High Speed Rail Finance (1) PLC - RNS Submit

High Speed Rail Finance (1) PLC
(a public limited company incorporated in England and Wales with registered no. 08346271)
£5,000,000,000
Multicurrency Programme for the Issuance of Bonds
High Speed Rail Finance (1) PLC (the “Issuer”) has authorised the establishment of a multicurrency programme
for the issuance of a single class of Bonds designated as the Bonds (the “Programme”). There is no provision
under the Programme for the issuance of other classes of Bonds.
Application has been made to the Financial Conduct Authority (the “FCA”) under Part VI of the Financial
Services and Markets Act 2000 (the “FSMA”) (the “UK Listing Authority”) for the Bonds issued under the
Programme during the period of twelve months hereof to be admitted to the official list of the UK Listing
Authority (the “Official List”) and to the London Stock Exchange plc (the “London Stock Exchange”) for the
Bonds issued under the Programme during the period of twelve months hereof to be admitted to trading on the
London Stock Exchange’s Regulated Market (the “Regulated Market”). The Regulated Market is a regulated
market for the purposes of Directive 2004/39/EC. This Prospectus comprises a base prospectus for the purposes of
EU Directive 2003/71/EC as amended (which includes the amendments made by Directive 2010/73/EU to the
extent that such amendments have been implemented in the Relevant Member State) (the “Prospectus Directive”).
The Bonds may be issued, on a continuing basis, to one or more of the Dealers and any additional Dealer
appointed under the Programme from time to time by the Issuer (each a “Dealer” and together the “Dealers”),
which appointment may be for a specific issue or on an ongoing basis. References in this Prospectus to the
“relevant Dealer” shall, in the case of an issue of Bonds being (or intended to be) subscribed by more than one
Dealer or in respect of which subscriptions will be procured by more than one Dealer, be to all Dealers agreeing to
subscribe for such Bonds or to procure subscriptions for such Bonds, as the case may be.
The distribution of this Prospectus and the offering or sale of the Bonds in certain jurisdictions may be
restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer, the
Obligors and the Dealers to inform themselves about and to observe such restrictions. Bonds issued under
the Programme have not been and will not be registered under the United States Securities Act of 1933, as
amended (the “Securities Act”) or with any securities regulatory authority of any state or other jurisdiction
of the United States, and include Bonds in bearer form that are subject to U.S. tax law requirements. The
Bonds may be offered, sold or delivered only outside the United States to persons who are not “U.S.
Persons” as defined in Regulation S under the Securities Act (“Regulation S”) (each, a “U.S. Person”) in
offshore transactions in reliance on Regulation S under the Securities Act. Each purchaser of the Bonds in
making its purchase will be deemed to have made certain acknowledgements, representations and
agreements (see “Subscription and Sale” in this Prospectus).
See “Risk Factors” to read about certain factors that prospective investors should consider before buying
any of the Bonds.
Dealers
BNP PARIBAS
Lloyds Bank
National Australia Bank Limited
Prospectus dated 8 April 2015
The Royal Bank of Scotland
Scotiabank
Under the Programme, the Issuer may, subject to all applicable legal and regulatory requirements, from time to time issue Bonds
in bearer or registered form (respectively “Bearer Bonds” and “Registered Bonds”). Copies of the final terms for each Tranche
of Bonds (the “Final Terms”) will be available (in the case of all Bonds) from the specified office set out below of Deutsche
Trustee Company Limited as bond trustee (the “Bond Trustee”), (in the case of Bearer Bonds) from the specified office set out
below of each of the Paying Agents and (in the case of Registered Bonds) from the specified office set out below of each of the
Registrar and the Transfer Agent.
Bonds issued under the Programme shall comprise a single class (the “Bonds”). Bonds will be issued in series on each Issue Date
(each a “Series”). Each Series may comprise one or more tranches (each a “Tranche”) with each Tranche pertaining to, among
other things, the currency, interest rate and maturity date of the relevant Tranche. Each Tranche may be zero-coupon, fixed rate,
floating rate, index-linked or instalment Bonds and may be denominated in sterling, euro or U.S. dollars (or in other currencies
subject to compliance with applicable laws).
The maximum aggregate nominal amount of all Bonds from time to time outstanding under the Programme will not exceed
£5,000,000,000 (or its equivalent in other currencies calculated as described in this Prospectus) unless increased from time to
time by the Issuer.
Details of the aggregate nominal amount, interest (if any) payable, the issue price and any other conditions not contained in this
Prospectus, which are applicable to each Tranche of Bonds will be set forth in a set of Final Terms, or in a separate prospectus
specific to such Tranche (a “Drawdown Prospectus”), see “Final Terms and Drawdown Prospectuses” below. In the case of a
Tranche of Bonds which is the subject of a Drawdown Prospectus, each reference in this Prospectus to information being
specified or identified in the relevant Final Terms shall be read and construed as a reference to such information being specified
or identified in the relevant Drawdown Prospectus, unless the context requires otherwise. In the case of Bonds to be admitted to
the Official List, the Final Terms will be delivered to the FCA on or before the relevant date of issue of the Bonds of such
Tranche.
Ratings ascribed to all of the Bonds reflect only the views of Standard & Poor’s Credit Market Services Europe Limited,
(“S&P”) and Fitch Ratings Ltd (“Fitch” and together with S&P, the “Rating Agencies”) and any further or replacement rating
agency appointed by the Issuer. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to
revision, suspension or withdrawal at any time by any one or all of the Rating Agencies. A suspension, reduction or withdrawal
of the rating assigned to any of the Bonds may adversely affect the market price of such Bonds.
Each of S&P and Fitch are established in the European Union and are registered under Regulation (EC) No. 1060/2009, as
amended (the “CRA Regulation”).
If any withholding or deduction for or on account of tax is applicable to the Bonds, payments on the Bonds will be made subject
to such withholding or deduction, without the Issuer being obliged to pay any additional amounts in consequence.
In the case of Bonds which are to be admitted to trading on a regulated market within the European Economic Area or offered to
the public in a member state of the European Economic Area in circumstances which require the publication of a prospectus
under the Prospectus Directive, the minimum specified denomination shall be EUR100,000 or not less than the equivalent of
EUR100,000 in any other currency as at the date of issue of such Bonds.
Bonds that are Bearer Bonds may be represented initially by one or more temporary global Bonds (each a “Temporary Global
Bond”) (which may be held either in new global note form or classic global note form), without interest coupons or principal
receipts, which will be deposited with a common depositary (in the case of Temporary Global Bonds in classic global note form)
or a common safekeeper (in the case of Temporary Global Bonds in new global note form) for Euroclear Bank SA/NV
(“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”) on or about the Issue Date of such
Tranche. Each such Temporary Global Bond will be exchangeable for a permanent global Bond (each a “Permanent Global
Bond”) or definitive Bonds in bearer form as specified in the relevant Final Terms following the expiration of 40 days after the
later of the commencement of the offering and the relevant Issue Date, upon certification as to non-U.S. beneficial ownership and
as may be required by U.S. tax laws and regulations, as described in the section “Forms of the Bonds”. Bearer Bonds are subject
to U.S. tax law requirements. Subject to certain exceptions, the Bearer Bonds may not be offered, sold or delivered within the
United States or to United States persons.
Bonds that are Registered Bonds will be represented on issue by beneficial interests in one or more global certificates (each a
“Regulation S Global Bond” and together with the Temporary Global Bonds and Permanent Global Bonds the “Global Bonds”
and each a “Global Bond”), in fully registered form, without interest coupons or principal receipts attached, which will be
deposited with, and registered in the name of, a common depositary (where not held under the New Safekeeping Structure) or a
common safekeeper (where held under the New Safekeeping Structure) for Euroclear and Clearstream, Luxembourg. Ownership
interests in the Regulation S Global Bonds will be shown on, and transfers thereof will only be effected through, records
maintained by Euroclear and Clearstream, Luxembourg and their respective participants. Bonds in definitive, certificated and
fully registered form will be issued only in the limited circumstances described in this Prospectus. In each case, purchasers and
transferees of Bonds will be deemed to have made certain representations and agreements. See “Subscription and Sale” below.
IMPORTANT NOTICES
Neither the delivery of this Prospectus nor the offering, sale or delivery of any Bond shall in any
circumstances imply that the information contained in this Prospectus concerning the Issuer or the
Obligors at any time subsequent to the date hereof or that any other information supplied in connection
with the Programme is correct or that there has been no adverse change in the financial position of the
Issuer or the Obligors as of any time subsequent to the date indicated in the document containing such
information. None of the Dealers, the Bond Trustee, the HS1 Security Trustee, the Issuer Security
Trustee or any of the Hedge Counterparties, the Original Initial ACF Lenders, the Agents, the Liquidity
Facility Providers or the Account Bank undertakes to review the financial condition or affairs of any of
the Issuer and the Obligors during the life of the Programme or the life of the arrangements
contemplated by this Prospectus or to advise any investor or potential investor in the Bonds of any
information coming to their attention.
This Prospectus is not intended to provide the basis of any credit or other evaluation and should not be
considered as a recommendation by the Issuer, any member of the Security Group, the Dealers, the
Bond Trustee, the Issuer Security Trustee or the HS1 Security Trustee that any recipient of this
Prospectus should purchase any of the Bonds issued under the Programme.
This Prospectus is to be read in conjunction with all documents which are incorporated herein by
reference. See “Documents Incorporated by Reference” below. This Prospectus (including any
financial statements that form part of this Prospectus by way of incorporation by reference) is not
intended to provide the basis of any credit or other evaluation and should not be considered as a
recommendation by any of the Issuer, the Obligors or the Dealers that any recipient of this Prospectus
(including any financial statements that form part of this Prospectus by way of incorporation by
reference) should purchase the Bonds. Each potential purchaser of Bonds should determine for itself
the relevance of the information contained in this Prospectus and its purchase of Bonds should be based
upon such investigation as it deems necessary.
The distribution of this Prospectus and the offering, sale or delivery of the Bonds in certain
jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are
required by the Issuer and the Dealers to inform themselves about and to observe any such restrictions.
This Prospectus does not constitute, and may not be used for the purposes of, an offer to or solicitation
by any person to subscribe or purchase any Bonds in any jurisdiction or in any circumstances in which
such an offer or solicitation is not authorised or is unlawful. None of the Issuer, the Obligors or the
Dealers represents that this Prospectus may be lawfully distributed, or that any Bonds may be lawfully
offered, in compliance with any applicable registration or other requirements in any such jurisdiction,
or pursuant to an exemption available thereunder, or assumes any responsibility for facilitating any
such distribution or offering. In particular, no action has been taken by the Issuer, the Obligors or the
Dealers which would permit a public offering of any Bonds or distribution of this Prospectus in any
jurisdiction where action for that purpose is required. Accordingly, no Bonds may be offered or sold,
directly or indirectly, and neither this Prospectus nor any advertisement or other offering material may
be distributed or published in any jurisdiction, except under circumstances that will result in
compliance with any applicable laws and regulations. Persons into whose possession this Prospectus or
any Bonds may come must inform themselves about, and observe, any such restrictions on the
distribution of this Prospectus and the offering and sale of Bonds. In particular, there are restrictions on
the distribution of this Prospectus and the offer or sale of Bonds in the United States, the European
Economic Area and the United Kingdom. See “Subscription and Sale” in this Prospectus.
Certain Tranches of Bonds issued in NGN form or under the NSS (each as defined in “Forms of the
Bonds” below) may be held in a manner which will allow Eurosystem eligibility. This simply means
that the Bonds are intended upon issue to be delivered to one of Euroclear or Clearstream, Luxembourg
as common safekeeper and does not necessarily mean that the Bonds will be recognised as eligible
collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem either
upon issue or at any or all times during their life. Such recognition will depend upon satisfaction of the
Eurosystem eligibility criteria.
The Bonds and the other financing arrangements described in this Prospectus to be entered into by the
Issuer will be obligations solely of the Issuer.
In connection with the issue of any Tranche of Bonds, one or more relevant Dealers (the “Stabilising
Manager”) (or persons acting on behalf of the Stabilising Manager(s)) may over-allot Bonds or effect
transactions with a view to supporting the market price of the Bonds at a level higher than that which
might otherwise prevail. However, there is no assurance that the Stabilising Manager(s) (or persons
acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action
may begin on or after the date on which adequate public disclosure of the terms of the offer of the
relevant Tranche of Bonds is made and, if begun, may be ended at any time, but it must end no later
than the earlier of 30 days after the issue date of the relevant Tranche of Bonds and 60 days after the
date of the allotment of the relevant Tranche of Bonds. Any stabilisation action or over-allotment must
be conducted by the relevant Stabilising Manager(s) (or person(s) acting on behalf of the Stabilising
Manager(s)) in accordance with all applicable laws and rules.
If you are in any doubt about the contents of this Prospectus you should consult your stockbroker, bank
manager, solicitor, accountant or other financial adviser. It should be remembered that the price of
securities and the income from them can go down as well as up.
Any individual intending to invest in any investment described in this Prospectus should consult
his or her professional adviser and ensure that he or she fully understands all the risks associated
with making such an investment and has sufficient financial resources to sustain any loss that
may arise from it.
Each potential investor in the Bonds must determine the suitability of that investment in light of its own
circumstances. In particular, each potential investor should:

have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the
merits and risks of investing in the Bonds and the information contained in this Prospectus or
any applicable Final Terms;

have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its
particular financial situation, an investment in the Bonds and the impact the Bonds will have
on its overall investment portfolio;

have sufficient financial resources and liquidity to bear all of the risks of an investment in the
Bonds, including Bonds with principal or interest payable in one or more currencies, or where
the currency for principal or interest payments is different from the potential investor’s
currency;

understand thoroughly the terms of the Bonds and be familiar with the behaviour of any
relevant indices and financial markets;

understand the nature of the Bonds and the impact of any regulations which may affect their
investment in the Bonds; and

be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for
economic, interest rate and other factors that may affect its investment and its ability to bear
the applicable risks.
The investment activities of certain investors are subject to legal investment laws and regulations, or
review or regulation by certain authorities. Each potential investor should consult its legal advisers to
determine whether and to what extent Bonds are legal investments for it, Bonds can be used as security
for indebtedness and other restrictions apply to its purchase or pledge of any Bonds. Financial
institutions should consult their legal advisers or the appropriate regulators to determine the appropriate
treatment of Bonds under any applicable risk-based capital or similar rules.
All references in this Prospectus to “pounds”, “sterling”, “£” or “GBP” are to the lawful currency of
the UK, all references to “$”, “U.S.$”, “U.S. dollars”, “dollars” and “USD” are to the lawful currency
of the United States of America, references to “C$” and “Canadian dollars” are to the lawful currency
of Canada, and references to “€”, “euro” or “EUR” are to the single currency introduced at the start of
the third stage of European Economic and Monetary Union pursuant to the Treaty establishing the
European Community, as amended, from time to time.
Forward-Looking Statements
This Prospectus contains various forward-looking statements regarding events and trends that speak
only as of the date hereof and are subject to risks and uncertainties that could cause the actual results
and financial position of the Issuer to differ materially from the information presented in this
Prospectus. When used in this Prospectus, the words “estimate”, “project”, “intend”, “anticipate”,
“believe”, “expect”, “should” and similar expressions, as they relate to the Issuer and its management
and the Obligors and their management, are intended to identify such forward-looking statements. The
Issuer and the Obligors do not undertake any obligation publicly to release the result of any revisions to
these forward-looking statements to reflect the events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events unless, as a result of such event or circumstance, the
Issuer is required under applicable law to publish a supplementary prospectus after the date hereof.
Responsibility Statements
This Prospectus comprises a base prospectus for the purposes of Article 5.4 of the Prospectus Directive
and for the purpose of giving information with regard to the Issuer and the Obligors which, according
to the particular nature of the Issuer, the Obligors and the Bonds, is necessary to enable investors to
make an informed assessment of the assets and liabilities, financial position, profits and losses and
prospects of the Issuer and the rights attaching to the Bonds.
The Issuer accepts responsibility for the information contained in this Prospectus and in any Final
Terms which complete this Prospectus for each Tranche of Bonds issued hereunder. To the best of the
knowledge and belief of the Issuer (having taken all reasonable care to ensure that such is the case), the
information contained in this Prospectus is in accordance with the facts and does not omit anything
which would be (i) likely to affect the import of such information or (ii) render such information
(including information in relation to the Obligors) inaccurate or misleading.
Helix Acquisition Limited (“Holdco”) accepts responsibility for the information set out in the sections
headed “Holdco” and “Business of HS1 – Selected Financial Information” (the “Holdco
Information”). To the best of the knowledge and belief of Holdco (having taken all reasonable care to
ensure that such is the case), the Holdco Information is in accordance with the facts and does not omit
anything which would (i) be likely to affect the import of such information or (ii) render the Holdco
Information inaccurate or misleading. Holdco does not accept responsibility for any other information
contained in this Prospectus. Save for the Holdco Information (on the basis described above), Holdco
has not separately verified the information contained in this Prospectus. No representation, warranty or
undertaking, express or implied, is made and no responsibility or liability is accepted by Holdco as to
the accuracy or completeness of any information contained in this Prospectus (other than the Holdco
Information) or any other information supplied in connection with the Programme or the distribution of
any Bonds issued under the Programme.
HS1 Limited (“HS1”) accepts responsibility for the information set out in the sections headed “Risk
Factors – Commercial and Business Risks”, “Risk Factors – Regulatory Risks”, “Risk Factors –
Financing Risks”, “Business of HS1”, “HS1”, “Holdco” and “Regulatory Framework and the Project
Documents” (the “HS1 Information”). To the best of the knowledge and belief of HS1 (having taken
all reasonable care to ensure that such is the case), the HS1 Information is in accordance with the facts
and does not omit anything which would (i) be likely to affect the import of HS1 information or (ii)
render the HS1 Information inaccurate or misleading. HS1 does not accept responsibility for any other
information contained in this Prospectus. Save for the HS1 Information (on the basis described above),
HS1 has not separately verified the information contained in this Prospectus. No representation,
warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by
HS1 as to the accuracy or completeness of any information contained in this Prospectus (other than the
HS1 Information) or any other information supplied in connection with the Programme or the
distribution of any Bonds issued under the Programme.
High Speed Rail Finance PLC (“HSRF”) accepts responsibility for the information set out in the
sections headed “HSRF” and “Summary of the Finance Documents – Initial PP Notes” (the “HSRF
Information”). To the best of the knowledge and belief of HSRF (having taken all reasonable care to
ensure that such is the case), the HSRF Information is in accordance with the facts and does not omit
anything which would (i) be likely to affect the import of HSRF Information or (ii) render the HSRF
Information inaccurate or misleading. HSRF does not accept responsibility for any other information
contained in this Prospectus. Save for the HSRF Information (on the basis described above), HSRF has
not separately verified the information contained in this Prospectus. No representation, warranty or
undertaking, express or implied, is made and no responsibility or liability is accepted by HSRF as to
the accuracy or completeness of any information contained in this Prospectus (other than the HSRF
Information) or any other information supplied in connection with the Programme or the distribution of
any Bonds issued under the Programme.
The Issuer has accurately reproduced the information contained in the section entitled “Description of
Initial Liquidity Facility Providers” (the “ILFP Information”) from information provided to it by the
Initial Liquidity Facility Providers but it has not independently verified such information. So far as the
Issuer is aware and is able to ascertain from information published by the Initial Liquidity Facility
Providers, no facts have been omitted which would render the ILFP Information inaccurate or
misleading.
No person has been authorised to give any information or to make representations other than the
information or the representations contained in this Prospectus in connection with the issue of the
Bonds, any member of the Security Group, or the offering or sale of the Bonds and, if given or made,
such information or representations must not be relied upon as having been authorised by or on behalf
of the Issuer, the Security Group, the HS1 Security Trustee, the Bond Trustee, the Issuer Security
Trustee, the directors of the Issuer, the Dealers, any of the Hedge Counterparties, the Original Initial
ACF Finance Parties, the Agents, the Liquidity Facility Providers or the Account Bank. Neither the
delivery of this Prospectus nor any offering or sale of Bonds made in connection herewith shall, under
any circumstances, constitute a representation or create any implication that there has been no change
in the affairs of the Issuer or any member of the Security Group since the date hereof. Unless otherwise
indicated herein, all information in this Prospectus is given as of the date of this Prospectus. This
Prospectus does not constitute an offer of, or an invitation by, or on behalf of, the Issuer, the Obligors
or any Dealer to subscribe for, or purchase, any of the Bonds.
Save for the Issuer, HS1 and HSRF which have only verified the information for which they
specifically accept responsibility as described in the preceding paragraphs (other than the ILFP
Information), no other party has separately verified the information contained in this Prospectus.
Accordingly, no representation, warranty or undertaking, express or implied, is made and no
responsibility or liability is accepted by any of the Dealers, the Bond Trustee, the Issuer Security
Trustee, the HS1 Security Trustee, any of the Hedge Counterparties, the Original Initial ACF Finance
Parties, the Agents, the Liquidity Facility Providers or the Account Bank as to the accuracy or
completeness of the information contained in this Prospectus or any other information supplied in
connection with the Bonds or their distribution. The statements made in this paragraph are without
prejudice to the responsibilities of the Issuer. Each person receiving this Prospectus acknowledges that
such person has not relied on the Dealers, the Bond Trustee, the HS1 Security Trustee, the Issuer
Security Trustee, any of the Hedge Counterparties, the Original Initial ACF Finance Parties, the
Agents, the Liquidity Facility Providers or the Account Bank to review the financial condition or
affairs of any of the Issuer or the Obligors, nor on any person affiliated 1 with any of them in connection
with its investigation of the accuracy of such information or its investment decision.
1
In relation to The Royal Bank of Scotland plc, the term “person affiliated” shall not include (a) the UK government or any
member or instrumentality thereof, including Her Majesty's Treasury and UK Financial Services Investments Limited (or
any directors, officers, employees or entities thereof) or (b) any persons or entities controlled by or under common control
None of the Issuer, the Obligors, the Dealers, the Bond Trustee, the Issuer Security Trustee, the HS1
Security Trustee or the Other Parties accept responsibility to investors for the regulatory treatment of
their investment in the Bonds (including (but not limited to) whether any transaction or transactions
pursuant to which Bonds are issued from time to time is or will be regarded as constituting a
“securitisation” for the purposes of: (i) Regulation (EU) 575/2013 on prudential requirements for credit
institutions and investment firms and amending Regulation (EU) 648/2012 (the “CRR”); or (ii)
Directive 2006/48/EC, as the same is referenced in Directive 2011/61/EU on Alternative Investment
Fund Managers and Amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No
1060/2009 and (EU) No 1095/2010 (the “AIFMD”) and the application of (iii) Articles 404 to 410 of
the CRR, together with the final regulatory technical standards and implementing technical standards to
the CRR published by the European Banking Authority pursuant to Articles 410(2) and 410(3) of the
CRR and any other applicable guidance, technical standards or related documents published by the
European Banking Authority (including any successor or replacement agency or authority) and any
delegated regulations of the European Commission (and in each case including any amendment or
successor thereto) (together, the “CRR Retention Requirements”) and (iv) Article 17 of the AIFMD,
as implemented by Section 5 of the European Union Commission Delegated Regulation (EU) No.
231/2013 of 19 December 2012 supplementing the AIFMD, including any guidance published in
relation thereto and any implementing laws or regulations in force in any Member State of the
European Union (together, the “AIFMD Retention Requirements” and, together with the CRR
Retention Requirements, the “Risk Retention Requirements”)), respectively, to any such transaction)
in any jurisdiction or by any regulatory authority. If the regulatory treatment of an investment in the
Bonds is relevant to an investor's decision whether or not to invest, the investor should make its own
determination as to such treatment and for this purpose seek professional advice and consult its
regulator. Prospective investors are referred to the “Risk Factors – Issuer and Bond Considerations –
Changes to the risk weighted asset framework” section of this Prospectus for further information.
Supplementary Prospectus
The Issuer has undertaken, in connection with the admission of the Bonds to the Official List and to
trading on the Regulated Market of any issue of Bonds, that, if there shall occur between the time when
this Prospectus is approved and the final closing of any offer of Bonds to the public, or as the case may
be, the time when trading on the regulated market begins, any significant new factor, material mistake
or inaccuracy relating to information included in this Prospectus for the purpose of making an informed
assessment of the assets and liabilities, financial position, profits and losses and prospects of the Issuer,
the Obligors and the rights attaching to the Bonds, the Issuer shall prepare a supplement to this
Prospectus or publish a replacement prospectus for use in connection with any subsequent issue by the
Issuer of Bonds and will supply to each Dealer and the Bond Trustee such number of copies of such
supplement hereto or replacement prospectus as such Dealer and Bond Trustee may reasonably request.
The Issuer will also supply to the FCA such number of copies of such supplement hereto or
replacement prospectus as may be required by the UK Listing Authority and will make copies
available, free of charge, upon oral or written request, at the specified offices of the Paying Agents and
in respect of Registered Bonds, the Registrar and the Transfer Agent.
Each of the Issuer and the Obligors has undertaken to the Dealers in the Dealership Agreement (as
defined in “Subscription and Sale”) to comply with section 87G of the FSMA.
If the terms of the Programme are modified or amended in a manner which would make this
Prospectus, as so modified or amended, inaccurate or misleading, in any material respect, the Issuer
shall prepare a supplement to this Prospectus or publish a replacement prospectus for use in connection
with any subsequent issue by the Issuer of Bonds, provided that, if any amendment is made to the
Conditions, the Issuer shall prepare either a Drawdown Prospectus or a new replacement Prospectus,
rather than a supplement to this Prospectus.
If at any time the Issuer shall be required to prepare a supplementary prospectus pursuant to section
87G of the FSMA, the Issuer shall prepare and make available an appropriate supplement to this
with the UK government or instrumentality thereof (including Her Majesty's Treasury and UK Financial Services
Investments).
Prospectus or a further prospectus which, in respect of any subsequent issue of Bonds to be listed on
the Official List and admitted to trading on the Regulated Market, shall constitute a supplementary
prospectus as required by the UK Listing Authority and section 87G of the FSMA.
Final Terms and Drawdown Prospectuses
In this section the expression “necessary information” means, in relation to any Tranche of Bonds, the
information necessary to enable investors to make an informed assessment of the assets and liabilities,
financial position, profits and losses and prospects of the Issuer and the Obligors and of the rights
attaching to the Bonds. In relation to the different types of Bonds which may be issued under the
Programme, the Issuer has included in this Prospectus all of the necessary information except for
information relating to the Bonds which is not known at the date of this Prospectus and which can only
be determined at the time of an individual issue of a Tranche of Bonds.
Any information relating to the Bonds which is not included in this Prospectus and which is required in
order to complete the necessary information in relation to a Tranche of Bonds will be contained either
in the relevant Final Terms or in a Drawdown Prospectus. For a Tranche of Bonds which is the subject
of Final Terms, those Final Terms will, for the purposes of that Tranche only, complete this Prospectus
and must be read in conjunction with this Prospectus. The terms and conditions of the Bonds as set out
herein (the “Conditions”) as completed by Part A of the relevant Final Terms are the terms and
conditions applicable to any particular Tranche of Bonds which is the subject of Final Terms.
The Conditions as completed by the relevant Drawdown Prospectus are the terms and conditions
applicable to any particular Tranche of Bonds which is the subject of a Drawdown Prospectus. Each
Drawdown Prospectus will be constituted by a single document containing the necessary information
relating to the Issuer and the relevant Tranche(s) of Bonds.
Documents Incorporated by Reference
This Prospectus should be read and construed in conjunction with:
(a) the Terms and Conditions of the Bonds as contained at pages 165 to 210 of the prospectus
of High Speed Rail Finance (1) PLC £5,000,000,0000 Multicurrency Programme for the
Issuance of Bonds dated 25 January 2013;
(b) the audited financial statements for the Issuer for the financial period that started on the
date of its incorporation (being 3 January 2013) and ended on 31 March 2014 together with
the audit report thereon;
(c) the audited consolidated financial statements for Holdco for the Financial Years ended 31
March 2014 and 31 March 2013, in each case, together with the audit report thereon;
(d) the unaudited consolidated interim financial statements for Holdco for the six months
ended 30 September 2014;
(e) the audited financial statements for HS1 for the Financial Years ended 31 March 2014 and
31 March 2013, in each case, together with the audit report thereon;
(f) the audited financial statements for HSRF for the Financial Years ended 31 March 2014
and 31 March 2013, in each case, together with the audit report thereon,
which have been previously published or are published simultaneously with this Prospectus and which
have been approved by the FCA or filed with it.
Such documents shall be incorporated in and form part of this Prospectus, save that any statement
contained in a document which is incorporated by reference herein shall be modified or superseded for
the purpose of this Prospectus to the extent that a statement contained herein modifies or supersedes
such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or
superseded shall not, except as so modified or superseded, constitute a part of this Prospectus.
Copies of documents incorporated by reference in this Prospectus may be obtained (without charge)
from the website of the Regulatory News Service operated by the London Stock Exchange at
http://www.londonstockexchange.com/exchange/prices-and-news/news/market-news/market-newshome.html.
CONTENTS
OVERVIEW ........................................................................................................................................... 11
RISK FACTORS .................................................................................................................................... 27
BUSINESS OF HS1 ............................................................................................................................... 56
HS1 ......................................................................................................................................................... 82
HSRF ...................................................................................................................................................... 83
HOLDCO ............................................................................................................................................... 85
THE ISSUER ......................................................................................................................................... 87
SUMMARY OF THE COMMON DOCUMENTS................................................................................ 90
SUMMARY OF THE FINANCE DOCUMENTS ............................................................................... 139
SUMMARY OF THE CREDIT AND LIQUIDITY SUPPORT DOCUMENTS ................................ 148
SUMMARY OF THE ISSUER TRANSACTION DOCUMENTS ..................................................... 150
CASHFLOWS ...................................................................................................................................... 159
USE OF PROCEEDS ........................................................................................................................... 170
TERMS AND CONDITIONS OF THE BONDS................................................................................. 171
FORMS OF THE BONDS ................................................................................................................... 217
BOOK-ENTRY CLEARANCE PROCEDURE ................................................................................... 223
PRO FORMA FINAL TERMS ............................................................................................................ 225
DESCRIPTION OF INITIAL LIQUIDITY FACILITY PROVIDERS ............................................... 235
TAX CONSIDERATIONS .................................................................................................................. 237
SUBSCRIPTION AND SALE ............................................................................................................. 241
GENERAL INFORMATION............................................................................................................... 244
REGULATORY FRAMEWORK AND THE PROJECT DOCUMENTS .......................................... 248
GLOSSARY ......................................................................................................................................... 308
INDEX OF DEFINED TERMS ........................................................................................................... 363
Page 10
OVERVIEW
The following does not purport to be complete and is taken from, and is qualified in its entirety by, the
remainder of this Prospectus.
HS1 and the HS1
Concession
HS1 is the operator of the high speed rail link running approximately 109
kilometres between St Pancras International station in London and the
Channel Tunnel portal in Kent (also known as the Channel Tunnel Rail
Link) (“High Speed 1”) pursuant to a Concession Agreement for High
Speed 1 dated 14 August 2009, as amended on 16 July 2010 and 27 August
2010 between the Secretary of State for Transport (the “Secretary of
State”) and HS1 (the “Concession Agreement”).
Regulated Business
HS1 operates within a regulatory framework which is effected through a
combination of contractual rights (through the Concession Agreement and
other contracts) and statutory duties (through primary and secondary
legislation) that are in each case conferred on the Office of Rail Regulation
(the “ORR”) and/or the Secretary of State. The enforcement procedure that
the ORR must follow is set out in the Concession Agreement. The ORR
also performs an economic regulatory function under the Concession
Agreement, agreeing or determining aspects of the track access charges that
HS1 can levy from train operating companies (“TOCs”).
Sources of revenue
HS1’s primary source of revenue is the charges that it levies for granting
access to High Speed 1 to TOCs which wish to operate rolling stock and
rail services on High Speed 1 (principally passenger TOCs). In addition,
HS1 receives income from the unregulated parts of its business (including
the rental of retail space and the sale of advertising space (predominately at
St Pancras International station (“St Pancras International”)) and car
parking income (predominately at Ebbsfleet International station
(“Ebbsfleet International”)). Part of this revenue is used to service the
HS1 Senior Debt. As at the date of this Prospectus, HS1 has granted certain
TOCs, Eurostar International Limited (“EIL”) and London & South
Eastern Railways Limited (“LSER”) access to High Speed 1. EIL operates
international passenger rail services and LSER operates domestic passenger
rail services as part of the South Eastern passenger rail franchise on High
Speed 1. The framework track access agreements (“FTAAs”) entered into
with each of EIL and LSER on 14 August 2009 and 13 March 2014
respectively and amended, in the case of EIL, on 17 February 2011, 16
February 2012, 6 December 2012 and on or about the date of this
Prospectus (the “EIL FTAA”) and, in the case of LSER, on 11 December
2014, 8 January 2015 and on or about the date of this Prospectus (the
“LSER FTAA”) set out the terms on which HS1 has granted the TOCs
access to High Speed 1. HS1 has also granted the TOCs access to St
Pancras International, Ebbsfleet International, Stratford International
station (“Stratford”) (in the case of LSER only) and Ashford International
station (“Ashford”) (in the case of EIL only) pursuant to separate station
access agreements (each a “Station Access Agreement”). DB Schenker
operates night freight services over High Speed 1 between London and
Poland and London and Spain.
Key suppliers
HS1 has entered into an operator agreement with Network Rail (High
Speed) Limited (“NR(HS)”) dated 27 June 2002 (as amended and restated
on 28 September 2003, 14 May 2010, 12 December 2010 and 3 April 2012)
pursuant to which NR(HS) has agreed to provide operational, maintenance,
renewal and replacement services in respect of that part of High Speed 1
which relates to High Speed 1 infrastructure (as amended, restated or
supplemented from time to time) (the “Operator Agreement”). HS1 has
also appointed NR(HS) to be the operator of St Pancras International,
Stratford International and Ebbsfleet International under certain Station
Concession Agreements. In September 2013, HS1 awarded the facilities
management of Ashford International Station to Mitie Technical Facilities
Management Limited (“Mitie”) under a Station Management Agreement
relating to Ashford International Station dated 30 August 2013 between
HS1 Limited and Mitie Technical Facilities Management Limited.
HS1 has the benefit of various master agreements and distribution
agreements with UK Power Networks Services (Contracting) Limited and
UK Power Network Services Holdings Limited (the “UKPN Parties”)
which govern (in the case of the master agreements) the removal,
replacement, modification, extension, relocation and variation of the
electricity distribution systems and (in the case of the distribution
agreements) the operation, maintenance, repair and renewal, as well as
payment and performance obligations, relating to each electricity
distribution system for High Speed 1 (the “UKPN Agreements”).
Ownership
The ultimate shareholders of HS1 are OMERS Administration Corporation
(“OMERS”) (as to 50 per cent.) and the Ontario Teachers’ Pension Plan
Board (“OTPP”) (as to 50 per cent.). There is a shareholders’ agreement in
place governing the exercise of the rights in HS1. HS1 was purchased by
the shareholders on 1 November 2010.
The Programme
The Issuer has established the Programme to raise finance in the capital
markets (i) to enable the refinancing of existing indebtedness or (in
accordance with the terms of the Transaction Documents) other Financial
Indebtedness of HS1; and/or (ii) towards fees, costs, expenses, stamp,
registration and other taxes incurred in connection with the above; and/or
(iii) for the general corporate purposes of the Obligors. The Bonds issued
from the Programme form and will form part of HS1’s capital structure
which also incorporates revolving bank facilities, medium term bank debt,
private placement debt and risk management hedging.
The Issuer
The Issuer has been incorporated as a special purpose company for the
purpose of issuing asset backed securities under the Programme described
in this Prospectus. For further details of the Issuer, see the section entitled
“The Issuer”.
The Initial IBLA and
Use of Proceeds
On the Initial Issue Date, HS1 and the Issuer entered into an
issuer/borrower loan agreement (the “Initial IBLA”) pursuant to which the
Issuer on-lent the proceeds of the Bonds issued on the Initial Issue Date and
will on-lend the proceeds of the Bonds fungible with a Tranche of the
Bonds issued on the Initial Issue Date, to HS1 by way of an advance.
HS1 has used and will use the proceeds of the Advances made under the
Initial IBLA (a) to refinance HS1’s existing indebtedness or (in accordance
with the terms of the Transaction Documents) other Financial Indebtedness
of HS1; and/or (b) towards fees, costs, expenses, stamp, registration and
other taxes incurred in connection with the above; and/or (c) for the general
corporate purposes of the Obligors.
On or prior to any further Issue Date (excluding the Initial Issue Date) in
which the Issuer issues Bonds, the proceeds of which are intended to be onlent to HS1, which are not fungible with an existing Tranche of Bonds, then
a new IBLA will be entered into by the Issuer and HS1 on substantially the
same terms as set out above (these subsequent IBLAs along with the Initial
IBLA being the “IBLAs” and each an “IBLA”).
The maturity date, redemption premium, interest rates and payment dates
with respect to each advance made by the Issuer to HS1 under an IBLA (an
“Advance”) including any sub-advances (“Sub-Advance”) will correspond
to the terms of the corresponding Tranche of Bonds and any related Issuer
Hedging Agreement.
The Issuer’s obligations to repay principal of and pay interest on the Bonds
are intended to be met primarily from the payments of principal and interest
received from HS1 under each IBLA and payments received under any
related Issuer Hedging Agreement. The Obligors’ assets which secure
HS1’s obligations to pay under the IBLAs, have characteristics that
demonstrate capacity to produce funds to service any payments due and
payable under the IBLAs and consequently, on the Bonds.
Failure of HS1 to repay an Advance on the maturity date in respect of such
IBLA will be a Loan Event of Default, although it will not, of itself,
constitute a Bond Event of Default (as defined below).
For further details of the Initial IBLA, see the section entitled “Summary of
the Finance Documents – Initial IBLA”.
The Initial Authorised
Credit Facilities
Agreement
On 14 February 2013, HS1 entered into a senior loan agreement (as
amended from time to time, the “Initial Authorised Credit Facilities
Agreement”) with, amongst others, the Initial ACF Arrangers and the
Original Initial ACF Lenders. The facilities provided under the Initial
Authorised Credit Facilities Agreement were: a senior term facility A of up
to £230,000,000, a senior term facility B of up to £85,000,000 (together the
“Senior Term Facilities”) and a working capital revolving credit facility of
up to £65,000,000 (the “WC Facility”).
HS1 used the sums advanced under the Senior Term Facilities (a) to
refinance the Existing Indebtedness; (b) towards fees, costs, expenses and
stamp, registration and other taxes incurred in connection with the above;
and (c) for the general corporate purposes of the Obligors.
HS1 used the sums advanced under the WC Facility to fund the general
corporate working capital requirements of the Obligors.
The Initial Authorised Credit Facilities Agreement is intended to be
amended and restated on or around 17 April 2015. For further details of the
Senior Term Facilities, see the section entitled “Summary of the Finance
Documents – Initial Authorised Credit Facilities Agreement”.
Private Placement
Notes
On 29 October 2012, HSRF issued (i) U.S.$530,000,000 3.79% Series A1
Guaranteed Senior Secured Fixed Rate Notes due 30 March 2028 (the
“Series A1 Notes”), (ii) U.S$20,000,000 3.79% Series A2 Guaranteed
Senior Secured Fixed Rate Notes due 30 March 2028 (the “Series A2
Notes” and, together with the Series A1 Notes, the “Series A Notes”), (iii)
₤70,000,000 4.21% Series B1 Guaranteed Senior Secured Fixed Rate Notes
due 30 March 2031 (the “Series B1 Notes”), (iv) ₤47,000,000 4.21% Series
B2 Guaranteed Senior Secured Fixed Rate Notes due 30 March 2031 (the
“Series B2 Notes” and, together with Series B1 Notes, the “Series B
Notes”), (v) ₤58,000,000 Series C Guaranteed Senior Secured Floating
Rate Notes due 30 March 2031 (the “Series C Notes”) and (vi)
₤50,000,000 4.72% Series D Guaranteed Senior Secured Fixed Rate Notes
due 30 March 2036 (the “Series D Notes” and, together with the Series A
Notes, the Series B Notes and the Series C Notes, and any other privately
placed notes issued by HSRF from time to time under the note purchase
agreement dated 29 October 2012 (as amended and restated from time to
time, the “Initial PP Note Purchase Agreement”) between Holdco, HS1,
HSRF and the purchasers listed in Schedule A thereto (the “Initial PP
Noteholders”), the “Initial PP Notes”) which were distributed by way of a
private placement. The Initial PP Notes were issued in minimum
denominations of U.S.$200,000. HSRF may, subject to the terms of the
CTA and the STID, issue further private placement notes in future (together
with the Initial PP Notes, the “PP Notes”) which are also Authorised Credit
Facilities. The PP Notes, together with their related hedging arrangements,
are subject to the terms of the CTA and the STID (as defined below).
For further details of the Initial PP Notes and the Initial PP Note Purchase
Agreement, see the section entitled “Summary of the Finance Documents –
Initial PP Notes”.
CTA
On 14 February 2013, each of the Obligors and the HS1 Secured Creditors
entered into a common terms agreement (as amended from time to time, the
“CTA”). The CTA sets out the representations, covenants (positive,
negative and financial), Trigger Events and Loan Events of Default which
apply to the HS1 Senior Debt including any Authorised Credit Facility.
“Authorised Credit Facility” means any facility agreement entered into by
HS1 and/or any other Obligor for HS1 Senior Debt as permitted by the
terms of the CTA the providers of which are parties to or have acceded to
the STID and the CTA, and includes, without limitation, the Initial IBLA
and all future IBLAs, the WC Facility, the Senior Term Facilities, the
Liquidity Facility, the HS1 Hedging Agreements, the PP Notes, each PP
Note Purchase Agreement and (A) any fee letter or commitment letter
entered into in connection with the foregoing facilities or agreements or the
transactions contemplated in the foregoing facilities and (B) any other
document (not being a Common Document) that has been entered into in
connection with the foregoing facilities or agreements or the transactions
contemplated thereby that has been designated as a document that should
be deemed to be an Authorised Credit Facility for the purposes of this
definition by the parties thereto (including at least one Obligor).
For further details of the CTA, see the section entitled “Summary of the
Common Documents – Common Terms Agreement”.
Security Trust and
Intercreditor Deed
On 14 February 2013, each of the Obligors and the HS1 Secured Creditors
entered into a security trust and intercreditor deed (as amended and/or
supplemented from time to time, the “STID”). The STID sets out the
intercreditor arrangements in respect of the Security Group (the
“Intercreditor Arrangements”). The Intercreditor Arrangements bind
each of the HS1 Secured Creditors and each of the Obligors.
The purpose of the Intercreditor Arrangements is to regulate, among other
things, (a) the claims of the HS1 Secured Creditors; (b) the exercise,
acceleration and enforcement of rights by the HS1 Secured Creditors;
(c) the rights of the HS1 Secured Creditors to instruct the HS1 Security
Trustee; (d) the Entrenched Rights and the Reserved Matters of the HS1
Secured Creditors and (e) the giving of consents and waivers and the
making of modifications to the Common Documents.
The Intercreditor Arrangements also provide for the ranking in point of
payment of the claims of the HS1 Secured Creditors both before and after
the delivery of a Loan Acceleration Notice and for the subordination of all
claims of Subordinated Intragroup Creditors or claims among the Security
Group.
For further details of the STID, see the section entitled “Summary of the
Common Documents – Security Trust and Intercreditor Deed”.
Principal Security for
HS1’s Obligations
The HS1 Senior Debt is secured pursuant to a security agreement dated 14
February 2013 (as amended from time to time, the “HS1 Security
Agreement”) between, among others, the Obligors and Lloyds Bank plc
(in its capacity as security trustee for the HS1 Secured Creditors (as
defined below) (the “HS1 Security Trustee”).
Additionally, Holdco has provided a guarantee of HS1’s and HSRF’s
obligations under the HS1 Senior Debt and HS1 and HSRF each provided
a guarantee of the other’s obligations under the HS1 Senior Debt.
For further details of the security for the obligations of the Obligors under
the Finance Documents, see the section entitled “Summary of the Finance
Documents – HS1 Security Agreement”.
Financing Direct
Agreements
HS1 and the HS1 Security Trustee have entered into agreements (the
“Financing Direct Agreements”) with other relevant third parties
pursuant to which such third parties grant, inter alia, certain rights to the
HS1 Security Trustee with respect to underlying contracts between such
third parties and HS1, in each case, as amended, novated or supplemented
from time to time:
(a)
the Secretary of State in respect of the Concession Agreement, the
Domestic Underpinning Agreement and the HS1 Leases;
(b)
Network Rail and NRIL in respect of the Operator Agreement;
(c)
the UKPN Parties in respect of the power distribution
arrangements;
(d)
LSER in respect of the LSER Track Access Agreement and
related Station Access Agreements; and
(e)
EIL in respect of the EIL Track Access Agreement and related
Station Access Agreements.
For further details of the Financing Direct Agreements, see the section
entitled “Overview of the Project Documents”.
Hedging
Pursuant to the CTA, the Security Group and the Issuer are subject to a
hedging policy (the “Hedging Policy”) such that (unless the Hedging
Policy requires or permits otherwise) at all times HS1 and the Issuer are
hedged as regards (i) interest rates and inflation, so that a minimum of 70
per cent. of the total outstanding Relevant Debt is hedged pursuant to a
Hedging Transaction and, at all times, the aggregate notional amount of
Hedging Transactions does not exceed 110 per cent. of the total Relevant
Debt and (ii) all currency risk in respect of foreign currency denominated
debt instruments.
For the purposes of the above, “Relevant Debt” means the principal
amount outstanding under the Initial Authorised Credit Facilities
Agreement, each IBLA, and the PP Notes or any debt under any equivalent
Authorised Credit Facility (other than any WC Facility, Liquidity Facility
and the HS1 Hedging Agreements) from time to time.
For further details of the Hedging Policy, see the section entitled
“Summary of the Common Documents – Common Terms Agreement –
Hedging Policy”.
The Hedging Policy does not apply to any Treasury Transaction entered
into by members of the Security Group in the ordinary course of business
and for non-speculative purposes where the counterparty does not accede
to the STID.
For further details of the Treasury Transactions, see the section entitled
“Summary of the Common Documents – Common Terms Agreement –
Hedging Policy”.
Liquidity Facility
HS1 and the Issuer have the benefit of a liquidity facility provided pursuant
to a liquidity facility agreement (as amended from time to time, the
“Liquidity Facility Agreement”) with certain lenders (each a “Liquidity
Facility Provider”) and together the “Liquidity Facility Providers”).
The facility provided pursuant to the Liquidity Facility Agreement
provides liquidity support in respect of scheduled payments of
amortisation, interest and fee amounts payable in respect of the Senior
Term Facilities, Bonds, the PP Notes, Hedging Agreements and certain
other payments due to the HS1 Secured Creditors and the Issuer Secured
Creditors.
The Liquidity Facility Agreement is intended to be amended and restated
on or around 17 April 2015.
Governing law
The Common Documents and the Issuer Transaction Documents are
governed by English law.
TRANSACTION STRUCTURE DIAGRAM
OMERS
OTPP
50%
50%
Helix Holdings
Limited
Helix Midco
Limited
Helix Bufferco
Limited
Secured ring fence
Helix Acquisition
Limited (HoldCo)
Guarantee/
Security
Hedge
Counterparties
Borrower
Security Trustee
Guarantee/
Security
Guarantee/
Security
s
tn
em
tc e
e e
ri D rg
a
PP Noteholders
Liquidity Facility
HSRF
(PP Note Issuer)
IBLA
HS1 (Borrower)
Direct agreements,
domestic underpinning &
relevant operational
agreements
Secretary of State/
NR (CTRL)/UKPN/TOCs
High Speed Rail
Finance (1) PLC
(Issuer)
Bondholders
Bonds
Security
Bank debt
Working capital
facility provider
Issuer security
trustee
Bond trustee
KEY CHARACTERISTICS OF THE PROGRAMME
Issuer
High Speed Rail Finance (1) PLC, a public company incorporated in England
and Wales with limited liability (registration number 08346271) having its
registered office at 12th Floor, One Euston Square, 40 Melton Street, London
NW1 2FD. The shares of the Issuer are 100 per cent. legally and beneficially
owned by Holdco. The Issuer is tax resident in the United Kingdom.
HS1 / the Borrower
HS1 Limited, a private company incorporated in England and Wales with
limited liability (registration number 03539665), having its registered office at
12th Floor, One Euston Square, 40 Melton Street, London NW1 2FD. The
shares of HS1 are 100 per cent. legally and beneficially owned by Holdco.
HS1 is tax resident in the United Kingdom.
HSRF
High Speed Rail Finance PLC, a public company incorporated in England and
Wales with limited liability (registration number 08196684) having its
registered office at 12th Floor, One Euston Square, 40 Melton Street, London
NW1 2FD. The shares of HSRF are 100 per cent. legally and beneficially
owned by Holdco. HSRF is tax resident in the United Kingdom.
Holdco
Helix Acquisition Limited, a private company incorporated in England and
Wales with limited liability (registration number 07428859) having its
registered office at 12th Floor, One Euston Square, 40 Melton Street, London
NW1 2FD. The shares of Holdco are 100 per cent. legally and beneficially
owned by Helix Bufferco Limited. Holdco is tax resident in the United
Kingdom.
Security Group
Holdco, HS1, HSRF and any other Subsidiary of any member of the Security
Group (other than the Issuer) which accedes, inter alia, to the CTA and the
STID in accordance with the terms of the Transaction Documents (the
“Security Group”).
Security Group
Agent
HS1 (the “Security Group Agent”).
