.8m due to £1.5m decrease in non
Transportation Revenue                     304        304       297        266    regulated metering revenue in the year.
Non-Transportation Revenue                   9         10        12         12     Transportation revenue of £304.2m was £0.2m higher than the
Revenue                                    313        314       309        278    prior year.

Operating Costs (excluding shrinkage                                              WWU earned £8.6m in the year from non-transportation revenue
                                           (79)      (79)       (76)       (89)   which included the provision of metering services to meter asset
                                                                                  managers and other services related to gas infrastructure.
Shrinkage Gas                               (8)       (5)        (8)        (7)
                                                                                  Operating costs remained broadly in line with prior year despite
                                                                                  inflationary pressures.
Pass through Costs                         (28)      (29)       (28)       (27)
                                                                                   Shrinkage gas costs increased by £2.9m, as a result of a rise in
                                                                                  wholesale prices. This increase is recoverable through allowed
Restructuring Costs                         (1)         0        (1)       (11)
Environmental and decommissioning
                                             2        (3)        (9)        (3)
and other provisions

Earnings before interest, tax,
depreciation, amortisation and             199        198       187        141
replacement expenditure

Replacement Expenditure                    (80)      (77)       (71)       (58)

Earnings before interest, tax,
depreciation and amortisation              119        121       116         83

                                                                                                               Cash Flows

Wales & West Utilities Limited                        Year ended   Year ended    Year ended   Year ended    Net cash inflow from operating
Cash flow                                               31 March     31 March      31 March     31 March     activities has increased by 1.7% in
£m                                                          2011         2010          2009         2008     the year ended 31 March 2011
Earnings before interest, tax, depreciation and             119           121          116           83
amortisation (EBITDA)                                                                                       Net cash inflow from operating
Working capital movement                                     11              -          (3)           7      activities continues to increase each
                                                                                                             year and has seen an increase of
Restructuring costs                                            -             -         (12)            -     36% in the three years to 31 March
Difference between pension charge and contributions          (7)           (8)          (6)          (6)     2011
Movements in provisions for liabilities and charges          (6)            2            7            2
                                                                                                            Net cash inflow from operating
Net cash inflow from operating activities                   117           115          102           86      activities is after investment in RAV
UK Corporation Tax Paid                                        -             -            -            -     for that proportion of replacement
                                                                                                             expenditure (circa 50%) that qualifies
Purchase of tangible fixed assets                           (70)          (84)         (70)         (58)
                                                                                                             for RAV
Capital contributions received                               10            12           14           15
Proceeds of disposals of tangible fixed assets                 -             -            -           1     £6m pension deficit contributions
                                                               -             -            -           1
                                                                                                             funded through Extension Year and
Grants and contributions received
                                                                                                             Main Control (GDPCR 2008-13)
Net cash outflow from investing activities                  (60)          (72)         (56)         (41)
Net cash inflow before treasury activities and               57            43           46           45
                                                                                                            WWU has estimated corporation tax
servicing of finance                                                                                         losses at 31 March 2011 of £70m
New long term loans                                            -          240           36           50
                                                                                                            Continued investment in RAV
Proceeds from issue of corporate bonds                         -          965             -            -
                                                                                                             through capital expenditure
Repayment of bank debt                                         -       (1,044)            -            -
Debt issue and other financing costs                         (3)          (35)            -            -    No incremental borrowing in 2010/11
                                                               -             -            -          (1)
                                                                                                             due to strong positive cash flows
Capital payments under finance lease
Payments in respect of interest rate swap contracts            -          (78)            -            -

Net Cash inflow from financing activities                    (3)           48           36           49

Net cash inflow before servicing of finance                  54            91           82           94                                              11
                                                                                                            Existing Regulatory Framework –
                                                                                                                   GDPCR1 2008-2013

                                  Core Allowed Revenue - Building Blocks
                                                                                                                      Allowed Revenue = Core Allowed Revenue from regulatory
                                                                                                                      “building blocks” + additional incentive income

                                                                                                                              Real increase (7%) in Core Allowed Revenue over 2008-13
                                                                                                                              Incentive regime in addition to Core Allowed Revenue – £7m incentive
                                                                                                                               income in 2010/2011.
                     Environmental and decommissioning costs
                     Shrinkage costs
                                                               Controllable operating costs
                                                               Pension deficit funding
                                                                                                                              Real ‘Vanilla’ WACC 4.94%
                     Expensed Repex allow ance                 Tax allow ance
                     Return on RAV                             Depreciation                                                   Regulatory depreciation 45 years
                     IQI adjustment                            Adjustments from 2002/7 control
                     National Transmission Pensions            Pass through costs