Guarantors of HS1
Senior Debt
Each Obligor guarantees the obligations of each other Obligor under the HS1
Senior Debt to the HS1 Security Trustee. None of the Obligors guarantee the
obligations of the Issuer under the Bonds.
Obligors
HS1, HSRF and Holdco and any other person who accedes to, inter alia, the
CTA and the STID as an Obligor in accordance with the terms of the
Transaction Documents (each an “Obligor” and together the “Obligors”).
Dealers
BNP Paribas, Lloyds Bank plc, The Royal Bank of Scotland plc, National
Australia Bank Limited and Scotiabank Europe plc.
Bondholders
Holders of the Bonds issued by the Issuer from time to time (each a
“Bondholder” and together the “Bondholders”).
Original Initial
ACF Lenders
The original lenders under the Senior Term Facilities and the WC Facility (the
“Original Initial ACF Lenders”).
Initial ACF Agent
Lloyds Bank plc.
PP Noteholders
Those institutions which hold PP Notes issued by HSRF from time to time (the
“PP Noteholders”) (including the Initial PP Noteholders).
Authorised Credit
The “Authorised Credit Providers” comprise lenders or other providers of
Providers
credit or financial accommodation under any Authorised Credit Facility from
time to time (including the Issuer, the Original Initial ACF Finance Parties, the
Initial PP Noteholders and the HS1 Hedge Counterparties).
HS1 Secured
Creditors
The secured creditors of the Obligors (the “HS1 Secured Creditors”)
comprise the HS1 Security Trustee (in its own capacity and on behalf of the
other HS1 Secured Creditors), the Issuer, the Original Initial ACF Finance
Parties, each HS1 Hedge Counterparty, each Liquidity Facility Provider, the
Liquidity Facility Agent, the Account Bank, any replacement Cash Manager
who is not a member of the Security Group, the PP Noteholders, each other
Authorised Credit Provider, each PP Note Secured Creditor Representative,
any Additional HS1 Secured Creditors and any other entity which provides
funding to the Obligors and accedes to the STID and CTA from time to time,
and “HS1 Secured Creditor” means any one of them.
Issuer Secured
Creditors
The secured creditors of the Issuer (the “Issuer Secured Creditors”) comprise
the Bondholders, the Couponholders, the Bond Trustee (for itself and on behalf
of the Bondholders), the Issuer Security Trustee (for itself and on behalf of the
other Issuer Secured Creditors), the Issuer Hedge Counterparties, the Account
Bank, the Principal Paying Agent, the Agent Bank, the Transfer Agent, the
Registrar, the Calculation Agent, the Cash Manager and the Liquidity Facility
Providers and the Issuer Corporate Services Provider.
HS1 Security
Trustee
Lloyds Bank plc (or any successor trustee appointed pursuant to terms of the
HS1 Security Agreement, the STID and any other document evidencing or
creating security over any asset of an Obligor to secure any obligation of any
Obligor to an HS1 Secured Creditor in respect of the HS1 Senior Debt (the
“HS1 Security Documents”)) acts as security trustee for itself and on behalf
of the HS1 Secured Creditors and holds, and is entitled to enforce, the security
provided by the Obligors subject to the terms of the HS1 Security Documents.
Bond Trustee
Deutsche Trustee Company Limited (or any successor trustee appointed
pursuant to the Bond Trust Deed (as defined below)) is as Bond Trustee for
and on behalf of the Bondholders.
Issuer Security
Trustee
Deutsche Trustee Company Limited (or any successor trustee appointed
pursuant to the Issuer Deed of Charge (as defined below)) is security trustee
(the “Issuer Security Trustee”) for itself and on behalf of the Issuer Secured
Creditors and holds, and is entitled to enforce, the Issuer Security subject to the
terms of the Issuer Deed of Charge.
Hedge
Counterparties
Each Issuer Hedge Counterparty or, as the context may require, each HS1
Hedge Counterparty (each a “Hedge Counterparty”, and together the “Hedge
Counterparties”).
HS1 Hedge
Counterparties
Any counterparty to any HS1 Hedging Agreement (each an “HS1 Hedge
Counterparty” and together the “HS1 Hedge Counterparties”) from time to
time.
An “HS1 Hedging Agreement” means the ISDA Master Agreement, the
schedule thereto and each confirmation, in each case to be entered into
pursuant to the Hedging Policy between HS1 and a HS1 Hedge Counterparty
and the transactions effected thereunder.
Issuer Hedge
Counterparties
Any counterparty to any Issuer Hedging Agreement (each an “Issuer Hedge
Counterparty” and together the “Issuer Hedge Counterparties”) from time
to time.
An “Issuer Hedging Agreement” means the ISDA Master Agreement, the
schedule thereto and each confirmation, in each case to be entered into
pursuant to the Hedging Policy between the Issuer and an Issuer Hedge
Counterparty and the transactions effected thereunder.
Account Bank
The Royal Bank of Scotland plc (or any successor account bank appointed
pursuant to the Account Bank Agreement) (the “Account Bank”).
Cash Manager
HS1 or, following acceleration of the HS1 Senior Debt, the HS1 Security
Trustee.
Liquidity Facility
Provider(s)
The lenders under the Liquidity Facility Agreement from time to time.
Registrar
Deutsche Bank Luxembourg S.A. (or any successor registrar appointed
pursuant to the Issuer Transaction Documents) acts as registrar and provides
certain registrar services to the Issuer in respect of any Bonds issued in
registered form.
Transfer Agent
Deutsche Bank Luxembourg S.A. (or any successor transfer agent appointed
pursuant to the Transaction Documents) acts as transfer agent and provides
certain transfer agency services to the Issuer in respect of any Bonds issued in
registered form.
Principal Paying
Agent
Deutsche Bank AG, London Branch acts as principal paying agent (or any
successor principal paying agent appointed pursuant to the Agency
Agreement) (the “Principal Paying Agent”) and, together with any other
paying agent appointed by the Issuer from time to time (each a “Paying
Agent”), provides certain issue and paying agency services to the Issuer in
respect of the Bonds.
Agent Bank
Deutsche Bank AG, London Branch (or any successor agent bank appointed
pursuant to the Agency Agreement) acts as agent bank (the “Agent Bank”) in
respect of the Bonds.
Rating Agencies
S&P and Fitch.
Programme Size
Up to £5,000,000,000 (or its equivalent in other currencies) aggregate nominal
amount of Bonds outstanding at any time as increased from time to time by the
Issuer.
Purpose
(a)
To refinance the Existing Indebtedness (as defined below) or (in
accordance with the terms of the Transaction Documents) other
Financial Indebtedness of HS1; and/or
(b)
Towards fees, costs, expenses, stamp, registration and other taxes
incurred in connection with the matters described in paragraph (a)
above; and/or
(c)
General corporate purposes of the Obligors.
Issuance in Series
and Tranches
Bonds issued under the Programme form and will form a single class and
are and will be issued in Series on each Issue Date. Each Series may
comprise one or more Tranches issued on different issue dates. Bonds
issued after the initial issuance may be fungible with the Bonds issued on or
after the Initial Issue Date or may be issued on different terms in accordance
with the Bond Trust Deed.
On each Issue Date, the Issuer will issue the Tranches of Bonds set out in the
Final Terms published on the relevant Issue Date.
Certain
Restrictions
Each issue of Bonds denominated in a currency in respect of which particular
laws, guidelines, regulations, restrictions or reporting requirements apply will
only be issued in circumstances which comply with such laws, guidelines,
regulations, restrictions or reporting requirements from time to time including
the restrictions applicable at the date of this Prospectus. See “Subscription and
Sale”.
Bonds having a maturity of less than one year will, if the proceeds of the issue
are accepted in the United Kingdom, constitute deposits for the purposes of the
prohibition on accepting deposits contained in section 19 of the FSMA unless
they are issued to a limited class of professional investors and have a
denomination of at least £100,000 or its equivalent, see “Subscription and
Sale”.
Currencies
Sterling, euro, U.S. dollars and, subject to any applicable legal or regulatory
restrictions, any other currency agreed between the Issuer and the relevant
Dealer.
Final Terms or
Drawdown
Prospectus
Bonds issued under the Programme may be issued either (a) pursuant to this
Prospectus and associated Final Terms, or (b) pursuant to a standalone
Drawdown Prospectus.
Denomination of
Bonds
Bonds will be issued in such denominations as may be specified in the relevant
Final Terms, subject to compliance with all applicable legal and/or regulatory
and/or central bank requirements applicable to the currency of the relevant
Tranche of Bonds. Bonds which are to be admitted to trading on a regulated
market within the European Economic Area or offered to the public in a
member state of the European Economic Area in circumstances which require
the publication of a prospectus under the Prospectus Directive shall have a
minimum specified denomination of €100,000 or not less than the equivalent of
€100,000 in any other currency as at the date of issue of such Bonds.
Redenomination
The applicable Final Terms may provide that certain Bonds may be
redenominated in euro. The relevant provisions applicable to any such
redenomination are contained in Condition 19 (European Economic and
Monetary Union).
Maturities
Subject to any applicable law or regulation applicable to the Issuer or the
relevant specified currency, the Bonds will have such maturities as may be
agreed between the Issuer and the relevant Dealer.
In certain circumstances, where Bonds have a maturity of less than one year,
such Bonds will be subject to limitations to ensure the Issuer complies with
section 19 of FSMA. For further details please see the United Kingdom selling
restrictions as set out in the “Subscription and Sale” section of this Prospectus.
Issue Price
Bonds may be issued on a fully-paid basis and at an issue price which is at par
or at a discount to, or premium over, par, as set out in the relevant Final Terms.
Interest
Bonds, unless otherwise specified in the relevant Final Terms, are interestbearing and interest will be calculated (unless otherwise specified in the
relevant Final Terms) on the Principal Amount Outstanding (as defined in the
Conditions) of such Bonds. Interest will accrue at a fixed or floating rate (plus,
in the case of Index-Linked Bonds, amounts in respect of indexation) and will
be payable in arrear, as specified in the relevant Final Terms, or on such other
basis and at such rate as may be so specified. Interest will be calculated on the
basis of such Day Count Fraction (as defined in the Conditions) as may be
agreed between the Issuer and the relevant Dealer as specified in the relevant
Final Terms.
Form and Status of
The Bonds constitute unconditional and secured obligations of the Issuer.
Bonds rank pari passu without preference or priority in point of security
Bonds
amongst themselves and will be issued in bearer or registered form.
Bonds issued in registered form are not exchangeable for Bonds issued in
bearer form.
The Bonds represent the right of the holders of such Bonds to receive interest
(where applicable) and principal payments from the Issuer in accordance with
the terms and conditions of the Bonds and the Bond Trust Deed entered into by
the Issuer and the Bond Trustee in connection with the Programme dated 14
February 2013 as the same may be amended, supplemented, restated and/or
novated from time to time (the “Bond Trust Deed”).
Fixed Rate Bonds
Fixed interest is payable on such date or dates as may be agreed between the
Issuer and the relevant Dealer and on redemption and will be calculated on the
basis of such Day Count Fraction as may be agreed between the Issuer and the
relevant Dealer.
Floating Rate
Bonds
Floating Rate Bonds bear interest at a rate determined on the basis of a
reference rate appearing on the agreed screen page of a commercial quotation
service plus the applicable margin (if any).
The margin (if any) relating to such floating rate will be agreed between the
Issuer and the relevant Dealer for each Tranche of Floating Rate Bonds.
Index-Linked
Bonds
Payments of principal or interest in respect of Index-Linked Bonds are
calculated by reference to the UK Retail Price Index.
Other provisions in
relation to Floating
Rate Bonds and
Index-Linked
Interest Bonds
The Floating Rate Bonds and Index-Linked Bonds may also have a maximum
interest rate, a minimum interest rate, a step-up in the interest rate after a
certain date (or any combination of the foregoing).
Zero Coupon
Bonds
Zero Coupon Bonds will be offered and sold at a discount to their nominal
amount and will not bear interest.
Interest Periods
and Payment Dates
Such interest periods and interest payment dates as the Issuer and the relevant
Dealer may agree in relation to a particular Tranche of Bonds.
Scheduled
Redemption
As set out in Condition 8(a) (Scheduled Redemption), unless previously
redeemed or cancelled, each Tranche of Bonds will be redeemed on the Final
Maturity Date. However, if a Scheduled Redemption Date (falling prior to the
Final Maturity Date) is specified in respect of a Tranche of Bonds in the
applicable Final Terms and they are not redeemed on the Scheduled
Redemption Date, such Bonds will thereafter accrue interest at a floating rate as
specified in Condition 6 (Interest and other Calculations). If, however, the
Bonds are not redeemed in full by their Final Maturity Date, there will be a
Bond Event of Default.
Final Redemption
As set out in Condition 8(b) (Final Redemption), if a Tranche of Bonds has not
previously been redeemed in full, such Tranche shall be finally redeemed at its
Principal Amount Outstanding (in the case of Index-Linked Bonds as adjusted
in accordance with Condition 7(b) (Application of the Index Ratio) plus accrued
unpaid interest on the Final Maturity Date as specified in the applicable Final
Terms.
Optional
Redemption
As set out in Condition 8(d) (Optional Redemption), the Issuer may (prior to
the Final Maturity Date (as defined in the Conditions)) redeem the Bonds in
whole or in part (but on a pro rata basis only) upon giving not more than 60
nor fewer than 15 days’ prior written notice to the Bond Trustee, the Issuer
Secured Creditors and the Bondholders on any Interest Payment Date at their
Redemption Amount (as defined in the Conditions).
Redemption for
As more particularly set out in Condition 8(e)(ii) (Redemption for Taxation
Taxation Reasons
Reasons and Illegality), if the Issuer satisfies the Bond Trustee:
(a)
that the Issuer would become obliged to deduct or withhold from any
payment of interest or principal in respect of the Bonds (other than in
respect of default interest), any amount for or on account of any present or
future taxes, duties, assessments or governmental charges of whatever
nature imposed, levied, collected, withheld or assessed by the laws or
regulations of the UK or any political subdivision thereof, or any other
authority thereof (“Taxes”) by reason of any change in or amendment to
such laws or regulations or any change in the application or official
interpretation of such laws or regulations (including a holding by a court
of competent jurisdiction);
(b) that, by reason of a change in law (or the application or official
interpretation thereof), which change becomes effective on or after the
Initial Issue Date, the Issuer is no longer a “securitisation company” (as
defined in the Taxation of Securitisation Companies Regulations 2006 (SI
2006/3296) (the “Regulations”)) and is otherwise unable to claim a tax
treatment in the United Kingdom that would prevent a material increase in
the tax liabilities of the Issuer compared to the treatment previously
provided to the Issuer under such Regulations;
(c)
by reason of a change in law (or the application or official interpretation
thereof), which change becomes effective on or after the Initial Issue Date
that HS1 would on the next Interest Payment Date be required to make
any withholding or deduction for or on account of any Taxes from
payments in respect of an IBLA;
(d) by reason of a change in law (or the application or official interpretation
thereof), which change becomes effective on or after the Initial Issue Date
that an Issuer Hedge Counterparty would be entitled to terminate a
Hedging Agreement in accordance with its terms as a result of the Issuer
or the Issuer Hedge Counterparty being required to make any withholding
or deduction for or on account of any Taxes from payments in respect of
an Issuer Hedging Agreement; or
(e)
by reason of a change in law (or the application or official interpretation
thereof), which change becomes effective on or after the Initial Issue Date
that it has or will become unlawful for the Issuer to perform any of its
obligations under any IBLA or to fund or to maintain its participation in
the Advances,
the Issuer may, upon giving not more than 15 nor fewer than 5 Business Days’
prior written notice to the Bond Trustee, the Issuer Secured Creditors and the
Bondholders in accordance with Condition 17 (Notices), redeem all (but not
some only) of the affected Tranche of Bonds on any Interest Payment Date at
their Principal Amount Outstanding plus accrued but unpaid interest thereon
(each adjusted, in the case of Index-Linked Bonds, in accordance with
Condition 7(b) (Application of the Index Ratio)).
Redemption for
Illegality Reasons
As more particularly set out in Condition 8(e)(ii) (Redemption for Taxation
Reasons and Illegality), by reason of a change in law (or the application or
official interpretation thereof), which change becomes effective on or after the
Initial Issue Date that has or will have the result that it will become unlawful
for the Issuer to perform any of its obligations under any IBLA or to fund or to
maintain its participation in the IBLA Loans, the Issuer may, upon giving not
more than 15 nor fewer than 5 Business Days’ prior written notice to the Bond
Trustee, the Issuer Secured Creditors and the Bondholders in accordance with
Condition 17 (Notices), redeem all (but not some only) of the affected Tranche
of Bonds on any Interest Payment Date at their Principal Amount Outstanding
plus accrued but unpaid interest thereon (each adjusted, in the case of IndexLinked Bonds, in accordance with Condition 7(b) (Application of the Index
Ratio)).
Redemption for
Index Events
As more particularly set out in Condition 8(e)(i) (Redemption for Index Events),
upon the occurrence of any Index Event, the Issuer may, upon giving not more
than 15 nor fewer than 5 Business Days’ prior written notice to the Bond
Trustee, the Issuer Secured Creditors and the holders of the Index-Linked
Bonds, redeem all (but not some only) of the Index-Linked Bonds of any
Tranche of Bonds on any Interest Payment Date at the Principal Amount
Outstanding (adjusted for indexation) plus accrued but unpaid interest.
Early Redemption
on Prepayment of
IBLAs
As set out in Condition 8(f) (Early Redemption on Prepayment of an IBLA), if:
(a)
HS1 gives notice to the Issuer under an IBLA that it intends to prepay all
or part of any advance made under such IBLA or HS1 is required to
prepay all or part of any advance made under such IBLA; and
(b)
in each case, such advance was funded by the Issuer from the proceeds of
a Tranche of Bonds,
the Issuer shall, upon giving not more than 10 nor fewer than 5 days’ notice to
the Bond Trustee, the Issuer Secured Creditors and the Bondholders, (where
such advance is being prepaid in whole) redeem all of the relevant Tranche of
Bonds or (where part only of such advance is being prepaid) the proportion of
the relevant Tranche of Bonds which the proposed prepayment amount bears to
the amount of the relevant advance at the applicable amount (as set out in
Condition 8(f) (Early Redemption on Prepayment of an IBLA)).
Early redemption
following Loan
Enforcement
Notice
As set out in Condition 8(g) (Early redemption following Loan Enforcement
Notice) if the Issuer receives (or is to receive) any moneys from HS1 following
the service of a Loan Enforcement Notice in repayment of all or any part of an
Advance, the Issuer shall, upon giving not more than 10 nor less than 5 days’
notice to the Bond Trustee, the Issuer Secured Creditors and the Bondholders
apply such moneys to redeem the then outstanding Bonds (corresponding to the
Advance under an IBLA which is prepaid) at their Principal Amount
Outstanding (adjusted for indexation in the case of Index-Linked Bonds) plus
accrued but unpaid interest on the next Interest Payment Date (or, if sooner,
Final Maturity Date).
Taxation
All payments in respect of Bonds will be made without withholding or
deduction for, or on account of, any present or future taxes, duties, assessments
or charges of whatever nature, unless and save to the extent that the
withholding or deduction of such taxes, duties, assessments or charges is
required by law. In that event, the Issuer will not be obliged to pay additional
amounts in respect of any such withholding or deduction.
Issuer Security
The obligations of the Issuer are secured pursuant to the Issuer Deed of Charge.
The Issuer has granted first ranking security over, among other things, all of its
rights, title and interest in the Issuer Transaction Documents (other than the
Dealership Agreement and each Subscription Agreement), the Issuer Accounts
and its Cash Equivalent Investments together with first ranking security over all
of its property, undertaking and assets which are not subject to such fixed
security, in each case, in favour of the Issuer Security Trustee held on trust for
the benefit of the Issuer Secured Creditors.
Covenants
The representations, warranties, covenants and events of default which apply to
the Bonds are set out in the Bond Trust Deed (see “Summary of the Issuer
Transaction Documents-Bond Trust Deed”).
Distribution
Bonds may be distributed by way of private or public placement and in each
case on a syndicated or non-syndicated basis.
Bond Purchases
As set out in Condition 8(i) (Purchase of Bonds), each of the Issuer, a nominee
of the Issuer, Holdco or a Subsidiary of Holdco (“Holdco Subsidiary”) may,
provided that no Loan Event of Default or Bond Event of Default has occurred
and is continuing, purchase Bonds (together with all unmatured Receipts and
Coupons and unexchanged Talons (if any) appertaining thereto) in the open
market or otherwise (but not, for the avoidance of doubt in any initial
distribution of Bonds) at any price (without any obligation to surrender such
Bonds for cancellation other than as set out in Condition 8(k) (Cancellation))
and, to the extent that such Bonds have not been cancelled, may resell them in
the open market or otherwise at any price. Any purchase by tender shall be
made available to all Bondholders alike.
Any Bond purchased by the Issuer, a nominee of the Issuer, Holdco or a
Holdco Subsidiary shall, for so long as it is held by it (or on its behalf), cease to
have voting rights and be excluded from any quorum or voting calculations set
out in the Conditions.
Listing
It is expected that the Bonds issued under the Programme will be admitted to
the Official List and admitted to trading on the Regulated Market.
Ratings
The ratings assigned to the Bonds by the Rating Agencies reflect only the
views of the Rating Agencies. The ratings of a particular Tranche of Bonds will
be specified in the relevant Final Terms.
The Bonds will carry a preliminary rating which will be confirmed by the
Rating Agencies shortly after the relevant Issue Date. S&P and Fitch are
established in the European Union and are registered under the CRA
Regulation. As such, S&P and Fitch are included in the list of credit rating
agencies published by the European Securities and Markets Authority on its
website in accordance with the CRA Regulation.
A rating is not a recommendation to buy, sell or hold securities and will
depend, among other things, on certain underlying characteristics of the
business and financial condition of the Security Group. A rating may be subject
to suspension, change or withdrawal at any time by the assigning Rating
Agency.
Bond Events of
Default
Each of the following events of default constitutes a “Bond Event of Default”:
(a)
non payment: default is made by the Issuer for a period of 3 Business
Days in the payment of interest or principal on any Tranche of the Bonds
when due in accordance with the Conditions;
(b)
breach of other obligations: default is made by the Issuer in the
performance or observance of any other obligation, condition, provision,
representation or warranty binding upon or made by it under the Bonds or
the Issuer Transaction Documents (other than the Dealership Agreement
or any Subscription Agreement and other than any obligation whose
breach would give rise to the Bond Event of Default provided for in
Condition 11(a)(i) (Non payment)) and, except where in the opinion of
the Bond Trustee that such default is not capable of remedy, such default
continues for a period of 30 Business Days;
(c)
Insolvency Event: an Insolvency Event occurs in relation to the Issuer;
or
(d)
unlawfulness: it is or will become unlawful for the Issuer to perform or
comply with any of its obligations under or in respect of the Bonds or the
Issuer Transaction Documents (other than the Dealership Agreement or
any Subscription Agreement) (as defined in the Conditions).
Selling Restrictions
There are restrictions on the offer, sale and transfer of the Bonds in the United
States, the United Kingdom and such other restrictions as may be required in
connection with the offering and sale of a particular Tranche of Bonds. See
“Subscription and Sale” below.
Investor
Information
HS1, as Security Group Agent, is required to produce an Investor Report semiannually on each Reporting Date which will be posted on the Designated
Website. HS1 is also required to publish annual audited accounts and an
auditors’ report along with semi-annual unaudited accounts and compliance
certificates.
RISK FACTORS
The following sets out certain aspects of the Project Documents, the Finance Documents, the Issuer
Transaction Documents and the activities of HS1 about which prospective Bondholders should be
aware. Prospective investors should carefully consider the following risk factors and the other
information contained in this Prospectus before making an investment decision. The occurrence of any
of the events described below could have a material adverse impact on the business, financial condition
or results of operations of the Issuer, HS1 or the other Obligors and could lead to, among other things:
(a)
a Loan Event of Default;
(b)
a Trigger Event; and/or
(c)
a Bond Event of Default.
This section of the Prospectus describes all material risks that are known to the Obligors and the
Issuer as at the date of this Prospectus. This section of the Prospectus is not intended to be exhaustive
and prospective Bondholders should read the detailed information set out elsewhere in this Prospectus
prior to making any investment decision. The risks described below are not the only ones faced by the
Obligors. Additional risks not presently known to the Obligors or which the Obligors currently believe
to be immaterial may also adversely affect its business. In the event of any material adverse impact of
one of or more of the risks described herein, the value of the Bonds could decline, and the Issuer may
not be able to pay all or part of the interest or principal on the Bonds and investors may lose all or part
of their investment. Investors should consider carefully whether an investment in the Bonds is suitable
for them in light of the information in this Prospectus and their personal circumstances.
The risks described in this “Risk Factors” section have been grouped as follows:
(a)
risks that arise out of the business of the ownership and operation of its railway infrastructure
and/or its obligations under the Project Documents;
(b)
risks that are reflective of the regulatory environment within which HS1 operates; and
(c)
financial, tax or legally related risks, including those that arise as a consequence of the terms
and structure of the Transaction Documents.
In addition, whilst the various structural elements described in this Prospectus are intended to lessen
some of the risks discussed below for the Bondholders, there can be no assurance that these measures
will ensure that the Bondholders of any Series or Tranche receive payment of interest or repayment of
principal from the Issuer on a timely basis or at all.
IMPACT OF RISKS ON REPAYMENT OF THE BONDS
Negative impact on HS1’s costs, revenues and/or cash flow
Where any of the risks described in this section of the Prospectus occurs which has, as the case may be,
a negative impact on HS1’s costs, revenues and/or cash flow, HS1 will be required to meet such
additional costs and/or such shortfall from internal sources, or consider other ways in which those costs
and/or such shortfall can be met where internal funds are not available. Where HS1 is unable to meet
such additional costs and/or such shortfall from either internal sources or alternative means, HS1 may
be unable to meet its liabilities, including those to the Issuer under each IBLA and as a result, the Issuer
may not be able to pay interest on, or repay principal of, the Bonds.
Termination of the Concession Agreement
Where any of the risks described in this section of the Prospectus occurs which could lead to
termination of the Concession Agreement and so loss by HS1 of the concession, whether as a result of
enforcement action taken by the ORR or for some other specified termination event in the Concession
Agreement, it would mean that HS1 would not be able to earn further revenues and so meet its
liabilities, including those to the Issuer under each IBLA which would mean the Issuer would not be
able to pay interest on and principal of the Bonds.
COMMERCIAL AND BUSINESS RISKS
Risk of High Speed 1 being unavailable to train operators
HS1’s revenue is mostly derived from the track access charges it levies on train operators in return for
granting them access to High Speed 1 in order that they may operate their rail services. Disruption that
makes High Speed 1 unavailable and so prevents or restricts the operation of rail services could,
depending on its cause, extent and where it occurs, lead to HS1 suffering a loss of this revenue.
High Speed 1 could become unavailable for use or impossible to access as a result of a number of
circumstances both within and outside of the control of HS1. HS1 is liable to train operators under the
track access agreements both for the disruption it causes or its contractors (principally NR(HS)) cause
and for certain disruptive events that occur on the route but are outside its control, namely terrorism,
force majeure or vandalism. HS1 is not liable to train operators under those agreements for disruption
that occurs off High Speed 1 but impacts availability of or access to High Speed 1 (for example, the
closure of the Channel Tunnel due to fire) or for disruption train operators cause themselves.
As train operators pre-pay the majority of access charges to HS1, HS1 is, generally speaking, insulated
in the short term from the negative financial consequences of disruption, but where disruption does
occur and HS1 is liable, HS1 must rebate the affected train operator as part of a wash up arrangement at
the end of the relevant timetable (usually 12 months in duration) in which that disruption occurred. In
such circumstances, HS1 will receive much less track access income than it would have anticipated for
the services that were rendered incapable of operation due to such disruption.
When faced with an extended period of unavailability of High Speed 1, an affected train operator
might, on requisite notice, cancel the access to High Speed 1 that it has reserved in order to operate rail
services (known as the capacity). In these circumstances the train operator would not be required to
pay access charges in respect of that capacity. See “Regulatory Framework and the Project Documents
– Overview of the Project Documents – Framework Agreements and other Track Access Agreements –
Access Charges” for an explanation of how access charges are levied. The cancellation of capacity will
lead to HS1 losing revenue unless it can procure that another train operator utilises the lost capacity.
Disruption that gives rise to persistent unavailability of, or inability to access High Speed 1, could
impact the affected train operator’s ability to pay any ongoing track access charges to HS1 for capacity
that has not been cancelled, because the train operator’s own income depends in part on the quality of
service it can provide to its passengers/freight customers and the availability of alternative rail and
other transport services. Any non-payment of access charges by train operators to HS1 due to an
inability or unwillingness to pay would mean a loss of revenue for HS1.
Risk of falls in demand for and operation of rail services on High Speed 1
The international rail services operated on High Speed 1 are subject to substantial competition from
other modes of transportation. Air travel is the main source of competition. While the international
high speed passenger services on High Speed 1 have certain advantages for passengers travelling
between city centres, air travel can be more price competitive particularly for journeys beyond city
centres. HS1 also faces some limited competition from cheaper services offered by ferry, coach and
other rail operators.
The volume of international passengers travelling on High Speed 1 could be negatively impacted by
changes in border control regulation or staffing limitations, including immigration and customs, to the
extent that these cause delay and increase overall journey time. The availability of new trains with
increased seat capacity may also impact the number of services being run by train operators, and,
therefore, the level of access charge income.
In relation to domestic rail services, the geographical areas served by High Speed 1 are also served by
the Classic Network which offers cheaper fares (although journey times on High Speed 1 are
approximately 50% shorter than on the Classic Network, depending on the final destination).
Any reductions in the volume of passengers using train services on High Speed 1, whether because of
competition from alternative transport modes or domestic passenger services on the Classic Network,
or because of extraneous factors affecting the quality of the passenger experience could result in a
reduction in the level of capacity sought by train operators and, therefore, a reduction in access charges
levied by HS1 and so loss of revenue.
Sustained low Retail Prices Index
Key elements of HS1’s income and costs are indexed directly or indirectly to the UK Retail Prices
Index (“RPI”) notably the main components of the track access charges it levies from train operators
(which is specifically indexed at RPI) and the payments to NR(HS) under the Operator Agreement
(again at RPI with an additional 1.1% (not compounded)). There is a risk that in a period of low
inflation or deflation, this would reduce the net cash flow generated by HS1.
Dependence on financial condition of train operators
Most of HS1’s revenues are derived from access charges paid to it by the two passenger train operators
which currently have access to High Speed 1, namely LSER and EIL. HS1 is, accordingly, exposed to
the financial condition of EIL and LSER and any other train operator which operates domestic or
international services on High Speed 1 in the future. Non-payment for whatever reason by train
operators of access charges could lead to HS1 suffering a cash shortfall in the first instance, potentially
loss of revenue and ultimately loss of business, should the reason for non-payment be the insolvency of
the train operator.
HS1 can issue a notice suspending the provision of access to any train operator that fails to pay its
access charges on time, but HS1 cannot suspend such access until approximately six weeks after a nonpayment by the relevant train operator. Consequently, HS1 could suffer a cash flow shortfall following
a non-payment and may be required to cover this shortfall from its own funds until the defaulting train
operator does pay, or, in the case of a domestic train operator, the Secretary of State is liable to make
Underpinning Payments (see “Reductions in the level of domestic services operated by LSER” below in
relation to Underpinning Payments) or procures that another train operator provides domestic passenger
services and duly pays for access to High Speed 1.
In the case of the insolvency of EIL, international passenger services may cease, in which case HS1
could reallocate a proportion of access charges to any other train operators continuing to use High
Speed 1, but otherwise would receive no revenues from such services unless and until a new
international train operator commenced operations. In the case of the insolvency of LSER, the same
principles would apply, except in addition, the Secretary of State has a statutory duty under the
Railways Act to ensure, subject to limitations, continuity of domestic services in England and Wales in
the event that those services are no longer provided by a train operator under the terms of a franchise
agreement. It is likely, but not certain, that if LSER became insolvent, the Secretary of State would
secure the transfer of its operations without a break in service or the payment of access charges.
Reduction in the level of domestic services operated by LSER and any replacement train
operator
If the number of domestic services operated by LSER was reduced, HS1 would receive less track
access income. Domestic services provide HS1 with approximately 60% of its income. HS1 may be
entitled to certain offsetting payments from the Secretary of State (called “Underpinning Payments”)
to compensate HS1 for any loss of track access charge income where the number of domestic services
operated by any domestic train operator falls below the level of 1,024 services per week, known as the
baseline of domestic passenger services.
There are certain circumstances where even though the level of services operated by LSER is below
this baseline, Underpinning Payments will not be made. These are in relation to:
(a)
days where High Speed 1 is not available for use by train operators because of HS1’s failure
or because the Secretary of State has exercised his emergency step in rights under the
Concession Agreement – see “Regulatory Risks – Secretary of State step in and enforcement”,
below for an explanation of those rights;
(b)
circumstances where the domestic train operator is in breach of its obligations to provide
services and the Secretary of State is in the process of taking action to remedy such breach; or
(c)
circumstances where the domestic train operator is in breach of its payment obligations under
its track access agreement with HS1 or becomes insolvent.
If no Underpinning Payments are payable, HS1’s domestic passenger service revenue might fall below
the level that it would expect to receive if domestic passenger services were operated at the baseline
level.
Risk of unforeseen expenditure because of unplanned major capital works
HS1 may be required to undertake unforeseen major capital expenditure projects as a result of HS1’s
obligation under the Concession Agreement to renew, replace and upgrade the High Speed 1
infrastructure, which is part of its obligations under the Concession Agreement. The Concession
Agreement provides for a number of arrangements that seek to manage this risk, namely, (i) HS1 is
obliged to set aside part of the access charges it receives to fund future track renewals in an escrow
account, (ii) the Secretary of State may decide to fund by way of grant all or part of any unforeseen
capital expenditure and/or (iii) HS1 may obtain consent from the ORR to levy an additional investment
recovery charge on train operators to recover the costs of such expenditure. However, there is no
guarantee that those escrowed funds, any grant from the Secretary of State or any additional charge
(whether alone or in aggregate) will be sufficient to meet any such unforeseen capital expenditure.
Where these other potential sources of funding are insufficient, HS1 will be obliged to fund that
shortfall from internal sources (to the extent available or from additional borrowings where these can
be raised).
Specifically, such unforeseen capital expenditure could be required as a result of:
(a)
HS1’s obligation under the Concession Agreement to carry out renewals and replacements
works on High Speed 1;
(b)
determinations made by NR(HS) as the holder of the safety authorisation (which HS1 has no
control over in terms of timing and cost), which include determinations in relation to day-today operations and maintenance requirements for the renewal and replacement of the
infrastructure, and whether any additional infrastructure may be necessary; and
(c)
a change in law which has the effect of requiring an upgrade or other works in respect of the
High Speed 1 infrastructure and which is not fully compensated for by the Secretary of State
under the risk-sharing arrangement in the Concession Agreement – see “Regulatory
Framework and the Project Documents – Overview of the Project Documents – The
Concession Agreement – Government’s financial support for Changes in Circumstances” for
an explanation of this risk-sharing arrangement (see “Regulatory Risks – Adverse Change in
Circumstance” below).
Reductions in retail and other income
HS1’s principal sources of non-rail income are retail concession fees and car parking income, property
rental income and income from the provision of operational facilities and utilities. This income is not
subject to regulatory pricing approval. Any reduction in demand for passenger services or station
footfall more generally may also cause a reduction in HS1’s income from these sources. While the
Secretary of State has confirmed within the Underpinning Agreement that he will not agree to a
reduction in the level of Baseline Domestic Services for the term of the track access agreement with
LSER, there is no protection offered for any diminution in these other sources of income. Should such
a diminution occur, HS1 would suffer a loss of revenue.
Retail concession fees are driven by passenger numbers and the propensity of passengers to spend in
the shops at the HS1 Stations. Levels of retail income at the HS1 Stations may also be affected by
changes in the mix of domestic and international passengers, economic factors, including exchange
rates, retail tenant failures and reduced competitiveness of the HS1 Stations retail offering. Although
retailers currently operating at HS1 Stations operate with minimum guaranteed rents, there is no
certainty that leases will be renewed on the same terms if turnover levels do not exceed the levels at
which the minimum guaranteed rent is currently payable. Any material failure to renew retail leases
will, in the absence of HS1 being able to negotiate replacement leases with new retailers, result in HS1
suffering a loss of revenue.
HS1’s total retail income has grown by 10% from the Financial Year 2012 to the Financial Year 2014.
See “Business of HS1 – HS1 Revenues – Retail, Advertising and Car Parking” for an overview of
HS1’s income in this area.
Exposure to performance and financial condition of NR(HS)
Reliance on NR(HS)’s performance under the Operator Agreement
HS1 has sub-contracted the responsibility under the Concession Agreement to operate and maintain
High Speed 1 to NR(HS) under the terms of the Operator Agreement. There are a number of instances
however (described below) where either NR(HS)’s obligations under the Operator Agreement are not
back-to-back with HS1’s obligations under the Concession Agreement, or the performance of those
obligations by NR(HS) under the Operator Agreement is not included in the pre-agreed price that HS1
pays thereunder. There is a risk therefore that HS1 could either:
(a)
be put in breach of its operation and maintenance obligations under the Concession
Agreement where NR(HS) fails to perform a sub-contracted obligation or where NR(HS) is
not obliged to perform a Concession Agreement obligation because that obligation has not
been passed on to NR(HS) under the Operator Agreement; or
(b)
have to pay NR(HS) its additional costs in order that it carries out the relevant operation and
maintenance obligation and in turn ensure that HS1 remains compliant with its equivalent
obligations under the Concession Agreement.
To the extent that NR(HS) is not obliged under the Operator Agreement to effect HS1’s compliance
with the Concession Agreement and each track access agreement which HS1 has entered into (i) HS1
would not be able to enforce against NR(HS) under the Operator Agreement whilst it would continue to
be subject to enforcement risk under the Concession Agreement, and (ii) HS1 would continue to be
obliged to make performance payments to train operators under their track access agreements, thereby
continuing to incur costs that would not fall to NR(HS).
A breach of the Concession Agreement could lead to enforcement proceedings by the ORR, which
could result in the ORR taking enforcement action against HS1. Failure to comply with the ORR’s
instructions constitutes a termination event permitting the Secretary of State to terminate the
Concession Agreement without full compensation (see “Regulatory Risks – Termination of the
Concession Agreement and the other Concession Documents without compensation” below for an
explanation of the Secretary of State’s rights of termination in these circumstances and the financial
consequences thereof).
The instances where HS1’s Concession Agreement obligations have not been passed on to NR(HS) at
all, only to a limited extent or subject to the payment by HS1 of additional sums comprise the
following:
(a)
NR(HS) is relieved of liability where it is hindered or prevented from meeting the
requirements under the Concession Agreement to ensure High Speed 1 meets the specified
minimum operational standards by operational matters outside its control;
(b)
NR(HS) is relieved of liability where it is prevented from performing its obligations under the
Operator Agreement by particular force majeure events; and
(c)
NR(HS) will comply with enforcement instructions issued by the ORR under the Concession
Agreement, but only where HS1 pays NR(HS)’s additional costs incurred in complying.
Equally, if NR(HS) were to cease to be authorised to conduct railway operations (for example, as a
result of failing to maintain proper safety standards), High Speed 1 would not be available to train
operators until (i) NR(HS) regained the safety authorisation, or (ii) HS1 appointed a replacement
operator which had the necessary authorisation in place of NR(HS) or (iii) operations were taken inhouse by HS1 and HS1 obtained the safety authorisation itself. In these circumstances, HS1’s net
income from train operators would be negatively impacted in respect of any period in which trains
could not operate. In addition, where HS1 elects to replace NR(HS) to the extent there is any shortfall
between the track access charges that HS1 could levy and the costs that any replacement operator might
charge, that shortfall would have to be funded by HS1 itself.
Reliance on NR(HS)’s performance under the Station Concession Agreements
Under the terms of the Station Concession Agreements, under which NR(HS) manages and operates
the HS1 Stations, HS1 does not have any right to replace NR(HS), including in circumstances where
NR(HS)’s performance falls below the required standards, unless damages is not an adequate remedy
or the failure is not capable of remedy. HS1 does not have recourse to NRIL under the NRIL
Guarantee (the terms of which are described in “Regulatory Framework and the Project Documents –
Overview of the Project Documents – NRIL Guarantee”) to secure NR(HS)’s compliance as this does
not cover NR(HS)’s obligations under the Station Concession Agreements.
A failure to perform by NR(HS) could put HS1 in breach of the Concession Agreement, making HS1
subject to enforcement proceedings by the ORR (see “Reliance on NR(HS)’s performance under the
Operator Agreement” above).
Exposure to performance of the UKPN Parties
In order for trains to operate on High Speed 1, power must be distributed along the route. Power is
distributed by the UKPN Parties (referred to here as the power distributor) pursuant to the UKPN
Agreements. HS1 is dependent on the performance of the power distributor in order to be able to
comply with certain of its obligations under the Concession Agreement and its track access agreements
with train operators.
If the power distributor was to fail to properly carry out its obligations under the UKPN Agreements or
was unable to do so (for example, if it became insolvent), trains may be unable to operate on High
Speed 1 and this could put HS1 in breach of the Concession Agreement and its track access agreements
with train operators. A breach could lead to enforcement action being taken by the ORR. Failure to
comply with any such order would be a termination event under the Concession Agreement permitting
the Secretary of State to terminate the Concession Agreement without full compensation being payable
to HS1 (see “Regulatory Risks – Termination of the Concession Agreement and the other Concession
Documents without compensation” below for an explanation of the Secretary of State’s rights of
termination in these circumstances and the financial consequences thereof).
Potential pricing mismatches
Determination of the fixed price under the Operator Agreement
The operating and maintenance costs of HS1 are agreed with the ORR each five years and set for a
period of five years. HS1 and NR(HS) may disagree about the price that NR(HS) will charge HS1 for
providing the services under the Operator Agreement. Ultimately, this disagreement could lead to
NR(HS) electing to terminate the Operator Agreement – see “Overview of the Project Documents – The
Operator Agreement – Payments – Fixed Price” for an explanation of NR(HS)’s termination right in
this circumstance. There can be no assurance that HS1 and NR(HS) will agree the price each time that
it falls to be set.
During the Control Period 2 negotiations, HS1 and NR (HS) agreed a fixed price for services under the
Operator Agreement covering the period from 1 April 2015 to 31 March 2020 and these charges were
subsequently approved by the ORR in May 2014.
The risk of termination of the Operator Agreement by NR(HS) has, however, been deferred until 2025
because NR(HS) does not have the right to terminate before then even where the ORR takes an
alternative view which results in a lower price being charged – see “Regulatory Framework and the
Project Documents – Overview of the Project Documents – The Operator Agreement – Operator’s
obligations – Obligations” for a description of these arrangements.
Where the Operator Agreement is terminated by NR(HS), any shortfall between the track access
charges that HS1 could levy and the price that NR(HS) may charge HS1 would have to be funded by
HS1 itself to the extent possible. See also “Regulatory Framework and the Project Documents –
Overview of the Project Documents – The Operator Agreement – Early termination – HS1 ability to
perform operation and maintenance services on termination” in relation to HS1’s ability to operate and
maintain High Speed 1 following termination of the Operator Agreement.
Risk of renegotiation of fixed price under Operator Agreement
The fixed price agreed with NR(HS) may be re-negotiated in certain specified cases as specified in the
Operator Agreement – see “Regulatory Framework and the Project Documents – Overview of the
Project Documents – The Operator Agreement – Payments – Fixed Price” for an overview of the
material re-openers. If additional amounts become payable to NR(HS) in respect of any of these reopeners, HS1 would incur operations and maintenance costs which it might not be able to pass on to
the train operators under their track access agreements in the short term (until the ORR next reviews
the operations and maintenance element of the access charges HS1 may levy) or possibly at all if the
ORR does not consider this appropriate.
If HS1 is not entitled to increase the operations and maintenance element of the access charges it levies
on train operators to recover the additional amounts required by a re-opener, it would instead be
required to fund unforeseen expenditure of this kind from its own resources, or failing that, it may have
to consider other ways in which the additional amounts can be financed.
There are currently no price re-opener notifications from NR(HS) under the Operator Agreement.
Payment liability mismatches under sub-contracts
Payment liability mismatches in relation to NR(HS)
NR(HS)’s liability to HS1 under the Operator Agreement (and NRIL’s liability under the NRIL
Guarantee) is subject to certain caps, which are not, in all cases, matched by caps on HS1’s liability to
relevant counterparties. HS1’s liability to the Secretary of State under the Concession Agreement is
not capped.
HS1’s performance payments to the train operators under track access agreements are also capped.
However, there is a risk that such payments by HS1 may exceed the caps and exclusions in respect of
NR(HS)’s equivalent reimbursement liability. In addition, NR(HS) will not be obliged to reimburse
HS1 for any payments made to the train operators which arise as a result of HS1’s own acts or
omissions or those of its contractors (which include the counterparties to the key service provision
agreements, but exclude NR(HS)). Such a mismatch in liability could result in additional costs being
incurred by HS1.
NR(HS) is also relieved from the obligation to reimburse HS1 for the performance payments which
HS1 makes to the train operators where those payments are due to NR(HS)’s performance being
affected by “natural disasters or phenomena”. Relief is also given to NR(HS) in relation to indemnity
payments in respect of all force majeure events/circumstances. If NR(HS) is affected by force majeure,
therefore, HS1’s net income from the train operators may decrease (while HS1 would continue to be
obliged to pay NR(HS) the fixed price under the Operator Agreement), potentially giving rise to HS1
suffering a cash shortfall.
Payment liability mismatches in relation to UKPN Parties
The UKPN Parties are responsible for the maintenance and operation of the power supply network that
High Speed 1 utilises, as well as the distribution of power around that network under agreements
known as “Distribution Agreements”. A loss of power to the network would render High Speed 1
inaccessible or restrict the level of accessibility that HS1 has contractually committed to, and would
result in HS1 having to make performance payments to the train operators under the terms of their track
access agreements and potentially loss of revenue, should the train operator cancel capacity in
response.
Under the performance regime in the UKPN Agreements, the UKPN Parties’ liability in respect of
outage (other than power outages) and power shortfalls is not capped, although all types of outage and
power shortfall are subject to certain exclusions of liability. Liability in respect of power outages
affecting assets that are directly required for the commercial operation of trains on High Speed 1 is
limited to approximately £500,000 (in 2002 prices subject to RPI indexation) under each of the two
Distribution Agreements in any rolling three year period. The cap in the UKPN Agreements in relation
to power outages is low relative to the performance payments that HS1 may be exposed to (which are
in turn capped at approximately £7.1 million per annum (2015 prices) under the track access
agreements). Consequently HS1 would be exposed to that difference and suffer a shortfall in cashflow
as a result. Where the cap is reached, HS1 may terminate the relevant Distribution Agreement.
The Secretary of State has the right to require HS1 to terminate or novate the UKPN Agreements to
such party as the Secretary of State may direct on the termination or expiry of the Concession
Agreement. The termination sum payable by HS1 under the UKPN Agreements where the Secretary of
State requires termination or novation, represents a present value of future payments and therefore can
vary and be quite significant. See “Regulatory Framework and the Project Documents – Overview of
the Project Documents – The Power Supply Agreements” for a summary of the agreements that
comprise the UKPN Agreements.
OTHER RISKS TO HS1’S OPERATIONS
Negative impact on HS1’s revenue, business, financial condition, results of operations or
prospects
Where any of the risks described in this section of the Prospectus materialises, which has a negative
impact on HS1’s revenue, business, financial condition, results of operations or prospects, such
negative impact may cause HS1 to become unable to meet its liabilities, including those to the Issuer
under each IBLA. As a result, the Issuer may become unable to pay interest on, or repay principal of,
the Bonds.
Accidents
The railway industry is exposed to the risk of accidents, including train crashes. These accidents could
(i) result in injury or loss of human life, damage to infrastructure and/or other property and short or
long term closure of High Speed 1 and other railways, (ii) expose HS1 to legal claims and (iii) have a
negative impact on passenger traffic levels, in turn negatively impacting the level of access charges that
HS1 may levy and, therefore, its revenue.
Operational risks
The operation of a railway is a complex undertaking that is subject to a number of factors outside the
control of HS1. These factors include weather conditions, variable train movements, traffic congestion
and third party reliance on technical equipment. Given the nature of these factors it is not possible
accurately to predict their future impact on HS1’s operations from past performance but should the
occurrence of any such event continue for a significant period of time and/or have a material impact on
operations, HS1’s revenues would be negatively impacted.
Inability to obtain insurance
HS1 benefits from insurance cover (either which it effects itself or which is carried by its contractual
counterparties) to protect against key insurable risks including terrorism, business interruption and
public liability. HS1 takes credit risk on the performance of the insurance providers. The size of cover
may not be adequate to meet lost income, reinstatement costs, increased expenses or other liabilities.
Moreover, there can be no assurance that if insurance cover is cancelled or not renewed, replacement
cover will be available at commercially reasonable rates or at all, although this has not been HS1’s
experience to date. See “Business of HS1 – Insurance” for a summary of the insurances that HS1 has
in place.
HS1 had the choice of a number of possible insurance providers when it recently (November 2014)
renewed its insurances. But to the extent it does not have such choice in the future, the Concession
Agreement offers some protection for HS1. Where such insurances are unavailable at commercial
prices and on commercial terms and the Secretary of State refuses to insure against the risks those
insurances would have covered, HS1 may terminate the Concession Agreement with compensation –
see “Regulatory Framework and the Project Documents – Overview of the Project Documents – The
Concession Agreement – Enforcement and termination – Grounds of termination”.
Dependency on key personnel
HS1’s success will depend, in part, on its ability to continue to attract, retain and motivate qualified
personnel. HS1 relies on its senior management for the implementation of its strategy and its day-today operations. Competition in the rail industry for personnel with relevant expertise, especially at the
senior management level, may be intense due to the specialised nature of the industry and the limited
number of qualified individuals. HS1’s failure to successfully manage its personnel needs could have a
material adverse effect on HS1’s business, financial condition, results of operations or prospects.
Exposure to general economic conditions
A sustained economic downturn, whether at a global, regional or national level, could adversely affect
rail travel or investment in railways, which could have a negative impact on HS1’s businesses. Whilst
many of the features of HS1’s business offer a certain degree of protection against economic downturn,
a prolonged or severe downturn could adversely impact HS1’s businesses, financial condition, results
of operations or prospects.
Risk of terrorism having a material adverse effect on HS1’s business, financial condition, results
of operation or prospects
Terrorist acts and the public’s concerns about potential future attacks on public transport in the UK
could adversely affect demand for rail travel in the UK. There have been multiple acts of terrorism on
public transport systems and other terrorist attacks that have discouraged travel. There is a risk that the
demand for rail travel could be adversely affected by a significant terrorist incident. Such a fall in
demand could have a material adverse effect on HS1’s business, financial condition, results of
operations or prospects.
REGULATORY RISKS
Negative impact on HS1’s costs, revenues and/or cash flow
Where any of the risks described in this section of the Prospectus occurs which has, as the case may be,
a negative impact on HS1’s costs, revenues and/or cash flow, HS1 will be required to meet such
additional costs and/or such shortfall from internal sources, or consider other ways in which those costs
and/or such shortfall can be met where internal funds are not available. Where HS1 is unable to meet
such additional costs and/or such shortfall from either internal sources or alternative means, HS1 may
be unable to meet its liabilities, including those to the Issuer under each IBLA and as a result, the Issuer
may not be able to pay interest on, or repay principal of, the Bonds.
Termination of the Concession Agreement and the other Concession Documents without
compensation
The Concession Agreement and the other Concession Documents may be terminated by the Secretary
of State without compensation upon the occurrence of certain events of default specified therein. These
include the insolvency of HS1, a non-permitted change of ownership of HS1, a “particularly serious
default” by HS1 in respect of certain provisions of the Concession Agreement, the unavailability of
insurance as a result of an act or omission by HS1, its contractors or others for whom it is responsible
and a failure by HS1 to comply with a Final Order or Provisional Order, in each case, which has not
been appealed or has been upheld by court order (each an “HS1 Default”).
HS1’s business depends entirely on its being the concessionaire under the Concession Agreement. If
the Secretary of State were to terminate the Concession Agreement and other Concession Documents
because of the occurrence of an HS1 Default, HS1 would not have any of its existing material assets
and, therefore, would be unable to earn further revenues.
Secretary of State step in and enforcement
The Secretary of State has emergency rights to “step in” under the terms of the Concession Agreement
(irrespective of whether HS1 is in default) to ensure continuity of service where HS1 fails to provide
(or procure the provision by NR(HS) of) the infrastructure capability required under the Concession
Agreement for a period of three consecutive days or more (see “Regulatory Framework and the Project
Documents – Overview of the Project Documents – The Concession Agreement – Secretary of State
step in” for an explanation of the Secretary of State’s rights to step in and the mechanics of doing so).
If the Secretary of State steps in, HS1 will lose control over the operation of High Speed 1. During any
step-in period, HS1 will continue to receive the revenue generated, although it will become liable for
the costs of the Secretary of State in procuring the operation of High Speed 1 and these additional costs
could lead to a shortfall in available funds.
Where the Secretary of State has exercised his emergency rights to step in for an aggregated period of
two months in any rolling two year period, the ORR is obliged to take enforcement action under the
Concession Agreement, which if HS1 does not comply with, could lead to termination of the
Concession Agreement without HS1 being fully compensated – see “Termination of the Concession
Agreement and the other Concession Documents without compensation” below for an explanation of
this conditionality to termination.
Adverse Change in Circumstance
Extraneous events or circumstances might occur during the life of the Concession Agreement that
could result in a loss of revenue to HS1, increased operating costs to HS1 or require additional capital
expenditure by HS1.
HS1 is protected to an extent (but not otherwise) against revenue losses, increased costs or additional
capital expenditure incurred as a result of events or changes in circumstance where the particular event
or change in circumstance is one:
(a)
in which HS1 shares the financial risk with the Secretary of State in the Concession
Agreement (see “Regulatory Framework and the Project Documents – Overview of the
Project Documents – The Concession Agreement – Government’s financial support for
Changes in Circumstances” for an account of the changes in circumstances in respect of
which financial risk is shared);
(b)
which requires increased operational, maintenance and renewal costs and the ORR grants an
Interim Review – see “Regulatory Framework and the Project Documents – Overview of the
Project Documents – The Concession Agreement – Economic regulation – Interim Reviews”
for an explanation of Interim Reviews; and
(c)
which requires capital expenditure to effect a Renewal and Replacement and funds are
available in the Renewals Escrow Account – see “Regulatory Framework and the Project
Documents – Overview of the Project Documents – The Concession Agreement – Economic
Regulation” for an explanation of the Renewals Escrow Account arrangements.
Even where the risk sharing regime referred to in paragraph (a) above applies, the financial protection
available to HS1 is not totally comprehensive (except where the change in law in question is the
revocation of a TSI Derogation or partial sequestration). Where that protection is not comprehensive,
HS1 would be required to fund the additional operating expenses and capital expenditure that is
required, but not met by the Secretary of State, subject to an overall cap on such expenditure per
Control Period (£6 million in 2009 prices indexed by RPI).
If the risk sharing regime does not apply, an Interim Review is not applied for, or granted, or there are
insufficient funds in the Renewals Escrow Account, then HS1 will be required to fund or consider
alternative sources of funding to meet the full costs of any additional operating expenses or capital
expenditure required as a result of the relevant event or circumstance. HS1 will not be compensated for
any loss of revenue.
Insufficient operations, maintenance and renewals income to recover costs
Setting the operations, maintenance and renewals charge
The operations, maintenance and renewals element of track access charges (referred to as “OMRC”)
that HS1 levies from train operators to meet HS1’s operations, maintenance and renewal costs, is
reviewed by the ORR every five years under a process known as a “Periodic Review”.
In conducting a Periodic Review, there is no certainty that the ORR will permit HS1 to charge train
operators sufficient OMRC to fully recover HS1’s actual operating, maintenance and renewal costs,
since the ORR may take a different view from HS1 on the costs required by an efficient operator to
operate High Speed 1. If following a Periodic Review, there is a shortfall between the OMRC HS1 is
allowed to recover and the actual costs incurred, HS1 would suffer a loss and would have to use all or a
portion of its other sources of funds to meet this shortfall.
This risk is reduced in respect of any Periodic Review conducted before 1 April 2025, where NR(HS)
has agreed to take the risk on there being a shortfall between the actual cost for its portion of the overall
OMRC costs, which represents the majority of HS1’s OMRC charges. During this period, HS1 remains
exposed to any shortfall in relation to non-NR(HS) operations, maintenance and renewal charges.
In May 2014 the ORR approved all of the costs (both NR(HS) and non-NR(HS)) proposed by HS1 in
its 5 Year Asset Management Statement covering the period from 1 April 2015 to 31 March 2020. See
“Regulatory Framework and the Project Documents – Overview of the Project Documents – The
Concession Agreement – Economic Regulation”
The same considerations described above apply in relation to any review (known as an “Interim
Review”) that the ORR conducts between Periodic Reviews following a request by HS1 in response to
unforeseen circumstances. Interim Reviews are conducted on the same basis as Periodic Reviews.
Recovering the operations, maintenance and renewals charge
Except for certain elements of the OMRC that are passed straight through to train operators, the charge
per train per minute that makes up the rest of OMRC can be amended only:
(a)
following a Periodic Review or Interim Review; or
(b)
following a change in total number of trains that are timetabled or an individual train
operator’s number of trains that are timetabled, in each case of at least 4% more or less over
the course of a timetable year than that timetabled for the 12 months following the last such
change.
HS1 is therefore exposed until any Periodic Review or Interim Review to the risk of under-recovery of
OMRC if the number of trains timetabled for a given year is reduced by up to but not more than 4%.
Given this volume-based regime and the threshold at which automatic adjustments in OMRC are made
thereunder, it is unlikely that a reduction of less than 4% in trains that are timetabled will be considered
sufficient to entitle HS1 to seek an Interim Review of OMRC.
Any under-recovery of OMRC would require HS1 to fund the shortfall of revenues from its sources.
Mismatch between right to adjust OMRC in track access agreements and right to reduce fixed price
under the Operator Agreement
HS1 has the right under the Operator Agreement to seek a downwards review of the price payable to
NR(HS) under that agreement where due to circumstances outside HS1’s control, there is a material
and significant reduction in the scope of services on which HS1 agreed the annual fixed price, and the
reduction involves a material reduction in the assets for which NR(HS) is responsible under the
Operator Agreement and/or a material reduction in the number of trains running (a reduction of 4% or
more in the period up to 2020).
However, there is a mismatch in language between the trigger for reopening the level of OMRC that
HS1 may charge under track access agreements and the trigger for reopening the fixed price that HS1
pays NR(HS) for performing the services under the Operator Agreement. In addition, the provisions
for change in track access agreements and the Operator Agreement are themselves different, with any
financial adjustment being automatic under track access agreements, but subject to request, debate and
possible dispute resolution under the Operator Agreement. The two regimes are therefore not entirely
‘back-to-back’ and this misalignment could lead to the situation where there is a reduction in OMRC
without a proportionate reduction in the amount of the fixed price that HS1 pays NR(HS), leaving HS1
to fund the additional costs from internal sources, or where this was not possible, from other sources of
funding.
Performance regime liability caps
Track access agreements contain a performance regime that governs the performance of HS1 in
procuring access for train operators to High Speed 1 and the performance of the services train operators
operate on High Speed 1. That performance regime provides for payments to be made by HS1 and the
train operators and vice versa, depending on performance relative to specified benchmarks. HS1’s
financial liability thereunder is capped. See “Regulatory Framework and the Project Documents –
Overview of the Project Documents – Framework Agreements and other Track Access Agreements –
Performance payments” for an explanation of the payments that apply in the track access agreements
performance regime.
The ORR notes in the Criteria and Procedures that it had previously expressed concern that the caps set
out in the HS1 Passenger Access Terms (incorporated by reference into track access agreements) were
too low and that there was a lack of provision of arrangements to compensate train operator’s for loss
of revenue arising from breaches of the relevant track access agreement. The ORR indicates in
expressing those concerns, that the liability caps set by HS1 were considered a minimum that the ORR
would be prepared to approve and that the caps should be based on the revenue that is at risk (being the
avoidable costs of not operating the service, or more narrowly, the variable charge from the service).
The provisions contained in the HS1 Passenger Access Terms that establish the scope of any Periodic
Review by the ORR, explicitly exclude a review of the performance liability caps specified in those
terms. However, the ORR’s stated position in the Criteria and Procedures in relation to liability caps
may ultimately lead to a requirement for higher liability caps in current and future track access
agreements where a train operator proposes a higher cap as part of the application to seek ORR
approval of any such track access agreement. Should higher caps be introduced into track access
agreements and the performance of High Speed 1 be sufficiently poor, HS1 will be exposed to higher
liability in respect of performance payments under those agreements than would currently be the case.
HS1 does not consider there to be any need to make provision for this uncertain contingent exposure.
The ORR reviewed the performance regime liability caps as part of the Control Period 2 review and in
May 2014 confirmed that they were content to accept the proposal of no changes in the existing
performance regime put forward by HS1.
HS1’s actual performance thus far has been significantly below these liability caps. Against a total
annual cap of approximately £7.1 million (in 2015/2016 prices), HS1 has incurred penalties of £0.3
million in the Financial Year 2013 and £0.3 million in the Financial Year 2014. £0.3 million of
penalties incurred in the Financial Year 2014 were subsequently challenged by HS1 and reversed in
favour of HS1 during the period of the six months ended 30 September 2014.
Other regulatory risks
Prepayments a potential barrier to new entrants
The ORR could determine that train operators which are new entrants to operating services on High
Speed 1 pay access charges to HS1 in arrear, as opposed to pre paying access charges, as all existing
train operators currently do. If the ORR does determine that future applications for track access
payments are to be made to HS1 in arrear, this could increase HS1’s exposure to credit risk which, if
realised, could lead to non-payment of access charges by those train operators, giving rise to HS1
incurring a loss of revenue.
Judicial review
There is a risk that decisions of the ORR in exercising its regulatory functions could be challenged
under the principles commonly referred to under the heading “judicial review”. If such a challenge
occurred and was successful, the relevant exercise by the ORR of its regulatory function would have to
be revisited, potentially giving rise to delay and the exercise of that function in a different way from the
way in which it was exercised prior to challenge. Any delay or revisited decision could give rise to
additional costs and/or HS1 suffering a loss of revenue.
Commitments / obligations in relation to St Pancras International Station
HS1’s compliance with the SPI Commitment may be challenged and consequently referred to the
expert determination process by the monitoring trustee – see “Regulatory Framework and the Project
Documents – Overview of the Project Documents – Station Access Agreements and other station
arrangements – Commitments / obligations in relation to St Pancras International Station” for a
summary of the SPI Commitment. If HS1 does not agree with the expert opinion of the monitoring
trustee, the matter may be referred to the appeal authority (currently the European Commission). Until
the ORR confirms that it will assume the role of appeal authority, there is a risk that any binding expert
opinion of the monitoring trustee and any decision of the European Commission may take an
unexpected course, or be inconsistent with the approach of the ORR in relation to similar obligations
arising under the Access Regulations and competition law. Such a decision could have adverse
consequences for HS1’s financial position and therefore the interests of Bondholders.
Competition law compliance risk
As the sole high speed infrastructure provider in the UK, HS1 could be exposed to remedial action and
a fine of up to 10% of its turnover plus damages claims if it were found to have abused a dominant
position. This is because it is subject to additional restrictions on its commercial behaviour under UK
and EU competition law which prohibit the abuse of a dominant position. The impact of this could
affect HS1’s reputation and result in incurring unforeseen costs in settling any fine and/or damages and
complying with any requisite remedial action.
Environmental, health and safety and planning obligations
HS1’s business is affected by a wide variety of EU and UK environmental, health and safety and
planning laws and requirements. HS1’s existing operations may be impacted by a number of
environmental and planning factors, including those involving: noise; discharges and surface water
drainage; flooding; waste handling, management and disposal; climate change; and energy use and
efficiency. Compliance with present or future environmental, health and safety and planning
requirements may be costly and time consuming and interfere with HS1’s existing activities and
operations. Failure to comply with present or future environmental, health and safety and planning
requirements could result in the imposition of fines, breach of the Access Regulations and other
regulatory requirements, liability to pay damages and the withdrawal of relevant consents and in the
case of a breach of safety requirements where NR(HS) loses its safety consents, an obligation on HS1
to procure a replacement operator of High Speed 1.
Extensive regulation of the Rail Industry which entails certain political, legal and regulatory
risks
Like all other businesses in the UK, HS1’s business is subject to numerous laws and regulations
governing safety procedures, equipment specifications, employment requirements, environmental
procedures, insurance coverage, taxation, pensions and other operating issues and considerations.
These laws and regulations are subject to constant change.
There is a risk that HS1 could be adversely affected by any legislative and/or regulatory changes
impacting the rail industry that may be proposed in the future, whether in response to the competition
commission’s findings or more generally arising from a change of government and/or any review of
rail policy, which may have a material adverse effect on HS1’s business, financial condition, results of
operations or prospects (including, without limitation, HS1 incurring significant expenses in respect of
compliance with such legislative and/or regulatory change).
Similarly, HS1 bears the risk of changes in laws and public policies in general, including potential
changes in tax laws or accounting policies and practices, which may result in expenses in respect of
compliance and therefore could have a material adverse effect on HS1’s business, financial condition,
results of operations or prospects.
FINANCING RISKS
Market and financing risks
HS1 will need to raise further debt from time to time in order, among other things, to:
(a)
finance or refinance future capital expenditure; and
(b)
enable it to refinance any debt, including any debt under the Senior Term Facilities on or
before its Final Maturity Date.
Therefore, HS1 is exposed to market risks resulting from mismatches between HS1’s capital
requirements and its access to capital in the future. HS1’s cost of funding may be influenced by, among
other things, its own operating performance and general economic conditions. Although HS1 has not
been materially impacted by current economic conditions, if financial markets deteriorate there could
be an adverse effect on HS1’s ability to refinance its existing debt as and when required.
Moreover, HS1 is exposed to market risks resulting from mismatches between HS1’s capital
requirements and the revenue generated as a result of the Concession Agreement. HS1’s future capital
requirements and level of expenses will depend on numerous factors, including, amongst other things,
capital expenditure caused by compliance with new safety requirements, continued demand for the
international rail services operated on High Speed 1, the amount of cash generated from its operations
and general industry and economic conditions. There can be no assurance that HS1 will be able to enter
into new contracts on favourable terms upon the expiration or termination of existing contracts. The
inability to cover long term funding costs through revenue streams could have a material adverse effect
on HS1’s business, financial condition, results of operations or prospects.
Hedging Risks
The Security Group and the Issuer have a Hedging Policy in place to mitigate the risks arising from
mismatches in cash flows received and payable from time to time. For more detail on the Hedging
Policy see “Summary of the Finance Documents – Common Terms Agreement – Hedging”.
In order to address interest rate risks, inflation rate risks and/or currency risks, the Security Group and
the Issuer operates a hedging programme in accordance with the Hedging Policy and may enter into
Treasury Transactions (for non-speculative purposes only, and such counterparty will not accede to the
STID) which are not subject to the Hedging Policy, in the ordinary course of business. However, there
can be no assurance that the Hedging Agreements adequately address the hedging risks that the
Security Group and/or the Issuer will face from time to time. In addition the Security Group could find
itself over-/under-hedged which could lead to financial stress. The Security Group and the Issuer are
subject to the creditworthiness of, and in certain circumstances early termination of the Hedging
Agreements by, Hedge Counterparties or the counterparties to any Treasury Transaction (see the
section entitled “Summary of the Common Documents – Common Terms Agreement – Hedging
Policy”).
Monitoring of Compliance with Warranties and Covenants and the Occurrence of Trigger
Events, HS1 Events of Default or Potential HS1 Events of Default
The STID provides that the HS1 Security Trustee is entitled to assume, unless it is otherwise disclosed
in any Investor Report or Compliance Certificate or the HS1 Security Trustee is expressly informed
otherwise, that no Trigger Event, Loan Event of Default or Potential Loan Event of Default has
occurred.
Furthermore, as the Issuer is a special purpose company, it will not, nor does it possess the resources to,
actively monitor whether a Trigger Event, Loan Event of Default or a Potential Loan Event of Default
has occurred, including, for this purpose, the continued accuracy of the representations and warranties
made by the Obligors and compliance by the Obligors with their covenants and undertakings.
Accordingly, it will fall to the Obligors themselves to make these determinations. In this context, a
number of these representations, warranties, covenants, undertakings and Loan Events of Default and
Potential Loan Events of Default are qualified by reference to a relevant fact, matter or circumstance
having a Material Adverse Effect. Whilst the criteria set out in the definition of “Material Adverse
Effect” are on their face objective, it will fall to the Obligors themselves to determine whether or not
the relevant fact, matter or circumstance falls within any of the criteria and, as such, the determination
will be subjective for so long as such determination is made by the Obligors.
However, the CTA requires the Obligors to inform the HS1 Security Trustee of the occurrence of any
Trigger Event, Loan Event of Default and Potential Loan Event of Default promptly upon becoming
aware of the same. In addition, the Obligors are required to confirm in each Investor Report and each
Compliance Certificate, each of which will be delivered to, among other recipients, the Issuer and the
HS1 Security Trustee whether or not any Trigger Event, Loan Event of Default or Potential Loan Event
of Default has occurred (and, if one has, what action is being, or proposed to be, taken to remedy it).
Failure promptly to identify a Trigger Event or Loan Event of Default could have a material adverse
effect on Bondholders’ abilities to recover the full amount under the Bonds.
Modifications, waivers and consents in respect of the Common Documents, the Finance
Documents and the Issuer Transaction Documents
HS1 may request the HS1 Security Trustee to agree to any modification to, or to give its consent to any
event, matter or thing relating to, or grant any waiver in respect of, the Common Documents without
any requirement to seek the approval of the HS1 Secured Creditors or any of their Secured Creditor
Representatives, in respect of a Discretion Matter.
The HS1 Security Trustee is entitled to exercise its sole discretion to approve a Discretion Matter if in
the opinion of the HS1 Security Trustee, approval of the STID Proposal (i) is required to correct a
manifest error, or an error in respect of which an English court would reasonably be expected to make a
rectification order, or is of a formal, minor, administrative or technical nature or (ii) is not materially
prejudicial to the interests of the Qualifying HS1 Secured Creditors (where “materially prejudicial”
means that such modification, consent or waiver would have a material adverse effect on the ability of
the Obligors to pay any amounts of principal or interest in respect of the Qualifying HS1 Senior Debt
owed to the relevant Qualifying HS1 Secured Creditors on the relevant due date for payment therefor).
The HS1 Security Trustee is not obliged to exercise its discretion and if it chooses not to do so the
voting category selection procedures set out in the STID and described in the section “Summary of the
Common Documents – Security Trust and Intercreditor Deed” below, will apply.
The Issuer may also request the Bond Trustee to agree to any modification to, or to give its consent to
any event, matter or thing, or grant any waiver in respect of the Issuer Transaction Documents (other
than the Dealership Agreement and each Subscription Agreement) (subject as provided in the STID in
relation to any Common Documents) without the consent or sanction of the Bondholders or (subject as
provided below) any other Issuer Secured Creditor.
The Bond Trustee may without the consent or sanction of Bondholders, the Receiptholders, the
Couponholders and the other Issuer Secured Creditors, concur with, or instruct the Issuer Security
Trustee to concur with the Issuer or any other relevant parties in making (i) any modification to the
Conditions or the Issuer Transaction Documents (other than the Dealership Agreement and each
Subscription Agreement) (subject as provided in the STID in relation to any Common Documents) or
other document to which it is a party or in respect of which the Issuer Security Trustee holds security if
in the opinion of the Bond Trustee such modification is made to correct a manifest error, or an error in
respect of which an English court would reasonably be expected to make a rectification order, or is of a
formal, minor, administrative or technical nature or (ii) any modification (other than in respect of a
Basic Terms Modification) to the Conditions or any Issuer Transaction Document (other than the
Dealership Agreement and each Subscription Agreement) (subject as provided in the STID in relation
to any Common Documents) or other document to which it is a party or in respect of which the Issuer
Security Trustee holds security if the Bond Trustee is of the opinion that such modification is not
materially prejudicial (where “materially prejudicial” means that such modification, consent or waiver
would have a material adverse effect on the ability of the Issuer to pay any amounts of principal or
interest in respect of the Bonds on the relevant due date for payment therefor) to the interests of the
Bondholders provided that to the extent such modification under (ii) above relates to an Issuer Secured
Creditor Entrenched Right, each of the affected Issuer Secured Creditors has given its prior written
consent.
The Bond Trustee may, without prejudice to its rights in respect of any subsequent breach or Bond
Event of Default, from time to time and at any time but only if and in so far as in its opinion the
interests of the Bondholders shall not be materially prejudiced (where “materially prejudiced” means
that such waiver would have a material adverse effect on the ability of the Issuer to pay any amounts of
principal or interest in respect of the Bonds on the relevant due date for payment therefor) thereby,
waive or authorise (or instruct the Issuer Security Trustee to waive or authorise) any breach or
proposed breach by the Issuer of any of the covenants or provisions contained in the Conditions or any
Issuer Transaction Document (other than the Dealership Agreement and each Subscription Agreement)
(subject as provided in the STID in relation to any Common Documents) to which it is a party or in
respect of which it holds security or determine that any event which would otherwise constitute a Bond
Event of Default or Potential Bond Event of Default shall not be treated as such for the purposes of the
Bond Trust Deed provided that to the extent such event, matter or thing relates to an Issuer Secured
Creditor Entrenched Right, each of the affected Issuer Secured Creditors has given its prior written
consent.
Pursuant to the Issuer Deed of Charge, the Bond Trustee is authorised to execute and deliver on behalf
of each such Issuer Secured Creditor all documentation required to implement such modification and
such execution and delivery by the Bond Trustee binds each of the Issuer Secured Creditors as if such
documentation had been duly executed by it.
There can be no assurance that any modification, consent or waiver in respect of the Common
Documents or Issuer Transaction Documents will be favourable to all Bondholders. Such changes may
be detrimental to the interests of some or all Bondholders, despite the ratings of such Bonds being
affirmed.
The conditions of the Bonds contain provisions for voting by Bondholders to vote on matters affecting
their interests generally (other than matters which concern the enforcement of the Issuer Security or
modifications to the STID, which matters may only be addressed in accordance with the procedures set
out in the STID as described above). These provisions permit defined majorities to bind all
Bondholders including Bondholders who do not vote on the relevant matter and Bondholders who
voted in a manner contrary to the majority.
Voting by the Bondholders in respect of a STID Proposal
The Bondholders exercise their right to vote by “blocking” their Bonds in the clearing system and
delivering irrevocable instructions to the Registrar or the Principal Paying Agent that the votes in
respect of their Bonds are to be cast in a particular way. In respect of modifications, consents and
waivers to the Common Documents, the Bond Trustee (as Secured Creditor Representative) is required
to notify the HS1 Security Trustee of each vote received by the Registrar or the Principal Paying Agent
no later than the Business Day on which any vote is received. The STID provides that as soon as the
HS1 Security Trustee has received sufficient votes from the HS1 Secured Creditors (including the
Bond Trustee as Secured Creditor Representative of the Bondholders) in favour of a consent,
modification or waiver of a Common Document, the Decision Period will be closed and no further
votes will be taken into account by the HS1 Security Trustee.
Accordingly, unless a Bondholder exercises its right to vote at the beginning of a Decision Period, it is
possible that a consent, modification or waiver of a Common Document may be approved by the HS1
Secured Creditors before such Bondholder has participated in any vote and any consent, modification
or waiver of a Common Document duly approved by the HS1 Secured Creditors shall be binding on all
of the Bondholders, Receiptholders and Couponholders.
Liquidity Facility
The Liquidity Facility is available to both the Obligors and the Issuer to provide liquidity support in
respect of payments of scheduled amortisation, interest and fee amounts payable in respect of the Initial
Authorised Credit Facilities, the Bonds, the PP Notes, the Hedging Agreements and certain other
payments due to the HS1 Secured Creditors and the Issuer Secured Creditors. However, there can be no
assurance that funds available under the Liquidity Facility will be sufficient to cover any such shortfall.
This may lead to an early termination of one or more Hedging Agreements, a default under the Bonds
or the PP Notes, or a default under any other facilities supported by the Liquidity Facility and,
subsequently, a default under the CTA. Any such default could adversely affect the ability of the
Obligors and the Issuer to make payments due to the HS1 Secured Creditors and the Issuer Secured
Creditors.
Capital Structure
Because of the secured nature of its borrowings and the structure that applies to them, HS1 has been
able to raise more debt than would typically be the case for an unsecured borrower. HS1 has and will
continue to have a substantial amount of outstanding indebtedness with significant debt service
requirements. In addition, HS1 retains the ability to incur additional indebtedness in the future to
finance their capital investment programmes. This significant leverage could have important
consequences for Bondholders, including:
•
making it more difficult for HS1 to satisfy their obligations under each IBLA and therefore for
the Issuer in respect of the Bonds;
•
requiring HS1 to dedicate a substantial portion of their cashflow from operations to payments
on its debt obligations, thus reducing the availability of its cashflow to fund growth and for
other general corporate purposes; and
•
increasing HS1’s vulnerability to a downturn in its business, economic or industry conditions.
OTHER LEGAL RISKS
Mortgagee in possession liability
Should the HS1 Security Trustee take enforcement procedures under the HS1 Security Documents and
if there is physical entry into possession of any stations or an act of control or influence that may
amount to possession, such as receiving rental income directly from a relevant tenant, the HS1 Security
Trustee may be deemed to be a mortgagee in possession. A mortgagee in possession may incur
liabilities to third parties in nuisance and negligence and, under certain statutes (including
environmental legislation), can incur the liabilities of a property owner. The HS1 Security Trustee has
the absolute discretion at any time to refrain from taking any action under the Common Documents,
including becoming a mortgagee in possession in respect of any station, unless it is satisfied at the time
that it is adequately indemnified by the HS1 Secured Creditors.
Change of law
The transactions described in this Prospectus (including the issue of the Bonds) and the ratings which
are assigned to the Bonds are based on the relevant law and administrative practice in effect as at the
date hereof, and having regard to the expected tax treatment of all relevant entities under such law and
practice. It is possible that, whether as a result of case law or through statute, changes in law or
regulations, or their interpretation or application may result in either the Issuer’s or the Security
Group’s debt financing arrangements as originally structured no longer having the effect anticipated or
which could have a material adverse effect on the Issuer’s or the Security Group’s business, financial
condition and results of operation and/or could adversely affect the rights, priorities of payments and/or
treatment of holdings in the Bonds of the Bondholders.
Challenges by secured creditors
The financing transactions described in this Prospectus have been structured based on English law and
practice as in effect on the date of this Prospectus. It is possible that a secured creditor which is subject
to laws other than the laws of England and Wales may seek to challenge the validity and/or
enforceability of one or more features of the financing structure under the local laws of such creditor's
jurisdiction. Potential investors should be aware that the outcome of any such challenge may depend
on a number of factors, including but not limited to, the application of the laws of a jurisdiction other
than England and Wales. There can be no assurance that any challenge would not adversely affect
directly or indirectly the rights of the other secured creditors, including the Bondholders, the market
value of the Bonds and/or the ability of the Issuer to make interest and principal payments on the
Bonds.
TAX RISKS
The Issuer's UK tax position
The Taxation of Securitisation Companies Regulations 2006 as amended (the “Securitisation
Regulations”) which take effect under Chapter 4, Part 13, of the Corporation Tax Act 2010 deal with
the corporation tax position of securitisation companies with effect for periods of account beginning on
or after 1 January 2007. The Issuer has been advised that it should be taxed in accordance with the
Securitisation Regulations.
If the Securitisation Regulations apply to a company, then, broadly it will be subject to corporation tax
on the cash profit retained by it for each accounting period in accordance with the transaction
documents.
Prospective investors should note that if the Issuer were not taxed under the regime provided for by
Securitisation Regulations, then its profits or losses for tax purposes might be different from its cash
position. Any unforeseen taxable profits in the Issuer could have an adverse affect on its ability to make
payments to Bondholders.
Potential secondary tax liabilities of the members of Security Group and the Issuer
Where a company fails to discharge certain tax liabilities within a specified time period, UK tax law
imposes, in certain circumstances (including where that company has been sold so that it becomes
controlled by another person), secondary liability for those overdue taxes on other companies that are
or have been members of the same group of companies, or are or have been under common control, for
tax purposes with the company that has not discharged its tax liabilities.
Under the Tax Deed of Covenant, the Covenantors (defined in the Tax Deed of Covenant) and the
members of the Security Group (defined in the Tax Deed of Covenant and including Holdco, HS1,
HSRF and the Issuer) represent that nothing has been done, and covenant that nothing will be done by
them, which might reasonably be expected to give rise to any secondary tax liability in any member of
the Security Group. The Tax Deed of Covenant also contains a covenant from the Covenantors to
discharge secondary tax liabilities that arise to members of the Security Group as a result of acts or
omissions of persons who are neither members of the Security Group nor Covenantors. If, however,
any such secondary tax liabilities do arise in the Issuer or HS1, and those secondary tax liabilities are
not discharged by the Covenantors, and are of significant amounts, the Issuer or HS1 could be
adversely affected.
The Issuer and the other members of the Security Group are members of a value added tax group of
which HS1 is the representative member. Members of a value added tax group are jointly and severally
liable for value added tax liabilities of each member of the group.
Withholding tax in respect of the Bonds
In the event that any withholding or deduction for or on account of tax is required to be made from
payments due under the Bonds, none of the Issuer, any Paying Agent nor any other person will be
obliged to pay any additional amounts to Bondholders or, if Definitive Bonds are issued,
Couponholders, or otherwise to compensate Bondholders or Couponholders for the reduction in the
amounts they will receive as a result of such withholding or deduction. See “Tax Considerations” for a
discussion of the risk of withholding taxes applying in respect of payments under the Bonds.
Withholding tax in respect of each IBLA
The Issuer and HS1 believe that all payments of interest made under an IBLA can be made without
deduction or withholding for or on account of any UK tax. In the event that any withholding or
deduction for or on account of tax is required to be made from any payment due to the Issuer under an
IBLA, HS1 is and will be obliged to gross up that payment so that, after the deduction or withholding
has been made, the Issuer will receive the same cash amount that it would have received had no such
withholding or deduction been required to be made. If HS1 is obliged to increase any sum payable by
it to the Issuer as a result of HS1 being required to make a withholding or deduction from that payment,
HS1 will have the option (but not the obligation) to prepay all relevant outstanding advances made
under the IBLA in full. If HS1 chooses to prepay the advances, the Issuer will then be required to
redeem the Bonds. Such redemption would be for an amount calculated in accordance with Condition
8 (Redemption, Purchase and Cancellation). If HS1 does not have sufficient funds to enable it to
either repay the advances or to make increased payments to the Issuer, the Issuer’s ability to make
payments of interest and principal under the Bonds could be adversely affected.
Withholding tax in respect of the Hedging Agreements
The Issuer and the members of the Security Group believe that all payments made under the Hedging
Agreements can be made without deduction or withholding for or on account of any UK tax.
In the event that any such withholding or deduction is required to be made from any payment due under
a Hedging Agreement by the Hedge Counterparty, the amount to be paid will be increased to the extent
necessary to ensure that, after any such withholding or deduction has been made, the amount received
by the Security Group or the Issuer (as applicable) is equal to the amount that that party would have
received had such withholding or deduction not been required to be made. In the event that any such
withholding or deduction is required to be made from any payment due under a Hedging Agreement by
the Issuer or by a member of the Security Group, the Issuer or such member of the Security Group will
make payment subject to that withholding or deduction but will not be required to pay any additional
amount to any Hedge Counterparty in respect thereof. If a Hedge Counterparty is obliged to pay an
increased amount as a result of its being obliged to make such a withholding or deduction or if the
Issuer or a member of the Security Group makes a payment to it subject to such a withholding or
deduction, the Hedge Counterparty may terminate the transactions under the relevant Hedging
Agreement, subject to the Hedge Counterparty’s obligation to use its reasonable efforts to transfer its
rights and obligations under that Hedging Agreement to another of its offices or affiliates such that
payments made by and to that other office or affiliate under that Hedging Agreement can be made
without any withholding or deduction for or on account of tax.
FATCA Withholding
Whilst the Bonds are in global form and held within Euroclear or Clearstream, Luxembourg (together,
the “ICSDs”), in all but the most remote circumstances, it is not expected that FATCA will affect the
amount of any payment received by the ICSDs (see “Tax Considerations – U.S. Foreign Account Tax
Compliance Withholding”). However, FATCA may affect payments made to custodians or
intermediaries (including any clearing system other than Euroclear or Clearstream, Luxembourg) in the
payment chain leading to the ultimate investor if any such custodian or intermediary generally is unable
to receive payments free of FATCA withholding. It also may affect payments to any ultimate investor
that is a financial institution that is not entitled to receive payments free of withholding under FATCA,
or an ultimate investor that fails to provide its broker (or other custodian or intermediary from which it
receives a payment) with any information, forms, other documentation or consents that may be
necessary for the payments to be made free of FATCA withholding. Investors should choose the
custodians or intermediaries with care (to ensure each is compliant with FATCA or other laws or
agreements related to FATCA, including any legislation implementing intergovernmental agreements
relating to FATCA, if applicable), and provide each custodian or intermediary with any information,
forms, other documentation or consents that may be necessary for such custodian or intermediary to
make a payment free of FATCA withholding. Investors should consult their own tax adviser to obtain a
more detailed explanation of FATCA and how FATCA may affect them. The Issuer’s obligations
under the Bonds are discharged once it has made payment to, or to the order of, the common depositary
or common safekeeper for the ICSDs (as bearer of the Bonds) and the Issuer has therefore no
responsibility for any amount thereafter transmitted through hands of the ICSDs and custodians or
intermediaries. Further, foreign financial institutions in a jurisdiction which has entered into an
intergovernmental agreement with the United States (an “IGA”) are generally not expected to be
required to withhold under FATCA or an IGA (or any law implementing an IGA) from payments they
make on securities such as the Bonds.
EU Savings Directive
Under Council Directive 2003/48/EC on the taxation of savings income (the “Savings Directive”)
Member States are required to provide to the tax authorities of another Member State details of
payments of interest and other similar income paid by a person established within its jurisdiction to (or
for the benefit of) an individual resident or certain limited types of entity established in that other
Member State. However, for a transitional period Austria is instead required (unless during such
period it elects otherwise) to operate a withholding tax in relation to such payments (subject to a
procedure whereby, on meeting certain conditions, the beneficial owner of the interest or other income
may request that no tax be withheld). The transitional period will end after agreement on exchange of
information is reached between the European Union and certain non-European Union states. A number
of third countries (including Switzerland) have adopted equivalent measures (a withholding system in
the case of Switzerland).
The Council of the European Union has adopted a Directive (the “Amending Directive”) which
amends and broadens the scope of the requirements of the Savings Directive described above. The
Amending Directive expands the range of payments covered by the Savings Directive, in particular to
include additional types of income payable on securities, and the circumstances in which payments
must be reported or paid subject to withholding. For example, payments made to (or secured for) (i) an
entity or legal arrangement effectively managed in an Member State that is not subject to effective
taxation, or (ii) a person, entity or legal arrangement established or effectively managed outside of the
EU (and outside any third country or territory that has adopted similar measures to the Savings
Directive) which indirectly benefit an individual resident in a Member State, may fall within the scope
of the Savings Directive, as amended. The Amending Directive requires Member States to adopt
national legislation necessary to comply with it by 1 January 2016, which legislation must apply from 1
January 2017.
If a payment were to be made or collected through a Member State which has opted for a withholding
system and an amount of or in respect of tax were to be withheld from that payment pursuant to the
Savings Directive or any law implementing or complying with, or introduced to conform to the Savings
Directive, neither the issuer nor any Paying Agent nor any other person would be obliged to pay
additional amounts with respect to any Bond as a result of the imposition of such withholding tax. The
Issuer is required to maintain a Paying Agent with a specified office in a Member State that is not
obliged to withhold or deduct tax pursuant to the Savings Directive or any law implementing or
complying with, or introduced to conform to, the Savings Directive. However, investors should be
aware that any custodians or intermediaries through which they hold their interest in the Bonds may
nonetheless be obliged to withhold or deduct tax pursuant to such laws unless the investor meets certain
conditions, including providing any information that may be necessary to enable such persons to make
payments free from withholding and in compliance with the Savings Directive, as amended.
The Commission has published a proposal to repeal the Savings Directive from 1 January 2016 (subject
to transitional arrangements so that certain obligations under the Savings Directive will continue to
apply until 5 October 2016 and 31 December 2016 (and 30 June 2017 in the case of Austria), or until
those obligations have been fulfilled) to prevent overlap with Council Directive 2011/16/EU on
Administrative Cooperation in the field of Taxation (as amended by Council Directive 2014/107/EU).
Investors who are in any doubt as to their position should consult their professional advisers.
Change in tax law
The statements in relation to taxation set out in this Prospectus are based on current law and the
practice of the relevant authorities in force or applied at the date of this Prospectus. No assurance can
be given as to the effect of any changes in such law or practice after the date of this Prospectus. Any
changes in such law or practice might have an adverse effect on the financial position of the Issuer or
HS1.
Trade losses
A UK resident trading company is permitted, where certain conditions are met, to carry forward trading
losses incurred in previous accounting periods to reduce its taxable trading profits in subsequent
accounting periods
Chapter 2, Part 14 of the Corporation Tax Act 2010 restricts the carry forward of trading losses in
circumstances where there has been both a change of ownership of the trading company and, within
three years of that change (either before or after), a major change in the nature or conduct of its trade. A
change in ownership of HS1 took place in November 2010 and so it was necessary to ensure that there
was no relevant change in the nature or conduct of HS1’s trade. HS1 believes that no such change has
taken place within the three year period surrounding the change in ownership (both before and after).
HM Revenue & Customs (“HMRC”) have until 31 March 2016 to challenge HS1’s view; no such
challenge has been received, or is expected. Prospective investors should note that if HMRC were to
successfully argue that there was a major change in the nature or conduct of HS1’s trade within three
years of its change in ownership in November 2010, so that HS1 is not able to utilise its carried forward
trading losses, this could adversely impact HS1’s financial position in that HS1 may be required to
fund payment of corporation tax on its trading profits at an earlier date than is currently forecast. This
could potentially have an adverse effect on HS1’s ability to make payments to the Issuer under the
IBLAs, and in turn on the Issuer’s ability to make payments to the Bondholders under the Bonds.
INSOLVENCY CONSIDERATIONS
Appointment of Administrative Receiver
The Insolvency Act restricts the right of the holder of a floating charge to appoint an administrative
receiver (unless the security was created prior to 15 September 2003 or an exception applies) and
instead gives primacy to collective insolvency procedures (in particular, administration).
The Insolvency Act contains provisions that allow for the appointment of a receiver in relation to
certain transactions in the capital markets (the “capital markets exception”). Whilst there is as yet no
case law on how the capital markets exception will be interpreted, it should be possible to appoint an
administrative receiver to HS1 or the Issuer. Were it not to be possible to appoint an administrative
receiver in respect of one or more of HS1 or the Issuer, they would in all likelihood be subject to
administration (see “Railway administration” below in relation to HS1) if they were to become
insolvent.
The UK Secretary of State for Business, Innovation and Skills may, by secondary legislation, modify
the exceptions to the prohibition on appointing an administrative receiver and/or provide that the
exception shall cease to have effect. No assurance can be given that any such modification or provision
in respect of the capital market exception, or its ceasing to be applicable to the transactions described
herein, will not be detrimental to the interests of the Bondholders.
Railway administration
HS1 is a “protected railway company” for the purposes of the Railways Act. As such, it is subject to
the special railway administration regime set out in the Railways Act. Under the regime, the Secretary
of State alone could petition a court to have a railway administrator appointed in respect of HS1 where
HS1 is either unable to pay its debts or it is just and equitable for the Secretary of State to seek HS1’s
winding up.
However, the Secretary of State has agreed under the Funders’ Direct Agreement not to take any action
to wind up, appoint or consent to the appointment of an administrator (including a railway
administrator) in relation to HS1.
Recharacterisation of fixed security interest
There is a possibility that a court could find that the fixed security interests expressed to be created by
the HS1 Security Documents and the Issuer Deed of Charge could take effect as floating charges as the
description given to them as fixed charges is not determinative.
Where the chargor is free to deal with the secured assets without the consent of the chargee, the Court
would be likely to hold that the security interest in question constitutes a floating charge,
notwithstanding that it may be described as a fixed charge.
Whether the fixed security interests will be upheld as fixed security interests rather than floating
security interests will depend, among other things, on whether the HS1 Security Trustee or, as the case
may be, the Issuer Security Trustee has the requisite degree of control over the chargor’s ability to deal
in the relevant assets and the proceeds thereof and, if so, whether such control is exercised by the HS1
Security Trustee or, as the case may be, the Issuer Security Trustee in practice.
If the fixed security interests are recharacterised as floating security interests, the claims of (a) the
unsecured creditors of the chargor in respect of that part of the chargor’s net property which is ringfenced under the Insolvency Act and (b) certain statutorily defined preferential creditors of the chargor,
would have priority over the rights of the HS1 Security Trustee or the Issuer Security Trustee, as the
case may be, to the proceeds of enforcement of such security. Additionally, liquidation expenses could
diminish the amount of the proceeds of enforcement. As a result, the full amount of the proceeds of
enforcement of the security may not be available to repay an IBLA or the Bonds (as applicable).
A receiver appointed by the HS1 Security Trustee or the Issuer Security Trustee would be obliged to
pay preferential creditors out of floating charge realisations in priority to payments to the HS1 Secured
Creditors and the Issuer Secured Creditors (including the Bondholders), respectively. Under the
Insolvency Act the only categories of preferential debts are certain amounts payable in respect of
occupational pension schemes, employee remuneration and levies on coal and steel production.
ISSUER AND BOND CONSIDERATIONS
Special purpose vehicle issuer
The Issuer is a special purpose financing entity established for the purpose of issuing asset backed
securities. The Issuer does not have any business operations other than raising external funding
through the issuance of Bonds, borrowing under the Liquidity Facility and entering into various Issuer
Hedging Agreements. Other than the proceeds of the issuance of Bonds, the Issuer’s principal source
of funds will be pursuant to each IBLA, the Liquidity Facilities and the Issuer Hedging Agreements.
Therefore, the Issuer is subject to all the risks relating to costs, revenues and/or cashflows to which
HS1 is subject. Such risks could limit funds available to HS1 to satisfy in full and on a timely basis its
obligations under the Initial Authorised Credit Facilities Agreement and/or each IBLA.
Reliance by the Issuer and the Security Group on third parties and Hedge Counterparties
The integrity of the structure and the ability of HS1 to pay amounts due under each IBLA and the
ability of the Issuer to pay amounts due under the Bonds depend upon a number of third-parties such as
the Account Bank and the Hedge Counterparties. In the event that one or more of those parties is
downgraded by one or more of the Rating Agencies or if one or more of such third parties defaults on
its obligations to make payments to the Issuer or HS1, this may have an adverse effect on the rating of
the Bonds and/or the ability of the Issuer or HS1 to satisfy its payment obligations in full. If a Hedging
Agreement is terminated, the Issuer and HS1 may be exposed to fluctuations in interest rates and/or
currencies that were previously hedged. Upon any such termination, the Issuer or HS1, as applicable
may be obliged to make a termination payment to the relevant Hedge Counterparty. There can be no
assurance that the Issuer or HS1, as applicable will have sufficient funds available to make a
termination payment under the relevant Hedging Agreement, nor can there be any assurance that the
Issuer or HS1 will be able to enter into a replacement hedging agreement, or if one is entered into, that
the credit rating of the replacement hedge counterparty will be sufficiently high to prevent a downgrade
of the then current ratings of the Bonds by the Rating Agencies.
The Issuer Security and HS1 Security
Although the Issuer Security Trustee holds the benefit of the Issuer Security on trust for the Issuer
Secured Creditors (including the Bondholders) and the HS1 Security Trustee holds the benefit of the
HS1 Security on trust for HS1 Secured Creditors (including the Issuer), such security interests are also
held on trust for certain third parties. Certain of the Issuer's obligations to such third parties rank ahead
of the Bondholders. Such persons include, inter alios, the Bond Trustee (in its individual capacity), the
Issuer Security Trustee (in its individual capacity), the Liquidity Facility Providers, the Hedge
Counterparties (in respect of certain amounts due to them), the Paying Agents and the Account Bank in
respect of certain amounts owed to them (see “Summary of the Issuer Transaction Documents – Issuer
Deed of Charge”). To the extent that significant amounts are owing to such persons, the amounts
available to Bondholders will be reduced. Likewise, certain of the Obligors’ obligations to certain third
parties rank ahead of its obligations to the Issuer. In addition, it should be noted that unsecured
creditors of the Obligors, such as trade creditors and suppliers, although subordinate to HS1 Secured
Creditors, are not bound into the financing structure as they are not parties to the STID and CTA and so
will be able to petition for a winding up or administration of HS1 or any Obligor which fails to pay its
debts as they fall due. Any such action may result in the occurrence of an Insolvency Event which
constitutes a Loan Event of Default and may lead to delivery of a Loan Enforcement Notice. To the
extent that the Obligors have insufficient sums to meet all obligations in full, this could adversely affect
HS1’s ability to make payments under each IBLA and consequently the Issuer’s ability to make
payments of interest and principal under the Bonds.
Timing of payments on debt obligations of the Obligors will not necessarily coincide, and, prior to the
occurrence of a Loan Event of Default or a Potential Loan Event of Default there is no obligation to
ensure that a permitted payment made in respect of any Subordinated Intragroup Liabilities will not
lead to a deficiency of funds to make payments in respect of HS1 Senior Debt that falls due on a later
date.
Conflict of interest
The Issuer Deed of Charge contains provisions requiring the Issuer Security Trustee to act only in
accordance with the directions of the Bond Trustee prior to redemption in full of all of the Bonds.
Following redemption in full of all of the Bonds, the Issuer Security Trustee shall have regard to the
interests of the person appearing highest in the order of priority of payments to whom any amount is
owed under the Issuer Deed of Charge with respect to all powers, trusts, authorities, duties and
directions of the Issuer Security Trustee.
The Bond Trust Deed requires the Bond Trustee to have regard to the interests of all the Bondholders
(so long as any of the Bonds remains outstanding) equally as regards all powers, trusts, authorities,
duties and discretions of the Bond Trustee as if they formed a single class (except where expressly
required otherwise).
For so long as any of the Bonds are outstanding, the Bond Trustee shall not be bound to take any steps,
proceedings or other actions unless:
(a)
it shall have been indemnified and/or secured and/or prefunded to its satisfaction against all
liabilities, proceedings, claims and demands to which it may be or become liable and all costs,
charges and expenses which may be incurred by it in connection therewith; and
(b)
it shall have been directed or requested to do so by Issuer Qualifying Creditors together
holding or representing 25 per cent. or more of Issuer Qualifying Debt.