                                                                                          2008-13 Main Control
2005/6 Prices                                            % Core        2012/13       2011/12     2010/11   2009/10   2008/09    2007/08               Productivity assumptions
                                                         Allowed          £m             £m        £m        £m        £m         £m
Building Blocks - Core Allowed Revenue
                                                                                                                                                      Operating costs             -2.5%
Environmental and decommissioning costs                   1.2%            3              3         3          4        4          0
Controllable operating costs                              28.3%           73             75        77        77        77         83                  Replacement costs           -2.0%
Shrinkage costs                                           3.4%            9              9         9          9        10         12                  Mains reinforcement         -1.5%
Pension deficit funding                                   1.8%            5              5         5          5        5          5
                                                                                                                                                      Connections                 -1.5%
Expenses Replacement allowance                            13.8%           37             37        37        39        33         27
Tax allowance                                             0.0%            0              0         0          0        0          0
Return on RAV                                             24.6%           70             68        66        64        61         56                  Real Price Effects
Depreciation                                              16.9%           48             47        46        44        42         41
IQI adjustment                                            0.3%             1              1         1         1        1           -                  Contractor prices      RPI + 2.5%
Adjustments from 2002/7 control                           0.2%             3              2         0        -1        -2          3
National Transmission Pensions                            1.0%             2              3         3         3        3           3
                                                                                                                                                      Direct labour          RPI + 1.5%
Pass through costs                                        8.3%            22             22        22        22        22         22                  Material costs         RPI + 3%
Core Allowed Revenue                                                     273             271       268      267       255         252         Source: Ofgem
                                                                Proposed Regulatory Framework -
                                                                      RIIO-GD1 2013-2021

      Revenue = Incentives + Innovation + Outputs
 Ofgem has undertaken a review of the effectiveness and appropriateness of the current regulatory framework.

 In March 2011, Ofgem published a document titled "Decision on Strategy for the Next Gas Distribution Price Control", which sets
out the key elements of the regulatory framework for the next gas distribution price control.

 Key aspects of the decision document were:
              the period of the next price control: eight years from 1 April 2013 to 31 March 2021 with a mid point review;
              the outputs that gas distribution companies need to deliver and associated incentives mechanisms to address
             uncertainty during the price control and the key elements of the financial framework;
              the intended approach to assessing network companies' business plans, including the role of proportionate treatment
             and the greater role for innovation; and
              the requirement for gas distribution companies to develop well-justified business plans setting out how they will
             deliver for consumers.

 WWU will be submitting its business plan at the end of November 2011 in accordance with Ofgem deadlines.

                                                                                       Historic Key Ratios

                                                                                         Long term Structure –
                                                                                           Lower Leverage
                                                  31 March       31 March   31 March
Senior Debt Ratios                                                                       Lock Up     Default
                                                  2011           2010       2009
Adjusted Interest Cover Ratio                     2.49x          1.98x      5.27x        1.30x       1.10x
RAR %                                             71.9%          72.6%      76.4%        77.5%       95.0%

All covenant tests were comfortably complied with for the 3 years ended 31 March 2011
 Above ratios all calculated at Senior level
 High interest cover ratios indicative of strong cash inflows
 Senior RAR% comfortably within 77.5% limit under the Lower Leverage Regime

                                                                                        Transaction Overview

 WWU are considering issuing up to £400m additional Class A bonds.
 Issuing £400m bonds will fully cover the financing requirements of WWU for the remainder of the GDPCR1 price control to 31 March
 Proceeds of the bond issue will be used to refinance existing borrowing and fund future investment in RAV.
 Maturity concentration restrictions mean that debt with a value of no more than 20% of RAV can mature in any 2 year period.
 Current Bond maturities are shown below.