The Bond Trustee may give its consent to any amendment to, or grant any waiver under or in respect
of, any term of any Issuer Transaction Document (other than the Dealership Agreement or any
Subscription Agreement) to which it is a party or over which it has security or give its written consent
to any event, matter or thing (without the consent of the Bondholders or any other person) if to do so
would, among other things, not in its opinion be materially prejudicial to the interests of the
Bondholders (where “materially prejudicial” means that such modification, consent or waiver would
have a material adverse effect on the ability of the Issuer to pay any amounts of principal or interest in
respect of the Bonds on the relevant due date for payment therefor), or in certain circumstances, where
a specified test or conditions have been met.
Limited liquidity of the Bonds; Absence of secondary market for the Bonds
There can be no assurance that a secondary market for the Bonds will develop, or, if a secondary
market does develop for any of the Bonds issued after the date of this Prospectus, that it will provide
any holder of Bonds with liquidity or that any such liquidity will continue for the life of the Bonds.
Consequently, any purchaser of the Bonds must be prepared to hold such Bonds for an indefinite period
of time or until final redemption or maturity of the Bonds.
The liquidity and market value at any time of the Bonds are affected by, among other things, the market
view of the credit risk of such Bonds and will generally fluctuate with general interest rate fluctuations,
general economic conditions, the condition of certain financial markets, international political events
and the performance and financial condition of HS1.
Rating of the Bonds
A rating is not a recommendation to buy, sell or hold securities and will depend, among other things,
on certain underlying characteristics of HS1 and the financial condition of the Obligors from time to
time.
The ratings assigned by the Rating Agencies to the Bonds reflect only the views of the Rating Agencies
and in assigning the ratings the Rating Agencies take into consideration the credit quality of HS1 and
structural features and other aspects of the transaction. There is no assurance that any such ratings will
continue for any period of time or that they will not be reviewed, revised, suspended or withdrawn
entirely by the Rating Agencies as a result of changes in, or unavailability of, information or if, in the
Rating Agencies' judgment, circumstances so warrant. If any rating assigned to the Bonds is lowered or
withdrawn, the market value of the Bonds may be reduced. Future events, including events affecting
HS1 and/or circumstances relating to the rail industry generally, could have an adverse impact on the
ratings of the Bonds.
Change to covenants subject to Ratings Confirmation
Changes can be made to certain covenants provided that HS1 and/or the Issuer, as the case may be,
obtains a Ratings Confirmation in respect of the particular change. The Rating Agencies may not
provide their confirmation in the time available or at all, and they will not be responsible for the
consequences thereof. A Ratings Confirmation, if given, will be given on the basis of the facts and
circumstances prevailing at the relevant time. A Ratings Confirmation cannot be construed as advice
for the benefit of any party to the transaction. No assurance can be given that, although a Ratings
Confirmation in respect of any particular change has been provided, such change will not have an
adverse impact upon the business of HS1.
Certain risks related to Index-Linked Bonds
The Issuer may issue Bonds with principal or interest determined by reference to the UK RPI.
Potential investors should be aware that:
●
the market price of such Bonds may be volatile;
●
they may receive no interest;
●
payment of principal or interest may occur at a different time than expected;
●
they may lose all or a substantial portion of their principal;
●
the UK RPI may be subject to significant fluctuations that may not correlate with changes in
interest rates or other indices;
●
if the UK RPI is applied to Bonds in conjunction with a multiplier greater than one or contains
some other leverage factor, the effect of changes in the UK RPI on principal or interest
payable likely will be magnified; and
●
the timing of changes in the UK RPI may affect the actual yield to investors, even if the
average level is consistent with their expectations. In general, the earlier the change in the UK
Retail Price Index, the greater the effect on yield,
and as a result, investors may lose the value of their entire investment or part of it in Index-Linked
Bonds. The historical performance of the UK RPI should not be viewed as an indication of the future
performance of such index during the term of any Index-Linked Bonds.
Certain risk related to Bonds issued at a substantial discount or premium
The market values of securities issued at a substantial discount or premium to their principal amount
tend to fluctuate more in relation to general changes in interest rates than do prices for conventional
interest-bearing securities. Generally, the longer the remaining term of the securities, the greater the
price volatility as compared to conventional interest bearing securities with comparable maturities.
Certain risks related to Fixed Rate Bonds
Investment in Fixed Rate Bonds involves the risk that subsequent changes in market interest rates may
adversely affect the value of the Fixed Rate Bonds.
Changes to the risk weighted asset framework
In Europe, the U.S. and elsewhere there is increased political and regulatory scrutiny of the assetbacked securities industry. This has resulted in numerous measures for increased regulation which are
currently at various stages of implementation and which may have an adverse impact on the regulatory
capital charge to certain investors in certain securitisation exposures and/or the incentives for certain
investors to invest in securities issued under such structures, and may thereby affect the liquidity of
such securities.
The Basel Committee on Banking Standards (the “Basel Committee”) has approved significant
changes to the Basel II regulatory capital and liquidity framework (such changes being commonly
referred to as “Basel III”). In particular, Basel III provides for substantial strengthening of existing
prudential rules, including new requirements intended to reinforce capital standards and to establish a
leverage ratio “backstop” and certain minimum liquidity standards (referred to as the “Liquidity
Coverage Ratio” and the “Net Stable Funding Ratio”). It is intended that member countries will
implement the new capital standards and the new Liquidity Coverage Ratio as soon as possible (with
provision for phased implementation such that the measure will not fully apply until January 2019) and
the Net Stable Funding Ratio from January 2018. Implementation of Basel III requires national
legislation and therefore the final rules and the timetable for their implementation in each jurisdiction
may be subject to some level of national variation. The changes approved by the Basel Committee may
have an impact on incentives to hold the Bonds for investors that are subject to requirements that
follow the revised framework and, as a result, they may affect the liquidity and/or value of the Bonds.
Investors should be aware of: (i) Regulation (EU) 575/2013 on prudential requirements for credit
institutions and investment firms and amending Regulation (EU) 648/2012 (the “CRR”); and (ii)
Directive 2006/48/EC, as the same is referenced in Directive 2011/61/EU on Alternative Investment
Fund Managers and Amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No
1060/2009 and (EU) No 1095/2010 (the “AIFMD”) and the application of (iii) Articles 404 to 410 of
the CRR, together with the final regulatory technical standards and implementing technical standards to
the CRR published by the European Banking Authority pursuant to Articles 410(2) and 410(3) of the
CRR and any other applicable guidance, technical standards or related documents published by the
European Banking Authority (including any successor or replacement agency or authority) and any
delegated regulations of the European Commission (and in each case including any amendment or
successor thereto) (together, the “CRR Retention Requirements”) and (iv) Article 17 of the AIFMD,
as implemented by Section 5 of the European Union Commission Delegated Regulation (EU) No.
231/2013 of 19 December 2012 supplementing the AIFMD, including any guidance published in
relation thereto and any implementing laws or regulations in force in any Member State of the
European Union (together, the “AIFMD Retention Requirements” and, together with the CRR
Retention Requirements, the “Risk Retention Requirements”)), which currently apply in respect of
various types of EU regulated investors including credit institutions, authorised alternative investment
fund managers, investment firms, insurance and reinsurance undertakings and UCITS funds. Amongst
other things, such requirements restrict a relevant investor from investing in asset-backed securities
unless (i) that investor is able to demonstrate that it has undertaken certain due diligence in respect of
various matters including its bond position, the underlying assets and (in the case of certain types of
investors) the relevant sponsor or originator and (ii) the originator, sponsor or original lender in respect
of the relevant securitisation has explicitly disclosed to the investor that it will retain, on an ongoing
basis, a net economic interest of not less than 5 per cent. in respect of certain specified credit risk
tranches or asset exposures. Failure to comply with one or more of the Risk Retention Requirements
may result in penalties for relevant investors and/or have a negative impact on the price and liquidity of
bonds in the secondary market. Article 405 of the CRR restricts an EU regulated credit institution and
consolidated group affiliates thereof from investing in a securitisation unless the originator, sponsor or
original lender in respect of that securitisation has explicitly disclosed to the EU regulated credit
institution that it will retain, on an ongoing basis, a net economic interest of not less than 5 per cent. in
that securitisation as contemplated by Article 405. No such disclosure has been made nor is intended to
be made in relation to this transaction.
Article 406 of the CRR also requires an EU regulated credit institution to be able to demonstrate that it
has undertaken certain due diligence in respect of, amongst other things, the notes it has acquired and
the underlying exposures and that procedures have been established for such due diligence to be
conducted on an ongoing basis. Failure to comply with one or more of the requirements set out in
Articles 404 to 410 may result in the imposition of a penal capital charge with respect to the investment
made in the securitisation by the relevant investor.
In particular the CRR Retention Requirements provide that an investment or exposure to securitisations
by certain credit institutions and investment will be subject to an increased capital charge in respect of
their exposures to securitisation positions, unless the relevant securitisation complies with certain
requirements relating to the retention of net economic interest by the originator, sponsor or the original
lender. The CRR Retention Requirements also impose certain due diligence obligations on the
investors in securitisation positions.
Also, on 22 July 2013, the AIFMD, as supplemented by Commission Delegated Regulation 231/2013,
became effective. It introduced the AIFMD Retention Requirements which are measures similar to
those in the CRR Retention Requirements and which apply to EEA managers of alternative investment
funds who invest in securitisations on behalf of the alternative investment funds they manage.
Although the AIFMD Retention Requirements are similar to the CRR Retention Requirements, they are
not identical and include additional and more extensive requirements on underwriting, origination and
due diligence.
The Issuer is of the opinion that the Bonds do not constitute an exposure to a “securitisation” for the
purposes of the CRR or the AIFMD and, as such, the Risk Retention Requirements should not apply to
investments in the Bonds. Therefore, neither the Issuer nor any other Obligor has committed to retain a
material net economic interest in relation to the issuance of any Bonds.
Requirements similar to the Risk Retention Requirements will also apply to investments in
securitisations by other types of EEA investors such as EEA insurance and reinsurance undertakings
and by funds which require authorisation under the UCITS Directive, although many aspects of the
detail and effect of all of these requirements remain unclear.
Prospective investors in the Bonds should therefore make themselves aware of the requirements which
may apply to their investment in the Bonds (including any applicable retention and/or due diligence
requirements) in addition to any other applicable regulatory requirements.
If the Bonds were to constitute an exposure to a securitisation position and the Issuer did not comply
with the Risk Retention Requirements, competent authorities are empowered to impose additional risk
weights against non-compliant securitisations of between 250% and 1,250%.
None of the Issuer, the Obligors or the Dealers is responsible for informing Bondholders of the effects
of the changes to risk weighting which may result for investors from the adoption, implementation
and/or interpretation of the Risk Retention Requirements by their own regulator. Bondholders are
responsible for analysing their own regulatory position. Potential investors should consult their
regulator should they require guidance in relation to the regulatory capital treatment that their regulator
would apply to an investment in the Bonds.
Investors should consult their own advisers as to the regulatory capital requirements in respect of the
Bonds and as to the consequences to and effect on them of any changes to the Basel II framework
(including the Basel III changes described above) and the relevant implementing measures and other
applicable laws and regulations applicable to the investment in, and the holdings of securities such as
the Bonds, including without limitation, the Solvency II Directive and the Alternative Investment Fund
Managers Directive. No predictions can be made as to the precise effects of such matters on any
investor or otherwise.
Denominations and trading
The Bonds will either be Bearer Bonds or Registered Bonds as specified in the applicable Final Terms
and serially numbered in the Specified Denomination(s) provided that in the case of any Bonds which
are to be admitted to trading on a regulated market within the European Economic Area or offered to
the public in a member state of the European Economic Area in circumstances which require the
publication of a prospectus under the Prospectus Directive, the minimum Specified Denomination shall
be €100,000 or not less than the equivalent of €100,000 in any other currency as at the date of issue of
the relevant Bonds.
Bonds may be issued with a minimum Specified Denomination and higher integral multiples of a
number which is smaller than the Specified Denomination. It is possible that the Bonds may be traded
in amounts in excess of the minimum Specified Denomination that are not integral multiples of the
minimum Specified Denomination. In such a case a Bondholder who, as a result of trading such
amounts, holds a principal amount of less than the minimum Specified Denomination (a) may not be
able to trade such holding and (b) may not receive a Definitive Bond (as defined in the Conditions) in
respect of such holding (should Definitive Bonds be printed) unless such Bondholder purchases a
principal amount of Bonds such that its holding amounts to at least the minimum Specified
Denomination.
If Bonds in definitive form are issued, holders should be aware that Definitive Bonds which have a
denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid
and difficult to trade.
Book-entry form of Bonds
The Bonds will initially only be issued in global form and deposited with a common depositary or
common safekeeper for Euroclear and Clearstream, Luxembourg. Interests in the Global Bonds will
trade in book-entry form only. The common depositary or common safekeeper, or its nominee, for
Euroclear and Clearstream, Luxembourg will be the sole holder of the Global Bonds representing the
Bonds. Accordingly, owners of book-entry interests must rely on the procedures of Euroclear and
Clearstream, Luxembourg, and nonparticipants in Euroclear or Clearstream, Luxembourg must rely on
the procedures of the participant through which they own their interests, to exercise any rights and
obligations of a holder of Bonds.
Unlike the holders of the Bonds themselves, owners of book-entry interests will not have the direct
right to act upon the Issuer’s solicitations for consents, requests for waivers or other actions from
holders of the Bonds. The procedures to be implemented through Euroclear and Clearstream,
Luxembourg may not be adequate to ensure the timely exercise of rights under the Bonds.
Counterparty Risk
Liquidity Facilities and Issuer Hedging Agreements involve HS1 and/or the Issuer entering into
contracts with counterparties. Pursuant to such contracts, the counterparties agree to make payments to
HS1 and/or the Issuer as the case may be under certain circumstances as described therein. HS1 and/or
the Issuer as the case may be will be exposed to the credit risk of the counterparty in respect of any
such payments. Each Issuer Hedge Counterparty and each Liquidity Facility Provider is expected to
have a rating at least equal to the minimum expected ratings applicable to each Rating Agency at the
time when the relevant arrangement is put in place.
The Bonds are subject to exchange rate risks and exchange controls risks.
The Issuer will pay principal and interest on the Bonds in the Specified Currency. This presents certain
risks relating to currency conversions if an investor’s financial activities are denominated principally in
a currency or currency unit (the “Investor’s Currency”) other than the Specified Currency. These
include the risk that exchange rates may significantly change (including changes due to devaluation of
the Specified Currency or revaluation of the Investor’s Currency) and the risk that authorities with
jurisdiction over the Investor’s Currency may impose or modify exchange controls. The Issuer has no
control over the factors that generally affect these risks, such as economic, financial and political
events and the supply and demand for applicable currencies. Moreover, if payments on certain Bonds
are determined by reference to a formula containing a multiplier or leverage factor, the effect of any
change in the exchange rates between the applicable currencies will be magnified. In recent years,
exchange rates between certain currencies have been highly volatile and volatility between such
currencies or with other currencies may be expected in the future. Fluctuations between currencies in
the past are not necessarily indicative, however, of fluctuations that may occur in the future. An
appreciation in the value of the Investor’s Currency relative to the Specified Currency would decrease
the Investor’s Currency-equivalent yield on the Bonds, the Investor’s Currency-equivalent value of the
principal payable on the Bonds and the Investor’s Currency-equivalent market value of the Bonds.
Government and monetary authorities may impose (as some have done in the past) exchange controls
that could adversely affect an applicable exchange rate. As a result, investors may receive less interest
or principal than expected, or no interest or principal.
BUSINESS OF HS1
History & Business
Overview
HS1 holds the HS1 Concession pursuant to the Concession Agreement and other related agreements
including the HS1 Leases (together, the “Concession Documents”) to operate, manage and maintain
High Speed 1. High Speed 1 comprises the 109 kilometre high speed rail line connecting St Pancras
International to high-speed commuter services throughout Kent, and international passenger
destinations in Europe such as Paris and Brussels via the Channel Tunnel, as well as the four stations
along the route, St Pancras International, Stratford International, Ebbsfleet International (the “HS1
Stations”) and Ashford International.
The following diagram shows the High Speed 1 rail and station infrastructure:
High Speed 1 is a modern, high performance, high speed rail line and is the UK’s only high speed
railway. It forms the UK section of the Paris-Brussels-Köln-Amsterdam-London trans-European
transport network priority project. High Speed 1 was built in two sections, with the final section
opening in 2007. Domestic high speed preview passenger services commenced in June 2009 with full
services launched in December 2009.
High Speed 1 is predominantly a high-speed passenger railway. In the year ended 31 March 2014,
High Speed 1 handled 54,155 and 18,833 domestic and international train paths respectively. High
Speed 1 is also capable of carrying freight traffic and HS1 also has freight operating train customers
(though they operate a very small number of services relative to the number of passenger services
operating on the route).
HS1 generates revenue from regulated track and station access charges from international and domestic
train operators, with additional revenue earned through unregulated retail, advertising and car parking
activities. Domestic passenger rail service revenue represents approximately 60% of total revenue and
is supported by the UK government, which has committed to underpin domestic passenger services for
the term of the Concession Agreement – see “Overview of the Project Documents – The Domestic
Underpinning Agreement”.
As described in more detail below, the operation, maintenance, renewal and replacement of the High
Speed 1 railway infrastructure (excluding the electrical power supply equipment), the HS1 Stations and
the Singlewell Infrastructure Maintenance Depot have been sub-contracted to NR(HS). The operation,
maintenance, renewal and replacement of Ashford International have been sub-contracted to Mitie
since September 2013. The UKPN Parties are responsible for the operation, maintenance and renewal
of the electricity power supply equipment for High Speed 1 pursuant to the UKPN Agreements.
High Speed 1 is owned by the UK government, but the rights to exploit the infrastructure comprising
High Speed 1 and leases of the assets comprising that infrastructure were granted to HS1 under the
Concession Agreement and the HS1 Leases respectively in November 2010. HS1 is wholly owned by
two major global infrastructure investors – Borealis Infrastructure and Ontario Teachers’ Pension Plan
– see “Corporate Structure” below.
Strategy
HS1’s vision is creating value by being recognised as the world’s leading high speed railway business.
Its strategic objectives to achieve this vision are to protect existing revenues, as well as to pursue
incremental opportunities to grow revenue. HS1 has the following values:
•
safety is no accident, we all play our part;
•
winning by inches;
•
punching above our weight; and
•
personal feel, professional delivery.
HS1 seeks to deliver on its strategy by seeking excellence in the following five key areas:
•
safety;
•
assets;
•
customers / relationships;
•
financial; and
•
reputation and sustainability.
History
High Speed 1 was built in two sections – Section 1, from the Channel Tunnel to Southfleet
Junction/Fawkham Junction in North Kent, opened to international passenger services in
September 2003 and served by Waterloo International train station (which was not part of the HS1
network) until November 2007; Section 2, from St Pancras International, via new stations at Stratford
International and Ebbsfleet International to Southfleet Junction, opened on 14 November 2007, at
which time all services to Waterloo International ceased. Ashford International predates the
construction of Section 1 but leasehold interests in the station and associated platforms were granted to
HS1 in August 2010.
Corporate Structure
Set out below is the corporate structure showing the detail of the ring fenced security group. There are
a number of intermediate holding companies between the shareholders and Holdco.
Shareholders
The ultimate shareholders of HS1 are OMERS Administration Corporation (“OMERS”) (as to 50 per
cent.) and the Ontario Teachers’ Pension Plan Board (“OTPP”) (as to 50 per cent.). There is a
shareholders’ agreement in place governing the exercise of the rights in HS1.
OMERS holds its interest in HS1 through Borealis International Investments Corporation and BPC UK
Rail Corporation. OMERS, one of Canada’s leading pension funds, represents 974 employers and is
responsible for the pension income for approximately 450,000 members, retirees and survivors,
including Ontario municipal workers. OMERS has a AAA credit rating from Standard & Poor’s and as
at 31 December 2014 had over C$72 billion in net investment assets. Borealis Infrastructure
(“Borealis”) identifies, invests in and manages infrastructure assets on behalf of OMERS. As at
December 31, 2014, Borealis managed a portfolio with an enterprise value in excess of C$70 billion.
OTPP is an independent corporation responsible for investing and administering the pensions of
Ontario’s 307,000 active and retired school teachers. With net assets of C$140.8 billion as at 31
December 2013, it is one of the largest financial institutions in Canada. OTPP is a significant long-term
holder of infrastructure assets in North America, Europe and South America. As at 31 December 2013
its infrastructure investments totalled C$11.7 billion.
OTPP
OMERS
50%
50%
Helix Holdings
Limited
Helix Midco
Limited
Helix Bufferco
Limited
Helix
Acquisition
Limited
(HoldCo)
HS1
Limited
-
High Speed Rail
Finance PLC
Ring fence for refinancing structure
Issuer
The HS1 Concession
The Secretary of State has granted HS1 a concession to operate, maintain, repair and renew High Speed
1 until 31 December 2040 (the “HS1 Concession”). During the term of the HS1 Concession, HS1
earns revenues from charging TOCs for access to High Speed 1 under the terms of Track Access
Agreements and Station Access Agreements – see “HS1 Revenues” below.
Regulatory & Contractual Framework
The regulatory regime applicable to High Speed 1 is effected through a combination of contractual
rights (through the Concession Agreement) and statutory duties (through primary and secondary
legislation) that are in each case conferred on the Office of Rail Regulation (the “ORR”) and/or the
Secretary of State.
Regulatory
Secretary of State
for Transport (SoS)
Customers
International passenger
train operators
HLA
DU
TAA
SAA
Int’l & Domestic freight
train operators
Retailers
OA
Track operation
and maintenance
SCA
Station operation
and maintenance
CA
PSA
EA
TAA
HS1
RL
CPC
Power and power
operation partners
Car park operators
Operators and suppliers
Domestic passenger
train operators
Office of Rail
Regulation (ORR)
IA
LA
Car park users
Channel
Tunnel
St. Pancras
interfaces
Property landlords
and developers
Classic
Network
Interfaces
HLA
SAA
PSA
EA
HS1 Lease
Station Access Agreement
Power Supply Agreement
UKPN (EDFE) Suite of Agreement
CA
RL
OA
CPC
DU
Concession Agreement
Retail Leases
Operator Agreement
Car Park Operator Concessions
Domestic Underpinning
TAA
IA
SCA
LA
Track Access Agreement
Interface Agreement
Station Concession Agreement
Lease Agreements
No contractual agreement with HS1 Ltd
Source: HS1
A diagram showing the main regulatory and contractual framework is provided above. Brief
summaries of the regulatory and contractual frameworks are set out immediately below and more
detailed descriptions can be found in “Regulatory Framework and the Project Documents”.
Regulation and relationships
HS1 is a sole supplier and so its stewardship of High Speed 1 is regulated by an independent regulator
– the ORR. This regulation takes three principal forms:
(a)
approving the terms (including amendments thereto) of long term Track Access Agreements
with TOCs;
(b)
periodically approving or determining the operational and maintenance costs that HS1 may
incur and so the level of charges that HS1 can impose on TOCs in relation to those costs in
Track Access Agreements as part of the overall charges levied in return for access to High
Speed 1; and
(c)
enforcing (through notices and orders) HS1’s performance of certain of its obligations in the
Concession Agreement (including its duty to manage the High Speed 1 infrastructure and
meet certain minimum operational standards in making that infrastructure available).
Contracts and relationships
The Concession Agreement
The Concession Agreement is an agreement between the Secretary of State and HS1 pursuant to which,
amongst other things, the Secretary of State grants HS1 a concession to operate, maintain and renew
High Speed 1 for the period to 31 December 2040. Whilst not a party to the Concession Agreement,
the ORR has a duty to enforce HS1’s compliance with certain obligations it has in the Concession
Agreement.
Those obligations include:
(a)
a requirement in operating, maintaining and renewing High Speed 1 to meet certain minimum
operational standards namely infrastructure capability – see “Regulatory Framework and the
Project Documents – Overview of the Project Documents – The Concession Agreement –
Minimum Operational Standards”; and
(b)
an asset stewardship duty that requires HS1 to use best practice to operate, repair and maintain
High Speed 1 in a timely, efficient and economical manner – “Regulatory Framework and the
Project Documents – Overview of the Project Documents – The Concession Agreement –
Asset Stewardship”.
The enforcement procedure that the ORR must follow is set out in the Concession Agreement. Under
that procedure, where HS1 is in breach of any relevant obligations, the ORR may issue enforcement
orders that require HS1’s compliance – see “Regulatory Framework and the Project Documents –
Overview of the Project Documents – The Concession Agreement – Role of the ORR” and “Regulatory
Framework and the Project Documents – Overview of the Project Documents – The Concession
Agreement – Enforcement and termination”.
The ORR also performs an economic regulatory function under the Concession Agreement, agreeing or
determining certain access charges that HS1 can levy from TOCs. In doing this, the ORR will review
and ultimately approve or reject the asset management statement that HS1 proposes every five years
that sets out HS1’s plans for the operation, maintenance, renewal and upgrade of High Speed 1 in the
next five years. See “Regulatory Framework and the Project Documents – Overview of the Project
Documents – The Concession Agreement – Role of the ORR” and “Regulatory Framework and the
Project Documents – Overview of the Project Documents – The Concession Agreement – Economic
regulation”.
HS1 believes that it has positive relationships with the ORR. The ORR prepares an annual report on
HS1
and
the
latest
report
from
July
2014
can
be
found
at:
http://orr.gov.uk/__data/assets/pdf_file/0007/13795/hs1-annual-report-2013-14.pdf. It reports in
summary that:
“HS1 Ltd has performed very well in the previous year, and we are pleased with the progress
made – particularly with regard to the completion of the 2014 Periodic Review of HS1 Ltd.”
The Domestic Underpinning Agreement
The Domestic Underpinning Agreement is a supplemental agreement to the Concession Agreement that
sets out a collateral undertaking from the Secretary of State in favour of HS1 for the purpose of
underpinning the payment of track and station access charges for domestic railway services on High
Speed 1.
Under the Domestic Underpinning Agreement, the Secretary of State will pay HS1 sums where the
level of domestic services being operated on High Speed 1 is not at least equivalent to a specified
baseline level, expressed in terms of service frequency and pattern. The sums payable are equivalent to
those track access charges that would have been payable to HS1 had the level of domestic services
been at the specified baseline level. There are certain circumstances where even though the level of
services operated by LSER is below this baseline, Underpinning Payments will not be made. These are
in relation to: (a) days where High Speed 1 is not available for use by train operators because of HS1’s
failure or because the Secretary of State has exercised his emergency step in rights under the
Concession Agreement; (b) circumstances where the domestic train operator is in breach of its
obligations to provide services and the Secretary of State is in the process of taking action to remedy
such breach; or (c) circumstances where the domestic train operator is in breach of its payment
obligations under its track access agreement with HS1 or becomes insolvent.
The Operator Agreement
HS1 has outsourced its obligations to carry out operational, maintenance renewal and replacement
activities under the Concession Agreement to NR(HS) under the Operator Agreement – see
“Regulatory Framework and the Project Documents – Overview of the Project Documents – The
Operator Agreement”. The Operator Agreement currently in force is applicable to the currently
ongoing Control Period 2 expiring on 31 March 2020. In return, HS1 pays NR(HS) a fixed price of
circa £41 million (2015/2016 prices) per annum (subject to certain specified reopeners) and with a
performance regime as described later in this section. There is also a provision for HS1 to market test
this contract once during its lifetime. The option to market test must be taken in the first two years of
any Control Period. In the months leading up to April 2012, HS1 considered whether or not to use that
opportunity to market test. HS1 reviewed the market, but concluded at that time not to market test in
return for agreeing with NR(HS) the following amendments to the Operator Agreement:
(a)
during the first Control Period between 2010 and 2015 (the “Control Period 1”) a discount of
10 per cent. was applied to the fixed price that HS1 paid in years 3 to 5, less a fixed risk fee of
£550,000 nominal per annum. 60% of this benefit was paid to the TOCs along with £600,000
across the three years to fund investment projects. See “Overview of the Project Documents –
The Operator Agreement – Payments – Discount”;
(b)
the regulatory risk of setting the Operator Agreement element of the OMRC has been passed
to NR(HS) for the Control Period between 1 April 2015 to 31 March 2020 (“Control Period
2”) and 2020 to 2025 (“Control Period 3”). Effectively NR(HS) will bear the financial risk
on the Operator Agreement element of the OMRC charge if the ORR does not allow the full
pass through of costs to the TOCs during this time. This reallocation of risk was successfully
implemented as part of PR14;
(c)
HS1 will share in any outperformance by NR(HS) during the last three years of the currently
ongoing Control Period 2 and the next one (Control Period 3), with HS1 and the TOCs
receiving 20% and 30% of the outperformance respectively; and
(d)
HS1 will not exercise its option to market test during Control Period 2 and Control Period 3.
This means that the earliest HS1 can advise NR(HS) of a decision to market test is 2022, i.e.
two years into Control Period 3 to take effect from the Control Period between 2025 to 2030
(the “Control Period 4”).
Subject to limitations, one overriding obligation of NR(HS) under the Operator Agreement, is to put
HS1 in a position so that it is able to discharge its obligations under the Concession Agreement and as
infrastructure manager under the Access Regulations.
The Operator Agreement performance regime penalises or rewards NR(HS) for its performance in
carrying out operation and maintenance activities on behalf of HS1. Under this regime, NR(HS) pays
HS1 sums for periods where the use of High Speed 1 is restricted or services are delayed (subject to
certain carve outs and limitations) and, in either case, HS1 is obliged as a consequence to pay a TOC
sums under that TOC’s Track Access Agreement. Conversely, HS1 pays NR(HS) sums for periods
where the performance of High Speed 1 is above benchmark and HS1 receives payments from a TOC
under that TOC’s Track Access Agreement as a consequence. See “Regulatory Framework and the
Project Documents – Overview of the Project Documents – Framework Agreements and other Track
Access Agreements – Performance Payments”.
Existing framework agreements and other track access agreements
HS1 grants TOCs access to High Speed 1 by entering into Track Access Agreements with them. Track
Access Agreements govern, amongst other things, the extent of access granted and how capacity will
be allocated, the access charges that are payable for that access, the performance criteria and the
payments that are made between HS1 and the relevant TOC depending on the availability and
performance of High Speed 1.
The performance regime under FTAAs and other Track Access Agreements provides for financial
payments to be made by HS1 or by the relevant TOC depending on the performance of High Speed 1,
relative to pre-determined thresholds. In broad terms, HS1 is liable to TOCs for ‘poor’ performance
and TOCs pay HS1 for ‘good’ performance. Separately, the TOC is liable to HS1 for its poor
performance and the poor performance of its trains that in each case impact on the performance of
other TOCs using High Speed 1. The regime is designed to ensure that HS1 is not out of pocket for
TOC poor performance. The performance regime is described in more detail in “Regulatory
Framework and the Project Documents – Overview of the Project Documents – Framework
Agreements and other Track Access Agreements – Performance Payments”, however in summary it is
based on delay per train attributable to a particular party and is for the most part back-to-back with the
performance regime under the Operator Agreement described above – see “The Operator Agreement”.
The graph set out below shows the average seconds delay per train caused by HS1 infrastructure per
the relevant period. HS1 incurred penalties of £0.3 million in the Financial Year 2013 and £0.3
million in the Financial Year 2014. £0.3 million of penalties incurred in the Financial Year 2014 were
subsequently challenged by HS1 and reversed in the favour of HS1 during the first half of the Financial
Year 2015. The moving annual average delay of 2.9 seconds in January 2015 compares against 9.5
seconds in November 2012.
Source: HS1. The bottom axis of the graph above shows the Railway Periods that commenced between February 2014 and January
2015.
* Delay caused by HS1 infrastructure only
Station Access Agreements and other station arrangements
HS1 grants TOCs access to the HS1 Stations under the terms of certain Station Access Agreements.
Station Access Agreements govern, amongst other things, the extent of maintenance responsibilities,
asset register responsibilities, access charges and performance payments for levels of station
service/amenity.
Under certain station concession agreements, HS1 has appointed NR(HS) to be the operator of the HS1
Stations until 31 December 2086. In September 2013, HS1 awarded the facilities management of
Ashford International Station to Mitie under a Station Management Agreement relating to Ashford
International Station dated 30 August 2013 between HS1 Limited and Mitie.
Power Distribution Agreements
HS1 is party to a variety of agreements with the UKPN Parties relating to the distribution of electrical
power to High Speed 1. Under certain of these agreements, the UKPN Parties are liable to HS1,
subject to certain exclusions, for power outages, caused by failures in such distribution affecting assets
that are directly required for the commercial operation of trains on High Speed 1.
Property Leases
HS1 holds leases from the Secretary of State for the land on which High Speed 1 operates that is
coterminous with the end of the HS1 Concession, with the exception of Ashford International – see
“Regulatory Framework and the Project Documents – Overview of the Project Documents – Property
Leases – The HS1 Stations – Ashford International Station Lease”. This land comprises the land on
which the track is based and the stations at St Pancras International, Ebbsfleet International, Stratford
International and Ashford International.
Direct Agreements
Certain termination rights under the main contracts described above are regulated by a series of direct
agreements that are in place between (i) the security trustee for the lenders to HS1 and the relevant
counterparties to the underlying contract and (ii) the Secretary of State and the relevant counterparties
to the underlying contracts. Termination is regulated under the direct agreements by first imposing
advance notice obligations on the party that has the right to terminate the underlying project document
and then a right of step in to prevent termination where this would otherwise be possible or novation
where a third party has been identified to carry on HS1’s role.
HS1 Revenues
HS1 generates stable track and station access charges from international and domestic TOCs, with
additional revenue earned through HS1’s unregulated retail, advertising and car parking activities.
Access charges consist of the IRC, the OMRC and traction power supply charges to recover the cost of
power consumption per train; and station charges that recover the operation, maintenance and renewal
costs of the HS1 Stations.
The table below provides a breakdown of revenue and EBITDA generated by HS1 for the 12 months
ended 31 March 2014. Over the 12 months ended 31 March 2014, HS1 generated £289 million of
revenue, with the IRC, OMRC, station charges and traction power charges accounting for 49%, 28%,
9% and 4% of revenue respectively. Other revenue comprising retail, advertising and car parking
represented the remaining 10%. 85% of the EBITDA was generated from the IRC.
Segmented revenue and EBITDA for the 12 months to 31 March 2014
The comparison of revenue to the prior year is as follows:
Type
Detail
Track
Domestic Passenger IRC
International Passenger IRC
Track OMRC
Power Charges
Station Charges
Retail & Advertising
Car Parking
Unregulated activities
Other
Total
2014 (£ million)
2013 (£ million)
105
38
80
14
25
19
6
2
289
101
43
74
13
24
19
6
12
292
For the Financial Year 2014, approximately 81% of HS1’s revenues were derived from access charges
paid by LSER and EIL, which operate domestic and international passenger train services respectively
on High Speed 1. HS1 has a “dual till” structure pursuant to which its retail, car park and other
unregulated income is not to be used to offset the calculation of access charges or station charges. The
access charges levied by HS1 under the FTAAs with LSER and EIL are regulated under the
Concession Agreement and the Access Regulations. The access charges charged by HS1 under the
Station Access Agreements with LSER and EIL are also subject to certain regulatory constraints, as
well as contractual constraints, including under the HS1 Leases. The remainder of HS1’s revenues
come from unregulated sources, primarily retail leases, advertising and car parking (and from lettings
of Temple Mills Depot and Orient Way Sidings to EIL). The Secretary of State has entered into a
Domestic Underpinning Agreement in relation to HS1’s revenues in respect of domestic passenger rail
services on High Speed 1. See “Regulatory Framework and the Project Documents – Overview of the
Project Documents – The Domestic Underpinning Agreement”.
Timetabled services on which HS1 is paid are determined up to a year in advance from December to
the following December. This provides high visibility to HS1 of the forecast train paths for the
following 12 months as highlighted in the following graph:
Source: HS1. The bottom axis of the graph above shows the Railway Periods that commenced between April 2013 and January 2015.
FTAAs and other Track Access Arrangements
HS1’s revenues from railway passenger services are generated from access charges paid by TOCs
which have purchased capacity on High Speed 1 in order to operate those services. The payment of
access charges and the allocation of capacity are governed by the terms of separate Track Access
Agreements between HS1 and each TOC (which include FTAAs). Except for the purposes of
emergency access, every TOC must enter into a Track Access Agreement. Track Access Agreements
which reserve capacity on High Speed 1 for more than one timetable period are FTAAs and are subject
to ORR approval under the Access Regulations. A timetable period is a period of 12 months running
from December to December each year (a “Timetable Period”).
Under Track Access Agreements, TOCs are liable to pay the following access charges:
●
Investment Recovery Charge “IRC” (49% of revenue and 85% of EBITDA in 12 months to
31 March 2014) – the IRC is designed to recover part of the construction costs of the HS1
project over the term of the HS1 Concession and, in the case of passenger TOCs, is charged as
an amount for each timetabled minute that a train is to spend on High Speed 1, regardless of
whether the TOC actually runs such services except where an infrastructure issue has
prevented the train running. Such infrastructure issues could include factors that could cause
trains to stop running on High Speed 1 that are attributable to HS1 or NR(HS) such as points
failure, signalling problems, or otherwise, such as the presence of trespassers. As noted in
“Business of HS1 – HS1 Infrastructure”, HS1’s infrastructure has been available every day
since the line opened. For further details, see “Business of HS1 – HS1 Infrastructure”. The
amount of IRC was agreed between the relevant parties in 2010 at £69.57 per minute at
February 2009 prices and is indexed (up and down) in accordance with RPI. HS1 has the
option to discount below the cap on a non-discriminatory basis in the event it is of commercial
benefit to HS1, such as attracting additional services to the railway. Discounts are subject to
an ORR approved discount policy. The only discount currently offered is to EIL to support
London to Brussels services between December 2012 and December 2016. HS1 has agreed
with EIL subject to final contract execution to apply a discount to support London to Provence
(Marseille) services between May 2015 and December 2018. In order for these discounts to
be payable, EIL must first operate a guaranteed number of services and provide HS1 with data
concerning the demand for those services. IRC is not subject to Periodic Review or
benchmarking by the ORR. IRC relating to domestic passenger services is supported by the
domestic underpinning arrangements – see “Regulatory Framework and the Project
Documents – Overview of the Project Documents – The Domestic Underpinning Agreement”.
This underpinned IRC accounted for approximately 72% of the total IRC generated in the
Financial Year 2014 (source: HS1).
●
Operational, Maintenance and Renewal Charge “OMRC” (28% of revenue and 5% of
EBITDA – 12 months to 31 March 2014) – the OMRC is designed to reimburse HS1’s cost of
operating, maintaining and renewing the track:

OMRC is agreed or determined by the ORR every five years and then apportioned
between TOCs on the basis of a charge for each minute that a train is timetabled to
spend on the track. The OMRC is subject to a review by the ORR every 5 years with
Control Period 2 review effective from 1 April 2015. Most of the per train per
minute charge is subject to annual indexation based on RPI. There is also a passthrough cost element of OMRC which is charged at actual cost. OMRC is payable
based on timetabled train services, regardless of whether the TOC actually runs such
services except where an infrastructure issue has prevented the train running. Such
infrastructure issues could include factors that could cause trains to stop running on
High Speed 1 that are attributable to HS1 or NR(HS) such as points failure,
signalling problems, or otherwise, such as the presence of trespassers. As noted in
“Business of HS1 – HS1 Infrastructure”, HS1’s infrastructure has been available
every day since the line opened. For further details, see “Business of HS1 – HS1
Infrastructure”. In the absence of an international TOC, the Aggregate OMRC would
be allocated to the domestic TOC alone proportionate to the services it continues to
operate. As described below, the Secretary of State has entered into a Domestic
Underpinning Agreement in relation to HS1’s revenues in respect of domestic
passenger rail services on High Speed 1 for the remainder of the HS1 Concession. In
the absence of both a domestic and international TOC, the Secretary of State’s
underpinning payments would, once triggered, include the amount of OMRC payable
by a notional domestic TOC and would therefore extend to cover the entirety of the
proportionate Aggregate OMRC;

OMRC is split into two categories; “at risk” elements and “at cost” elements:

“at risk” elements comprise approximately 80% of the OMR Costs incurred
in the Financial Year 2014, being NR(HS) fees under the Operator
Agreement of £46 million and HS1 costs of £11 million. Under certain
circumstances, HS1 can request an Interim Review if there has been a
significant and material change within a Control Period – see “Overview of
the Regulatory Framework – Operations Maintenance and Renewal Charge
– Interim Reviews”. Additionally, within Control Periods there is an
automatic reset in the event that there is a change in the number of
timetabled trains of at least 4% (increase or decrease in services) for a new
Timetable Period, ensuring that, in the case of increases in services above
this threshold, HS1 recovers its costs – see “Overview of the Project
Documents – Framework Agreements and other Track Access Agreements –
Changes in volume impacting access charges”. The majority of at risk costs
represent costs under the Operator Agreement with NR(HS). As highlighted
in “Overview of the Project Documents – The Operator Agreement –
Operator’s obligations – Obligations”, the price risk on this element of
OMRC rests with NR(HS) until 31 March 2025. HS1 has the option for a
one-off market test of the Operator Agreement after the end of the Control
Period 2 (2020). As set out above, the market test must be notified within
the first two years of a Control Period to take effect from the subsequent
Control Period; and


“at cost” elements of the OMRC charge cover cost elements which are
difficult to control and subject to potential material variation, in the
Financial Year 2014 equating to £15 million. These costs are passed
through to train operators on an estimated basis, with an adjustment to actual
costs each year; and
the majority of OMR Costs either pass through to the TOCs or are backed off with
supplier contracts. HS1 generated a net £8 million EBITDA contribution from
OMRC in the Financial Year 2014 and is allowed to retain any OMRC
outperformance within a Control Period;
●
Capacity Reservation Charge – the capacity reservation charge is charged on the capacity
reserved by a TOC but not timetabled. The capacity reservation charge per passenger train is
set at 25% of the full IRC per train path. HS1 earned £247,000 from this charge in the
Financial Year 2014;
●
Traction power supply (“EC4T”) – this charge allows HS1 to recover the cost of traction
electricity on a pass through basis to the TOCs. EC4T is paid four-weekly in arrears and an
adjustment procedure ensures that HS1’s costs are recovered in full;
●
Congestion tariff – this charge applies in circumstances where High Speed 1 becomes
congested and a charge is levied in accordance with the Access Regulations. There is no
congestion tariff levied under current Track Access Agreements;
●
Other services charge – HS1 may charge for bespoke services provided by HS1 to particular
TOCs. There are no charges levied for bespoke services under current Track Access
Agreements;
●
Carbon costs – this is a charge to recover the cost of the carbon reduction commitment
incurred by HS1; and
●
IRC, OMRC and capacity reservation access charges are payable in advance of the
commencement of each “Advance Period”. There are four Advance Periods per year divided
roughly into quarters. All other access charges, other than any amount due from relevant TOC
as part of the annual wash-up (the reconciliation of certain reimbursable costs when the factual
position is known), are payable four weekly in arrear. This reflects the division of the railway
year into 13 four-weekly “periods”, with the first and last period of each railway year flexing
up or down by up to seven days.
Subject to a cap (3%) of aggregate IRC/OMRC payable in the relevant Financial Year, both HS1 and
the TOC are required to compensate each other for their respective performances falling below a
certain level, based on defined criteria, at a fixed rate which is indexed. See “Regulatory Framework
and the Project Documents – Overview of the Project Documents – Framework Agreements and other
Track Access Agreements – Performance Payments”.
Station Access Agreements (9% of revenue and 0.2% of EBITDA – Financial Year 2014)
A Station Access Agreement grants a passenger TOC permission to use the relevant HS1 Station,
subject to certain exceptions and limitations. The Access Regulations do not require the ORR to
approve Station Access Agreements in relation to HS1. Under any Station Access Agreement (except
the agreement with Govia Thameslink Railway (“GTR”) and East Midlands Trains (“EMT”) in
respect of St Pancras International), a TOC is liable to pay the following access charges:
●
Long Term Charge (“LTC”) and Qualifying expenditure (“Qx”) – the LTC and Qx access
charges reflect HS1’s costs for operation, maintenance, repair and renewal activities at each
HS1 Station including in relation to traction supply equipment, signalling equipment, gas,
water and electricity utility supply equipment, HS1’s temporary buildings, lift installations
and escalator installations. The access charges are allocated to the relevant TOC based on a
combination of the number of vehicle departures and square footage; and
●
Exclusive charges – these are the charges to be paid by the relevant TOC for any bespoke
services provided by HS1 to such TOC at the relevant HS1 Station, such as a charge for shore
supplies (water and electricity) charged to EMT.
Under each Station Access Agreement, the relevant TOC is liable to pay exclusive charges of the
nature set out above, plus common charges calculated on the basis of specified percentages of common
LTC and Qx access charges for two different geographical zones. The Station Access Agreement with
GTR is in relation to diversionary access only and access charges under that agreement are levied on an
amount-per-vehicle basis.
Under the Station Access Agreements there is no provision for IRC to be recovered. The charges under
the Station Access Agreements are effectively a pass through and the EBITDA contribution of
approximately £0.4 million represents a management fee earned by HS1 for running the HS1 Stations.
Retail, Advertising, Car Parking and Other Income (10% of revenue and 10% of EBITDA – Financial
Year 2014)
In addition to the regulated income earned by HS1 through domestic and international passenger
services and freight services, HS1 generates a portion of its income through the provision of
unregulated services, comprising retail leases, advertising and car parking facilities and lettings of
Temple Mills Depot and Orient Way Sidings to EIL.
Retail income at St Pancras International forms the majority of HS1’s total retail and advertising
income with up to 1 million per week in footfall and up to 20% of those visiting not getting on a train.
(source: Javelin Research and Shoppertrak). The leases are generally turnover leases under which
retailers pay rent as a percentage of turnover subject to a minimum guaranteed rent. The minimum
guaranteed rent for each lease is fixed, subject to rental reviews, over the length of the relevant lease.
Retailers also pay a service charge which represents a contribution to cover station operations and
maintenance costs. This charge is set out in the retailers’ leases as a fixed amount per square foot,
subject to indexation. HS1’s rental lease, advertising and service charge income for Financial Year
2014 was £18.8 million, of which £18.6 million was generated from retail and catering units,
advertising and service charge incomes at St Pancras International.
All units at St Pancras International are let on contracted out leases which allow the landlord to re-let to
alternative retailers on lease expiry. Leases typically follow a five year cycle, with lease terms and the
length of leases varying by retailer (up to 15.5 years). The leases include a range of rent review
provisions, including fixed date rent reviews, annual stepped minimum guaranteed rents and turnover
thresholds triggered by increased volumes.
HS1 has sub-contracted the management of the retail space outside the restricted international zone at
St Pancras International, Ebbsfleet International and Stratford International to NR(HS) under the
Station Concession Agreements pursuant to which NR(HS) receives a percentage of retail and other
commercial income.
HS1 generates income from the car parks at St Pancras International, Stratford International, Ebbsfleet
International and Ashford International, the operation of which is sub-contracted to CP Plus Limited on
a short-term basis. There is a revenue and cost sharing agreement in place with NRIL for the carpark at
St Pancras International. In December 2009 HS1 entered into a revenue sharing agreement with LSER
in relation to the Ebbsfleet International car parks whereby it is paid an annual fee by LSER. LSER is
entitled to the revenue received in respect of the Ebbsfleet International car parks up to the amount paid
to HS1 in respect of the annual fee. Revenue in excess of the annual fee is then used to reimburse
HS1’s costs incurred in managing the car parks, with the remaining revenue being shared 65:35 in
HS1’s favour as per the revenue sharing agreement. The revenue sharing agreement currently expires
on 27 June 2015.
HS1 has agreed to make available a minimum of 120 car parking spaces at Ashford International to
EIL free of charge for use by EIL’s employees based in Ashford, Kent.
HS1 has subleased the Temple Mills Depot, and the property known as the Orient Way Sidings, both
near Stratford International, to EIL for a term expiring in 2040. Both leases are subject to periodic
rental uplifts. In addition, HS1 is entitled to share 40% of the net income made by EIL in respect of the
use of Temple Mills Depot by third parties.
Rail Services on High Speed 1
Competition
The principal factors relevant to competition between international high speed rail and alternative
modes of travel are price, journey time, punctuality, reliability, frequency and other qualitative factors
(such as convenience and comfort). In the leisure markets, price is the most important competitive
factor. In the business sector, door-to-door journey time and frequency are the most important
competitive factors. Principal competitive advantages of TOCs of international passenger services on
High Speed 1 are the central location of railway stations in London, Paris and Brussels, service
reliability and, to a lesser extent, schedule flexibility and the fact that the journey is less fragmented
than other options.
Air travel is the main source of competition for services on High Speed 1 in respect of international
passengers. International TOCs are driven to provide a minimum timetable frequency for business
travellers who are particularly sensitive to journey time and schedule flexibility. Price and yield
management techniques are used to steer leisure travellers to less crowded trains. Cross-channel
services by ferries and Eurotunnel’s shuttle which allow passengers to travel with their cars between
the UK and Continental Europe also provide competition. Ferry and shuttle services also allow
passengers to travel by coach. Coach services are slower than high speed rail but offer lower prices.
EIL has invested in new trains which are on order for 2015 and has announced plans to start direct
services to Marseilles from May 2015 and Amsterdam from December 2016.
The primary competition for the domestic passenger services on High Speed 1 comes from rail services
on the Classic Network. Domestic services on HS1 provide significantly shorter journey times as well
as higher reliability and comfort, albeit at a higher price. In addition, LSER is obliged to operate
passenger services in accordance with the services that are specified in the South Eastern Franchise.
Those specified services anticipate that LSER operates a minimum level of services on High Speed 1.
Where there is competition from express coaches, this is limited to operations mainly during peak
hours and car travel is not a significant competitor due to the lack of, and cost of, parking, the level of
congestion and, the congestion charge in central London. Access charges for HS1 are on a “per train”
basis and not “per passenger” with long-term demand growth likely to be driven by regeneration
benefits of the surrounding area and net positive migration in the Kent area.
Third party domestic TOCs are permitted access to the Classic Network and High Speed 1, subject to
approval by the ORR. In particular, potential third party TOCs would have to satisfy the ORR that
proposed new services would pass the ‘not primarily abstractive’ test. This means that new services
which reduce the revenue of incumbent TOCs would have to offer compensating benefits in order to be
approved.
Domestic passenger services
Domestic passenger services on High Speed 1 are currently operated by LSER until June 2018 as part
of the South Eastern Franchise. LSER commenced operating the full high speed domestic service in
December 2009 following a period of lower frequency preview services from June 2009. The
introduction of high speed domestic passenger services has resulted in time savings of approximately
50%, depending on the final destination for domestic commuters when compared with the journey
times on the Classic Network. LSER reported carrying 7.2 million passengers on approximately
53,000 high speed services in its first full year of high speed operation to December 2010 which has
grown to over 10.3 million per year to December 2014, representing a compound annual growth rate of
9%. In the Financial Year ended 31 March 2014, LSER ran approximately 1,350 services above the
baseline underpinned service to satisfy customer demand. The new timetable from December 2014
consists of circa 55,400 services pa which is approximately 2,600 services above the baseline
underpinned service level.
There are two domestic passenger service groups using High Speed 1 to St Pancras International: the
first serves East Kent via the domestic station at Ashford International and the second serves North
Kent, Gravesend and the Medway towns via Ebbsfleet International. All domestic passenger services
stop at Stratford International. In addition to services on High Speed 1, the South Eastern Franchise
provides services on the Classic Network throughout Kent, parts of East Sussex and South East
London. The South Eastern Franchise specifies a minimum service level commitment for services on
High Speed 1 which is 1,024 train services per week, which equates to 52,788 services per annum
which are approximately equally divided between the East and North Kent routes. This is the level of
domestic passenger services below which financial compensation may be available from the Secretary
of State under the terms of the Domestic Underpinning Agreement. See “Regulatory Framework and
the Project Documents – Overview of the Project Documents – The Domestic Underpinning
Agreement”.
Since October 2014, the South Eastern Franchise has been held by LSER, a joint venture between GoAhead (65%) and Keolis (35%).
International passenger services
International passenger services on High Speed 1 are currently operated by EIL, principally serving
Paris and Brussels out of St Pancras International via Ebbsfleet International and Ashford International
and through the Channel Tunnel. EIL has been operating services to Paris and Brussels since 1994. In
2014, EIL carried 10.4 million passengers on approximately 19,000 services which equates to a 3%
CAGR since 2007. EIL has at least an estimated 80% market share of point-to-point travel between
London, Paris and Brussels (Source: EIL (2011)).
The number of services being run by EIL is mainly driven by passenger demand, but also by the need
to provide schedule flexibility to business travellers. The fastest trains now travel between London and
Paris in 2 hours 15 minutes and between London and Brussels in 1 hour 51 minutes.
In 2010 EIL was restructured and its shareholders comprised the French state-owned railway company
Société National des Chemins de fer Français (55%), the British state-owned railway company London
and Continental Railways Limited (“LCR”) (40%), and the Belgian state-owned railway company
Société Nationale des Chemins de fer Belges (5%). On 4 March 2015 the UK government announced
the sale of the entire 40% LCR stake to a consortium comprising Caisse de dépôt et placement du
Québec (CDPQ) and Hermes Infrastructure for £585 million. This transaction closure is conditional on
regulatory approval and SNCF and SNCB not exercising pre-emption rights.
Following the liberalisation of the EU passenger rail market in January 2010, other TOCs are entitled
to apply for access to operate international passenger services on High Speed 1. In the UK,
international TOCs have the right to use the High Speed 1 infrastructure to connect to existing and new
UK and European markets. Any such further international services on High Speed 1 will be operated
as open access services with no public service obligation or subsidy. Deutsche Bahn had announced its
intention to introduce new services between St Pancras International and Frankfurt, as well as
Amsterdam, via Brussels but in February 2014 announced the delay in the introduction of these
services from 2016 to a future unspecified date.
There is significant surplus capacity on High Speed 1 to support growth in train paths.
Freight services
High Speed 1 was built primarily for high speed passenger trains, but also has the ability to
accommodate freight.
The Access Regulations oblige infrastructure managers to provide access to international rail freight.
Freight services on High Speed 1 use part of the track at Ripple Lane Sidings, which is not on the main
running lines for passenger services. A total of 16 night-time freight services per week are being
operated by DB Schenker and Europorte Channel.
The current charging regime for conventional freight does not include any investment recovery charge
similar to the IRC or contribution to common costs and thus only allows HS1 to recover, at most, the
costs to HS1 of freight services being operated on High Speed 1.
HS1 Infrastructure
Having acquired the HS1 Concession, HS1 has sufficient provision to cover the remaining liability for
the costs of the construction of the track and station infrastructure of High Speed 1. In addition to
standard overhead and employment costs, HS1 has ongoing liabilities with respect to the power supply
and operation, maintenance and renewal of the infrastructure.
Track
High Speed 1 has been designed to carry high speed passenger and freight services. The maximum
rated operating speeds for international passenger services are 300 kph on Section 1 (Southfleet
Junction to the Channel Tunnel) and 230 kph on Section 2 (St Pancras International to Southfleet
Junction). The current maximum rated operating speeds for domestic passenger services are 230 kph
on both sections of High Speed 1 taking account of current rolling stock. The maximum rated
operating speeds for freight are 140 kph on both sections of High Speed 1 for conventional freight
trains.
The track has a number of connections to the Classic Network, including at St Pancras International,
Fawkham Junction, Ebbsfleet International, Ashford International, Cheriton, Ripple Lane near
Dagenham, Stratford International as well as a connection to Dollands Moor, which is owned by DB
Schenker.
High Speed 1 has been available for service every day since its commencement of operations in 2003
(Section 1) and 2007 (Section 2).
The HS1 Stations
HS1’s concession under the Concession Agreement and related contracts includes the operation,
maintenance, repair and renewal of the HS1 Stations. The operation, maintenance, repair and renewal
of three of the HS1 Stations (St Pancras International, Stratford International and Ebbsfleet
International) have been sub-contracted to NR(HS) until 2086. The Secretary of State has undertaken
to take over the Station Concession Agreements on expiry of the Concession Agreement (see “HS1
Infrastructure Management – Station Concessions” below). The operation, maintenance, repair and
renewal of Ashford International has been sub-contracted to Mitie. The HS1 Stations generate retail,
advertising and car parking income for HS1.
●
St Pancras International
The station has thirteen platforms comprising nine high-speed platforms, six for use by
international services and three for use by high-speed domestic services from Kent, as well as
four platforms for use by EMT. A sub-surface station on the Thameslink route operated by
GTR and, serving the line between Brighton and Bedford, sits underneath St Pancras
International and is leased to Network Rail Infrastructure Limited (“NRIL”).
●
Stratford International
Stratford International is located in East London near Canary Wharf and became operational
shortly before the introduction of the full LSER high speed domestic service in December
2009. The station has four platforms: two for use by domestic services and two by
international services (although there are currently no international services calling at this
station).
●
Ebbsfleet International
Ebbsfleet International is located near Dartford in North Kent. The station has six platforms:
two for use by international services and four for domestic services.
●
Ashford International
Ashford International is located in East Kent. Only international passenger services call at the
station’s two platforms. Ashford International is adjacent to, but distinct from, Ashford
station, which serves domestic passenger services. In September 2013, HS1 awarded the
facilities management of Ashford International Station to Mitie under a Station Management
Agreement. The domestic station is owned by NRIL and operated by LSER.
The table below shows the various capacities of the stations discussed above:
High Speed Platforms:
International
Domestic
Classic Platforms
Retail (Sq. ft)
Car Park Spaces
St Pancras
International
Stratford
International
Ebbsfleet
International
Ashford
International
6
3
4
100,830
324
2
2
3,337
850
2
4
2,776
5,145
2
0
3,558
1,800
Source: HS1
Ancillary rail infrastructure
In addition to the track and the HS1 Stations, High Speed 1 includes (but is not limited to) the
following ancillary railway infrastructure which is required for the operation of High Speed 1:
●
Ashford International Control Centre – This controls the day-to-day HS1 railway operating
activities, including traffic control, signalling, electrical and communications. The HS1
operating activities are located in a shared facility within the NRIL-owned Ashford
International Control Centre;
●
Signalling system – The signalling system dictates the interlocking detection and spacing of
trains to maintain safe train operations;
●
Communication systems – These comprise the data transmission network, fibre optic network,
cab secure radio, general purpose radio system, telephone network, closed circuit television,
radio propagation system and emergency response organised radio systems;
●
Control systems – The two key control systems are the ventilation control system for the
tunnel sections and the electrical and mechanical management and information system which
supervises and controls various types of field equipment;
●
Traction power – Traction power for High Speed 1 is supplied by the 25kV/ 50Hz overhead
catenary system;
●
Singlewell infrastructure maintenance depot – This provides facilities for maintenance staff
and rail plant for maintenance of High Speed 1, headquarters and office facilities for NR(HS)
and storage;
●
Temple Mills Depot – The depot provides facilities for rolling stock on HS1, and is currently
leased to EIL, which bears the cost of operating and maintaining the depot. HS1 has paid EIL
£2 million as a capital contribution to the costs of restructuring works required at Temple
Mills Depot to provide facilities for access by new international trains to be maintained at the
depot. Additional capacity is available at the depot and EIL has an obligation to accommodate
new requests for access subject to the constraints of the facility;
●
Orient Way Sidings – This is a train stabling facility adjacent to the Temple Mills Depot. It is
held by HS1 on a lease from the Secretary of State, separate from the HS1 Leases for a term
expiring on the same date as the HS1 Leases. The Secretary of State has also granted EIL a
lease of the train stabling facility until 2086, which is subject to the lease granted by the
Secretary of State on the same day to HS1; and
●
Power supply infrastructure – The principal feeder stations and substations which form the
main electrical distribution network are owned by UKPNS Parties under a lease through
which UKPNS is responsible for the system performance, maintenance and renewal (where
necessary) pursuant to the UKPN Agreement.
HS1 Infrastructure Management
HS1 has outsourced the operation, maintenance and associated safety functions for the High Speed 1
infrastructure, while retaining commercial control and the setting of asset policy and strategy.
Responsibility for the operation and maintenance and (save in limited circumstances) the Renewal and
Replacement of High Speed 1 railway infrastructure (broadly, the track assets, less the electricity power
supply equipment), and the management of St Pancras International, Stratford International and
Ebbsfleet International have been sub-contracted to NR(HS). Responsibility for the operation and
maintenance of power distribution systems lies with the UKPN Parties pursuant to the UKPN
Agreements, and responsibility for the operation and management of Ashford International has been
sub-contracted to Mitie.
Renewals & Replacements
Planned Renewals and Replacements are required to be specified in the relevant Five Year Asset
Management Statement produced by HS1 (or, in the case of additional Renewals and Replacements,
the relevant Asset Management Annual Statement). (See “Regulatory Framework and the Project
Documents – Overview of the Project Documents – the Concession Agreement – Asset Stewardship”.)
HS1 is required to credit the Renewal and Replacement elements of OMRC to the Renewals Escrow
Account, secured in favour of the Secretary of State, pending the expenditure of such amounts in
carrying out the relevant Renewals and Replacements. A similar scheme applies to the LTC payable
under the Station Access Agreements pursuant to the HS1 Lease.
Specified Upgrades
The Concession Agreement creates scope for HS1 to undertake major upgrades to the signalling,
trackform and control systems of HS1, excluding the HS1 Stations. Specified Upgrades and other
upgrades may be funded through government grants but there is no commitment for such grants to be
provided (although in the case of a Specified Upgrade requested by the Secretary of State, HS1 need
not proceed with that upgrade if no grant is available or it is not satisfied with the amount of the grant).
If a Specified Upgrade or other upgrade is not funded through a grant, the charging framework allows
for an additional IRC to be levied to recover the costs (including the cost of financing) of further
investments in relation to High Speed 1 or any related facilities. Such additional IRC would be subject
to ORR approval.
HS1 has put in place a mechanism that will permit it to incur further bank or bond debt for the purpose
of meeting additional capital expenditure requirements as well as the costs of finance. The ability to
incur additional debt will be subject to satisfying certain loan life cover ratios. The mechanism would
be on terms that:
(a)
if the finance is to be secured, additional creditors would be, required to accede to intercreditor
arrangements; and
(b)
if the debt is to be hedged, that hedging is to be undertaken in accordance with a prescribed
hedging policy.
It is anticipated that the costs of operating and maintaining any additional or amended assets required
by any such upgrade would be met by an adjustment to OMRC.
On 18 February 2015, ORR approved HS1’s funding application in relation to the Specified Upgrade
for the Global System for Mobile Communications – Railway (GSM-R) project. GSM-R provides
additional functionality and compliance with current standards and Technical Standards for
Interoperability (TSIs). The approval allows the recovery of an Additional Investment Recovery
Charge of £0.85 per minute from EIL, and £0.31 per minute from LSER, for a period of 10 years from
1 April 2015.
Operations & Maintenance
HS1 has subcontracted to NR(HS) its obligations under the Concession Agreement in relation to the
operation, maintenance, Renewal and Replacement of certain of the HS1 railway infrastructure assets
(broadly, the track assets, less the electricity power supply equipment). In addition, NR(HS) will
perform a number of HS1’s obligations, and exercise certain of HS1’s rights, under the related
agreements including the Track Access Agreements. NR(HS) is owned directly by NRIL, and
ultimately by Network Rail Limited, and was set up specifically to provide the operation and
maintenance and Renewal and Replacement services in relation to High Speed 1. In broad terms,
NR(HS)’s principal obligation under the Operator Agreement is to put HS1 in a position so that it can
comply with its obligations under the Concession Agreement as they relate to the Operator Agreement
assets, and perform HS1’s obligations under the Track Access Agreements and other agreements which
relate to the operation and maintenance of the railway assets (in each case, subject to reservations and
limitations).
Station Concessions
HS1 has appointed NR(HS) to be the operator of St Pancras International, Stratford International and
Ebbsfleet International until 31 December 2086 under certain concession agreements, (“Station
Concession Agreements”). Mitie has been appointed to be the operator of Ashford International under
a separate station management agreement (the “Ashford International Station Management
Agreement”) until March 2018, with an option for a three year extension until March 2021. The
restricted international zones at St Pancras International, Ebbsfleet International and Ashford
International are operated and maintained by EIL under the HS1 Station Access Conditions. Under
these contracts, NR(HS), Mitie and EIL have responsibility for the station operations and maintenance
at their respective stations.
Electrical Distribution System
The UKPN Parties are responsible for the operation, maintenance and (where necessary) renewal of the
electricity distribution systems for High Speed 1, including certain assets in relation to Temple Mills
Depot, the Thameslink Box and the Lofts at St Pancras International.
Environmental
HS1 is subject to various laws and regulations relating to the protection of the environment, including
in relation to energy usage and efficiency. HS1 has adopted an environmental and sustainability policy
and NR(HS) has an accredited environmental management system for the management of
environmental performance in respect of High Speed 1.
Sustainability
High Speed 1 has been built to modern standards and the infrastructure incorporates high standards of
environmental mitigation. Mitigation has been provided in accordance with relevant consents under
the CTRL Acts. This has been achieved through appropriate construction method and design,
incorporating elements such as: noise barriers and bunds and other noise mitigation; ground borne
noise and vibration mitigation such as soft rail pads in tunnel sections; surface and groundwater
protection through contamination remediation, track bed sealing, and balancing ponds; and landscape
planting and seeding. Maintenance of the environmental mitigation is a key responsibility for HS1.
All HS1 activities are subject to various laws and regulations relating to the protection of the
environment. HS1 has adopted a sustainability policy and an environmental policy. An updated plan is
currently being agreed with NR(HS) and the TOCs. This covers natural resources; environmental
protection; land and neighbours; energy and carbon and delivery. Each section of the plan incorporates
objectives and targets over a 5-year period.
Risk Management Systems
HS1 has developed a risk management framework to identify, assess and manage the risks associated
with its business. HS1 is directly responsible for managing these risks, other than operational risks,
which are delegated to NR(HS) under the Operator Agreement, and risks relating to health and safety,
which are the responsibility of NR(HS) as holder of the safety authorisation under the ROGS with the
exception of Ashford International, where Mitie is the holder of safety authorisation under the ROGS.
The risk management framework involves identifying risks and, where considered appropriate, entering
the risks on HS1’s risk register. Each risk is assessed as to the probability of the risk event occurring
and the impact if the risk event were to occur, evaluated in terms of the cost to the business and the
effect on HS1’s reputation. In respect of risks which are entered on the risk register, HS1 seeks to
identify appropriate responses and mitigation measures. There is a regular review of the effectiveness
of planned responses for the identified significant business risks and, where appropriate, the capture of
additional risks on the risk register. The risk framework also includes business continuity planning to
minimise the disruption to HS1’s business in the event of significant risk events occurring.
In addition, HS1 covenants in the CTA to comply with relevant environmental laws and to obtain and
ensure compliance with all relevant environmental permits where failure to do so would have or is
likely to have a material adverse effect.
Safety
The safety regulatory regime applicable to HS1 is established by the ROGS. The railway specific
nature of the duties and responsibilities under the ROGS are underpinned by broader health and safety
responsibilities set out in the Health and Safety at Work Act 1974 and various health and safety
regulations made under it.
The ROGS impose duties and responsibilities on infrastructure managers and train operating
companies. For the purpose of the ROGS, NR(HS) is the infrastructure manager of HS1 (and is
designated as such under the Operator Agreement) and in this capacity, holds a current safety
authorisation issued under the ROGS by the ORR and has prime responsibility under law and
regulation for the safe operation of HS1. NR(HS) provides a four weekly report which includes a
section on safety-related matters.
High Speed 1 was designed and constructed to be an order of magnitude safer than the Classic Network
under the “as low as reasonably practicable” railway safety criteria regulated by the ORR. Separately,
safety levels on Great Britain’s railways have improved markedly over the last 10 years. NR(HS) is a
very experienced operator of railway infrastructure and EIL and LSER have operated passenger
services in the UK for 20 and 9 years respectively.
Workforce safety is primarily measured by the fatalities and weighted injuries index (being a measure
of accidents per 1,000,000 hours worked) and was 0.05 in February 2015 compared against 0.12 in
January 2013.
State Aid
The High Speed 1 construction project has been the recipient of government support on various
occasions since its inception. State aid notifications submitted by the government to the European
Commission have resulted in six state aid decisions in relation to the High Speed 1 project in the period
from 1994 to 2009. In each of these decisions, the European Commission has concluded that the
notified measures were state aid compatible with the common market.
Directors and Senior Management
Management and Employees
The directors and company secretary of HS1 and their respective business addresses and principal
activities are set out below:
Name
Business Address
Principal Activities
Richard Gooding
12th Floor, One Euston Square, 40
Melton Street, London NW1 2FD
Director
Colin Hood
12th Floor, One Euston Square, 40
Melton Street, London NW1 2FD
Director
John McManus
12th Floor, One Euston Square, 40
Melton Street, London NW1 2FD
Director
Darrin Pickett
12th Floor, One Euston Square, 40
Melton Street, London NW1 2FD
Director
Philippe Busslinger
12th Floor, One Euston Square, 40
Melton Street, London NW1 2FD
Director
Olivia Steedman
12th Floor, One Euston Square, 40
Melton Street, London NW1 2FD
Director
12th Floor, One Euston Square, 40
Melton Street, London NW1 2FD
General Counsel &
Company Secretary
Lucy Lazzeri
Management
Details of HS1’s management team is set out below.
Rob Holden – Chairman
Rob Holden was previously Chief Executive at CrossRail from 2009-2011. Prior to that Rob was Chief
Executive of London & Continental Railways (LCR), a position he held from January 1999, where he
oversaw the construction of HS1. He was also Chairman of Eurostar (UK) Limited and a director of
Eurostar Group. Rob is a Chartered Accountant who qualified with Arthur Young in Manchester before
moving to the Vickers Shipbuilding Group in Barrow-in-Furness where he worked for 13 years.
Nicola Shaw – Chief Executive Officer
Nicola previously served on the Board of FirstGroup PLC, leading the company’s European bus
division. Before joining FirstGroup, Nicola was Managing Director, Operations, at the Strategic Rail
Authority.
Graeme Thompson – Chief Financial Officer
After qualifying as a chartered accountant at Pricewaterhouse Coopers, Graeme gained extensive
experience in the energy sector working for Powergen and subsequently E.ON UK where he became
the UK Financial Controller. Prior to joining HS1, Graeme was the Finance and Regulation director
for E.ON Central Networks, the second largest electricity distribution company in the UK.
Sean Horkan – Engineering Director
Sean is a civil engineer with 25 years experience of airport operations, investment planning,
construction and asset management across London’s three major airports. His experience stretches
from operational leadership of passenger terminals at Gatwick to Heathrow’s Investment Planning and
Capacity Management function.
Wendy Spinks – Commercial Director
Wendy has over 18 years’ experience in retail management, including 15 years within the transport
sector. The last 10 years of which was with BAA at Heathrow Airport as Head of Retail, a period that
included the retail development of Terminal 1 and Terminal 3, as well as the retail readiness for
Terminal 5 opening.
Lucy Lazzeri – General Counsel and Company Secretary
After qualifying as a solicitor, Lucy spent a number of years in private practice. Prior to joining HS1,
Lucy gained extensive rail industry experience as a senior legal advisor to Porterbrook Leasing
Company Limited, one of the UK’s rolling stock operating leasing companies.
Employees
As at March 2015, there were 37 full-time employees, six part-time employees and six contractors.
Selected Financial Information
The following selected financial information should be read in conjunction with the audited
consolidated accounts of Holdco for the Financial Years ended 31 March 2014 and 31 March 2013 and
the unaudited consolidated interim accounts of Holdco for the six month period ended 30 September
2014.
Profit and Loss
6 months to
30 September 2014
£m
(unaudited)
Turnover
12 months to
31 March 2014
31 March 2013
£m
£m
(audited)
(audited)
152.1
288.6
291.7
(101.2)
(201.0)
(204.3)
50.9
87.6
87.4
(78.6)
-
(157.8)
0.3
(156.4)
0.2
Operating Expenditure
Other operating
expenditure
Operating profit on
ordinary activities before
interest
Finance charges
Interest receivable and
similar income
6 months to
30 September 2014
£m
(unaudited)
Loss on ordinary
activities before taxation
Taxation on loss on
ordinary activities
Loss for the Financial
Period/Year
12 months to
31 March 2014
31 March 2013
£m
£m
(audited)
(audited)
(27.7)
(69.9)
(68.8)
0.8
(11.7)
7.5
(26.9)
(81.6)
(61.3)
Balance sheet
6 months to
30 September 2014
£m
(unaudited)
12 months to
31 March 2014
31 March 2013
£m
£m
(audited)
(audited)
Fixed Assets
Tangible fixed assets
2,861.2
2,931.0
3,069.3
2,861.2
2,931.0
3,069.3
51.3
25.8
23.7
227.8
223.0
228.6
279.1
8.1
248.8
26.2
252.3
218.4
287.2
275.0
470.7
(241.0)
(192.6)
(194.2)
46.2
82.4
276.5
2,907.4
3,013.4
3,345.8
(3,450.9)
(3,479.6)
(3,530.8)
-
(0.4)
-
(543.5)
(466.6)
(185.0)
Current Assets
Debtors : amounts falling
due within one year
Debtors : amounts falling
due after more than one
year
Total debtors
Cash at bank and in hand
Creditors: amounts falling
due within one year
Net current assets
Total assets less current
liabilities
Creditors: amounts falling
due after more than one
year
Provisions for liabilities
Net liabilities excluding
pension liability
6 months to
30 September 2014
£m
(unaudited)
12 months to
31 March 2014
31 March 2013
£m
£m
(audited)
(audited)
Net pension liability
Net liabilities
(0.2)
(0.2)
(0.2)
(543.7)
(466.8)
(185.2)
(543.7)
(466.8)
(543.7)
(466.8)
Capital and reserves
Called up share capital
Profit and loss account
-
(185.2)
Shareholder’s deficit
(185.2)
Cash flow statement
6 months to
30 September 2014
£m
(unaudited)
Net cash inflow from
operating activities
12 months to
31 March 2014
31 March 2013
£m
£m
(audited)
(audited)
84.2
178.7
156.0
(64.4)
0.3
(124.3)
0.2
(114.3)
(9.8)
(19.0)
(18.4)
(74.2)
(143.0)
(132.5)
(0.5)
(2.3)
-
(0.5)
(2.3)
-
(50.0)
(200.0)
(10.6)
Returns on investments
and servicing of finance
Interest received
Interest paid
Interest element of finance
lease payments
Net cash outflow from
returns on investment
and servicing of finance
Capital expenditure and
financial investment
Purchase of tangible fixed
assets
Net cash outflow from
capital expenditure and
financial investment
Equity dividends paid
Equity dividends paid
Net cash outflow from
equity dividends
Net cash (outflow)/ inflow
before financing
(50.0)
(200.00)
(10.6)
(40.5)
(166.6)
12.9
Financing
Repayment of bank debt
Repayment of derivatives
Cash (outflow)/inflow from
bank debt
Cash inflow from USPP
Cash inflow from listed
bonds issued
Cash outflow of debt
issuance cost
Cash outflow into escrow
accounts
Cash outflow from loans
from Group undertakings
(4.7)
(14.3)
(1,295.0)
(52.0)
221.3
-
-
565.0
750.6
-
-
(19.0)
(5.9)
-
(10.2)
(1.1)
(13.0)
(11.4)
Net cash (outflow) /
inflow from financing
(10.6)
(25.6)
146.5
(Decrease) / increase in
cash in the period/year
(51.1)
(192.2)
159.4
Insurance
In addition to ensuring that cover meets or exceeds the minimum levels specified in the Concession
Agreement, the HS1 insurance programme is reviewed annually with insurance brokers to ensure that
the cover levels remain appropriate and up-to-date. HS1 and/or its sub-contractors have the following
insurances in place in relation to HS1’s business:
Property damage and business interruption – The limit of liability is set at £415 million in respect of
any one occurrence, with business interruption indemnity periods for St Pancras International and all
other locations being 36 and 24 months, respectively. There are a number of inner limits of liability
such as “restriction of access” (including the Channel Tunnel and NR(HS)) which are set at £20 million
and a twelve month indemnity period. Deductibles are set at £2.5 million in respect of each and every
loss or series of losses arising from a single event of property damage and business interruption. The
current policy expires in November 2015. HS1 has a separate policy for property damage and business
interruption losses following a terrorist event with the same overall limit and indemnity periods as
above.
Terrorism property damage (UKPN Parties’ assets) – The limit of liability is set at £25 million for each
occurrence and in the aggregate, with an excess of £50,000 for each occurrence. The current policy
expires in November 2015.
Employer’s liability insurance – Employer liability cover is purchased by HS1 on a blanket basis for
employees of HS1 at all locations. For the period until November 2015, HS1 has purchased cover of
£20 million indemnity for each loss, with no policy excess. Separate inner limits apply including £5
million for asbestos.
Public and product liability – Primary and excess policies provide a limit of liability of £350 million
for any one occurrence and unlimited during any one period of insurance/in the aggregate during the
period for products liability. HS1 has a self insured retention set at £2.5 million for any one occurrence,
subject to an annual aggregate self insured deductible amount of £7.5 million. Upon exhaustion of the
annual aggregate self insured deductible amount, the self insured retention reduces to £1 million for
any one occurrence. The current policy expires in November 2015. Separate inner limits apply to
products liability claims.
Crime insurance – The limit of liability is set at £10 million for any one loss; retention of £100,000 for
each and every loss. This current policy is in place until November 2015.
Property owner liability (ownership and occupation of the managed stations) – Property owner liability
insurance is provided as part of HS1’s insurance arrangements in an aggregate amount of £350 million
for all locations. HS1 separately purchases “buy-down” insurance through NRIL at St Pancras
International, Ebbsfleet International and Stratford International for the period to March 2016. At
Ashford International, HS1’s liability policies also apply, but Mitie purchases insurance as operator of
that station. A separate management agreement between HS1 and Mitie governs the respective cover at
Ashford International.
Directors and officers liability insurance – The directors of HS1 are covered under the policy held by
Helix Holdings Limited. The policy limit is £20 million for each single claim, investigation or enquiry,
with an additional £10 million for Non-Executive Directors. The current policy falls due for renewal by
November 2015.
Group personal accident/travel insurance – HS1 carries insurance which provides for payment of
capital sums in the event of death or injury to specified categories of personnel and travel insurance
whilst travelling on the business of HS1. The current policy expires in November 2015.
Motor insurance – Third party only cover for a small number of specified vehicles. The current policy
provides cover until 13 November 2015; and
Environmental Liability – Limit of indemnity £10 million each and every claim and £20 million in the
aggregate and a deductible of £250,000 each claim (both limit and deductible increasing annually in
line with RPI up to a maximum of 4%). The current policy expires in May 2024.
Pensions
HS1 participates in a defined benefits railways pension scheme in relation to 35 current and former
employees, which is closed to new entrants. Scheme valuations are prepared every 3 years. The last
valuation was performed on 31 December 2013 and confirmed that the scheme was 99.6% funded. HS1
has agreed with the Trustee of the scheme to pay six annual deficit repair contributions of £7k pa from
December 2015.
In relation to other employees, HS1 participates in a defined contributions pension scheme.
Taxation
In April 2014 HS1 entered into an Advanced Thin Capitalisation Agreement with HM Revenue &
Customs for a period covering 1 April 2012 to 31 March 2018.
Legal Proceedings
There are no governmental, legal or arbitration proceedings (including any such proceedings which are
pending or threatened of which HS1 is aware) within a period of 12 months preceding the date of this
Prospectus which may have, or have had in the recent past, a significant effect on HS1’s financial
position or profitability.
HS1
HS1 was incorporated under the Companies Act 1985 and registered in England and Wales on 2 April
1998 as a private limited company with number 03539665. HS1’s registered office is at 12th Floor,
One Euston Square, 40 Melton Street, London NW1 2FD and its telephone number is +44 (0) 20 7014
2700. The memorandum and articles of association of HS1 may be inspected at the registered office of
HS1.
Management and Employees
The directors and company secretary of HS1 and their respective business addresses and principal
activities are set out under “Business of HS1 – Directors and Senior Management”.
None of the directors of HS1 has any actual or potential conflict between their duties to the company
and their private interests or other duties.
Principal Activities
HS1 was established as a private limited company and its principal activities are acquiring and owning
High Speed 1 for the duration of the concession granted under the Concession Agreement. For a
detailed description of the principal activities of HS1, see “Business of HS1”.
Management and Control
HS1 is managed and controlled in the United Kingdom.
Share Capital
HS1 is a wholly owned subsidiary of Holdco. The issued share capital of HS1 is £1,000, comprising
990 A shares of £1 each and 10 B shares of £1 each. The share capital of HS1 is fully paid at the date
of this Prospectus.
Auditors
The auditors of HS1 are Deloitte LLP with a registered office at 2 New Street Square, London EC4A
3BZ. Deloitte LLP is a registered auditor and is authorised by and is a member of the Institute of
Chartered Accountants in England and Wales to practise in England and Wales. Deloitte LLP have
audited HS1’s accounts, without qualification, in accordance with generally accepted auditing
standards in the UK for each of the Financial Years ended 31 March 2013 and 31 March 2014.
HSRF
HSRF was incorporated under the Companies Act 2006 and registered in England and Wales on 30
August 2012 as a public limited company with number 08196684. HSRF’s registered office is at 12th
Floor, One Euston Square, 40 Melton Street, London NW1 2FD and its telephone number is +44 (0) 20
7014 2700. The memorandum and articles of association of HSRF may be inspected at the registered
office of HSRF.
Directors and Company Secretary
The directors and company secretary of HSRF and their respective business addresses and principal
activities are set out below.
Name
Business Address
Principal Activities
Richard Gooding
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Colin Hood
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
John McManus
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Darrin Pickett
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Philippe Busslinger
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Olivia Steedman
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
General Counsel &
Company Secretary
Lucy Lazzeri
None of the directors of HSRF has any actual or potential conflict between their duties to the company
and their private interests or other duties.
Principal Activities
HSRF was established as a public limited company and its principal activities are the issue and
administration of the PP Notes. HSRF has not engaged, since its incorporation in any activity other
than those incidental to (i) the authorisation and issue of the PP Notes (ii) the lending of the proceeds of
the PP Notes to HS1 (iii) the authorisation and execution of the other documents referred to in this
Prospectus and (iv) other matters which are incidental or ancillary to those matters.
HSRF does not own or operate any of the operating assets of the group. Consequently, the ability of
HSRF to meet its financial obligations is dependent on the receipt of payments from HS1 under the
Initial PPNIBLA.
Management and Control
HSRF is managed and controlled in the United Kingdom.
Share Capital
HSRF is a wholly owned subsidiary of Holdco and its issued share capital is £50,000, divided into
50,000 ordinary shares of £1 each. The share capital of HSRF is fully paid as at the date of this
Prospectus.
Auditors
The auditors of HSRF are Deloitte LLP with a registered office at 2 New Street Square, London EC4A
3BZ.
Deloitte LLP is a registered auditor and is authorised by and is a member of the Institute of Chartered
Accountants in England and Wales to practise in England and Wales.
HOLDCO
Holdco was incorporated under the Companies Act 2006 and registered in England and Wales on 3
November 2010 as a private limited company with number 07428859. Holdco’s registered office is at
12th Floor, One Euston Square, 40 Melton Street, London NW1 2FD and its telephone number is +44
(0) 20 7014 2700. The memorandum and articles of association of Holdco may be inspected at the
registered office of Holdco.
Directors and Company Secretary
The directors and company secretary of Holdco and their respective business addresses and principal
activities are set out below.
Name
Business Address
Principal Activities
Richard Gooding
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Colin Hood
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
John McManus
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Darrin Pickett
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Philippe Busslinger
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Olivia Steedman
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
General Counsel &
Company Secretary
Lucy Lazzeri
None of the directors of Holdco has any actual or potential conflict between their duties to the company
and their private interests or other duties.
Principal Activities
Holdco was established as a private limited company and its principal activities are acting as, and in
connection with being a holding company.
Holdco does not own or operate any of the operating assets of the group. Consequently, the ability of
Holdco to meet its financial obligations is dependent on the receipt of dividends from HS1.
Management and Control
Holdco is managed and controlled in the United Kingdom.
Share Capital
Holdco is a wholly owned subsidiary of Helix Bufferco Limited (“Bufferco”) and its issued share
capital is £1,000, divided into 990 £1 A shares and 10 B £1 shares.
Auditors
The auditors of Holdco are Deloitte LLP with a registered office at 2 New Street Square, London
EC4A 3BZ.
Deloitte LLP is a registered auditor and is authorised by and is a member of the Institute of Chartered
Accountants in England and Wales to practise in England and Wales. Deloitte LLP have audited
Holdco’s accounts, without qualification, in accordance with generally accepted auditing standards in
the UK for the Financial Years ended 31 March 2013 and 31 March 2014.
THE ISSUER
The Issuer was incorporated and registered in England and Wales on 3 January 2013 (with registered
number 08346271) as a public company of unlimited duration and with limited liability under the
Companies Act 2006. The registered office of the Issuer is 12th Floor, One Euston Square, 40 Melton
Street, London NW1 2FD and its telephone number is +44 (0) 20 7014 2700. The memorandum and
articles of association of the Issuer may be inspected at the registered office of the Issuer.
Principal Activities
The Issuer is organised as a special purpose company for purpose of issuing asset backed securities.
The Issuer was established to raise capital by the issue of Bonds and to on-lend the proceeds of the
issuance of Bonds by way of Advances to HS1 under each IBLA, to borrow under the Liquidity
Facility and to enter into Issuer Hedging Agreements. The Issuer is and is obliged to remain resident in
the United Kingdom for United Kingdom tax purposes.
On or around the Initial Issue Date, the Issuer entered into the Issuer Transaction Documents to which
it is party for the purpose of making a profit. The Issuer has no subsidiaries or employees.
Directors and Company Secretary
The directors and company secretary of the Issuer and their respective business addresses and principal
activities are set out below.
Name
Business Address
Principal Activities
Richard Gooding
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Colin Hood
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
John McManus
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Darrin Pickett
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Philippe Busslinger
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
Olivia Steedman
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
Director
SFM Directors Limited
35 Great St. Helen’s, London
EC3A 6AP
Independent Director
12th Floor, One Euston Square,
40 Melton Street, London NW1
2FD
General Counsel &
Company Secretary
Lucy Lazzeri
None of the directors of the Issuer has any actual or potential conflict between their duties to the
company and their private interests or other duties as listed above.
The directors and company secretary of SFM Directors Limited and their respective business addresses
and principal activities are set out below.
Name
Business Address
Principal Activities
Jonathan Keighley
35 Great St Helen’s, London
EC3A 6AP
Director
Robert Barry
35 Great St Helen’s, London
EC3A 6AP
Director
Helena Whittaker
35 Great St Helen’s, London
EC3A 6AP
Company
Director
Claudia Wallace
35 Great St Helen’s, London
EC3A 6AP
Director
J-P Nowacki
35 Great St Helen’s, London
EC3A 6AP
Director
Vinoy Nursiah
35 Great St Helen’s, London
EC3A 6AP
Director
Susan Abrahams
35 Great St Helen’s, London
EC3A 6AP
Director
Debra Parsall
35 Great St Helen’s, London
EC3A 6AP
Director
Michael Drew
35 Great St Helen’s, London
EC3A 6AP
Company Secretary
Jennifer Jones
35 Great St Helen’s, London
EC3A 6AP
Company Secretary
Aline Sternberg
35 Great St Helen’s, London
EC3A 6AP
Company Secretary
Secretary
and
Management and Control
The Issuer is managed and controlled in the United Kingdom.
Share Capital
The Issuer is a wholly owned subsidiary of Holdco and its issued share capital is £50,000, divided into
50,000 £1.00 ordinary shares. The share capital of the Issuer is fully paid as at the date of this
Prospectus. Since the date of incorporation, no option to acquire shares have been issued or authorised.
Since its incorporation up to the date of this Prospectus, the Issuer has not paid any dividends.
Auditors
The auditors of the Issuer are Deloitte LLP with a registered office at 2 New Street Square, London
EC4A 3BZ.
Deloitte LLP is a registered auditor and is authorised by and is a member of the Institute of Chartered
Accountants in England and Wales to practise in England and Wales.
SUMMARY OF THE COMMON DOCUMENTS
The following is a summary of certain provisions of the principal documents relating to the
transactions described in this Prospectus.
General overview
The Finance Parties (which includes the Issuer) all benefit from common terms under their relevant
debt instrument and a common security package granted by HS1, HSRF and Holdco (as Obligors under
the CTA). It is a requirement of the CTA that any future provider of an Authorised Credit Facility
must accede to and be bound by the terms of the CTA (see “Summary of the Common Documents –
Common Terms Agreement” below) and the intercreditor arrangements contained in the STID (see
“Summary of the Common Documents – Security Trust and Intercreditor Deed” below). The Issuer, as
provider of each loan to HS1 corresponding to the proceeds of an issuance of Bonds, is also party to
and is bound by the CTA and the STID.
The CTA sets out the common terms applicable to each IBLA and each other Authorised Credit
Facility (other than, in some respects, the Liquidity Facility and each HS1 Hedging Agreement) into
which HS1 enters. Save for certain limited exceptions, no Finance Party can have additional
representations, covenants, trigger events or loan events of default beyond the common terms deemed
to be incorporated by reference into their Authorised Credit Facilities through their execution of, or
accession to, the CTA.
The STID regulates among other things: (i) the claims of the HS1 Secured Creditors; (ii) the exercise
and enforcement of rights by the HS1 Secured Creditors; and (iii) the giving of instructions, consents
and waivers and, in particular, the basis on which votes of the HS1 Secured Creditors will be counted.
All agreements listed below and non-contractual obligations arising out of or in connection with them
are governed by English law and subject to the exclusive jurisdiction of the English courts.
Common Terms Agreement
General
Each of the Obligors, the Issuer, the HS1 Security Trustee, the Issuer Security Trustee, the Bond
Trustee, the Cash Manager, the Security Group Agent, the Initial Liquidity Facility Providers, the
Initial ACF Arrangers, the LF Arrangers, Initial Liquidity Facility Agent, the Initial HS1 Hedge
Counterparties, the Original Initial ACF Lenders, the Initial PP Noteholders, the Initial PP Note
Secured Creditor Representative, the Initial ACF Agent and the Account Bank entered into the CTA on
14 February 2013. The CTA sets out the representations, covenants (positive, negative and financial),
Trigger Events and Loan Events of Default which apply to each Authorised Credit Facility (including
for the avoidance of doubt each IBLA and any other document entered into in connection with an
Authorised Credit Facility).
It is a term of the CTA that any representation, covenant, Trigger Event or Loan Event of Default
contained in any document which is in addition to those in the CTA and any other Common Document
will be unenforceable (save for limited exceptions which, among other things, include tax
representations or representations under the Liquidity Facility Agreement or given to the PP
Noteholders (including, among other things, representations given to the PP Noteholders with respect
to US law and/or tax law issues) and covenants relating to “know your customer” checks, the delivery
of documents to allow payments to be made without deduction of Tax, the purpose of the relevant
facility, provisions as to illegality, information undertakings, indemnities, covenants to pay, voluntary
prepayments, cash sweep, equity cure rights, mandatory prepayments or mandatory “clean-down”
provisions (other than upon or following the occurrence of any event of default howsoever worded in
an Authorised Credit Facility) and covenants relating to remuneration, costs and expenses) unless they
are also offered to all of the parties to the CTA on the same basis and for the duration of the relevant
facility. In addition, subject to certain conditions, further representations and Trigger Events may be
included where they are extended to all of the Finance Parties including the Issuer.
It is a requirement of the CTA that future providers of Authorised Credit Facilities accede to the CTA
and the STID.
The CTA contains certain indemnities of the Obligors to the Finance Parties in respect of losses
caused, inter alia, by Loan Events of Default.
A summary of the representations, covenants, Trigger Events and Loan Events of Default included in
the CTA is set out below.
Representations
On, among other dates, the Initial Issue Date, each Obligor made a number of representations in
respect of itself to each Finance Party. These representations include (subject, in some cases, to agreed
exceptions and qualifications as to materiality and reservations of law) representations as to:
(a)
its due incorporation, power and authority (i) to enter into and perform its obligations under
the Transaction Documents to the extent applicable to it and (ii) has the power and authority
to own its assets and carry on its business as it is being and will be conducted;
(b)
all relevant consents, authorisations, licences and approvals for (i) entry into and exercise of
its rights under the Transaction Documents (including, without limitation, environmental
permits) and (ii) the conduct of the Permitted Business having been obtained;
(c)
admissibility in evidence of the Transaction Documents in any proceedings in England and
Wales, the recognition of the choice of jurisdiction of the courts of England and Wales in any
proceedings, the recognition of the choice of English law to govern such documents and the
absence of filling and registration requirements in relation thereto;
(d)
its obligations under the Transaction Documents being legal, valid, binding and enforceable;
(e)
security interests created by each HS1 Security Document are valid and effective and not
subject to any prior or pari passu Security Interests (other than any Permitted Security);
(f)
its entry into and performance under the Transaction Documents not conflicting with any
document or agreement which is binding upon it, its constitutional documents or any
applicable law or regulation;
(g)
use of intellectual property rights;
(h)
good title to assets, or valid leases or licences of and all appropriate authorisations necessary
to carry on it business;
(i)
absence of Defaults, Trigger Event, Insolvency Events and other similar events and
circumstances;
(j)
absence of litigation, arbitration, administrative proceedings, environmental claims or other
proceedings;
(k)
the accuracy of certain information including financial statements and this Prospectus;
(l)
no immunity from suit in respect of proceedings;
(m)
no contingent liabilities;
(n)
that the assumptions used to calculate the financial ratios were made in good faith and after
due and careful consideration;
(o)
matters relating to its centre of main interest;
(p)
matters relating to full disclosure;
(q)
matters relating to insurances;
(r)
matters relating to environmental compliance and claims;
(s)
that any unsecured and unsubordinated claims of an HS1 Secured Creditor against it under the
Finance Documents rank at least pari passu with the claims of all its other unsecured and
unsubordinated creditors except those creditors mandatorily preferred by law;
(t)
the absence of any breach of any law or regulation;
(u)
matters relating to holding companies;
(v)
matters relating to property;
(w)
the absence of any litigation, arbitration, administrative proceedings or other proceedings
except those disclosed in this Prospectus;
(x)
that no Security or Quasi Security exist over all or any of the present or future assets of any
member of the Security Group; and
(y)
that the Security Interest created by HS1 Security Documents has first ranking priority and is
not subject to any prior or pari passu ranking security.
In addition, on each Issue Date and on each date on which any other new Authorised Credit Facility is
issued or entered into under the Programme, each Obligor will repeat certain of such representations
(the “Initial Date Representation”).
On each Payment Date, on each date of a request for a borrowing and, on the first date of each
borrowing each Obligor shall make certain repeating representations (the “Repeated
Representations”). An Obligor acceding to an Authorised Credit Facility shall make the Repeated
Representations on the date of such accession.
Covenants
The CTA contains certain covenants from each of the Obligors. A summary of the covenants is set out
below.
Information Covenants
(a)
(b)
The Security Group Agent has undertaken to supply to the HS1 Security Trustee, the Issuer
Security Trustee, the Initial ACF Agent and any other Facility Agent, the Hedge
Counterparties, the Rating Agencies and the Bond Trustee in sufficient copies for all HS1
Secured Creditors:
(i)
consolidated audited Annual Financial Statements of the Security Group, prepared as
if they constituted a statutory group for consolidation purposes, and related
accountants’ report, within 150 days after the end of each Financial Year;
(iii)
consolidated, unaudited Semi-Annual Financial Statements of the Security Group
together, prepared as if they constituted a statutory group for consolidation purposes,
for the first financial half-year in each Financial Year, within 90 days after the end of
such financial half-year.
The Security Group Agent must ensure that:
(i)
each set of Financial Statements supplied by it is prepared in accordance with
Accounting Standards and includes a cashflow statement, a profit and loss account
and a balance sheet, and gives a true and fair view of it or, in the case of any
unaudited Financial Statements, fairly presents its financial condition (consolidated
or otherwise);
(ii)
it notifies the HS1 Security Trustee of any material change on the basis on which its
audited consolidated Financial Statements of HS1 are prepared; and
(iii)
if any notified change with respect to the calculation of financial ratio results in or
could reasonably be expected to result in a deviation equal to or greater than 3 per
cent. from the result of the calculation of such financial ratio if such change had not
occurred, the Security Group Agent may, or if the deviation is equal to or greater
than 5 per cent. the Security Group Agent shall appoint an international firm of
auditors approved by the HS1 Security Trustee or as nominated in accordance with
the terms of the CTA to enter discussions with a view to amending the Trigger Event
Ratios.
(c)
Unless the HS1 Security Trustee has already been so notified, each Obligor (or the Security
Group Agent on its behalf) must notify the HS1 Security Trustee of any Default or Trigger
Event relating to it (and the steps, if any, being taken to remedy it) promptly upon becoming
aware of its occurrence.
(d)
The Security Group Agent:
(i)
has undertaken to, among other things supply a Compliance Certificate to the HS1
Security Trustee, the Issuer Security Trustee, the Issuer, the Initial HS1 Hedge
Counterparties, the Initial ACF Agent and each Rating Agency with each set of
audited Annual Financial Statements described in paragraph (a) above: and
(ii)
may, at any time that the Security Group wishes to make a Restricted Payment
outside any Permitted Distribution Period supply a Compliance Certificate to the
HS1 Security Trustee, the Issuer Security Trustee, the Issuer, the Initial HS1 Hedge
Counterparties and the Initial ACF Agent,
in each case, such Compliance Certificate to be accompanied by a statement confirming:
(iii)
(A)
the historic ratios and forward-looking ratios which are required to be
calculated under the CTA and calculations thereof in reasonable detail;
(B)
if any Additional Financial Indebtedness has been incurred since the date of
the last Compliance Certificate, the Debt Life Coverage Ratio as calculated
in connection with such Additional Financial Indebtedness;
(C)
summary details of any acquisition or disposal of Subsidiaries, subsidiary
undertakings or interest in any Permitted Joint Venture by any member of
the Security Group and of any company or business or material disposals by
any member of the Security Group, in each case since the previously
delivered Compliance Certificate (or, if none, the Initial Issue Date); and
(D)
the amount of any Restricted Payment made since the date of the previous
Compliance Certificate.
must ensure that all forward-looking financial ratio calculations and projections:
(A)
are made on the basis of assumptions made in good faith and arrived at after
due and careful consideration;
(e)
(i)
(ii)
(B)
are consistent and updated by reference to the most recently available
financial information required to be produced by each Obligor; and
(C)
are consistent with the Accounting Standards (insofar as such Accounting
Standards reasonably apply to such calculations and projections).
The HS1 Security Trustee shall, within 10 Business Days of receipt of the
Compliance Certificate, have the right, acting on the written instructions of the
Qualifying HS1 Secured Creditors holding at least 20 per cent by value of Qualifying
HS1 Senior Debt, to challenge a statement(s), calculation(s) or ratio(s) in a
Compliance Certificate and to call for other substantiating evidence if it informs the
Security Group Agent that it or such Qualifying HS1 Secured Creditors have reason
to believe (acting reasonably) that:
(A)
any statement(s), calculation(s) or ratio(s) made in the Compliance
Certificate are incorrect or misleading in any material respect; and
(B)
if any statement(s) set out in (i) above were to be re-stated so that they were
accurate in all material respects, a Trigger Event would occur.