                                                                                      Investment Strengths

Essential Infrastructure                                                  Clear Strategic Direction
 WWU provides gas distribution services to a population of 7.4 million    WWU has a simple strategy of being a single-purpose company
  in Wales and the south-west of England covering some 41,000 km2           focusing solely on its core activities of managing and operating its
                                                                            gas distribution network
 The company’s business is a natural monopoly, conducted within a
  well established and transparent regulatory framework governed by        Management’s ability to move away from the company’s core
  the Office of Gas & Electricity Markets (“Ofgem”)                         regulated business is further restricted by the conditions under
                                                                            WWU’s licence and a covenant embedded within transaction
 Regulatory Asset Value £1.75bn at 30 September 2011                       documents stipulating that no change can be made to the general
                                                                            nature of the business of the company

Strong Business Performance                                               Security, Creditor Protection and Ratings
 Inflation linked earnings                                                The bonds will be secured against all assets, undertakings, revenues
                                                                            and claims of the ring-fenced group including security over the
 Strong EBITDA and cash flow from operations growth                        shares in the regulated entity
                                                                           Class A ratings A-/A- (S&P/Fitch) and Class B rating BBB/BBB
 Excellent safety, standards of service and customer satisfaction
                                                                           Structured covenant package including operating covenants, trigger
 RAV growing in real terms                                                 events and financing protections including restrictions on additional
 “Standalone” business with ”in-source” model retaining knowledge
  and experience within the Licensee                                       Regulatory ring-fencing provisions, under its Gas Transportation
 Innovative “Alliance” arrangements incentivising delivery of
                                                                           Liquidity reserves and requirement to be able to finance the following
  replacement program within Ofgem Allowances
                                                                            12 months capital investment
 Stable and experienced management team                                   Transparent and comprehensive investor reporting regime                  16
                                                                                            Long Term Structure

 WWU previously refinanced its senior bank facilities to meet ongoing funding needs through a secured and covenanted programme at 31 March 2010
 The framework was implemented with funding raised through a combination of rated bank debt and rated bonds
 The transaction structure is based on “tried and tested” financing techniques used extensively and successfully in other UK regulated utilities
 Wales & West Utilities Holdings Ltd (“WWH”) was established as intermediate holding company for the structure
 Structure allows for either a “lower” or “higher” leverage regime – The group is targeting “lower” leverage regime for the foreseeable future. Swaps
  would have to be further restructured or mature before the company would have the opportunity to operate within the “higher” leverage regime
                                                                   MGN Gas Networks
                                                                       (UK) Ltd

                                                                   MGN Gas Networks
                                                                   (Junior Finance) Ltd

                                                                   MGN Gas Networks
                                                                   (Senior Finance) Ltd
                   Security Trustee
                                                                                                                    Borrower Liquidity
                                                                   Wales & West Utilities                           Borrower Hedging
                                                      Security         Holdings Ltd
                                                                                                                    Senior Facilities
                                                                                                                    Refinancing Facility
                                                                   Wales & West Utilities
                                                                                                                    Capex Facility
                                                                           Ltd                                      WC Facility
                             Ring-fenced                                                                Guarantee
                                                                                 Inter-                             LC Facility
                            Security Group                                       company
                                                                                 loan       Guarantee
                                                                   Wales & West Utilities
                                                   Regulatory                                                       Senior Bonds
                                                                       Finance plc

                                                     Security and Operating Covenants

Security                                                             Operating Covenants
   Fixed and floating charge over property, assets and                 Limitations on non-core business
    undertakings of each of the Obligors for WWU to the extent
                                                                        Dealings with third parties (outside the WWU Financing Group) to
    permitted by the Gas Act and WWU’s Gas Transportation
                                                                         be on arm’s length basis
                                                                        Limitations on disposals, mergers, acquisitions and investments
   Security includes fixed charges over:
                                                                        Negative Pledge
          Obligors’ rights, titles and interest over any property
           (excluding Transportation Assets) or property disposal       Appropriate insurance
           proceeds (including Transportation Assets)
                                                                        Restrictions on payments to shareholders
          Machinery, office equipment, computers, vehicles
          Intellectual property rights
   Security also includes a floating charge over Obligors’
    property, assets and rights
   Fixed charge over ordinary shares of WWU and Wales &
    West Utilities Finance plc, the Issuer