In the event that:
(A)
the information to be provided by the Obligors pursuant to sub-paragraph
(A) above to determine the accuracy of the statement(s), calculation(s) or
ratio(s) being challenged is confidential or commercially sensitive; or
(B)
following receipt of additional information, if the HS1 Security Trustee
(acting on the written instructions of the Qualifying HS1 Secured Creditors
holding at least 20 per cent. by value of Qualifying HS1 Senior Debt)
remains of the opinion that the statement(s), calculation(s) or ratio(s) are
materially inaccurate or misleading in a manner that would otherwise result
in there being a Trigger Event subsisting; or
(C)
HS1 so directs the HS1 Security Trustee,
the HS1 Security Trustee shall, subject to sub-paragraph (iii) below and following
consultation with HS1, appoint an independent expert from an Approved Expert List
or such other expert as may be agreed (the “Independent Expert”) to investigate the
relevant statement(s), calculation(s) or ratio(s).
(iii)
(iv)
The HS1 Security Trustee shall ensure that any Independent Expert shall:
(A)
enter into a confidentiality undertaking substantially in the then current
recommended form of the LMA or in any other form agreed between HS1
and the HS1 Security Trustee in relation to any Confidential Information
that it receives in respect of any Compliance Certificate; and
(B)
undertake to provide a report of its conclusions within 30 days of its
appointment in respect of a Compliance Certificate.
No Obligor may make a Restricted Payment during:
(A)
the period starting on (and including) the date on which a Compliance
Certificate is delivered and ending on (and excluding) the date falling 14
days from such date; and
(B)
in the event that the Compliance Certificate is challenged by the HS1
Security Trustee, the period starting on (and including) the date of the
challenge until the earlier of: (A) the date on which investigations in respect
of the challenge are completed to the reasonable satisfaction of the HS1
Security Trustee; (B) the date on which the Independent Expert announces
its conclusions that the relevant statement(s) or calculation(s) or ratio(s) that
were the subject of the challenge were not materially inaccurate or
misleading in a manner that resulted in there being no subsistence of a
Trigger Event; and (C) 2 Business Days after a re-stated Compliance
Certificate which is accurate in all material respects (taking into account the
findings of the Independent Expert (if applicable)) has been delivered.
(v)
There shall be no right to challenge any statement(s), calculation(s) or ratio(s) in a
Compliance Certificate or to call for other substantiating evidence in respect of any
statement(s), calculation(s) or ratio(s) which is (A) directly derived or reproduced
from information contained in any Project Document; and/or (B) approved or
provided by the Secretary of State and/or the Regulator.
(f)
The Security Group Agent (on behalf of each Obligor) must supply, by each Reporting Date
starting with the Reporting Date falling after the Accounting Reference Date falling in
September 2013, to, among others, the HS1 Security Trustee, the Issuer Security Trustee, the
Initial ACF Agent and any other Facility Agent, the Hedge Counterparties, the Rating
Agencies and the Bond Trustee in sufficient copies for all of the relevant HS1 Secured
Creditors and each other Issuer Secured Creditor an Investor Report.
(g)
Each Investor Report must include:
(i)
the historic ratios and forward-looking ratios and calculations thereof in reasonable
detail, provided that the historic ratios do not need to be calculated for any Reporting
Date prior to the Reporting Date in respect of the Test Date falling in March 2014;
(ii)
the calculations of the Debt Life Coverage Ratio if any Additional Financial
Indebtedness has been incurred since the last Investor Report;
(iii)
a general update of the following including narrative and details of any key changes:
(A)
general overview of the Permitted Business including performance and train
path numbers;
(B)
material regulatory changes and business developments;
(C)
capital expenditure in excess of a minimum amount;
(D)
details of the current financing position;
(E)
acquisitions and disposals in excess of a minimum amount; and
(F)
a summary of the current hedging position;
(iv)
the amount of any Restricted Payment made since the date of the previous Investor
Report; and
(v)
confirmation that:
(A)
the Investor Report is accurate in all material respects;
(B)
no Default or Trigger Event has occurred and is continuing, or if a Default
or a Trigger Event has occurred and is continuing, steps (which shall be
specified) are being taken to remedy such Default or Trigger Event; and
(C)
(h)
the Security Group is in compliance with the Hedging Policy (including the
hedging limits specified therein).
Each Obligor must ensure that
(i)
(ii)
all forward looking financial ratio calculations and projections made by such Obligor
referred to in sub-paragraph (d)(ii)(A) above are:
(A)
made on the basis of assumptions made in good faith and arrived at after due
and careful consideration;
(B)
consistent and updated by reference to the most recently available financial
information required to be produced by each Obligor; and
(C)
consistent with the Accounting Standards,
this Prospectus is updated as required under applicable laws and market practice
before the Issuer seeks to issue any further Series or Tranches of Bonds after the
validity period following the filing of the latest update has expired.
(i)
The Security Group Agent must hold each year an open one-way investor update conference
call presentation made by the Security Group Agent to the HS1 Secured Creditors and the
Bondholders.
(j)
So far as permitted by any applicable law, regulation, order or any binding confidentiality
obligations, each Obligor has undertaken to supply to the HS1 Security Trustee:
(k)
(i)
as soon as reasonably practicable after becoming aware of the same, details of any
litigation, arbitration or administrative proceedings which are current or threatened in
writing against any Obligor where such proceedings have been, or there is a
reasonable likelihood that they will be adversely determined and which would, if
adversely determined, be reasonably likely to have a Material Adverse Effect;
(ii)
as soon as reasonably practicable after becoming aware of the same, details of any
communication, enquiry, investigation or proceeding with, from or involving any
regulator or other governmental authority, where such communication relates to a
matter which has or could reasonably be expected to have a Material Adverse Effect
or where such enquiry, investigation or proceeding, if adversely determined, would
have or could reasonably be expected to have a Material Adverse Effect; and
(iii)
such material information (including hedging information) about the business and
financial condition of the Security Group (including the Issuer) which can be
requested by the HS1 Security Trustee on the instruction of Qualifying HS1 Secured
Creditors holding at least 25 per cent. by value of the Qualifying HS1 Senior Debt.
In addition, the Security Group Agent shall maintain an open investor website (the
“Designated Website”) on which information to be provided pursuant to the CTA to the PP
Noteholders and HS1 Secured Creditors and the Issuer Secured Creditors shall be published.
Notwithstanding the foregoing HS1 may designate a third party to operate and manage the
Designated Website on its behalf. HS1 must promptly upon becoming aware of its
occurrence, notify the HS1 Security Trustee and the Bond Trustee if the Designated Website
cannot be accessed or the Designated Website or any information on it is infected for a period
of 5 Business Days, in which case the Obligor must supply the HS1 Security Trustee and the
Bond Trustee with all information required under the CTA in paper form with copies as
requested by any Finance Party or Issuer Secured Creditor.
General Covenants
Pursuant to the CTA, the Obligors gave covenants which are customary for a financing of the type
(with customary carve-outs, thresholds and caveats) including in relation to compliance with laws,
conduct of business and maintenance of licences and authorisations. In particular, each Obligor gave
the following covenants (subject, in some cases, to agreed exceptions and qualifications as to
materiality and reservations of law):
(a)
to obtain, comply with and do all that is necessary to maintain in full force and effect any
material Authorisation required under any law or regulation of a Relevant Jurisdiction to
enable it to perform its obligations under the Finance Documents and the Project Documents,
and to ensure the legality, validity and enforceability or admissibility in evidence of any
Finance Document or Project Document and to supply copies of such material Authorisation
to the HS1 Security Trustee upon request;
(b)
to comply with all laws to which it may be subject if failure to comply has or is reasonably
likely to have a Material Adverse Effect;
(c)
to comply with all Environmental Law and obtain and ensure compliance with all requisite
Environmental Permits where failure to do so has or is reasonably likely to have a Material
Adverse Effect;
(d)
promptly to inform the HS1 Security Trustee of any Environmental Claim against any Obligor
where the claim, if adversely determined, would be reasonably likely to have a Material
Adverse Effect;
(e)
not to enter into any amalgamation, demerger, merger, consolidation, or corporate
reconstruction other than a Permitted Transaction;
(f)
only to carry on the Permitted Business and not to make a substantial change thereto if it
would be likely to have a Material Adverse Effect;
(g)
not to acquire or subscribe for shares or other ownership interests in or securities of any
company (or other person), acquire any business or undertaking or incorporate any company
or other person other than by way of a Permitted Acquisition or Permitted Transaction;
(h)
not to enter into, invest in or acquire any interest in any Joint Venture other than any
Permitted Joint Venture, Permitted Acquisition, Permitted Disposal or a Permitted Loan;
(i)
Holdco shall not trade, carry on any business, own any assets or incur any liabilities except
for:
(i)
the provisions of administrative services to other members of the Security Group;
(ii)
ownership of HS1, HSRF, the Issuer and CTRL or any other shares acquired in
connection with a Permitted Acquisition or a Permitted Joint Venture;
(iii)
credit balances in bank accounts, cash and Cash Equivalent Investments but only if
these are subject to any HS1 Security Document;
(iv)
owning any assets, incurring any liabilities and performing obligations permitted by,
incidental to or arising from actions permitted by the Finance Documents and Project
Documents;
(v)
paying professional fees and administration costs payable under the Finance
Documents and Project Documents to which it is a party;
(vi)
incurring liability to pay Tax and paying the Tax;
(vii)
Permitted Loans or making Restricted Payments;
(viii)
Permitted Payments and all activities reasonably incidental thereto; or
(ix)
any activities to be carried out by it as a result of the Acquisition or reasonably
incidental thereto;
(j)
to maintain in good working order and condition (ordinary wear and tear excepted) all of its
assets necessary or desirable in the conduct of its business where failure to do so has or would
reasonably be expected to have, a Material Adverse Effect;
(k)
to ensure that unsecured and unsubordinated claims of an HS1 Secured Creditor against it
under the Finance Documents rank at least pari passu with the claims of its other unsecured
and unsubordinated creditors except where mandatorily preferred by laws of general
application;
(l)
not to create or permit to subsist any Security Interest over any of its assets other than
Permitted Security;
(m)
not to:
(i)
sell, transfer or otherwise dispose of any of its assets on terms whereby they are or
may be leased to or re-acquired by an Obligor;
(ii)
sell, transfer or otherwise dispose of any of its receivables on recourse terms;
(iii)
enter into any arrangement under which money or the benefit of a bank or other
account may be applied, set-off or made subject to a combination of accounts; or
(iv)
enter into any other preferential arrangement having a similar effect,
in circumstances where the arrangement or transaction is entered into primarily as a method
of raising Financial Indebtedness or of financing the acquisition of an asset, other than a
Permitted Disposal, Permitted Transaction or Permitted Financial Indebtedness;
(n)
not to enter into a single transaction or series of transactions (whether related or not) and
whether voluntary or involuntary to sell, lease, transfer or otherwise dispose of any asset,
unless it is a Permitted Disposal, a Permitted Transaction or a Permitted Payment;
(o)
not to enter into any transaction with any person otherwise than on arm’s length terms unless
such transaction is:
(i)
a Project Document;
(ii)
an intra- Security Group loan or an Investor Funding Loan permitted under the CTA;
(iii)
payment of fees, costs and expenses payable under the Finance Documents or the
Project Documents in the amounts set out therein; and
(iv)
payment of management fees which are Permitted Payments;
(v)
a Permitted Transaction or other transaction expressly permitted by the Finance
Documents; or
(vi)
between members of the Security Group which is not prohibited by the terms of the
Finance Documents;
(p)
not to be the creditor in respect of any Financial Indebtedness or of any trade credit extended
to any of its customers other than where such Financial Indebtedness is a Permitted Loan or
Permitted Transaction;
(q)
not to incur or allow to be outstanding any guarantee by it or any of its Subsidiaries in respect
of any person other than a Permitted Guarantee or Permitted Transaction;
(r)
not to make a Restricted Payment unless the Restricted Payment Condition is satisfied, other
than where such Restricted Payment is a Permitted Payment or a Permitted Transaction;
(s)
not to incur or permit to be outstanding any Financial Indebtedness other than Permitted
Financial Indebtedness or a Permitted Transaction;
(t)
not to issue any shares except pursuant to a Permitted Share Issue or a Permitted Transaction;
(u)
to maintain insurances with reputable independent insurance companies or underwriters on
and in relation to its business and assets against those risks and to the extent as is required
pursuant to the Concession Agreement or to the extent as is commercially prudent in
accordance with good industry practice for such assets for companies carrying on the same or
a substantially similar business;
(v)
to ensure that it complies with sections 221 and 222 of the Pensions Act 2004 in relation to all
pension schemes operated by or maintained for the benefit of members of the Security Group
and/or any of their employees and that no action or omission is taken by any Obligor in
relation to such a pension scheme which has Material Adverse Effect;
(w)
not to enter into any arrangements which would cause it to incur additional liability under the
Pensions Act 2004 which has or is reasonably likely to have a Material Adverse Effect, and to
notify the HS1 Security Trustee promptly upon receipt of any Financial Support Direction or
Contribution Notice in respect of amounts in excess of a minimum amount;
(x)
if a Loan Event of Default is continuing or the HS1 Security Trustee reasonably suspects that
a Loan Event of Default is continuing, subject to existing contractual arrangements and
applicable law, rules and regulations (including HS1’s internal policies), to permit the HS1
Security Trustee and its advisers and contractors to have free access at reasonable times and
on reasonable notice at the Obligor’s cost to the premises, assets, books, accounts and records
of each Obligor and to meet and discuss matters with senior management of the Security
Group;
(y)
to preserve and maintain the subsistence and validity of such present and future rights in
accordance with Intellectual Property Rights, licences and sub-licences as are necessary for its
business including observing all covenants and stipulations relating thereto and obtaining all
necessary registrations where failure to do so would have or would reasonably be expected to
have a Material Adverse Effect;
(z)
not to amend, vary, novate, supplement, supersede, waive or terminate any term of a Finance
Document, except in accordance with the provisions of the STID and its own terms;
(aa)
not to enter into any Treasury Transaction, other than Treasury Transactions:
(bb)
(i)
contemplated by the Hedging Policy and documented by a Hedging Agreement; or
(ii)
entered into in the ordinary course of business provided that they are not for
speculative purposes and the counterparty does not accede to the STID;
to maintain its centre of main interests for the purpose of Council Regulation (EC) No.
1346/2000 in the United Kingdom;
(cc)
to use reasonable endeavours to maintain a rating of the Bonds issued by the Issuer from at
least two Rating Agencies and to co-operate with the Rating Agencies in connection with any
reasonable request for information in respect of the maintenance of a rating and with any
review of its business which may be undertaken by one or more of the Rating Agencies;
(dd)
not to change the accounting reference date unless the process specified in the CTA is
followed;
(ee)
to ensure that the Cash Manager shall provide cash management services as set out in and in
accordance with the terms specified in the CTA;
(ff)
to retain at all times reputable auditors;
(gg)
not to incur Additional Financial Indebtedness which is either unsecured or secured by the
HS1 Security Documents other than:
(i)
where the Additional Financial Indebtedness is not Incremental Debt, but is incurred
by any Obligor in respect of Capital Expenditure in excess of £10,000,000 then to the
extent that any such indebtedness is to be secured, the creditors of such Financial
Indebtedness (the “Incoming Creditors”) accede to the CTA and the STID, the
Incoming Creditors do not, and may not at any time, benefit from any Security
Interests, guarantees or other credit support, or recourse to, any other Obligor other
than pursuant to the HS1 Security Documents and the CTA and HS1 provides a
certificate to the HS1 Security Trustee at the time of incurring such Financial
Indebtedness confirming that:
(A)
no Loan Event of Default or Default is subsisting or would occur as a result
of the incurrence of such Financial Indebtedness;
(B)
any hedging in respect of the Additional Financial Indebtedness complies
with the Hedging Policy;
(C)
either of the following applies (x) the Debt Life Coverage Ratio (calculated
prior to the Execution Date as at the relevant Determination Date in respect
of that further debt, assuming that the whole amount of the further debt has
been incurred and remains outstanding on that Determination Date) is no
less than 1.55:1; or (y) if the further debt is incurred to meet all or a portion
of capital expenditure in relation to a Specified Upgrade or other works for
which HS1 is entitled to charge additional IRC either (1) the Debt Life
Coverage Ratio (calculated prior to the Execution Date as at the relevant
Determination Date in respect of that further debt, assuming that the whole
amount of the relevant further debt has been incurred and remains
outstanding on that Determination Date and the revenues projected to be
received by HS1 include the additional IRC relating to the relevant
Specified Upgrade or other upgrade) (the “After DLCR”) is no less than the
Debt Life Coverage Ratio (calculated prior to the Execution Date as at the
same Determination Date, but assuming instead that the relevant further debt
is not outstanding on that Determination Date and the revenues projected to
be received by HS1 do not include any additional IRC relating to the
relevant Specified Upgrade or other works) (the “Before DLCR”); or (2) if
the Before DLCR is greater than 1.55:1, the After DLCR is no less than
1.55:1; and
(D)
HS1 has provided details of such Financial Indebtedness to the Rating
Agencies mandated by the Issuer from time to time to provide public longterm credit ratings and those Rating Agencies have not indicated that the
then long-term credit rating on the Bonds would, as a consequence of the
incurrence of such Financial Indebtedness, be reduced below the lower of:
(xx) Investment Grade; and (yy) the then current long-term credit rating of
the Bonds (before the incurrence of such Financial Indebtedness);
(ii)
(iii)
where the Additional Financial Indebtedness constitutes Incremental Debt, then to the
extent that any such indebtedness is to be secured, the Incoming Creditors accede to
the STID and the CTA, the Incoming Creditors do not, and may not at any time,
benefit from any Security Interests, guarantees or other credit support, or recourse to,
any other Obligor other than pursuant to the HS1 Security Documents and the CTA,
the terms of such Financial Indebtedness shall not provide that the final maturity date
for such indebtedness shall fall on or before the Final Maturity Date of Facility A and
HS1 provides a certificate to the HS1 Security Trustee at the time of incurring such
Financial Indebtedness confirming that:
(A)
no Loan Event of Default or Default is subsisting or would occur as a result
of the incurrence of such Financial Indebtedness;
(B)
no Trigger Event is subsisting or would occur as a result of the incurrence of
such Financial Indebtedness;
(C)
any hedging in respect of the Additional Financial Indebtedness complies
with the Hedging Policy;
(D)
the Projected DSCR, calculated by reference to the most recently provided
Annual Financial Statements or Semi-Annual Financial Statements and
taking into account the incurrence of such Financial Indebtedness, shall not
be less than 1.4:1 in respect of each of the period commencing on the most
recent Test Date and ending on the first anniversary of that Test Date (the
“First Annual Test Date”) and the period commencing on the First Annual
Test Date and ending on the date falling 12 months after the First Annual
Test Date;
(E)
the Debt Life Coverage Ratio (calculated prior to the Execution Date as at
the relevant Determination Date in respect of that further debt, assuming
that the whole amount of the further debt has been incurred and remains
outstanding on that Determination Date) is no less than 1.55:1; and
(F)
HS1 has provided details of such Financial Indebtedness to the Rating
Agencies mandated by the Issuer from time to time to provide public longterm credit ratings; and those Rating Agencies have not indicated that the
then long-term credit rating on the Bonds would, as a consequence of the
Financial Indebtedness, be reduced below the lower of: (xx) the long-term
credit rating of the Bonds on the Initial Issue Date; and (yy) the then current
long-term credit rating of the Bonds (before the incurrence of such Financial
Indebtedness);
where the Additional Financial Indebtedness is not Incremental Debt, but is incurred
by any Obligor in respect of the refinancing of any existing Financial Indebtedness
(“Refinancing Indebtedness”), to the extent that the Refinancing Indebtedness is to
be secured, the creditors of the Refinancing Indebtedness accede to the CTA and the
STID, the Incoming Creditors do not, and may not at any time, benefit from any
Security Interests, guarantees or other credit support, or recourse to, any other
Obligor other than pursuant to the HS1 Security Documents and the CTA and HS1
provides a certificate to the HS1 Security Trustee at the time of entering into the
Refinancing Indebtedness confirming that:
(A)
no Loan Event of Default or Default is subsisting or would occur as a result
of the incurrence of such Financial Indebtedness;
(iv)
(B)
any hedging in respect of the Additional Financial Indebtedness complies
with the Hedging Policy; and
(C)
either (I) the Debt Life Coverage Ratio (calculated prior to the Execution
Date as at the Test Date preceding the entry into the Refinancing
Indebtedness, assuming (x) that the whole amount of the Refinancing
Indebtedness has been incurred and remains outstanding on that Test Date;
and (y) that the amount of existing Financial Indebtedness to be refinanced
by the Refinancing Indebtedness is no longer outstanding on that Test Date)
is no less than 1.55:1, or (II) HS1 has provided details of the Refinancing
Indebtedness to the Rating Agencies mandated by the Issuer from time to
time to provide public long-term credit ratings and those Rating Agencies
have not indicated that the then long-term credit rating on the Bonds would,
as a consequence of the Refinancing Indebtedness, be reduced below the
lower of: (xx) the long-term credit rating of the Bonds on the Initial Issue
Date; and (yy) the then current long-term credit rating of the Bonds (before
the Refinancing Indebtedness is entered into);
where the Additional Financial Indebtedness is not Incremental Debt, but is incurred
by any Obligor in respect of Capital Expenditure less than of £10,000,000 or to fund
the working capital requirements of the Obligors (provided that such Additional
Financial Indebtedness shall be, in aggregate, no more than £65,000,000 (Indexed)
plus 10 per cent. at any time) then to the extent that any such indebtedness is to be
secured, the Incoming Creditors accede to the CTA and the STID, the Incoming
Creditors do not, and may not at any time, benefit from any Security Interests,
guarantees or other credit support, or recourse to, any other Obligor other than
pursuant to the HS1 Security Documents and the CTA and HS1 provides a
certificate to the HS1 Security Trustee at the time of incurring such Financial
Indebtedness confirming that:
(A)
no Loan Event of Default or Potential Loan Event of Default is subsisting or
would occur as a result of the incurrence of such Financial Indebtedness;
and
(B)
any hedging in respect of the Additional Financial Indebtedness complies
with the Hedging Policy;
(hh)
not to change its memorandum or articles of association or other constitutional documents
without the prior written consent of the HS1 Security Trustee, if such change would be
reasonably likely to have a Material Adverse Effect;
(ii)
not to amend, waive, assign, transfer, terminate, suspend or abandon all or any part of a
Principal Project Document unless it is required to do so by law or regulation or where to do
so has or would reasonably be expected to have a Material Adverse Effect.
(i)
There shall be no breach of this covenant where:
(A)
HS1 certifies that services provided under the relevant Principal Project
Documents can be adequately performed by the Holdco Group from its own
resources and/or that it is entering into or taking steps to enter into a
replacement contract with a counterparty or counterparties which in the
opinion of HS1 are of adequate technical and financial standing to provide
such services;
(B)
HS1 is entitled to receive adequate compensation in respect of the
amendment, waiver, assignment, transfer, termination, suspension or
abandonment which, once received and applied by HS1, will result in any
such amendment, waiver, assignment, transfer, termination, suspension or
abandonment of all or any part of a Principal Project Document not having a
Material Adverse Effect;
(ii)
(C)
the Secretary of State, HS1 Security Trustee or a Representative has elected
to step-in and assume joint liability under the terms of the relevant Principal
Project Document pursuant to the relevant Financing Direct Agreement;
(D)
there would otherwise be no Material Adverse Effect notwithstanding any
such amendment, waiver, assignment, transfer, suspension or abandonment;
Notwithstanding paragraph (i), if:
(A)
any amendment, waiver, assignment, transfer, termination, suspension or
abandonment of a Principal Project Document has occurred which has or
would reasonably be expected to have a Material Adverse Effect; and
(B)
HS1 has, in accordance with paragraph (i)(A) certified that it is entering into
or has taken appropriate steps to enter into a replacement contract(s) (and
such certification has not been withdrawn) or in accordance with paragraph
(i)(B) is entitled to receive adequate compensation in respect of such event;
but
(C)
in respect of:
(I)
any Principal Project Document (other than a Key Principal Project
Document), on the date falling twelve (12) months (or such longer
period as may be agreed between the Obligors and the HS1
Security Trustee)
after the relevant amendment, waiver,
assignment, transfer, termination, suspension or abandonment has
occurred such a replacement contract(s) has/have not been entered
into or such compensation has not been received by HS1; or
(II)
any Key Principal Project Document, on the date falling six (6)
months (or such longer period as may be agreed between the
Obligors and the HS1 Security Trustee) after the relevant
amendment, waiver, assignment, transfer, termination, suspension
or abandonment has occurred such a replacement contract(s)
has/have not been entered into or such compensation has not been
received by HS1,
then a breach of this covenant shall occur on that date;
(jj)
HS1 may at any time following any termination of any of the UKPN Agreements acquire, sell,
re-lease or otherwise deal with the assets the subject of the UKPN Agreements and/or make
any payments required to be made under or in connection with any such termination,
acquisition, sale, re-leasing or other dealing, provided that such acquisition, sale, re-leasing or
other dealing with such assets or making such payments in connection with the foregoing does
not have a Material Adverse Effect and the HS1 Security Trustee is authorised by the HS1
Secured Creditors and the Issuer Secured Creditors to execute such additional
documents/amendments to the Finance Documents in order to give effect to the foregoing;
(kk)
HS1 may at any time, from agree to transfer to itself or another member of the Holdco Group
any employees, assets or business or undertake any of the services which are, as at the
Establishment Date, performed for it by Network Rail or any third party under any Project
Document, provided that such action could not reasonably be expected to result in a Material
Adverse Effect, and the HS1 Security Trustee is authorised by the HS1 Secured Creditors to
execute such additional documents/amendments to the Finance Documents in order to give
effect to the foregoing;
(ll)
if any Project Document which is the subject of a Financing Direct Agreement is amended,
waived, assigned, transferred, terminated, suspended or abandoned; or if any party to a Project
Document which is the subject of a Financing Direct Agreement rescinds or purports to
rescind or repudiates or purports to repudiate a Project Document in whole or in part, and HS1
enters into a replacement contract(s) with a counterparty or counterparties, HS1 shall procure
that one or more direct agreement(s) with the new counterparty or counterparties or similar
arrangements having a substantively similar effect to the Financing Direct Agreement which
was in place in respect of the relevant Project Document is/are entered into by the relevant
counterparty or counterparties and the other relevant parties who were party to the Financing
Direct Agreement which was in place in respect of the relevant Project Document (other than
the outgoing counterparty);
(mm)
not to compromise or settle any claim, litigation or arbitration which would be reasonably
likely to have a Material Adverse Effect without prior notification to the HS1 Security
Trustee;
(nn)
if, in respect of any Test Period, scheduled Interest and principal payable in respect of any
HS1 Senior Debt owned by any Obligor has been deducted by HS1 from the calculation of
Historic Consolidated Debt Service and/or Projected Consolidated Debt Service, not to
dispose of the relevant HS1 Senior Debt for 12 months after the end of the Test Period; and
(oo)
to file all material tax returns required to be filed in the jurisdiction in which the Obligor or
Subsidiary in question is resident for Tax purposes, and to pay and discharge all Taxes shown
to be due and payable on such material returns and all other material Taxes imposed by such
jurisdiction on them or any of their properties, assets or income, to the extent the same have
become due and payable and before they have become delinquent, provided that no Obligor
nor any Subsidiary need pay any such Tax if, inter alia, the amount, applicability or validity
thereof is contested by such Obligor or such Subsidiary on a timely basis in good faith and in
an appropriate manner, and such Obligor or such Subsidiary has established reserves therefor
on its books which are adequate in the reasonable opinion of such Obligor or such Subsidiary
respectively, (ii) such Taxes can be lawfully withheld or a failure to pay such Taxes would not
reasonably be expected to have a Material Adverse Effect or (iii) the non-payment of all such
Taxes in the aggregate would not reasonably be expected to have a Material Adverse Effect.
Trigger Events
The CTA also sets out certain Trigger Events. The specific Trigger Events which, in some cases, are
subject to agreed exceptions and qualifications as to materiality and reservations of law, and the
consequences which flow from the occurrence of those events are set out below.
The occurrence of any of the following events is a “Level 1 Trigger Event”:
(a)
Provisional Order
The ORR makes a Provisional Order in respect of High Speed 1 (a “Provisional Order
Trigger Event”).
(b)
Non-Renewal of Insurances
The Security Group Agent has not, by the date falling 15 Business Days prior to the relevant
renewal date, provided the HS1 Security Trustee with written confirmation that HS1 is
making arrangements for the insurances referred to in the Concession Agreement to be
renewed on the relevant renewal date.
The occurrence of any of the following events is a “Level 2 Trigger Event”:
(a)
Liquidity Required Amount
The sum of the amount available under a Liquidity Facility Agreement at any time and any
amount credited to the Issuer Debt Service Reserve Account and the Obligor Debt Service
Reserve Account is in aggregate less than the Liquidity Required Amount.
(b)
Financial ratios
On any date when any of the following ratios is calculated in accordance with the CTA to
breach the relevant level specified below (each a “Trigger Event Ratio Level”) as
determined at the Test Date relating to the relevant Test Period:
(i)
the Historic DSCR is less than 1.2:1;
(ii)
the Projected DSCR is less than 1.2:1;
in each case as stated in the relevant Compliance Certificate.
(c)
Final Order
The ORR makes a Final Order in respect of High Speed 1.
(d)
Requirement to remedy breach under Concession Agreement
The Secretary of State issues a notice to HS1 pursuant to the Concession Agreement requiring
HS1 to remedy a breach referred to in a notice of default or to put forward a reasonable
programme for the remedying of the breach referred to in a notice of default, in accordance
with the Concession Agreement.
(e)
Termination of Licence
The ORR gives HS1 notice of termination of or proposed or actual modification of any
licence required for the performance of the Permitted Business of any Obligor, which, if
implemented, would have a Material Adverse Effect.
(f)
Adverse Governmental Legislation
The commencement of the final reading of draft legislation in the House of Lords or the
House of Commons (whichever occurs later) of legislation (or the commencement of the
equivalent stage of the implementation of EU law through regulations made under the
European Communities Act 1972), relating to the Permitted Business of HS1 if such
legislation would (if enacted) reasonably be expected to have a Material Adverse Effect
unless the Security Group Agent provides written evidence satisfactory to the HS1 Security
Trustee that the relevant draft bill is no longer proceeding in the legislative process for any
reason other than as a result of enactment, and provided that it shall not be a Material Adverse
Effect if any such legislation is in replacement of existing legislation on the same or
substantially the same terms.
(g)
Drawdown on Liquidity Facilities
An Obligor or the Issuer draws down under a Liquidity Facility (excluding any drawing or
repayment of any Standby Drawing) or withdraws sums credited to an Obligor Debt Service
Reserve Account or the Issuer Debt Service Reserve Account or, as the case may be, an
Obligor Liquidity Standby Account or the Issuer Liquidity Standby Account if the withdrawal
of such amount is for the purposes of making scheduled debt service payments on the HS1
Senior Debt or the Issuer Senior Debt.
(h)
Loan Event of Default
Without prejudice to the other remedies in respect thereof, and subject to the expiry or any
applicable grace or remedy, the occurrence of a Loan Event of Default which is continuing.
(i)
Credit Rating Downgrade
The long term credit rating of any Bonds ascribed by at least two Rating Agencies (which
have been engaged by the Issuer to provide a public long-term credit rating) is downgraded
below Investment Grade or the equivalent from any other Rating Agency that has been
engaged by the Issuer to provide a public long-term credit rating.
The credit rating referred to above is the “Trigger Event Credit Rating” for the Bonds.
(j)
Inflation-Linked Hedging Transactions
As at the most recently occurring Test Date, the aggregate amount of all accretions by
indexation to the notional amount of any inflation- linked Hedging Transactions exceeds 20
per cent of HS1 Senior Debt.
Trigger Event Consequences
Following the occurrence of a Level 1 Trigger Event and at any time until such Trigger Event has been
waived by the HS1 Security Trustee or remedied in accordance with the Trigger Event Remedies (see
“– Trigger Events Remedies” below) the following provisions (“Level 1 Trigger Event
Consequences”) apply:
(a)
Further Information
The HS1 Security Trustee may request (i) the Security Group, or such members thereof as the
HS1 Security Trustee may consider appropriate, to provide the HS1 Security Trustee within a
specified timeframe being not less than twenty (20) Business Days with its written proposals
for the remedy of the Level 1 Trigger Event (to the extent the same is capable of remedy by
the Security Group); and/or (ii) that the management of HS1 meet with the HS1 Security
Trustee to discuss the ramifications of the Level 1 Trigger Event and its remedy; and / or
(b)
Consultation with Regulator
If a Provisional Order Trigger Event occurs, subject to the prior consent of the Secretary of
State and/or the Regulator, as applicable, and to the extent required, the HS1 Security Trustee
may request: (i) that it is consulted with respect to correspondence between HS1 and the ORR
in respect of the Provisional Order Trigger Event, (ii) that it is consulted with respect to the
preparation of a response by HS1 to the Provisional Order; and/or (iii) that it is invited to
attend any discussions between HS1 and the ORR and/or the Secretary of State in respect of
the ramifications of the Provisional Order and its remedy (and HS1 shall use reasonable
endeavours to procure the consent of the ORR and the Secretary of State to the attendance of
the HS1 Security Trustee at such discussions, if the HS1 Security Trustee so requires).
Following the occurrence of a Level 2 Trigger Event and at any time until such Trigger Event has been
waived by the HS1 Security Trustee or remedied in accordance with the Trigger Event Remedies (see
“– Trigger Events Remedies” below) the following provisions (“Level 2 Trigger Event
Consequences”) apply:
(a)
No Restricted Payments
No Obligor may make a Restricted Payment until the next Test Date after the Trigger Event is
cured and provided that no Trigger Event is then subsisting.
(b)
Further Information
The Security Group must provide such information as to the relevant Level 2 Trigger Event
(including its causes and effects) as may be reasonably requested by the HS1 Security Trustee
acting on the instructions of 25 per cent. or more by value of the Qualifying HS1 Secured
Creditors, provided that the HS1 Group is not obliged to provide any information for
distribution to the HS1 Secured Creditors if such information is commercially sensitive and
disclosure of such information could be materially prejudicial to the business and interests of
such Obligor or the Security Group taken as a whole.
(c)
(d)
Remedial Plan
(i)
HS1 or another Obligor shall prepare a plan for remedying the Level 2 Trigger Event
(a “Remedial Plan”) to the extent that it is capable of remedy by the Security Group
and HS1 shall provide a copy of the Remedial Plan to the HS1 Security Trustee.
(ii)
If the Secretary of State or the ORR in the exercise of their regulatory functions or
pursuant to the Concession Agreement, reviews and approves the Remedial Plan,
HS1 shall implement the Remedial Plan.
(iii)
If HS1 or another Obligor does not prepare a Remedial Plan within 40 days (or such
time as may be required by the Secretary of State or the Regulator) of the occurrence
of the Trigger Event, the HS1 Security Trustee shall be entitled to appoint (if
necessary) and instruct an Independent Expert to prepare a Remedial Plan.
(iv)
Subject to the prior consent of the Secretary of State and/or the Regulator, as
applicable, the HS1 Security Trustee may on request, participate in any discussions
between HS1 and ORR and/or the Secretary of State in respect of any Remedial
Plan.
(v)
The Security Group shall co-operate with any Independent Expert appointed by the
HS1 Security Trustee to prepare or review a Remedial Plan, with a view to enabling
the Independent Expert to prepare or review a Remedial Plan.
Optional Prepayment
(i)
Subject to paragraph (iii) below, if a Trigger Event has occurred and is continuing
and an Obligor wishes to make a voluntary prepayment of any HS1 Senior Debt (and
provided it is not prohibited from doing so pursuant to the Finance Documents) it
shall apply the amount available for such prepayment pro-rata according to the
respective principal amounts outstanding of:
(A)
the aggregate of the Advances outstanding under the IBLAs (less amounts
already standing to the credit of the HS1 Defeasance Account in respect of
the relevant Advances outstanding under the IBLAs) (the “Outstanding
IBLA Balances”); and
(B)
the principal amount outstanding of any other HS1 Senior Debt ranking pari
passu with the Outstanding IBLA Balances, other than amounts outstanding
under or in respect of any Liquidity Facility Agreement and the HS1
Hedging Transactions (less amounts already standing to the credit of the
HS1 Defeasance Account in respect of such HS1 Senior Debt) (the “Pari
Passu HS1 Senior Debt”),
towards:
(I)
in respect of the amount to be applied in respect of Outstanding
IBLA Balances:
(II)
(aa)
prepayment of Outstanding IBLA Balances or purchase of
Bonds corresponding to the Outstanding IBLA Balances
together with any related Repayment Costs;
(bb)
by depositing in the HS1 Defeasance Account an amount
equal to the principal amount outstanding under HS1
Defeased Debt (to the extent not prepaid pursuant to subparagraph (aa)) and for which purpose “outstanding” shall
be calculated net of any HS1 Defeasance Amount already
deposited in an HS1 Defeasance Account in respect of
such HS1 Defeased Debt;
in respect of the amount to be applied in respect of Pari Passu HS1
Senior Debt:
(aa)
prepayment or purchase of Pari Passu HS1 Senior Debt;
(bb)
making a deposit to the HS1 Defeasance Account in
respect of such Pari Passu HS1 Senior Debt (to the extent
not purchased or prepaid pursuant to this sub-paragraph
(bb)); and
(cc)
payment of any related Repayment Costs, including,
without limitation, paying the related amount payable to
HS1 Hedge Counterparties arising as a result of
termination (in whole or in part) of any HS1 Hedging
Transactions following the prepayment or purchase of the
Pari Passu HS1 Senior Debt, to the extent that such
termination is necessary in order to remain in compliance
with the Hedging Policy following such prepayment or
purchase.
(ii)
Notwithstanding the foregoing, if the Trigger Event arises as a result of accretions by
indexation on Hedging Transactions exceeding 20 per cent. of HS1 Senior Debt, the
Obligors may prepay and/or terminate the relevant Hedging Transactions so as to
remedy such Trigger Event without having to effect a pro-rata prepayment/ purchase
and/or defeasance of any other HS1 Senior Debt.
(iii)
If a Trigger Event has occurred and is continuing and at that time, pursuant to any
Sweep Facility, the Obligors are required to apply Excess Cashflow towards
mandatory prepayment under that Sweep Facility, the Obligors shall not be permitted
to make any voluntary prepayment from any amount of Excess Cashflow to the
extent required to be applied towards such mandatory prepayment and such
application of amounts of Excess Cashflow shall not be a breach of this paragraph (d)
(Optional Prepayment).
Trigger Event Remedies
At any time when an Obligor believes that a Trigger Event has been remedied by virtue of any of the
following, it must serve notice on the HS1 Security Trustee to that effect. The HS1 Security Trustee
must respond within ten (10) days (or such longer period as it may reasonably agree with the relevant
Obligor (as the case may be)) confirming that the relevant Trigger Event has, in its reasonable opinion,
been remedied or setting out its reasons for believing that such Trigger Event has not been remedied
(in which case, such event shall continue to be a Trigger Event until such time as the HS1 Security
Trustee is reasonably satisfied that the Trigger Event has been remedied).
Under the terms of the CTA, the parties thereto have agreed that HS1 may at any time be required to
follow the instructions of the Secretary of State and/or the ORR. In doing so, HS1 shall not be in
breach of any provision of the Finance Documents notwithstanding that following those instructions
may restrict the rights of the HS1 Security Trustee, the HS1 Secured Creditors and/or any Independent
Expert in respect of a Level 2 Trigger Event. Such rights are subject to the requirements of the ORR,
the Secretary of State, the Concession Agreement and any other applicable law or contractual
arrangement and HS1 shall not be required to follow any recommendation or proposal offered by the
HS1 Security Trustee, the HS1 Secured Creditors and/or any Independent Expert in respect of any
Level 2 Trigger Event and the remedy thereof.
The following shall constitute remedies to the Trigger Events (each, a “Trigger Event Remedy”):
(a)
Provisional Order
The occurrence of a Provisional Order Trigger Event will be remedied if an Obligor provides
the HS1 Security Trustee with written confirmation together with such supporting evidence as
may reasonably be required by the HS1 Security Trustee evidencing that the relevant
Provisional Order has lapsed or the breach the issue of the Provisional Order has been
remedied in accordance with its terms.
(b)
Non-Renewal of Insurances
The occurrence of the Trigger Event in respect of non-renewal of insurances will be remedied
if an Obligor provides the HS1 Security Trustee with documentation evidencing the renewal
of the relevant insurances.
(c)
Liquidity Required Amount
The occurrence of the Trigger Event in respect of the Liquidity Required Amount will be
remedied if an Obligor provides the HS1 Security Trustee with documentation evidencing the
availability of Liquidity Facilities up to the Liquidity Required Amount.
(d)
Financial Ratios
The breach of a Trigger Event Ratio Level will be remedied if such ratio is or such ratios are
equal to or higher than the Trigger Event Ratio Level as determined as at the Test Date
relating to the relevant Test Period as stated in the Compliance Certificate produced in respect
of any relevant Reporting Date, or in respect of any calculation required by the terms of the
CTA but not delivered in respect of a Reporting Date, as stated in a Compliance Certificate
from the Security Group Agent on the such date and subject in each case to any final
determination or dispute procedure in accordance with the terms of the CTA.
(e)
Final Order
The occurrence of the Trigger Event in respect of a Final Order will be remedied if an Obligor
provides the HS1 Security Trustee with written confirmation together with such supporting
evidence as may reasonably be required by the HS1 Security Trustee evidencing that the
breach which is the issue of the Final Order has been remedied in accordance with its terms.
(f)
Breach under Concession Agreement
The occurrence of the Trigger Event in respect of a breach under the Concession Agreement
will be remedied if an Obligor provides the HS1 Security Trustee with written confirmation
together with such supporting evidence as may reasonably be required by the HS1 Security
Trustee evidencing that the breach of the Concession Agreement has been remedied and/or
that such breach is not reasonably likely to have a Material Adverse Effect.
(g)
Termination of Licence
The occurrence of the Trigger Event in respect of the termination or modification of any
licence will be remedied if an Obligor provides the HS1 Security Trustee with written
confirmation together with such supporting evidence as may reasonably be required by the
HS1 Security Trustee evidencing that:
(h)
(i)
a member of the Holdco Group has entered into or obtained a replacement, reinstated
or modified licence permitting the Holdco Group to continue to perform the
Permitted Business; or
(ii)
the ORR has directed that the Permitted Business can continue without such license
or that such license if no longer required.
Adverse Governmental Legislation
The occurrence of the Trigger Event in relation to adverse governmental legislation will be
remedied if the draft bill (or the equivalent under the European Communities Act 1972) fails
to become an Act of Parliament within 6 months of the occurrence of the Trigger Event or
becomes an act in a form which is reasonably likely not to have a Material Adverse Effect.
(i)
Drawdown on Liquidity Facility
The occurrence of a Trigger Event in relation to drawdowns under a Liquidity Facility will be
remedied if the aggregate balance drawn down (other than by way of Standby Drawings)
under the Liquidity Facility is restored to zero and an amount equal to any sums withdrawn
from an Obligor Debt Service Reserve Account, the Issuer Debt Service Reserve Account or
as the case may be, an Obligor Liquidity Standby Account or the Issuer Liquidity Standby
Account for the purposes of making scheduled debt service payments on the HS1 Senior Debt
or the Issuer Senior Debt is deposited into an Obligor Debt Service Reserve Account, an
Obligor Liquidity Standby Account or the Issuer Liquidity Standby Account.
(j)
Loan Event of Default
The occurrence of a Trigger Event in relation to a Loan Event of Default will be remedied if
the Loan Event of Default is waived in accordance with the STID or is remedied to the
reasonable satisfaction of the HS1 Security Trustee.
(k)
Credit Rating Downgrade
The occurrence of a Trigger Event in relation to a credit rating downgrade will be remedied if
the credit rating of the relevant Bonds given by at least two Rating Agencies is no longer
below the Trigger Event Credit Rating.
(l)
Inflation-Linked Hedging Transactions
The occurrence of a Trigger Event in relation to inflation-linked Hedging Transactions will be
remedied if, on any date subsequent to the Test Date on which such Trigger Event first
occurred, the aggregate amount of all accretions by indexation to the original notional
amounts of any inflation-linked Hedging Transactions no longer exceeds 20 per cent. of HS1
Senior Debt.
Loan Events of Default
The CTA contains the following of events of default which, in some cases, are subject to agreed
exceptions and qualifications as to materiality and reservations of law and which constitute the “Loan
Events of Default” under each Finance Document other than any Liquidity Facility Agreement, any
HS1 Hedging Agreement and any Issuer Hedging Agreement, each one being a “Loan Event of
Default”:
(a)
Non-Payment
Non payment by an Obligor on the due date of amounts payable under the Finance
Documents in the manner required under such documents unless payment is made within 5
Business Days of the due date.
(b)
Breach of Financial Covenant
Either:
(i)
the ratio of Historic Consolidated Cashflow to Historic Consolidated Debt Service;
and/or
(ii)
the ratio of Projected Consolidated Cashflow to Projected Consolidated Debt
Service;
in each case, as at the relevant Test Date as stated in the Compliance Certificate produced in
respect of any Reporting Date falls below the Default Ratio and provided that:
(c)
(A)
no Loan Event of Default under paragraph (i) or (ii) will occur until the date
falling 20 Business Days after the delivery of the relevant Compliance
Certificate; and
(B)
a Loan Event of Default under paragraph (i) or (ii) may be cured by exercise
of any Equity Cure Right at any time.
Breach of other Obligations
An Obligor does not comply with any provision of the Finance Documents (other than those
referred to in paragraphs (a) and (b) above), other than if the failure to comply is capable of
remedy within thirty (30) Business Days of the earlier of (A) the HS1 Security Trustee giving
notice to HS1 and (B) HS1 becoming aware of the failure to comply.
(d)
Misrepresentation
Any representation or statement made by an Obligor in Finance Documents or in any
document delivered by or on behalf of any Obligor under or in connection with any Finance
Document is or proves to have been incorrect or misleading in any material respect when
made other than if the failure or event or circumstance giving rise to the breach is capable of
remedy and is remedied within thirty (30) Business Days of the earlier of (A) the HS1
Security Trustee giving notice to HS1 and (B) HS1 becoming aware of the event or
circumstance.
(e)
Insolvency
(i)
Any Obligor is unable or admits inability to pay its debts as they fall due or is
deemed to or declared to be unable (other than pursuant to section 123(i)(a) of the
Insolvency Act 1986) to pay its debts under applicable law, suspends or threatens to
suspend making payments on any of its debts or, by reason of actual or anticipated
financial difficulties, commences negotiations with its creditors generally with a
view to rescheduling any of its indebtedness other than where a member of the
Security Group has commenced negotiations with any of its creditors generally with
a view to rescheduling its indebtedness generally, where the relevant indebtedness
arises under any subordinated Financial Indebtedness, any intragroup loan or
guarantee or any amount owed to an Investor.
(ii)
(f)
A moratorium is declared in respect of any indebtedness of any Obligor, provided
that, if a moratorium occurs, the ending of the moratorium will not remedy any
Loan Event of Default caused by that moratorium.
Insolvency Proceedings
(i)
Any corporate action, legal proceedings or other procedure or step is taken in
relation to:
(A)
the suspension of payments, a moratorium of any indebtedness, winding-up,
dissolution, administration or reorganisation (by way of voluntary
arrangement, scheme of arrangement or otherwise) of any Obligor;
(B)
a composition, compromise, assignment or arrangement with creditors
generally of any Obligor (as part of a general composition, compromise,
assignment or arrangement affecting such Obligor’s creditors generally and
other than any counterparty to a Project Document) other than a composition
compromise, assignment or arrangement with respect to any subordinated
Financial Indebtedness, any intragroup loan or guarantee or any amount owed
to an Investor;
(C)
the appointment of a liquidator, receiver, administrative receiver,
administrator, compulsory manager or other similar officer in respect of any
Obligor; or
(D)
enforcement of any Security Interest over any assets of any Obligor,
or any analogous procedure or step is taken in any jurisdiction, other than (1) any
winding-up petition which is (x) being contested in good faith by any Obligor; or (y)
frivolous or vexatious and is discharged, stayed or dismissed within 10 Business
Days of commencement or, if earlier, the date on which it is advertised or (2) any
step or procedure contemplated by paragraph (b) of the definition of Permitted
Transaction.
(ii)
(g)
An application is made by the ORR or the Secretary of State for a special
administration order in respect of HS1.
Unlawfulness and invalidity
(i)
It is or becomes unlawful for an Obligor to perform any of its obligations under the
Finance Documents or any Security Interest created or expressed to be created or
evidenced by the HS1 Security Documents ceases to be effective or any
subordination created under the STID is or becomes unlawful.
(ii)
Any obligation or obligations of any Obligor under any Finance Documents or any
other member of the Security Group under the STID are not (subject to the
Reservations) or cease to be legal, valid, binding or enforceable and the cessation
individually or cumulatively materially and adversely affects the interests of the HS1
Secured Creditors under the Finance Documents.
(iii)
Any Finance Document ceases to be in full force and effect or any Security Interest
or any subordination created under the STID ceases to be legal, valid, binding,
enforceable or effective or is alleged by a party to it (other than a Finance Party) to
be ineffective.
(h)
Repudiation and rescission of agreements
(i)
An Obligor either rescinds or purports to rescind or repudiates or purports to
repudiate a Finance Document or evidences an intention to rescind or repudiate a
Finance Document.