                                                                                                     Key Trigger Events

Trigger Events                                                                Trigger Event Consequences
   Financial triggers based on Adjusted ICR (PMICR) and RAR                       Consequences whilst a trigger event is subsisting will include
    tested for both Class A and Senior Debt
                                                                                          Lock-up of dividends and other restricted payments,
         Senior RAR >90%; Senior PMICR <      1.1x1                                       meaning no payments to shareholders
         Class A RAR > 75%; Class A PMICR < 1.3x1                                        Remedial plan to be discussed with Security Trustee
   Other triggers include:                                                               Security Trustee shall be entitled to commission an
                                                                                           Independent Review of the business
         Forecast capex over a regulatory period exceeds the
          capex for that period assumed by Ofgem by 10% or more                           Ability for Security Trustee to consult with Regulator upon
                                                                                           reasonable request
         Liquidity facility undrawn amount and/or cash liquidity
          reserve are less than 12-months Senior debt service                             Ability for Security Trustee to appoint additional non-
                                                                                           executive directors if trigger outstanding > 6 months
         Issue of enforcement orders or Energy Administration
         Notice of licence termination or modification / replacement
          of licence
         Audit qualification
         Commencement of final reading of draft legislation or final
          determination of the Licence Income Limits which, if          1   The transaction has two key financial ratios applying to Class A and Senior Debt:
          enacted could reasonably lead to a breach of financial                     1 Adjusted Interest Cover Ratio = Cash Flow from operations less Approved
          ratios                                                                      Regulatory Depreciation divided by relevant Debt Interest
                                                                                      2 Regulatory Asset Ratio (“RAR”) = Net debt as a proportion of Regulatory
         Breach of limitations of non-core business                                                         Asset Value
         6% cap on accretion of super-senior hedging agreements                                                                                                  19
                                                                                      Additional Structural

Restricted payments                                                       Liquidity and Other Structural Enhancements
   Payments to parent company are not allowed unless Class A                Debt to be refinanced not to exceed
    debt/RAV % ≤70% and Senior debt/RAV ≤ 77.5% under Lower
                                                                                   20% of RAV in any 24 month period
    Leverage Regime
                                                                                   40% of RAV within any Regulatory Period
Limitations on Additional Indebtedness
                                                                               (Including inflation accretion pay-downs on interest rate swaps)
   To incur additional Class A Debt, the Class A RAR taking into
    account the proposed additional debt must be ≤ 72.5% under               Committed liquidity facility
    Lower Leverage Regime
                                                                                   Available for Senior Debt
   To incur additional Senior Debt, the Senior RAR taking into
                                                                                   Sized at 12 months’ Senior interest
    account the proposed additional debt must be ≤ 80% under
    Lower Leverage Regime                                                 Key Hedging Provisions
Key Events of Default                                                        85% of outstanding debt to be fixed to end of current Regulatory
   Non payment of any amounts payable
                                                                             75% of outstanding debt to be fixed for following Regulatory
   Termination of licence
   Any elements of the Security ceasing to be in full force and effect
                                                                             Minimum length of swap breaks of 5 years from effective date
   Government action (e.g. nationalisation) or change in law that
    would be reasonably likely to have a MAE
   Insolvency

                                                                  Levels of Creditor Protection

    Normal Business            Trigger Event                     Default                   Enforcement                   Acceleration
Operating within        One or more financial or      One or more events of         Qualifying creditors may       Qualifying creditors
covenant package        operational ‘trigger’         default occur and             vote to enforce security       vote to accelerate
                        events occur                  continue                      on event of default                                       Increasing
                                                                                                                                              severity of
Standard compliance     Lock up of restricted         Automatic 18-month            Potential enforcement by       Sale of assets or disposal
including semi-annual   payments                      standstill of claims in the   Class A representatives to     of business
investor reporting                                    ring-fence during which       enforce the share pledge
                        Option to commission, via     creditors cannot seek to      granted by WWH over the        Proceeds will be
                        the Security Trustee, an      enforce or take action        shares in WWU                  distributed according to
                        independent review of the     against WWU                                                  post acceleration
                        Security Group’s operations                                 Waterfalls, including          waterfall
                                                      Standstill potentially        waterfalls for allocation of
                                                      terminated early by a vote    disposal proceeds to repay
                                                      of 66 2/3 % of the Class A    debt
                                                      DIG (or if a Special
                                                      Administration commences)

                                                                           Regulatory Ring-fence

  Regulatory “ring-fence” – Licence obligations of WWU

 Investment grade credit rating
 Prohibition on disposal of transportation assets
 Activities restricted to permitted purpose, unless de minimis
 Sufficiency of resources – continuing obligation and annual declaration
 Restrictions on payments to related undertakings
 Cash lock up requiring Ofgem approval for payments to related undertakings if WWU does not have investment grade
rating or is BBB-/Baa3 negative watch from any agency
 Indebtedness restrictions
 Cross default restrictions
 Behavioural undertaking – legally enforceable undertaking from “ultimate controller” that it will not cause WWU to breach
its obligations under Gas Act or Licence

Ofgem are currently reviewing the regulatory ring fence conditions. The objective of this review is to ensure that network
operator licences are as robust as possible in light of lessons learned during the recent financial crisis. Any modifications
to the ring fence conditions will endeavour to update and strengthen the current conditions. The results of the review are
expected before the end of 2011.

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