(ii)
Any counterparty rescinds or purports to rescind or repudiates or purports to
repudiate a Principal Project Document in whole or in part where to do so has or
would reasonably be expected to have a Material Adverse Effect, other than where:
(iii)
(A)
HS1 certifies that such services can be adequately performed by the Holdco
Group from its own resources and/or that it is entering into or is taking steps to
enter into a replacement contract(s) with a counterparty or counterparties
which, in the opinion of HS1 acting reasonably, are of adequate technical and
financial standing to provide such services; or
(B)
HS1 is entitled to receive adequate compensation in respect of the matters
referred to in sub-paragraph (A) above which, once received and applied by
HS1 will result in any such amendment, waiver, assignment, transfer,
termination, suspension or abandonment of all or any part of a Principal
Project Document not having a Material Adverse Effect; or
(C)
the Secretary of State, the HS1 Security Trustee or any Representative has
elected to step-in and assume joint liability under the terms of the relevant
Principal Project Document pursuant to the relevant Financing Direct
Agreement;
Notwithstanding paragraph (ii)(A), (B) and (C), if:
(A)
any rescission, purported rescission, repudiation or purported repudiation of a
Principal Project Document has occurred which has or would reasonably be
expected to have a Material Adverse Effect; and
(B)
HS1 has, in accordance with paragraph (ii)(A) certified that it is entering into
or has taken appropriate steps to enter into a replacement contract(s) (and such
certification has not been withdrawn) or, in accordance with paragraph (ii)(B)
HS1 is entitled to receive adequate compensation in respect of the relevant
matters; but
(C)
in respect of:
(I)
any Principal Project Document (other than a Key Principal
Project Document) on the date falling twelve (12) months (or
such longer period as may be agreed between the Obligors and
the HS1 Security Trustee) after the relevant rescission,
purported rescission, repudiation or purported repudiation has
occurred such a replacement contract(s) has/have not been
entered into or such compensation has not been received by
HS1; or
(II)
any Key Principal Project Document on the date falling six (6)
months (or such longer period as may be agreed between the
Obligors and the HS1 Security Trustee) after the relevant
rescission, purported rescission, repudiation or purported
repudiation has occurred such a replacement contract(s)
has/have not been entered into or such compensation has not
been received by HS1,
a breach of this covenant shall occur on that date.
(iv)
(i)
Change in law
(i)
(j)
Any party to the STID (other than any HS1 Secured Creditor or Issuer Secured
Creditor which is party to the STID) rescinds or purports to rescind or repudiates
or purports to repudiate the STID in whole or in part where to do so has a
material adverse effect on the interests of the HS1 Secured Creditors under the
Finance Documents;
Any change in law occurs which has or would be reasonably expected to have a
Material Adverse Effect, provided that, if in connection with a change in law which
has or would be reasonably expected to have a Material Adverse Effect HS1 is
negotiating either a derogation from the application of such change in law such that
the change in law would not be reasonably expected to have a Material Adverse
Effect or compensation adequate to address any Material Adverse Effect that would
be reasonably expected to occur as a consequence of the change in law, then, for so
long as such negotiations are continuing no Loan Event of Default under this
paragraph will occur and no Restricted Payment may be made until the earliest of:
(A)
the date a derogation of the relevant change in law is applied such that the
change in law would no longer reasonably be expected to have a Material
Adverse Effect;
(B)
the date such adequate compensation is received in respect of such change
in law to address any Material Adverse Effect that would be reasonably
expected to occur as a consequence of the change in law; and
(C)
the date on which HS1’s request for derogation from application or
compensation has been fully and finally determined and no such derogation
or compensation has been or will be made available to HS1 such that a
Material Adverse Effect would be reasonably expected to occur as a
consequence of the change in law, and with effect from such date, the
change in law shall constitute a Loan Event of Default.
Termination of Licence
Any Authorisation required for a material part of the Permitted Business of any Obligor is
terminated and not replaced on terms not materially less favourable (taking into account any
changes in the regulatory environment since the date of the CTA).
(k)
Nationalisation
The authority or ability of any member of the Security Group to conduct its business is
materially limited or wholly or substantially curtailed by any seizure, expropriation,
nationalisation, intervention, restriction or other action by or on behalf of any governmental,
regulatory or other authority or other person in relation to any member of the Security Group or
any of its assets, in each case, in a manner or to an extent which has a Material Adverse Effect,
provided that, any seizure, expropriation, nationalisation, intervention, restriction or other
action by or on behalf of any governmental, regulatory or other authority or other person in
circumstances where compensation on termination is payable to the Security Group shall not
(of itself) constitute a Loan Event of Default and the occurrence of any of the events described
in this paragraph shall be without prejudice to any other Loan Event of Default which may
occur hereunder as consequence of such events.
(l)
Failure to comply with Judgment
Any Obligor fails to comply with any final judgment where such failure has or would be
reasonably likely to have a Material Adverse Effect.
(m)
(n)
Material Proceedings
(i)
Any litigation is brought against an Obligor or in respect of its assets or revenues
which, in any such case, would be reasonably likely to be adversely determined and
which, if so adversely determined, has or would reasonably be expected to have a
Material Adverse Effect.
(ii)
Any execution proceedings are enforced in relation to any assets of any Obligor
where such enforcement has or would reasonably be expected to have a Material
Adverse Effect.
Principal Project Documents
(i)
It is or becomes unlawful for an Obligor to perform any of its material obligations
under the Principal Project Documents or any Principal Project Document ceases to
be effective.
(ii)
Any obligation or obligations of any Obligor under any Principal Project Document
are not (subject to the Reservations) or cease to be legal, valid, binding or
enforceable subject to the Reservations.
(iii)
Any Principal Project Document is terminated in accordance with its terms and the
terms of the relevant Financing Direct Agreement and HS1: (aa) has not challenged
such termination within the prescribed period; and/or (bb) has exhausted all rights of
challenging such termination in accordance with the terms of the relevant Principal
Project Document.
(iv)
None of paragraphs (i), (ii) or (iii) shall apply if:
(v)
(A)
HS1 certifies that such services can be adequately performed by the Holdco
Group from its own resources and/or that it is entering into or is taking steps
to enter into a replacement contract(s) with a counterparty or counterparties
which, in the opinion of HS1 acting reasonably, are of adequate technical
and financial standing to provide such services; or
(B)
HS1 is entitled to receive adequate compensation in respect of the matters
received in (i) to (iii) above which, once received and applied by HS1, will
result in any such unlawfulness, illegality, invalidity, unenforceability or
termination or any Principal Project Document not having a Material
Adverse Effect; or
(C)
the HS1 Security Trustee has not elected to step-in and assume joint
liability under the terms of the relevant Principal Project Document
pursuant to the relevant Financing Direct Agreement; or
(D)
such unlawfulness, invalidity, unenforceability or termination does not have
or would not reasonably be expected to have a Material Adverse Effect.
Notwithstanding paragraph (iv), if:
(A)
any unlawfulness, invalidity, unenforceability or termination of a Project
Document has occurred which has or would reasonably be expected to have
a Material Adverse Effect; and
(B)
HS1 has, in accordance with paragraph (iv)(A) certified that it is entering
into or has taken appropriate steps to enter into a replacement contract(s)
(and such certification has not been withdrawn) or, in accordance with
paragraph (iv)(B) HS1 is entitled to receive adequate compensation in
respect of the relevant matters; but
(C)
in respect of:
(I)
any Principal Project Document (other than a Key Principal Project
Document), on the date falling twelve (12) months (or such longer
period as may be agreed between the Obligors and the HS1
Security Trustee) after the relevant unlawfulness, invalidity,
unenforceability or termination has occurred such a replacement
contract(s) has/have not been entered into or such compensation
has not been received by HS1; or
(II)
any Key Principal Project Document, on the date falling six (6)
months (or such longer period as may be agreed between the
Obligors and the HS1 Security Trustee) after the relevant
unlawfulness, invalidity, unenforceability or termination has
occurred such a replacement contract(s) has/have not been entered
into or such compensation has not been received by HS1,
then a breach of this covenant shall occur on that date.
(o)
Cross Default
Any of the following occurs in respect of any Obligor:
(i)
non-payment of amounts payable after the expiry of any originally applicable grace
period in respect of any of its Financial Indebtedness (other than in respect of the
HS1 Senior Debt or subordinated Financial Indebtedness) in excess of £15,000,000
threshold (Indexed); or
(ii)
an amount of its Financial Indebtedness (other than in respect of the HS1 Senior
Debt or subordinated Financial Indebtedness) in excess of £15,000,000 threshold
(Indexed):
(A)
is declared due and payable prior to its specified maturity; or
(B)
is capable of being declared by a creditor to be prematurely due and payable
prior to its specified maturity,
in each case, as a result of an event of default (howsoever described).
(p)
Bond Event of Default
The occurrence of a Bond Event of Default.
(q)
Equity Cure
(i)
If a Compliance Certificate delivered to the HS1 Security Trustee for any period
shows that there is a breach in respect of a Financial Ratio Event of Default, the
Investors may provide or procure the provision of Additional Equity in an amount at
least sufficient for the amount necessary to cure the relevant breach (the “Equity
Cure Amount”) by applying that Equity Cure Amount pro rata according to the
respective principal amounts outstanding of:
(A)
the Outstanding IBLA Balances; and
(B)
the Pari Passu HS1 Senior Debt,
towards:
(I)
(II)
in respect of the amount to be applied in respect of Outstanding
IBLA Balances:
(aa)
prepayment of Outstanding IBLA Balances or purchase of
the Bonds corresponding to the Outstanding IBLA
Balances together with any related Repayment Costs;
and/or
(bb)
making a deposit to an HS1 Defeasance Account in
respect of such HS1 Defeased Debt (to the extent not
purchased or prepaid pursuant to this sub-paragraph (I));
and
in respect of the amount to be applied in respect of the Pari Passu
HS1 Senior Debt:
(aa)
prepayment or purchase of Pari Passu HS1 Senior Debt;
(bb)
making a deposit to an HS1 Defeasance Account in
respect of such Pari Passu HS1 Senior Debt (to the extent
not purchased or prepaid pursuant to this sub-paragraph
(II)); and
(cc)
payment of any related Repayment Costs, including,
without limitation, paying the related amount payable to
HS1 Hedge Counterparties arising as a result of
termination (in whole or in part) of any HS1 Hedging
Transactions following the prepayment or purchase of the
Pari Passu HS1 Senior Debt, to the extent that such
termination is necessary in order to remain in compliance
with the Hedging Policy following such prepayment or
purchase (an “Equity Cure Right”).
(ii)
The exercise of the Equity Cure Right shall be subject to any limitations thereon in
any Authorised Credit Facilities.
(iii)
Any Equity Cure Amount must be provided on or prior to the date falling 20
Business Days after the delivery of the relevant Compliance Certificate.
(iv)
On application of the Equity Cure Amount, the financial ratio that was the subject of
the breach of the Financial Ratio Event of Default will be re-calculated on a pro
forma basis:
(A)
if the Financial Ratio Event of Default is a breach of the Historic DSCR, as
if the Equity Cure Amount had been applied at the commencement of the
relevant historic Test Period, such that the Historic Consolidated Debt
Service shall be deemed as at the relevant Test Date to have been reduced
by the amount of Historic Consolidated Debt Service which is attributable
to the HS1 Senior Debt which has been prepaid, purchased and/or defeased;
and/ or
(B)
(v)
if the Financial Ratio Event of Default is a breach of the Projected DSCR,
as if the Equity Cure Amount had been applied on the Test Date in respect
of such Test Period in accordance with sub-paragraph (A) above, such that
the Projected Consolidated Debt Service shall be deemed as at the relevant
Test Date to have been reduced by the amount of Projected Consolidated
Debt Service which is attributable to the HS1 Senior Debt which has been
prepaid, purchased and/or defeased.
If after the applicable financial ratio that was the subject of the breach of the
Financial Ratio Event of Default is re-calculated, the breach has been prevented or
cured, that financial ratio shall be deemed to have been satisfied on the date of the
relevant Compliance Certificate as though no breach had ever occurred and any
related Financial Ratio Event of Default or projected Trigger Event Ratio shall be
deemed not to occur or have occurred, as applicable.
“Additional Equity” means:
(a)
any amount subscribed in cash for shares in HS1 or, provided that the cash
consideration in respect of such shares is in turn paid to HS1, any Holding Company
of HS1 or any other form of capital contribution in cash to HS1 (which is not
Financial Indebtedness and provided that repayment (if any) of such amounts are
subject to the terms of the STID); or
(b)
the incurrence of Subordinated Intragroup Liabilities by HS1 or, provided that the
proceeds of such Subordinated Intragroup Liabilities are in turn paid to HS1, any
Holding Company of HS1;
which in each case may be contributed by way of further subscription for equity or incurrence
of intra-group loans between Holdco and HS1 the terms of which shall be subject to the terms
of the STID.
Hedging Policy
Pursuant to the CTA, the members of the Security Group and the Issuer agree to be bound by a hedging
policy (the “Hedging Policy”) the purpose of which is to limit the exposure of the Issuer and HS1 to
fluctuations in interest rates, currencies and inflation and to regulate the terms on which the Issuer may
enter into Hedging Transactions.
The Hedging Policy provides that no member of the Security Group nor the Issuer may enter into
Treasury Transactions for the purpose of speculation, but rather only to manage risk inherent in its
business or funding on a prudent basis and which shall include pre-hedging. If the Issuer enters into the
Treasury Transactions, the economic effect of such Treasury Transactions shall be passed on to HS1
either through an IBLA or by way of back-to-back hedge agreements between HS1 and the Issuer. The
Hedging Policy does not apply to any Treasury Transaction entered into by members of the Security
Group or the Issuer in the ordinary course of business and for non-speculative purposes where the
counterparty does not accede to the STID.
Any change to the Hedging Policy will be subject to the approval of the HS1 Security Trustee (acting
on the instructions of the requisite majority of Qualifying HS1 Secured Creditors (but at all times
subject to Entrenched Rights and Reserved Matters) in accordance with the terms of the STID).
Subject to such approval, the Hedging Policy will be reviewed from time to time by the Security Group
and the Issuer and may be amended as appropriate in line with market practice, regulatory
developments and good industry practice (subject to Entrenched Rights and Reserved Matters and in
accordance with the provisions of the STID). Notwithstanding the above, no amendment, waiver,
modification or termination (in whole or part) of this Hedging Policy required to meet the requirements
of the Rating Agencies from time to time will require the consent of any party other than HS1, HSRF
or the Issuer (as the case may be). In the event that the Issuer, HSRF and/or HS1 (as the case may be) is
required to make any change to the Hedging Policy in order to comply with the requirements of the
Rating Agencies, the HS1 Security Trustee shall be required to execute such document as is necessary
to give effect to such change to the Hedging Policy (acting in accordance with STID).
For the purposes of determining whether or not there is an Overhedged Position, the notional amount
and/or currency amount of a Hedging Transaction (the “First Hedging Transaction”) on any date
shall be reduced by the notional amount or corresponding currency amount of another Hedging
Transaction (the “Second Hedging Transaction”) on that date if that Second Hedging Transaction is
an Offsetting Transaction in respect of the First Hedging Transaction. For this purpose, “Offsetting
Transaction” means, in respect of the Second Hedging Transaction, a Hedging Transaction which (i)
has been entered into with a Hedge Counterparty which has acceded to the STID and the CTA; (ii) is
governed by a Hedging Agreement; and (iii) where HS1, HSRF or the Issuer (as applicable) receives
amounts under the First Hedging Transaction on a particular basis, it pays such amounts on such basis
under the Second Hedging Transaction and vice versa.
Prior to the occurrence of a Loan Event of Default which is continuing and prior to the designation of
an Early Termination Date under (and as defined in) the relevant Hedging Agreement, HS1, HSRF
and/or the Issuer (as applicable) may contact any Hedge Counterparty at any time to discuss, negotiate
and agree the termination of or any amendment to any particular Hedging Transaction prior to the
stated or expected term of that Hedging Transaction under the relevant Hedging Agreement, provided
that the Security Group and the Issuer remain in compliance with the Hedging Policy notwithstanding
any such termination and/or amendment.
Currency Risk Principles
HS1, HSRF and the Issuer (after taking into account currency hedging and any natural hedging arising
from operating income of the Security Group and the Issuer received in any relevant foreign currency):
(a)
must not bear unhedged currency risk in respect of the interest payable to expected maturity
and the repayment of principal under any foreign currency denominated debt instruments; and
(b)
shall ensure that no more than 100 per cent. of the total outstanding Relevant Non-GBP Debt
is subject to currency hedging.
If on any date on and from the date of the CTA the Total Notional Hedged Amount exceeds the FX
Hedging Limit (after taking account of any Offsetting Transactions) as at such date, HS1, HSRF and/or
the Issuer (as the case may be) by notice to the relevant Hedge Counterparties, which are party to any
Hedging Transaction which was entered into by HS1, HSRF and/or the Issuer, as applicable in
connection with any Relevant Debt that has been repaid. may request the termination of all or part of
any Hedging Transaction (which shall be the “Affected Transaction(s)”) in order to comply with the
FX Hedging Limit. Provided that, in the event of a termination event pursuant to the foregoing the
rights of HS1, HSRF and/or the Issuer (as the case may be) to terminate the Affected Transaction(s) in
accordance with the relevant Hedging Agreement will be limited to the amount required in order to
comply with the FX Hedging Limit (provided that such amount shall not exceed an amount equal to the
relevant Hedge Counterparty’s Currency Rate Hedge Proportion of the Currency Rate Hedge Excess)
and which would not result in HS1, HSRF and/or the Issuer being in breach of this Hedging Policy.
For the purposes of the above:
“Aggregate Currency Rate Hedged Amount” means, in relation to a Hedge Counterparty, the
aggregate of the notional amounts hedged by a member of the Security Group or the Issuer under each
Hedging Agreement (excluding any notional amount which is or is subject to an Offsetting
Transaction) which is a Currency Hedging Transaction and to which that Hedge Counterparty is party.
“Currency Rate Hedge Excess” means the amount by which the Total Currency Rate Hedged Amount
exceeds the Required Maximum Currency Rate Hedged Amount.
“Currency Rate Hedge Proportion” means the proportion (expressed as a percentage) borne by such
Hedge Counterparty’s Aggregate Currency Rate Hedged Amount to the Total Notional Hedged
Amount, as calculated by HS1 in good faith and a commercially reasonable manner.
“Currency Rate Hedged Outstandings” means, at any time, the aggregate of all amounts of principal
(not including any capitalised or deferred interest) outstanding in respect of the Relevant Non-GBP
Debt.
“Currency Hedging Transactions” means Hedging Transactions between a Hedge Counterparty and
a member of the Security Group or the Issuer which hedge the Security Group’s or the Issuer’s, as
applicable, currency exposure under the Relevant Non-GBP Debt.
“FX Hedging Limit” means 100% of the Relevant Non-GBP Debt.
“Required Maximum Currency Rate Hedged Amount” means, at any time, an amount equal to
100% of the Currency Rate Hedged Outstandings at that time.
“Relevant Non-GBP Debt” means Relevant Debt denominated in a currency other than sterling.
“Total Currency Rate Hedged Amount” means, at any time, the aggregate of each Aggregate
Currency Rate Hedged Amount at that time.
“Total Notional Hedged Amount” means the aggregate of notional amounts (as specified in the
relevant confirmations) of Currency Hedging Transactions entered into between a member of the
Security Group or the Issuer and any Hedge Counterparty in respect of the Relevant Non-GBP Debt.
Interest Rate Risk Principles
HS1, HSRF and the Issuer shall hedge the interest rate risk in relation to the total outstanding Senior
Hedged Debt to ensure that at any time:
(a)
a minimum of 70 per cent. of the total outstanding Relevant Debt (i) is fixed rate, (ii) is indexlinked or (iii) effectively bears either a fixed rate or an index-linked rate of interest for a
period of at least 7 years (or, if shorter, the period up to and including the expiry of the
Concession Agreement) (including, without limitation, pursuant to any interest rate cap)
pursuant to Hedging Transactions; and
(b)
no more than 110 per cent. of the total outstanding Relevant Debt (i) is fixed rate, (ii) is indexlinked or (iii) effectively bears either a fixed rate or an index-linked rate of interest pursuant to
the Hedging Transactions (including, without limitation, pursuant to any interest rate cap,
option or other Hedging Transaction which does not impose further obligations to pay money
on HS1, HSRF and/or the Issuer (as applicable));
in each case, taking into account any Offsetting Transactions to which HS1, HSRF and/or the Issuer is
a party.
For the purpose of the interest rate risk principles, “Relevant Debt” shall mean the principal amount
outstanding under the Initial Authorised Credit Facilities Agreement, each IBLA, the PP Notes or any
debt under any equivalent Authorised Credit Facility (other than any WC Facility, Liquidity Facility
and the HS1 Hedging Agreements) from time to time.
In the event that more than 110 per cent. of the sum of the total outstanding Relevant Debt (i) is fixed
rate, (ii) is index-linked or (iii) effectively bears either a fixed rate or an index-linked rate of interest
pursuant to the Hedging Transactions (after taking into account any Offsetting Transaction to which
HS1, HSRF and/or the Issuer is a party) (an “Overhedged Position”), then HS1, HSRF and/or the
Issuer (as the case may be) must, within 30 days of becoming aware of the Overhedged Position,
reduce the notional amount of the Hedging Transactions (which may be achieved by terminating one or
more Hedging Transactions (in whole or in part) (without any obligation to notify any other Hedge
Counterparty of such termination) and/or entering into Offsetting Transactions so that it is in
compliance with the parameters described above.
During the first 25 days after becoming aware of an Overhedged Position, HS1, HSRF and/or the Issuer
(as the case may be) may effect any such termination by terminating one or more Hedging Transactions
at its sole discretion and terminating such Hedging Transactions (in whole or in part) on terms to be
agreed in good faith between HS1, HSRF and/or the Issuer (as the case may be) and the relevant Hedge
Counterparties.
Upon agreeing terms with one or more Hedge Counterparties that are satisfactory to HS1, HSRF and/or
the Issuer (as the case may be) (the “Preferred Hedge Termination Terms”), prior to terminating
Hedge Transaction (in whole or in part with such Hedge Counterparties, HS1, HSRF and/or the Issuer
(as the case may be) shall notify the other Hedge Counterparties of the Preferred Hedge Termination
Terms. The other Hedge Counterparties shall then have a period of two Business Days following such
notification to notify HS1, HSRF and/or the Issuer (as the case may be) whether it wishes to terminate
the Hedging Transaction that it is a party to on the Preferred Hedge Termination Terms. On the
Business Day following the end of the two Business Days period, HS1, HSRF and/or the Issuer (as the
case may be) shall effect the termination of the Hedging Transactions (in whole or in part) as follows:
(a)
Hedging Transactions entered into between HS1, HSRF and/or the Issuer (as the case may be)
and the Hedge Counterparties who have agreed the Preferred Hedge Termination Terms shall
be terminated (in whole or in part) on the Preferred Hedge Termination Terms on a pro rata
basis so as to reduce the Overhedged Position by at least 50 per cent.; and
(b)
such other Hedging Transactions selected by HS1, HSRF and/or the Issuer (as the case may
be) at its sole discretion shall be terminated (in whole or in part) on terms agreed in good faith
between HS1, HSRF and/or the Issuer (as the case may be) and the relevant Hedge
Counterparties.
If (i) at the end of the 25th day HS1, the PP Note Issuer and/or the Issuer (as the case may be) has not
agreed the Preferred Hedge Termination Terms with one or more Hedge Counterparties, or (ii) HS1,
the PP Note Issuer and/or the Issuer (as the case may be) has agreed the Preferred Hedge Termination
Terms with one or more Hedge Counterparties but an Overhedging Position remains following the
termination of the Hedging Transactions in accordance with the paragraph above, HS1, HSRF and/or
the Issuer (as the case may be) may only effect any such termination by terminating Hedging
Transactions (in whole or in part) as a result of any Relevant Debt being prepaid giving rise to such
Hedging Transactions being no longer required. If HS1, HSRF and/or the Issuer (as the case may be)
terminates any Hedging Transaction in accordance with the preceding sentence, HS1, HSRF and/or the
Issuer (as the case may be) shall notify the relevant Hedge Counterparties which are a party to any
Hedging Transaction which was entered into by HS1, HSRF and/or the Issuer, as applicable in
connection with any Relevant Debt that has been repaid, of (i) the amount by which it is overhedged
and (ii) the Hedging Transactions (or parts hereof) that should be terminated in order to comply with
the parameters in the paragraph above, on the basis that no more Hedging Transactions (or parts
thereof) should be terminated than is necessary to comply with the parameters in the paragraph above.
In the event that HS1, HSRF and/or the Issuer elects (provided it remains in compliance with the
Hedging Policy) to reduce the notional amount of any Combined Swap Transaction (in whole or in
part) (such notional amount to be so reduced, the “Combined Swap Termination Amount”) on terms
(including, without limitation, the selection of the relevant Hedging Transactions) agreed in good faith
between, HS1, HSRF and/or the Issuer (as the case shall be) and the relevant Hedge Counterparty or
Hedging Counterparties (the “Combined Swap Termination Terms”), HS1, HSRF and/or the Issuer
(as the case shall be) shall, prior to terminating such Combined Swap Transaction (in whole or in part),
notify the other Hedge Counterparties which have outstanding Combined Swap Transaction(s) with
HS1, HSRF and/or the Issuer (as the case shall be) of such Combined Swap Termination Terms. Each
other such Hedge Counterparty shall then have a period of two Business Days following such
notification to notify HS1, HSRF and/or the Issuer (as the case may be) whether it wishes to terminate
(in whole or in part) the Combined Swap Transaction that it is a party to on the Combined Swap
Termination Terms. On the Business Day following the end of the two Business Day period, HS1,
HSRF and/or the Issuer (as the case may be) shall effect the termination of the Combined Swap
Transactions (in whole or in part) as follows:
(a)
Combined Swap Transactions entered into between HS1, HSRF and/or the Issuer (as the case
may be) and the relevant Hedge Counterparties which have agreed the Combined Swap
Termination Terms shall be terminated (in whole or in part) on the Combined Swap
Termination Terms on a pro rata basis across the relevant Hedge Counterparties so as to
reduce the Combined Swap Termination Amount by at least 50 per cent.; and
(b)
such other Combined Swap Transactions selected by HS1, HSRF and/or the Issuer (as the case
may be) in its sole discretion shall be terminated (in whole or in part) on terms agreed in good
faith between HS1, HSRF and/or the Issuer (as the case may be) and the relevant Hedge
Counterparty or Hedge Counterparties,
so as to reduce the aggregate notional amounts of the Combined Swap Transactions entered into by
HS1, HSRF and/or the Issuer (as the case may be) by an amount equal to the Combined Swap
Termination Amount.
Notwithstanding the above, HS1, HSRF and/or the Issuer shall not be obliged to terminate any cap,
option or other Hedging Transaction which does not impose further obligations to pay money on HS1,
HSRF and/or the Issuer (as applicable) as a result of the above provisions and such Hedging
Transactions shall not be taken into account when considering whether an Overhedged Position exists.
Rating requirements in relation to Hedge Counterparties
The Issuer, HS1 and HSRF are only permitted to enter into Treasury Transactions with counterparties
whose unsecured and unsubordinated debt obligations are assigned a rating which is no less than the
Minimum Short Term Rating or the Minimum Long Term Rating, or where a guarantee is provided by
an institution which meets the same criteria. If at any time the rating of the unsecured and
unsubordinated debt obligations of a Hedge Counterparty (or, if relevant, its guarantor) falls below
investment grade by any Rating Agency each a “Hedge Counterparty Downgrade”, HS1, HSRF
and/or the Issuer (as the case may be) may require the relevant Hedge Counterparty, at its own cost, to
take one of the following actions (for the avoidance of doubt, subject to the proviso to (d) below, the
relevant Hedge Counterparty may select the relevant action at its discretion):
(a)
procure that another person become co-obligor or guarantor in respect of its obligations under
the relevant Hedging Agreement such other person having a rating of no less than the
Minimum Short Term Rating or the Minimum Long Term Rating;
(b)
provide collateral in accordance with the provisions of a collateral agreement;
(c)
transfer all of its rights and obligations under the Hedging Agreement to a replacement third
party having a rating of no less than the Minimum Short Term Rating or the Minimum Long
Term Rating; or
(d)
take such other action (which may, for the avoidance of doubt, include taking no action) as
will result in the rating of the Rated Debt outstanding being maintained at, or restored to, at
least the level it was immediately prior to such Hedge Counterparty Downgrade, provided
that, if, following the occurrence of a Hedge Counterparty Downgrade, an event or
circumstance occurs that would result in the rating of the Rated Debt being increased to above
the highest then current rating of the Rated Debt if the relevant Hedge Counterparty were to
take any one of the actions specified in sub-paragraphs (a) to (c) above, the Hedge
Counterparty will be required to take any one of the actions specified in sub-paragraphs (a) to
(c) above, notwithstanding this sub-paragraph (d).
For the purposes of this paragraph, “Rated Debt” means (i) prior to the issuance of the Bonds, the
Initial PP Notes, and (ii) following the issuance of the Bonds, the Bonds.
If the relevant Hedge Counterparty does not take any of the measures above within 30 Business Days
of the occurrence of the request by HS1, HSRF and/or the Issuer (as the case may be), then HS1, HSRF
and/or the Issuer (as the case may be) shall be entitled to terminate all Hedging Transactions with such
Hedge Counterparty.
The ratings requirements with respect to credit ratings are to be tested only on the entry into the
relevant Hedging Transaction. Without prejudice to any of HSRF’s, the Issuer’s or HS1’s obligations
to comply with the ratings requirements on entry into a Hedging Transaction, neither will have any
obligation to take any action (or to cease to take any action) if a Hedge Counterparty subsequently
ceases to satisfy the criteria set out in the Hedging Policy with respect to counterparties, or fails to take
any of the measures set out above.
Principles relating to Hedging Agreements
All Hedging Agreements entered into by HS1 or the Issuer are required to be in the form, as amended
by the parties thereto, of the 1992 ISDA Master Agreement (Multicurrency - Cross Border) or any
successor thereto published by ISDA unless otherwise agreed by the HS1 Security Trustee (acting in
accordance with the STID).
HS1, HSRF and the Issuer are entitled to enter into Hedging Agreements with Hedge Counterparties
that rank pari passu or senior in priority to the HS1 Senior Debt and the Issuer Senior Debt.
Principles relating to the termination of Hedging Agreements
The following terms shall apply with respect to the termination of HS1 Hedging Agreements and Issuer
Hedging Agreements:
(a)
“Market Quotation” and “Second Method” shall apply (other than where that termination
occurs pursuant to either “Optional Early Termination” or “Mandatory Early Termination” as
defined in the applicable Hedging Transaction (incorporating the 2006 ISDA Definitions or
any replacement thereof) and provided that it may be deemed that Market Quotation cannot be
determined for any Terminated Transaction that is an FX Transaction or Currency Option
Transaction (as defined in the 1998 FX and Currency Option Definitions, as amended, varied
or replaced from time to time as published by the International Swaps and Derivatives
Association, Inc.).
(b)
A Hedge Counterparty may only terminate a Hedging Agreement or a Hedging Transaction if:
(i)
with respect to an HS1 Hedging Agreement:
(A)
there is a failure to make a payment or delivery under an HS1 Hedging
Transaction or HS1 Hedging Agreement provided that at least 5 Business
Days have elapsed following any such failure to pay;
(B)
a Loan Event of Default in respect of which the HS1 Senior Debt is
accelerated in full;
(C)
following delivery of a Loan Enforcement Notice but prior to the delivery of
a Loan Acceleration Notice, the HS1 Secured Creditors accelerate part of
their claims pursuant to the STID;
(D)
all Relevant Debt is irrevocably and unconditionally repaid, prepaid or
cancelled in full; or
(E)
any Bankruptcy (as defined in the ISDA Master Agreement) (as amended by
the relevant schedule to such Hedging Agreement to disapply, with respect
to HS1, (i) Section 5(a)(vii)(2), (7) and (9) of the standard ISDA Master
Agreement) (ii) Section 5(a)(vii)(3) of the standard ISDA Master Agreement
to the extent that it refers to any assignment, arrangement or composition
that is effected by any Finance Document, (iii) Section 5(a)(vii)(4) of the
standard ISDA Master Agreement to the extent that it refers to any
proceedings or petitions instituted or presented by any Hedge Counterparty
or any Affiliate (as defined in the relevant Hedging Agreement) thereof, (iv)
Section 5(a)(vii)(6) of the standard ISDA Master Agreement to the extent
that it refers to (1) any appointment that is contemplated or effected by any
document to which the relevant Hedge Counterparty is a party in connection
with the transactions contemplated by the Bond Trust Deed or (2) any such
appointment to which HS1 has not yet become subject and (v) Section
5(a)(vii)(8) of the standard ISDA Master Agreement to the extent that it
applies to Section 5(a)(vii)(1), (3), (4), (5) and (6) as they apply with respect
to HS1) if it relates to an event that has occurred in relation to HS1;
(ii)
with respect to an Issuer Hedging Agreement:
(A)
there is a failure to make a payment or delivery under the Issuer Hedging
Agreement provided that at least 5 Business Days have elapsed following
any such failure to pay;
(B)
a Bond Event of Default in respect of which the Bonds are accelerated in
full;
(B)
following delivery of a Loan Enforcement Notice but prior to the delivery of
a Loan Acceleration Notice, the Issuer accelerates part of its claim for the
repayment of principal under each IBLA pursuant to the STID;
(C)
all Relevant Debt is irrevocably and unconditionally repaid, prepaid or
cancelled in full; or
(D)
any Bankruptcy (as defined in the ISDA Master Agreement) (as amended by
the relevant schedule to such Hedging Agreement to disapply, with respect
to the Issuer, (i) Section 5(a)(vii)(2), (7) and (9) of the standard ISDA
Master Agreement); (ii) Section 5(a)(vii)(3) of the standard ISDA Master
Agreement to the extent that it refers to any assignment, arrangement or
composition that is effected by any Finance Document, (iii) Section
5(a)(vii)(4) of the standard ISDA Master Agreement to the extent that it
refers to any proceedings or petitions instituted or presented by any Hedge
Counterparty or any Affiliate (as defined in the relevant Hedging
Agreement) thereof, (iv) Section 5(a)(vii)(6) of the standard ISDA Master
Agreement to the extent that it refers to (1) any appointment that is
contemplated or effected by any document to which the relevant Hedge
Counterparty is a party in connection with the transactions contemplated by
the Bond Trust Deed or (2) any such appointment to which the Issuer has
not yet become subject and (v) Section 5(a)(vii)(8) of the standard ISDA
Master Agreement to the extent that it applies to Section 5(a)(vii)(1), (3),
(4), (5) and (6) as they apply with respect to the Issuer) if it relates to an
event that has occurred in relation to the Issuer;
(iii)
A Hedging Transaction is entered into which does not comply with the Hedging
Policy, provided that the Hedge Counterparty to such Hedging Transaction may only
designate an Early Termination Date in respect of such Hedging Transaction.
(iv)
Any Illegality, Tax Event or Tax Event upon Merger (as each is defined in the ISDA
Master Agreement) occurs.
(v)
If a break clause or right of early termination (whether mandatory or optional)
granted in favour of HS1, HSRF or the Issuer as applicable or the relevant Hedge
Counterparty is exercisable in accordance with the terms of the relevant Hedging
Transaction.
(c)
If rights of “Optional Early Termination” or “Mandatory Early Termination” are included in a
Hedging Transaction, the Issuer, HSRF or HS1 (as applicable) and the relevant Hedge
Counterparty shall specify the applicable “Cash Settlement Method” as defined in the
applicable Hedging Transaction (incorporating the 2006 ISDA Definitions or any replacement
thereof).
Obligor Cash Management
Operating Accounts
The CTA requires each Obligor to open and maintain the Obligor Operating Accounts with the
Account Bank as are required for the Permitted Business.
Under the CTA, each Obligor is required to ensure that all of its revenues but excluding:
(a)
any Standby Drawing;
(b)
any interest or income which shall be credited to the Account upon which such interest
accrued and/or from which such Cash Equivalent Investment was made;
(c)
any amounts required or elected by HS1 to be deposited into the Escrow Accounts;
(d)
any amounts required or elected by an Obligor to be deposited into any HS1 Defeasance
Account; and
(e)
any amounts received in respect of a grant or other financial accommodation provided by any
government entity or organisation (including, without limitation, Network Rail) to the extent
provided in order to be applied for a specific purpose which are deposited in an HS1 Specific
Account,
are paid into an Obligor Operating Account in its name or into the Obligor Debt Service Reserve
Account in its name.
HS1 is permitted to use the funds in the HS1 Operating Accounts to make payments in respect of
Capital Expenditure, operating expenses, Taxes (including payments in consideration for Group Relief
in lieu of Tax), Restricted Payments and any other payment not prohibited pursuant to the Transaction
Documents.
The Obligor Operating Accounts are required to be the sole current accounts of the Obligors (other than
the Escrow Accounts, any HS1 Defeasance Account and any HS1 Specific Accounts) through which
all operating and capital expenditures, any Taxes incurred by the Obligors and (subject to the terms of
the Finance Documents) payments in respect of the Financial Indebtedness of the Security Group and
Restricted Payments will be cleared.
Operating expenditure and Capital Expenditure (other than Capital Expenditure to be funded from the
Escrow Accounts) of the Obligors are funded:
(a)
through payments received directly into the Obligor Operating Accounts;
(b)
through amounts received in respect of a grant or other financial accommodation provided by
any government entity or organisation (including, without limitation, Network Rail);
(c)
through drawings made by an Obligor under any Authorised Credit Facility or other Permitted
Financial Indebtedness, including from the Issuer under each IBLA,
as and when required and not prohibited by the Finance Documents but subject, where applicable, to
the restrictions in the CTA.
Prior to delivery of a Loan Enforcement Notice, on each Payment Date, payments to the HS1 Secured
Creditors are to be made out of monies standing to the credit of the Obligor Operating Accounts
(subject to certain exceptions) in accordance with the HS1 Pre-Enforcement Priority of Payments. See
“Cashflows – HS1 Pre-Enforcement Priority of Payments” below for a detailed description.
Cash Equivalent Investments
The Security Group may invest in Cash and/or Cash Equivalent Investments from the amounts standing
to the credit of any of the Obligor Operating Accounts from time to time as is prudent, but may only
invest in Cash Equivalent Investments which are held to the order of the Security Group or any
member thereof. The Security Group will at all times ensure to the best of its knowledge that a prudent
spread of any Cash Equivalent Investments is maintained and liquidate (or ensure that there are
liquidated) Cash Equivalent Investments to the extent necessary to make payments due under the
Finance Documents.
The Security Group shall procure that the maximum average life of a Cash Equivalent Investment is
appropriate having regard to the credits to be made to and payments from the Obligor Operating
Accounts. If any investment ceases to be a Cash Equivalent Investment, the Security Group must as
soon as reasonably practicable after becoming aware of that fact (and in any event, no more than 30
Business Days after that time) replace the investment with a Cash Equivalent Investment or with cash.
Any reference in any Finance Document to the balance standing to the credit of one of the Obligor
Operating Accounts will be deemed to include a reference to the Cash Equivalent Investments in which
all or part of such balance is for the time being invested.
These provisions shall apply to the Escrow Accounts, HS1 Defeasance Accounts, and HS1 Specific
Accounts, mutatis mutandis, as if references in those clauses to the Obligor Operating Accounts were
references to the Escrow Accounts, HS1 Defeasance Accounts and HS1 Specific Accounts, but
provided that, the term of any investment in Cash Equivalent Investments funded from amounts from
time to time standing to the credit of any of such accounts shall be appropriate having regard to the
expected duration of the credit balances of those accounts from time to time.
Liquidity Facility
HS1 shall determine the amount of any anticipated HS1 Liquidity Shortfall on the next Payment Date
after taking into account the balance standing to the credit of the Obligor Operating Accounts
(excluding any HS1 Hedge Collateral Accounts) and Obligor Debt Service Reserve Account which will
be available to HS1 on the next Payment Date.
If, after application of the balance standing to the credit of the Obligor Operating Accounts and Obligor
Debt Service Reserve Account (if any) there is an HS1 Liquidity Shortfall, HS1 shall deliver a LF
Notice of Drawing to the Liquidity Facility Agent.
At the time any LF Notice of Drawing is delivered by HS1 to the Liquidity Facility Agent in respect of
a Payment Date, HS1 shall notify the HS1 Security Trustee of the amount of any applicable HS1
Liquidity Shortfall in respect of the next Payment Date.
The amount of the Liquidity Loan Drawing shall immediately be credited to the Obligor Operating
Accounts and applied in accordance with the paragraph below.
Prior to the delivery of a Loan Acceleration Notice, HS1 in respect of each Payment Date shall
determine the amount of any HS1 Liquidity Shortfall and if following such determination there is an
HS1 Liquidity Shortfall:
(a)
transfer the balance standing to the credit of the Obligor Debt Service Reserve Account (if
any) to the Obligor Operating Accounts; and
(b)
if necessary and to the extent available, make a drawing under the Liquidity Facility,
to decrease the amount which would otherwise constitute an HS1 Liquidity Shortfall on the relevant
Payment Date by applying such moneys so transferred or drawn down towards payment of items (a) to
(g) (inclusive) of the HS1 Pre-Enforcement Priority of Payments.
Application of HS1 Pre-Enforcement Priority of Payments in certain circumstances.
If, prior to the delivery of a Loan Enforcement Notice after taking into account all available liquidity:
(a)
a Hedge Counterparty becomes entitled to terminate any Treasury Transaction under an HS1
Hedging Agreement due to non-payment of any amounts by HS1 due and payable thereunder
or due to the occurrence of any event set out in sub-paragraph (b)(v) of the section entitled
“Summary of the Common Documents – Common Terms Agreement – Hedging Policy –
Principles relating to the termination of Hedging Agreements” above; or
(b)
on any Payment Date there are insufficient funds available to the Obligors to pay in full all
HS1 Secured Liabilities falling due for payment on such date,
then for so long as any such event is continuing unremedied or unwaived, the HS1 Pre-Enforcement
Priority of Payments shall apply in respect of all payments to HS1 Secured Creditors and HS1 shall
ensure that no amounts are applied in discharging any liabilities due to an HS1 Secured Creditor unless
on the date such amounts are to be applied all sums then due and payable to each prior ranking HS1
Secured Creditor have been first discharged in full.
Defeasance Accounts
(a)
In relation to any HS1 Senior Debt the terms of which permit an Obligor to defease such HS1
Senior Debt and pay the relevant HS1 Defeasance Amount into an HS1 Defeasance Account
rather than to prepay it in circumstances set out in the relevant Finance Documents, these
provisions will apply to the management and operation of any such HS1 Defeasance Account.
(b)
Amounts will be credited to the HS1 Defeasance Accounts as follows:
(c)
(i)
as optional prepayments following a Level 2 Trigger Event;
(ii)
pursuant to the exercise of an equity cure as described in paragraph (q) of “Loan
Events of Default” above; and
(iii)
pursuant to the relevant provisions of the Authorised Credit Facilities relating to the
relevant HS1 Senior Debt.
If a Trigger Event has occurred and is continuing (as evidenced, in respect of a Financial
Covenant Trigger Event only, by the most recently delivered Compliance Certificate) the
relevant Obligor may at any time in its absolute discretion withdraw amounts standing to the
credit of the relevant HS1 Defeasance Account to:
(i)
make payments in respect of the relevant HS1 Senior Debt (or the Bonds
corresponding to such HS1 Senior Debt) to which the relevant HS1 Defeasance
Account relates (together with any Repayment Costs); and/or
(ii)
make market purchases of any HS1 Senior Debt (or the Bonds corresponding to such
HS1 Senior Debt) to which the relevant HS1 Defeasance Account relates for a
purchase price not exceeding the aggregate of (i) par and (ii) any related Repayment
Costs.
(d)
Subject to paragraph (h) below, if, following a credit to the HS1 Defeasance Account
following a Trigger Event:
(i)
the Compliance Certificates delivered to the HS1 Security Trustee in respect of two
consecutive Test Dates show that no Trigger Event is continuing or (in respect of a
Trigger Event which is not a Financial Covenant Trigger Event) that such Trigger
Event has been remedied; or
(ii)
should the amounts standing to the credit of the HS1 Defeasance Account after the
cure of the Trigger Event be applied in accordance with the Finance Documents, no
Trigger Event would occur,
then amounts standing to the credit of the HS1 Defeasance Accounts shall be released from
the HS1 Defeasance Account and can be applied by the Obligors towards any purpose subject
only to any specific requirement in the Finance Documents.
(e)
Subject to paragraph (h) below, if, following a credit to the HS1 Defeasance Account in
respect of the exercise of an Equity Cure Right:
(i)
the Compliance Certificates delivered to the HS1 Security Trustee in respect of four
consecutive Test Dates show that no Trigger Event is continuing or (in respect of a
Trigger Event which is not a Financial Covenant Trigger Event) that such Trigger
Event has been remedied; and
(ii)
should the amounts standing to the credit of the HS1 Defeasance Account after the
exercise of an Equity Cure Right be applied in accordance with the Finance
Documents, no Trigger Event would occur,
then amounts standing to the credit of the HS1 Defeasance Account shall be released from the
HS1 Defeasance Account and can be applied by the Obligors towards any purpose subject
only to any specific requirement in the Finance Documents.
(f)
Subject to the above and save as otherwise directed by the relevant HS1 Secured Creditors
which are the creditors under the relevant HS1 Senior Debt to which such HS1 Defeasance
Account relates, the Obligors shall not withdraw any amounts standing to the credit of the
HS1 Defeasance Accounts for so long as a Loan Event of Default is continuing.
(g)
Following the service of a Loan Enforcement Notice, amounts standing to the credit of the
HS1 Defeasance Accounts shall be applied solely in payment of amounts owed in respect of
the relevant HS1 Senior Debt in accordance with the HS1 Post-Enforcement Priority of
Payments.
(h)
If, following a credit to an HS1 Defeasance Account:
(i)
HS1 has calculated the Debt Life Coverage Ratio for the purpose of complying with
the Additional Financial Indebtedness tests in the CTA; and
(ii)
HS1 has included the amount standing to the credit of the HS1 Defeasance Account
in making that calculation; and
(iii)
HS1 wishes to release amounts standing to the credit of the HS1 Defeasance Account
then HS1 may only release such amounts if, on the date of release of the amounts standing to the credit
of the HS1 Defeasance Accounts in accordance with paragraph (d) or (e) above, HS1 provides a
certificate to the HS1 Security Trustee confirming that the Debt Life Coverage Ratio (calculated as at
the date of release of such amounts and assuming that the amounts to be released have been released
and so are no longer standing to the credit of the HS1 Defeasance Account) is no less than 1.55:1.
Security Trust and Intercreditor Deed
General
The intercreditor arrangements in respect of the Security Group and the Issuer (the “Intercreditor
Arrangements”) are contained in the STID and the CTA, and in relation to the Issuer, in the Issuer
Deed of Charge (see “Summary of the Issuer Transaction Documents – Issuer Deed of Charge”). The
Intercreditor Arrangements bind each of the HS1 Secured Creditors (including the Issuer) and each of
the Obligors.
The HS1 Secured Creditors include and will include all providers of HS1 Senior Debt that enter into or
accede to the STID. Any new Authorised Credit Provider will be required to accede to the STID and
the CTA. The STID also contains provisions restricting the rights of Subordinated Intragroup Creditors
and contains mechanics requiring any creditors in respect of Subordinated Intragroup Liabilities to
accede to the STID as a Subordinated Intragroup Creditor.
The purpose of the Intercreditor Arrangements is to regulate, among other things (a) the claims of the
HS1 Secured Creditors; (b) the exercise, acceleration and enforcement of rights by the HS1 Secured
Creditors; (c) the rights of the HS1 Secured Creditors to instruct the HS1 Security Trustee; (d) the
Entrenched Rights and the Reserved Matters of the HS1 Secured Creditors; and (e) the giving of
consents and waivers and the making of modifications to the Common Documents.
The Intercreditor Arrangements also provide for the ranking in point of payment of the claims of the
HS1 Secured Creditors both before and after the delivery of a Loan Acceleration Notice and for the
subordination of all claims of Subordinated Intragroup Creditors, or claims among the Security Group.
Each HS1 Secured Creditor and each Obligor give certain undertakings in the STID which serve to
maintain the integrity of these arrangements. The Issuer Deed of Charge and the Issuer Cash
Management Agreement provide for the ranking in point of payment of the claims of the Issuer
Secured Creditors (as described further in “Summary of the Issuer Transaction Documents – The Issuer
Deed of Charge” and “Summary of the Issuer Transaction Documents – The Issuer Cash Management
Agreement”).
Modifications, Consents and Waivers
General
The STID contains detailed provisions setting out the voting and instruction mechanics in respect of (a)
Ordinary Voting Matters; (b) Extraordinary Voting Matters; and (c) Entrenched Rights and Reserved
Matters (as further described below in “ – Types of Voting Categories”). Subject to Entrenched Rights
and Reserved Matters (which will always require the consent of all of the Secured Creditors in the case
of Entrenched Rights, and, in the case of Reserved Matters, only, the relevant Secured Creditors who
are affected) and Extraordinary Voting Matters, the HS1 Security Trustee will only agree to any
modification of or grant any consent or waiver under the Common Document with the consent of or if
so instructed by the relevant majority of Participating Qualifying HS1 Secured Creditors provided that
the relevant Quorum Requirement has been met.
HS1 is entitled to provide the HS1 Security Trustee with written notice requesting any modification,
consent or waiver it requires under or in respect of any Common Document (a “STID Proposal”). The
notice will certify whether such STID Proposal is a Discretion Matter, an Ordinary Voting Matter or an
Extraordinary Voting Matter or whether it gives rise to an Entrenched Right (as further described in
“Types of Voting Categories” below) and stating the Decision Period (as further described in “Decision
Periods” below). If the STID Proposal is in relation to a Discretion Matter, HS1 must also provide a
certificate evidencing this status. If the STID Proposal is in relation to an Entrenched Right, HS1 must
include information as to the HS1 Secured Creditors and/or the Issuer Secured Creditors who are
affected by such Entrenched Right.
The HS1 Security Trustee will, within five Business Days of receipt of a STID Proposal, send a request
(the “STID Voting Request”) in respect of any Ordinary Voting Matter, Extraordinary Voting Matter
or Entrenched Right to each HS1 Secured Creditor (through its Secured Creditor Representative, which
in respect of the Issuer shall be the Bond Trustee) and to each Secured Creditor Representative of the
Issuer on behalf of the Issuer Secured Creditors. If the STID Proposal gives rise to an Entrenched
Right, the STID Voting Request is required to contain a request that each relevant Affected HS1
Secured Creditor (including where the Issuer is an Affected HS1 Secured Creditor, each Issuer Secured
Creditor who is affected) confirm on or before the last day of the Decision Period whether or not it
wishes to consent to the relevant STID Proposals that would affect the Entrenched Right.
The Qualifying HS1 Secured Creditors (acting through their Secured Creditor Representatives)
representing at least 10% of the Qualifying HS1 Senior Debt are able to challenge HS1's determination
of the voting category of a STID Proposal. In addition, the HS1 Secured Creditors, through their
respective Secured Creditor Representatives, are able to challenge HS1's determination as to whether
there is an Entrenched Right, subject to such dissenting creditors providing supporting evidence or
substantiation for their disagreement with such determination. Challenging creditors that comply with
the foregoing requirements (the “Dissenting Creditors”) may instruct the HS1 Security Trustee to
inform HS1 in writing within five Business Days of receipt of the relevant STID Proposal that they
disagree with HS1's determination and specifying, as applicable, the voting category they propose
should apply or whose Entrenched Right is affected along with the required supporting evidence. HS1
and the relevant Qualifying HS1 Secured Creditors and/or relevant HS1 Secured Creditors will agree
the voting category or whether there is an Entrenched Right within five Business Days from receipt by
HS1 of the relevant notice from the HS1 Security Trustee. If they are unable to agree within this time,
or if no agreement can be reached, then an appropriate expert will make a decision as to the voting
category or whether there is an Entrenched Right which decision will be final and biding on each of the
parties.
Types of Voting Categories
Ordinary Voting Matters
Ordinary Voting Matters include all matters which are not designated as Extraordinary Voting Matters
or Discretion Matters (see “Extraordinary Voting Matters” and “Discretion Matters” below). If the
Quorum Requirement is met (see “Quorum Requirements” below), a resolution in respect of an
Ordinary Voting Matter may be passed by a simple majority of the Voted Qualifying Debt in
accordance with the section entitled “Qualifying HS1 Senior Debt” below.
Extraordinary Voting Matters
The STID also describes the treatment of Extraordinary Voting Matters. If the Quorum Requirement
for an Extraordinary Voting Matter is met (see “Quorum Requirements” below), the majority required
to pass a resolution in respect of an Extraordinary Voting Matter is at least 66.67% of the Voted
Qualifying Debt in accordance with the section entitled “Qualifying HS1 Senior Debt” below.
Entrenched Rights
Entrenched Rights are rights that cannot be modified or waived in accordance with the STID without
the consent of the Affected HS1 Secured Creditor(s). When the Affected HS1 Secured Creditor is the
Issuer, consent must be obtained from each affected Issuer Secured Creditor.
Reserved Matters
Reserved Matters are matters which, subject to the STID and the CTA, an HS1 Secured Creditor is free
to exercise in accordance with its own debt instrument including:
(a)
to receive any sums owing to it for its own account;
(b)
to make determinations of and require the making of payments due and payable to it;
(c)
to exercise the rights vested in it or permitted to be exercised by it under and pursuant to the
terms of the CTA, the STID and the other Finance Documents;
(d)
to receive notices under the Finance Documents;
(e)
to assign its rights or transfer any of its rights and obligations under any PP Notes or any other
Authorised Credit Facility to which it is a party subject to the provisions of the STID; and
(f)
in the case of each Hedge Counterparty, (i) to terminate the relevant Hedging Agreement or
any transaction thereunder provided such termination is a Permitted Hedge Termination or to
terminate the relevant Hedging Agreement or any transaction thereunder in part and amend the
terms of the Hedging Agreement to reflect such partial termination or (ii) to exercise rights
permitted to be exercised by it under a Hedging Agreement.
Discretion Matters
The HS1 Security Trustee may (but is not obliged to) make modifications to the Finance Documents
without the consent of any other HS1 Secured Creditor where such modifications, consents or waivers:
(a)
(b)
in the opinion of the HS1 Security Trustee, are:
(i)
to correct manifest errors or an error in respect of which an English court could
reasonably be expected to make a rectification order; or
(ii)
of a formal, minor, administrative or technical nature,
would not, in the opinion of the HS1 Security Trustee materially prejudice the interests of any
of the Qualifying HS1 Secured Creditors (where “materially prejudicial” means that such
modification, consent or waiver would have a material adverse effect on the ability of the
Obligors to pay any amounts of principal or interest in respect of the Qualifying HS1 Senior
Debt owed to the relevant Qualifying HS1 Secured Creditors on the relevant due date for
payment therefor).
Quorum Requirements
Pursuant to the terms of the STID, the Quorum Requirement is:
(a)
in respect of an Ordinary Voting Matter, one or more Participating Qualifying HS1 Secured
Creditors representing in aggregate at least 20% of the entire Outstanding Principal Amount of
all Qualifying HS1 Senior Debt provided that if the Quorum Requirement has not been met
within the Decision Period (as described further in “ – Decision Periods” below), the Quorum
Requirement shall be reduced to one or more Participating Qualifying HS1 Secured Creditors
representing, in aggregate, 10% of the aggregate Outstanding Principal Amount of all
Qualifying HS1 Senior Debt and the Decision Period shall be extended for a period of a
further ten Business Days from the expiry of the initial Decision Period; and
(b)
in respect of an Extraordinary Voting Matter, one or more Participating Qualifying HS1
Secured Creditors representing, in aggregate, at least 20% of the entire Outstanding Principal
Amount of all Qualifying HS1 Senior Debt provided that if the Quorum Requirement for an
Extraordinary Voting Matter is not met by the Business Day immediately preceding the last
day of the Decision Period, the Decision Period will be extended and the Quorum
Requirement will reduce to 10% of the aggregate Outstanding Principal Amount of all
Qualifying HS1 Senior Debt and the Decision Period shall be extended for a period of a
further ten Business Days from the expiry of the initial Decision Period.
Decision Periods
The STID includes provisions specifying the relevant decision periods within which votes must be cast
(each a “Decision Period”) which period must not be less than:
(a)
five Business Days from the date of delivery of the STID Proposal for any Discretion Matter;
(b)
fifteen Business Days from the Decision Commencement Date for any Ordinary Voting
Matter (which may be extended for a further period of ten Business Days if the quorum
requirement for the relevant Ordinary Voting Matter has not been met within the initial
Decision Period);
(c)
fifteen Business Days from the Decision Commencement Date for any Extraordinary Voting
Matter (which may be extended for a further period of ten Business Days if the quorum
requirement for the relevant Extraordinary Voting Matter has not been met within the initial
Decision Period); and
(d)
fifteen Business Days from the Decision Commencement Date for an Entrenched Right.
However, the Decision Period for an Entrenched Right for which the Issuer is the Affected
HS1 Secured Creditor will not be less than 45 days.
“Decision Commencement Date” means the earlier of:
(i)
if the Qualifying HS1 Secured Creditors or, as the case may be, HS1 Secured Creditors
(including, in the case of the Issuer, the Issuer Secured Creditors) are deemed to have agreed
to the voting category proposed in the STID Proposal or, as applicable, as to whether the STID
Proposal gives rise to any Entrenched Right affecting an HS1 Secured Creditor and/or, as
applicable, Issuer Secured Creditor pursuant to the STID, the date which is five Business Days
from the receipt of the relevant STID Proposal;
(ii)
the date on which the Dissenting Creditors and HS1 as the Security Group Agent reach
agreement on the applicable voting category, or
(iii)
if the agreement or determination is such that the existing STID Proposal is incorrect, the date
of receipt Security Group Agent of an appropriately amended STID Proposal from the HS1
Security Trustee
Modifications, consents and waivers will be passed by the requisite number of creditors as further
described in “Types of Voting Categories” above.
Qualifying HS1 Senior Debt
General
Creditors to whom Qualifying HS1 Senior Debt is owed are entitled to vote the amount of such debt
when consenting to proposals made by HS1 or instructing the HS1 Security Trustee to take action in
accordance with the STID.
Subject to Entrenched Rights and Reserved Matters, only the relevant Qualifying HS1 Secured
Creditors that are owed, or deemed to be owed, Qualifying HS1 Senior Debt may vote (through their
Secured Creditor Representatives).
Qualifying HS1 Senior Debt
Qualifying HS1 Senior Debt comprises:
(a)
the principal amount outstanding under each IBLA corresponding to the Bonds;
(b)
the principal amount outstanding under the Authorised Credit Facilities (other than the
Liquidity Facility Agreement, the PP Notes and the HS1 Hedging Agreements) at such time;
(c)
the principal amount outstanding under the PP Notes;
(d)
subject to the Entrenched Rights (i) in relation to any vote by the Qualifying HS1 Secured
Creditors on whether to take Enforcement Action and (ii) following the taking of Enforcement
Action, the principal amount outstanding under the IBLAs at such time corresponding to (A)
in relation to any Hedging Transaction arising under a Pari Passu Issuer Hedging Agreement
in respect of which an Early Termination Date (as defined in the relevant Pari Passu Issuer
Hedging Agreement) has been designated, the amount (if any) outstanding to the relevant Pari
Passu Issuer Hedge Counterparty following such termination (as calculated in accordance with
the terms of the Pari Passu Issuer Hedging Agreement) and/or (B) otherwise, the mark-tomarket value of any transaction or transactions arising under a Pari Passu Issuer Hedging
Agreement to the extent that such value represents an amount which would be payable to the
relevant Pari Passu Issuer Hedge Counterparty if an Early Termination Date (as defined in the
relevant Pari Passu Issuer Hedging Agreement) was designated at such time in respect of such
transaction or transactions;
(e)
subject to the Entrenched Rights (i) in relation to any vote by the Qualifying HS1 Secured
Creditors on whether to take Enforcement Action and (ii) following the taking of Enforcement
Action, (A) in relation to any Hedging Transaction arising under a Pari Passu HS1 Hedging
Agreement in respect of which an Early Termination Date (as defined in the relevant Pari
Passu HS1 Hedging Agreement) has been designated, the amount (if any) outstanding to the
relevant Pari Passu HS1 Hedge Counterparty following such termination (as calculated in
accordance with the terms of the Pari Passu HS1 Hedging Agreement) and/or (B) otherwise,
the mark-to-market value of any transaction or transactions arising under any Pari Passu HS1
Hedging Agreement to the extent that such value represents an amount which would be
payable to the relevant HS1 Hedge Counterparty if an Early Termination Date (as defined in
the relevant Pari Passu HS1 Hedging Agreement) was designated at such time in respect of
such transaction or transactions; and
(f)
the principal amounts outstanding under any other secured term loan facilities which are
Authorised Credit Facilities at such time ranking pari passu with the above (but excluding for
the avoidance of doubt any Liquidity Facilities, Super Senior HS1 Hedging Transactions or
Super Senior Issuer Hedging Agreements).
Certification of amounts of Qualifying Senior HS1 Debt
Each Qualifying HS1 Secured Creditor (acting through its Secured Creditor Representative) must
certify to the HS1 Security Trustee the relevant amount of the Qualifying HS1 Senior Debt that it is
permitted to vote within five Business Days of the date on which either (i) the Qualifying HS1 Secured
Creditors have been notified of a STID Proposal, an Enforcement Instruction Notice, a Further
Enforcement Instruction Notice, a Qualifying HS1 Secured Creditor Instruction Notice or a Direction
Notice or (ii) the HS1 Security Trustee requests such certification, the Outstanding Principal Amount
of any debt which constitutes Qualifying HS1 Senior Debt held by such Qualifying HS1 Secured
Creditor. If any Qualifying HS1 Secured Creditor fails to provide such certification through its
Secured Creditor Representative within the time required, then the HS1 Security Trustee will notify
HS1 of such failure. HS1 must promptly inform the HS1 Security Trustee of the Outstanding Principal
Amount of Qualifying HS1 Senior Debt of such Qualifying HS1 Secured Creditor and such notification
will be binding on the relevant Qualifying HS1 Secured Creditors except in the case of manifest error
and without liability to HS1.
Tranching of Qualifying HS1 Senior Debt and Determination of Voted Qualifying Debt for which the
Issuer is a Creditor
As described in the section “Qualifying HS1 Senior Debt” above, amounts owed to the Issuer by HS1
under the Initial IBLA are included in the Qualifying HS1 Senior Debt. However, the Issuer Secured
Creditors, as opposed to the Issuer itself, are entitled to vote in respect of such amounts. When the
Bond Trustee (as the Issuer's Secured Creditor Representative) casts its votes on the Issuer's behalf, it
will do as instructed by the relevant Issuer Secured Creditors.
In the case of (a) and (e) of Qualifying HS1 Senior Debt (as described further in “Qualifying HS1
Senior Debt” above) of the Issuer will be divided into separate voting tranches comprising respectively:
(a)
a tranche for the holders of each Tranche of Bonds equal to the aggregate Principal Amount
Outstanding of each Tranche of Bonds; and
(b)
only (i) in relation to any vote by the Qualifying HS1 Secured Creditors on whether to take
Enforcement Action, and (ii) following the taking of Enforcement Action (provided that, for
the avoidance of doubt, Entrenched Rights will apply at all times), a tranche for each Pari
Passu Issuer Hedge Counterparty equal to the principal amount outstanding under the Initial
IBLA which corresponds to (A) in relation to any Hedging Transaction arising under a Pari
Passu Issuer Hedging Agreement in respect of which an Early Termination Date (as defined in
the relevant Pari Passu Issuer Hedging Agreement) has been designated, the amount (if any)
outstanding to the relevant Pari Passu Issuer Hedge Counterparty following such termination
(as calculated in accordance with the terms of the Pari Passu Issuer Hedging Agreement)
and/or (B) otherwise, the mark-to-market value of any transaction or transactions arising under
a Pari Passu Issuer Hedging Agreement (or the equivalent amount under any back-to-back
hedging agreement) calculated by the Pari Passu Issuer Hedge Counterparty and notified in
writing by the Pari Passu Issuer Hedge Counterparty to the HS1 Security Trustee to the extent
that such value represents an amount which would be payable to the relevant Pari Passu Issuer
Hedge Counterparty if an Early Termination Date (as defined in the relevant Pari Passu Issuer
Hedging Agreement) was designated on the date falling two Business Days after the
commencement of the relevant Decision Period).
The votes of the Bondholders of each Tranche of Bonds in respect of a STID Proposal (other than a
STID Proposal which relates to an Entrenched Right as to which the Issuer is an Affected HS1 Secured
Creditor) will be cast by the Bondholders of such Tranche (through the Bond Trustee on their behalf),
in respect of a Tranche of Bonds and a STID Proposal as follows:
(a)
subject to (c) below, in an amount equal to the aggregate of the Principal Amount Outstanding
of each Bond which voted in favour of the relevant STID Proposal, for such STID Proposal
both in respect of Quorum Requirements and the requisite majority;
(b)
subject to (c) below, in an amount equal to the aggregate of the Principal Amount Outstanding
of each Bond which voted against the relevant STID Proposal, against such STID Proposal
both in respect of Quorum Requirements and the requisite majority;
(c)
if any of the below applies to any Tranche of Bonds (a) and (b) above shall not apply for that
Tranche of Bonds:
(i)
if, in respect of a Tranche of Bonds and a STID Proposal:
(A)
holders of 25% or more of the Principal Amount Outstanding of such
Tranche of Bonds cast a vote in relation to such STID Proposal on or before
the end of the relevant Decision Period; and
(B)
holders of 75% or more of the Principal Amount Outstanding of the Bonds
which so voted, voted the same way,
then the entire Principal Amount Outstanding of such Tranche of Bonds of such
Tranche will count as having voted in such way both in respect of Quorum
Requirements and the requisite majority; and
(ii)
in the event that (i)(A) does apply but (i)(B) does not apply, then the entire
Outstanding Principal Amount of such Tranche of Bonds will count for the purposes
of Quorum Requirements (but not the requisite majority, for which they will count on
a pound for pound basis either for or against the STID Proposal according to their
vote in accordance with (a) and (b) above).
Subject to the STID, voting in respect of the Pari Passu Issuer Hedging Transactions is done by each
Pari Passu Issuer Hedge Counterparty in respect of (A) in relation to any Hedging Transaction arising
under a Pari Passu Issuer Hedging Agreement in respect of which an Early Termination Date (as
defined in the relevant Pari Passu Issuer Hedging Agreement) has been designated, the amount (if any)
outstanding to the relevant Pari Passu Issuer Hedge Counterparty following such termination (as
calculated in accordance with the terms of the Pari Passu Issuer Hedging Agreement) and/or (B)
otherwise, the mark to market value (being the amount which would be payable to the relevant Hedge
Counterparty if any Early Termination Date (as defined in the relevant Hedging Agreement) calculated
by the Pari Passu Issuer Hedge Counterparty and notified in writing by the Pari Passu Issuer Hedge
Counterparty to the HS1 Security Trustee and as designated on the date falling two Business Days after
the commencement of the relevant Decision Period) of all transactions arising under the Pari Passu
Issuer Hedging Transactions to which it is a party. Only such mark to market value will be counted
towards the Quorum Requirement. In respect of each Pari Passu Issuer Hedge Counterparty, a single
vote by reference to the aggregate of the mark to market value of all such Pari Passu Issuer Hedging
Transactions arising under the Issuer Hedging Agreements of such Pari Passu Issuer Hedge
Counterparty will be counted for or against the applicable STID Proposal, Enforcement Instruction
Notice, Further Enforcement Instruction Notice or Direction Notice.
Voting of Authorised Credit Facilities (other than PP Notes)
If in respect of any Authorised Credit Facility (other than the PP Notes) provided other than on a
bilateral basis, the minimum quorum and voting majorities specified in the relevant Authorised Credit
Facility are not met, votes in respect of the relevant Authorised Credit Facility are divided between
votes cast in favour and votes cast against, on a pound for pound basis in respect of the Qualifying HS1
Senior Debt then owed to Participating Qualifying HS1 Secured Creditors that vote on a proposed
resolution within the Decision Period. Votes cast in favour and votes cast against will then be
aggregated by the HS1 Security Trustee with the votes cast for and against by the other Qualifying HS1
Secured Creditors.
Voting of PP Notes
(a)
Subject to paragraphs (b) and (c) below, if in respect of PP Notes the minimum quorum
specified in a relevant PP Note SCR Agreement is not met in respect of a vote on a particular
STID proposal, no votes in respect of such PP Notes will be taken into account by the HS1
Security Trustee when determining whether the requisite majority for the particular STID
Proposal or other matter has been satisfied pursuant to the relevant provisions of the STID and
the principal amount outstanding in respect of such PP Notes shall not be taken into account
for the purpose of assessing whether the particular Quorum Requirement is met.
(b)
If in respect of the Initial PP Notes the minimum quorum and voting majority specified in the
Initial PP Note SCR Agreement in relation to an Extraordinary Voting Matter are not met,
votes in respect of the Initial PP Notes will be divided between votes cast in favour and votes
cast against, on a pound for pound basis in respect of Qualifying HS1 Senior Debt then owed
to the Initial PP Notes who are Participating Qualifying HS1 Secured Creditors that vote on a
proposed resolution within the Decision Period. Votes cast in favour and votes cast against
will then be aggregated by the HS1 Security Trustee with the votes cast for and against by the
other Qualifying HS1 Secured Creditors.
(c)
In respect of PP Notes other than the Initial PP Notes, the PP Note Secured Creditor
Representative appointed in respect of the relevant PP Noteholders shall notify the HS1
Security Trustee at the time of its appointment if the provisions of the STID relating to voting
of Authorised Credit Facilities (other than PP Notes) (as described further in “Voting of
Authorised Credit Facilities (other than PP Notes)” above) or the provisions of the STID
relating to voting of PP Notes shall apply (and, if the provisions of the STID relating to voting
of PP Notes shall apply, whether paragraph (b) above should apply also) to votes in relation to
STID Proposals in respect of such PP Notes. If the relevant PP Note Secured Creditor
Representative notifies the HS1 Security Trustee that:
(i)
the provisions of the STID relating to voting of Authorised Credit Facilities shall
apply, the relevant PP Notes shall be treated as an Authorised Credit Facility and
votes counted in accordance with the provisions of the STID relating to voting of
Authorised Credit Facilities (other than PP Notes);
(ii)
paragraphs (a) and (b) above shall apply, the relevant PP Notes shall be treated in the
same manner as the Initial PP Notes; or
(iii)
paragraph (a) above only shall apply, the relevant PP Notes shall be treated in the
same manner as the Initial PP Notes except that Extraordinary Voting Matters for
such PP Notes shall be treated in the same manner as other votes of the relevant PP
Noteholders in respect of such PP Notes under paragraph (a) above.
If the relevant PP Note Secured Creditor Representative does not notify the HS1 Security Trustee at the
time of its appointment whether (i), (ii) or (iii) shall apply, it shall be deemed to have elected that (iii)
shall apply.
Qualifying HS1 Secured Creditor Instructions
Qualifying HS1 Secured Creditors with at least 20% of the aggregate Outstanding Principal Amount of
all Qualifying HS1 Senior Debt may instruct the HS1 Security Trustee (subject to providing the
required indemnity pursuant to the STID) to exercise any of the rights granted to the HS1 Security
Trustee under the Common Documents (save in respect of the taking of Enforcement Action or the
delivery of a Loan Enforcement Notice or a Loan Acceleration Notice) including:
(a)
to challenge a statement(s), calculation(s) or ratio(s) in a Compliance Certificate and to call for
other substantiating evidence of such statement(s), calculation(s) or ratio(s) and to approve the
appointment of an independent expert specified by such Qualifying HS1 Secured Creditors to
investigate the statement(s), calculation(s) or ratio(s) that is/are the subject of the challenge in
the Compliance Certificate;
(b)
to request further information pursuant to and subject to the terms of the CTA in respect of,
inter alia, Security Group covenants and Trigger Events; and
(c)
following delivery of a Loan Enforcement Notice but prior to delivery of a Loan Acceleration
Notice to instruct the HS1 Security Trustee to send a Further Enforcement Instruction Notice.
Enforcement and Acceleration
Following a Loan Event of Default and for so long as it is continuing, the HS1 Security Trustee will
request an instruction from the Qualifying HS1 Secured Creditors (through their Secured Creditor
Representatives) as to whether the HS1 Security Trustee should deliver a Loan Enforcement Notice to
enforce all or part of the HS1 Security or to take any other Enforcement Action and/or deliver a Loan
Acceleration Notice to accelerate all of the obligations secured under the HS1 Security.
When voting on an Enforcement Instruction Notice:
(a)
the Quorum Requirement shall be one or more Participating Qualifying HS1 Secured
Creditors representing, in aggregate, at least the “Relevant Percentage” of the aggregate
Outstanding Principal Amount of all Qualifying HS1 Senior Debt, where “Relevant
Percentage” for the purposes of this sub-clause (a) means (i) 40 per cent. in respect of any
Enforcement Instruction Notice or Further Enforcement Instruction Notice delivered up to and
including the date falling six month after the occurrence of the Loan Event of Default; (ii)
33.34 per cent. in respect of any Enforcement Instruction Notice or Further Enforcement
Instruction Notice delivered during the period following the date falling six month after the
occurrence of the Loan Event of Default up to and including the date falling twelve months
after the occurrence of the Loan Event of Default; or (iii) 10 per cent. in respect of any
Enforcement Instruction Notice or Further Enforcement Instruction Notice delivered at any
time following the date falling twelve months after the occurrence of the Loan Event of
Default;
(b)
the Decision Period is fifteen Business Days from the date of delivery of the Enforcement
Instruction Notice or Further Enforcement Instruction Notice; and
(c)
the majority required to pass the resolution shall be the Participating Qualifying HS1 Secured
Creditors on a pound for pound basis representing at least the “Relevant Percentage” of the
Outstanding Principal Amount of all Voted Qualifying Debt, where “Relevant Percentage” for
purposes of this sub-clause (c) means (i) 66.67 per cent. in respect of any Enforcement
Instruction Notice or Further Enforcement Instruction Notice delivered up to and including the
date falling six month after the occurrence of the Loan Event of Default; (ii) 50 per cent. in
respect of any Enforcement Instruction Notice or Further Enforcement Instruction Notice
delivered during the period following the date falling six month after the occurrence of the
Loan Event of Default up to and including the date falling twelve months after the occurrence
of the Loan Event of Default; or (iii) 20 per cent. in respect of any Enforcement Instruction
Notice or Further Enforcement Instruction Notice delivered at any time following the date
falling twelve months after the occurrence of the Loan Event of Default.
HS1 Post-Enforcement Priority of Payments
After delivery to HS1 of a Loan Enforcement Notice, the whole of the HS1 Security will become
enforceable. Subject to certain matters and to certain exceptions, following an enforcement, any
Available Enforcement Proceeds or other monies held by the HS1 Security Trustee under the STID will
be applied by the HS1 Security Trustee in accordance with the HS1 Post-Enforcement Priority of
Payments waterfall. See “Cashflows – HS1 Post-Enforcement Priority of Payments” for a detailed
description.
Permitted Enforcement – Liquidity Facility Agent and Super Senior Hedge Counterparties
Prior to the delivery of a Loan Enforcement Notice, if an Obligor has defaulted on any payment
obligation under the Liquidity Facility Agreement or a Super Senior Hedging Agreement (subject to the
lapse of any applicable notice or grace periods), the Liquidity Facility Agent or the Super Senior Hedge
Counterparty (as applicable) shall be entitled, after 30 days from such non-payment and only until such
time as the HS1 Security Trustee has given a Loan Enforcement Notice and/or Loan Acceleration
Notice under the STID, to exercise any right against any Obligor to recover any amounts due and
payable under the Liquidity Facility Agreement or the Super Senior Hedging Agreement (as
applicable).
Distressed Disposals
On the occurrence of a distressed disposal the HS1 Security Trustee may, without any consent from
any HS1 Secured Creditor, release any HS1 Security as is required to effect the disposal in accordance
with the STID. The net proceeds of disposal are to be applied in accordance with priorities of payments
(see the section “Qualifying HS1 Secured Creditor Instructions – Enforcement and Acceleration”
above and “Cashflows” below).
Tax Deed of Covenant
Pursuant to a deed of covenant dated 14 February 2013 between, inter alios, the HS1 Security Trustee,
the Issuer Security Trustee, HS1, HSRF, Holdco and the Issuer (the “Tax Deed of Covenant”), each of
the Tax Covenantors make representations and give warranties and covenants with a view to protecting
the Issuer and the other members of the Security Group from certain tax-related risks including risks
relating to VAT grouping, secondary tax liabilities, group tax matters (including group relief, transfer
pricing and the worldwide debt cap), degrouping charges, certain anti-avoidance provisions and the
Issuer’s status as a securitisation company for the purposes of the Taxation of Securitisation Companies
Regulations 2006, as amended.
The “Tax Covenantors” means, among others, Helix Topco.
The Tax Deed of Covenant is governed by English law.
SUMMARY OF THE FINANCE DOCUMENTS
Initial IBLA
General
On the Initial Issue Date, the Issuer, HS1, the Issuer Security Trustee and the HS1 Security Trustee
entered into an Initial IBLA. The aggregate proceeds of the issuance by the Issuer of a Tranche of
Bonds under the Programme on the Initial Issue Date was on-lent to HS1 under such Initial IBLA.
Each Advance under the Initial IBLA (or each Sub-Advance together making a single Advance), on the
Initial Issue Date, corresponded to the principal amount of each Tranche of Bonds issued on the Initial
Issue Date such that the economic terms of each Advance matched the economic terms of the
corresponding Tranche of Bonds. Provided that any future issuances of Bonds are fungible with the
issuance made on the Initial Issue Date, the Issuer will make available further facilities in an aggregate
amount equal to the proceeds of each such issuance under the terms of the Initial IBLA. Otherwise, a
new IBLA will be entered into for each new issuance by the Issuer of a Tranche of Bonds and the
subsequent Advance (or Sub-Advances, as the case may be) to HS1, on substantially the same terms as
the Initial IBLA. The making of each Advance will be subject to the satisfaction of the conditions
precedent set out in the CP Agreement.
Matching of obligations
As each Advance is structured and tranched to match the tenor, interest rate and payment dates of each
Tranche of Bonds, the Advances have characteristics that demonstrate capacity to produce funds to
service any payments due and payable under each Tranche of the Bonds.
Advances
All Advances made or to be made by the Issuer under the Initial IBLA are or will be in amounts and at
rates of interest (or such discount or indexed amount) corresponding to amounts and rates set out in the
relevant Final Terms and will have interest periods which match the Interest Periods for the
corresponding Tranche but will have interest payment dates one Business Day prior to each Interest
Payment Date on the related Tranche. Interest on each Advance made under the Initial IBLA will
accrue from the date of such Advance.
Unless otherwise repaid earlier, HS1 shall repay:
(a)
each outstanding Advance or Sub-Advance made to it in an amount equal to the relevant
Instalment Amount;
(b)
any accrued but unpaid Ongoing Facility Fee; and
(c)
in the case of any Sub-Advance corresponding to an Index-Linked Bond, the amount equal to
any amount of indexation payable in respect of the corresponding Bonds pursuant to
Condition 7(b) (Application of the Index Ratio),
in each case on each Instalment Date of those Bonds.
Prepayments
If HS1 is required to prepay amounts outstanding under the Initial IBLA, it will prepay the relevant
Advances or part thereof together with accrued interest, any prepayment fees and other break fees,
costs and expenses and where applicable any make-whole amounts, then payable under the Initial
IBLA and other relevant Transaction Documents to correspond to the amounts payable by the Issuer in
respect of the corresponding early redemption of the corresponding Tranche of Bonds.
Under the Initial IBLA, the Issuer designates the HS1 Senior Debt evidenced by that IBLA as HS1
Defeased Debt. Where HS1 would otherwise be entitled to prepay all or part of any Advance or Sub-
Advance as set out in “Summary of the Common Documents – Common Terms Agreement – HS1 Cash
Management” HS1 shall credit the amount which would otherwise be applied in such prepayment to
the relevant HS1 Defeasance Account in accordance with the CTA.
Fees
In consideration for the Issuer agreeing to make the advances available under the Initial IBLA, HS1 has
agreed to pay to the Issuer the initial and ongoing facility fees set out in the Initial IBLA.
On the Initial Issue Date, HS1 paid on behalf of the Issuer by way of the initial facility fee, any
expenses of the Issuer reasonably incurred in connection with the initial issue of Bonds including, inter
alia, the upfront fees and expenses of the Bond Trustee, the Issuer Security Trustee, the Agents, the
Cash Manager, the Account Bank, the Issuer Corporate Services Provider, the Dealers, the Liquidity
Facility Providers, the Rating Agencies, the Issuer’s legal advisers, accountants and auditors and any
amounts payable to the Issuer Hedge Counterparties.
Since the Initial Issue Date HS1 is required to pay periodically a facility fee by way of the ongoing
facility fee which shall meet the ongoing costs, losses and expenses of the Issuer in respect of amounts
owed to, inter alios, the Bond Trustee, the Issuer Security Trustee (and any receiver appointed by the
Issuer Security Trustee), the Agents, the Cash Manager, the Account Bank, the Issuer Corporate
Services Provider, the Liquidity Facility Providers, the Rating Agencies, the Issuer’s legal advisers,
accountants and auditors and any amounts payable to the Issuer Hedge Counterparties (in each case to
the extent not covered by the initial facility fee) and Liquidity Facility Providers.
Secured obligations
The obligations of HS1 under each IBLA are and will be secured pursuant to the HS1 Security
Agreement, and such obligations are and will be guaranteed by each other Obligor in favour of the HS1
Security Trustee, who holds the benefit of such security and guarantees on trust for the HS1 Secured
Creditors (including the Issuer) on the terms of the STID.
Loan Event of Default
The Issuer’s obligations to repay principal and pay interest on the Bonds are intended to be met
primarily from the payments of principal and interest received from HS1 under the Initial IBLA (or
subsequent IBLAs, as the case may be) and payments received under any related Hedging Agreements.
Failure of HS1 to repay an Advance under the Initial IBLA on the maturity date in respect of such
Advance (which corresponds to the Business Day falling three Business Days prior to the Scheduled
Redemption Date or the Final Maturity Date, as applicable, of the corresponding Tranche) will be a
Loan Event of Default under the Initial IBLA (as set out in the CTA), although it will not, of itself,
constitute a Bond Event of Default. The Final Maturity Date under the Bonds corresponding to the
relevant Advance may fall two years after the Scheduled Redemption Date, to cater solely for the
possibility that HS1 might default on repayment of the Initial IBLA. In the event of such a Loan Event
of Default, the Bonds will accrue interest at a floating rate, which will be met from any available
proceeds from the Initial IBLA or, if insufficient, from drawings under the Liquidity Facility to the
extent available. If the Bonds are not redeemed in full by their Final Maturity Date, there will be a
Bond Event of Default.
Withholding/deductions
HS1 agrees to make all payments to the Issuer free and clear of any withholding on account of tax
unless it is required by law to do so – in such circumstances HS1 will gross-up such payments.
Subsequent IBLAs
On or prior to any further Issue Date (excluding the Initial Issue Date) in which the Issuer issues
Bonds, the proceeds of which are intended to be on-lent to HS1, which are not fungible with an existing
series of Bonds, then a new IBLA will be entered into by the Issuer, HS1, the Issuer Security Trustee
and the HS1 Security Trustee. Such new IBLA will be entered into substantially on the same terms as
set out above (each of these subsequent IBLAs along with the Initial IBLA will constitute the “IBLAs”
and each an “IBLA”).
Governing law
The Initial IBLA is and each subsequent IBLA will be governed by English law.
Initial Authorised Credit Facilities Agreement
HS1 and the Initial ACF Arrangers entered into the Initial Authorised Credit Facilities Agreement on
14 February 2013. Credit facilities were made available to HS1 by the Original Initial ACF Lenders
which comprised:
(a)
a senior term facility A of up to £230,000,000 and a senior term facility B of up to
£85,000,000 (together the “Senior Term Facilities”) to fund the refinancing of the Existing
Indebtedness, the payment of fees, costs, expenses, stamp, registration and other taxes
incurred in connection with the refinancing and for the general corporate purposes of the
Obligors. The Senior Term Facilities were available from the Initial Issue Date to and
including the date 5 Business Days after the Initial Issue Date;
(b)
a WC Facility of up to £65,000,000 (capable of being reborrowed as contemplated by the
Initial Authorised Credit Facilities Agreement) to fund general corporate and working capital
purposes (but not towards payment of any amount in relation to the refinancing of the Existing
Indebtedness or payment of any principal in respect of the Senior Term Facilities).
The facilities made available under the Initial Authorised Credit Facilities Agreement will mature on
the date occurring (a) in the case of the senior term facility A, seven years after the date of the Initial
Authorised Credit Facilities Agreement, (b) in the case of the senior term facility B, five years after the
date of the Initial Authorised Credit Facilities Agreement and (c) in the case of the WC Facility, five
years after the date of the Initial Authorised Credit Facilities Agreement.
The Obligors will make representations and warranties, covenants and undertakings to the Issuer and
the Initial ACF Arrangers, the Original Initial ACF Lenders and the Initial ACF Agent on the terms set
out in or otherwise permitted by the CTA. All utilisations on the Initial Issue Date under the Initial
Authorised Credit Facility were subject to all representations in the CTA being true and in reference to
the facts and circumstances then subsisting and, in relation to any subsequent utilisations, the Repeated
Representations contained in the CTA being true and on the relevant utilisation date by reference to the
facts and circumstances that were then subsisting.
In addition to the Trigger Events under the CTA which will also apply under the Initial Authorised
Credit Facilities Agreement (see the section “Summary of the Common Documents – Common Terms
Agreement – General”), the Original Initial ACF Lenders will benefit from an additional Level 2
Trigger Event. The consequences of a Level 2 Trigger Event shall occur in the event that the auditors
formally qualify their report (rather than include in it matters of emphasis or other equivalent
statements) on any audited Financial Statements provided by the Security Group:
(a)
in relation to going concern; or
(b)
in a manner which causes the calculation of the Financial Ratios to no longer reflect the true
position of the Security Group and would, when recalculated using the value deemed by the
auditors as the applicable value, result in a breach of the Trigger Event Ratios,
save where the qualification arises in relation to the relevant Obligor’s ability to refinance any
Financial Indebtedness and/or to meet financial covenants.
Such additional Level 2 Trigger Event will be deemed to have been remedied where either:
(a)
(b)
a further set of audited financial statements is issued in respect of which the audit report is not
qualified:
(i)
in relation to a going concern; or
(ii)
in a manner which causes the Financial Ratios to no longer reflect the true position of
the Security Group and would, when recalculated using the value deemed by the
auditors as the applicable value, not result in a breach of the Trigger Event Ratios; or
the original audit qualification is withdrawn.
The Loan Events of Default under the CTA will apply under the Initial Authorised Credit Facilities
Agreement (see the section “Summary of the Common Documents – Common Terms Agreement –
General”), provided that so long as the Initial Authorised Credit Facilities Agreement is outstanding
the exercise of the Equity Cure Right shall be limited to three times during any five year period.
The ability of the Original Initial ACF Lenders to accelerate any sums owing to them under the Initial
Authorised Credit Facilities Agreement upon or following the occurrence of a Loan Event of Default
thereunder is subject to the STID. The occurrence of a Loan Event of Default is not a draw-stop under
the WC Facility for Rollover Loans and any drawings under the WC Facility which are outstanding at
the time of the occurrence of a Loan Event of Default will remain outstanding until the earlier of (a)
repayment in full of such amounts, (b) the delivery of a Loan Acceleration Notice or (c) the termination
date of the WC Facility which will be the date occurring five years after the date of the Initial
Authorised Credit Facilities Agreement. However, no further drawings may be made under the Senior
Term Facilities following the occurrence of a Loan Event of Default which is continuing.
Subject to the CTA and the STID, HS1 may, by giving not fewer than 3 Business Days’ prior notice to
the Initial ACF Agent, prepay amounts outstanding under the Senior Term Facilities in a minimum
amount of £2,000,000. HS1 must confirm to the Initial ACF Agent that it has sufficient funds on such
payment date to effect such prepayment.
HS1 may additionally, by giving not fewer than 3 Business Days’ prior notice to the Initial ACF Agent,
prepay amounts outstanding under the WC Facility Loan in a minimum amount of £1,000,000. HS1
must confirm to the Initial ACF Agent that it has sufficient funds on such payment date to effect such
prepayment.
Upon the occurrence of a Change of Control or the sale of all or substantially all of the assets of the
Security Group whether in a single transaction or a series of related transactions:
(a)
HS1 shall promptly notify the Initial ACF Agent upon becoming aware of that event and the
Initial ACF Agent shall immediately thereafter notify the Lenders;
(b)
each Initial ACF Lender shall have a period of 30 Business Days (the “Standstill Period”)
from the date on which HS1 notifies the Initial ACF Agent in accordance with paragraph (a)
above during which time the Initial ACF Lender may notify the Initial ACF Agent that it
wishes to cancel its Commitment and declare its participation in all outstanding Loans,
together with accrued interest, and all other amounts accrued under the Finance Documents
immediately due and payable, and the Initial ACF Agent shall immediately thereafter notify
the Borrower of each such notification by an Initial ACF Lender;
(c)
during the Standstill Period, an Initial ACF Lender shall not be obliged to fund a Loan (except
for a WC Facility Loan);
(d)
in respect of each Initial ACF Lender which notifies the Initial ACF Agent pursuant to
paragraph (b) above, the Commitment of that Initial ACF Lender will be cancelled and all
outstanding Loans, together with accrued interest, and all other amounts accrued under the
Finance Documents, will become immediately due and payable 20 Business Days after the
end of the Standstill Period.
HS1 will be required to ensure that the aggregate amount of all the WC Facility Loans less any amount
of cash or Cash Equivalent Investments of the Borrower and any other Obligors shall be reduced to
zero for a period of not less than 5 successive business days in each 12 month period following the
Initial Issue Date and not fewer then three months from the preceding clean down.
HS1 intends to amend and restate the Initial Authorised Credit Facilities Agreement in accordance with
the terms of thereof and in compliance with the Common Documents on or around 17 April 2015 to
revise (among other things) the amortisation profile, to extend the termination date of the Senior Term
Facilities from 2020 to 2022 and of the WC Facility from 2018 to 2020, to disapply those events listed
above in paragraphs (a) to (d) (inclusive) upon the occurrence of a Change of Control or the sale of all
or substantially all of the assets of the Security Group whether in a single transaction or a series of
related transactions, and to include the latest market-standard updates published by the Loan Market
Association.
Initial PP Notes
On 29 October 2012, HSRF, HS1 and Holdco entered into the Initial PP Note Purchase Agreement
with the Initial PP Noteholders, pursuant to which HSRF sold the Initial PP Notes to the Initial PP
Noteholders. HSRF on-lent the proceeds of the sale of the Initial PP Notes (the “Initial PP Note
Proceeds”) to HS1 under a note issuer borrower loan agreement (the “Initial PPNIBLA”) dated 29
October 2012 (with tenor, interest rates and payment dates matching the Initial PP Notes) and HS1
used the Initial PP Note Proceeds to fund the refinancing existing indebtedness, the payment of fees,
costs, expenses, stamp, registration and other taxes incurred in connection with the refinancing and for
the general corporate purposes of the Obligors.
The Initial PP Notes are subject to the terms and conditions of the Initial PP Note Purchase Agreement
and are registered notes.
Maturity, Repayment and Interest
The Series A Notes are denominated in USD. The Series A1 Notes have a total principal amount of
U.S.$530,000,000 and the Series A2 Notes have a total principal amount of U.S.$20,000,000. The
Series A Notes bear interest at 3.79% per annum, payable semi-annually in arrear on 30 March and 30
September in each year. The principal of the Series A Notes is repayable according to an amortisation
schedule, which amortises the Series A Notes from 30 September 2021 to their final maturity date on
30 March 2028.
The Series A2 Notes are listed on the Channel Islands Stock Exchange.
The Series B Notes are denominated in GBP. The Series B1 Notes have a total principal amount of
₤70,000,000 and the Series B2 Notes have a total principal amount of ₤47,000,000. The Series B Notes
bear interest at 4.21% per annum, payable semi-annually in arrear on 30 March and 30 September in
each year. The principal of the Series B Notes is repayable according to an amortisation schedule,
which amortises the Series B Notes from 30 September 2027 to their final maturity date on 30 March
2031.
The Series B2 Notes are listed on the Channel Islands Stock Exchange.
The Series C Notes are denominated in GBP with a total principal amount of ₤58,000,000. The Series
C Notes bear interest at a floating rate that is the percentage per annum equal to six month LIBOR plus
1.64%, payable semi-annually in arrear on 30 March and 30 September in each year. The principal of
the Series C Notes is repayable according to an amortisation schedule, which amortises the Series C
Notes from 30 September 2027 to their final maturity date on 30 March 2031.
The Series D Notes are denominated in GBP with a total principal amount of ₤50,000,000. The Series
D Notes bear interest at 4.72% per annum, payable semi-annually in arrear on 30 March and 30
September in each year. The principal of the Series D Notes is repayable according to an amortisation
schedule, which amortises the Series D Notes from 30 September 2028 to their final maturity date on
30 March 2036.
If on the Initial Issue Date the Bonds did not have a rating of at least A-, or, in the case of Moody’s,
A3, (or equivalent from a Rating Agency other than S&P, Moody’s or Fitch) from at least two Rating
Agencies, then the interest due on each Initial PP Note would have been increased by 0.25%. The
Bonds issued on the Initial Issue Date did have a rating of at least A-, or, in the case of Moody’s, A3,
(or equivalent from a Rating Agency other than S&P, Moody’s or Fitch) from at least two Rating
Agencies on the Initial Issue Date.
Initial PP Notes subject to the CTA, the STID and the MDA
The Initial PP Notes and the Initial PP Note Purchase Agreement are subject to the CTA and the STID,
and incorporate the defined terms in the Master Definitions Agreement, from the Initial Issue Date. The
Obligors have made the representations and warranties, covenants and undertakings to the Initial PP
Noteholders on the terms set out in the CTA. The “Events of Default” under the Initial PP Note
Purchase Agreement are the Loan Events of Default under the CTA and the ability of the Initial PP
Noteholders to accelerate any sums owing to them under the Initial PP Notes or the Initial PP Note
Purchase Agreement upon or following the occurrence of a Loan Event of Default is subject to the
STID.
Prepayment
HSRF may, at its option, prepay the Initial PP Notes in full or in part (subject to a minimum
prepayment amount of 1% of the outstanding principal) on giving the Initial PP Noteholders at least 30
days’, and not more than 60 days’, notice. Voluntary prepayments include accrued interest plus a
“Make-Whole Amount”, which is an amount to compensate Initial PP Noteholders for loss of return on
the prepaid principal, based on their expected return less a notional reinvestment yield (with a modified
calculation based on the same principles for Initial PP Notes that are subject to cross currency hedging
arrangements by an Initial PP Noteholder). Partial voluntary prepayments must be allocated among
Initial PP Notes in the series that is being prepaid pro rata according to the principal outstanding in
respect of that series.
Where, as a result in a change in tax law or regulation (either in the United Kingdom or in another
jurisdiction that becomes a jurisdiction that levies tax on the Initial PP Notes after the issue of the
Initial PP Notes) that has occurred since 29 October 2012 (i) an Obligor is required to gross up
payments or pay any additional amount to an Initial PP Noteholder (ii) HS1 is required to make any
deduction or withholding in respect of payments to HSRF under the Initial PPNIBLA or (iii) HSRF
ceases to be a “securitisation company” for the purposes of the Taxation of Securitisation Companies
Regulations 2006 (SI 2006/3296) and is otherwise unable to claim favourable treatment under those
Regulations, HSRF may prepay any affected Initial PP Notes on giving the Initial PP Noteholders at
least 30 days’, and not more than 60 days’, notice. Prepayments made for tax reasons include accrued
interest and a “Modified Make-Whole Amount”, which is calculated in the same manner as the “MakeWhole Amount” payable in respect of voluntary prepayments but with a higher notional reinvestment
yield being deducted from the expected return. An affected Initial PP Noteholder can reject prepayment
in circumstances described in (i) above, in which case any rights to gross up or additional payments in
respect of those circumstances are waived for the relevant Initial PP Notes. HSRF can take mitigating
action, rather than make a prepayment, with which the Initial PP Noteholders must cooperate to the
extent commercially reasonable.
Where there is: (i) an` Initial PP Note Purchase Agreement Change of Control; or (ii) a sale of all or
substantially all of the assets of the Group; which in either case results in a ratings downgrade of a
credit rating ascribed to the Bonds (or the Initial PP Notes, where they are subject to a credit rating) by
any one Rating Agency to below investment grade within 60 days of the Initial PP Note Purchase
Agreement Change of Control or asset sale taking effect, each Initial PP Noteholder may opt to have its
Initial PP Notes prepaid. Prepayments made owing to a change of control include accrued interest (but
no “Make-Whole Amount” or “Modified Make-Whole Amount”).
HSRF must offer to prepay any Initial PP Notes where Holdco or affiliated entities are in violation of a
sanctions programme (an “OFAC Sanctions Programme”) of the Office of Foreign Assets Control of
the U.S. Department of Treasury (“OFAC”) and the Initial PP Noteholder in respect of such Initial PP
Notes would be in breach of any laws or regulations applicable to it by virtue of holding those Initial
PP Notes.
Where a prepayment is made in respect of Initial PP Notes that are subject to cross currency hedging
arrangements by an Initial PP Noteholder, each such Initial PP Noteholder is entitled to be reimbursed
for hedging breakage losses, and any amount due to each such Initial PP Noteholder is reduced by any
hedging breakage gains, arising from the prepayment.
Additional covenants
In addition to the covenants and undertakings set out in the CTA, the Obligors also covenant that:
(c)
Holdco will not permit any affiliated entity to become a person, or engage with any person
who is, on the list of Specially Designated Nationals and Blocked Persons published by
OFAC, where that would lead to a violation of an OFAC Sanctions Programme, without
prepayment as described above;
(d)
HSRF will use its reasonable endeavours to procure a credit rating for the Initial PP Notes
where there is no credit rating for HS1’s senior debt or the credit rating ascribed to the Bonds
is not recognised by the U.S. Securities Valuation Office; and
(e)
HSRF will maintain a listing for the Series A2 Notes and the Series B2 Notes on the Channel
Islands Stock Exchange or another recognised stock exchange.
Governing law
The Initial PP Note Purchase Agreement and the Initial PP Notes are governed by English law.
HS1 Security Agreement
Security
Pursuant to the HS1 Security Agreement between HS1, HSRF, Holdco and the HS1 Security Trustee,
the obligations set forth thereunder became effective on the Initial Issue Date. Under the HS1 Security
Agreement Holdco, HSRF and HS1 guarantee the obligations of each other Obligor under the Finance
Documents and each of HS1, HSRF and Holdco grant a security interest over all of their assets (subject
to certain limited exceptions).
Subject to certain acknowledged prior ranking security interests, the security constituted by the HS1
Security Agreement is expressed to include, amongst other things:
(a)
first fixed charges over:
(i)
the shares in HS1 and HSRF including all dividends, interest and other monies
payable in respect thereof and all other rights related thereto;
(ii)
HS1's, HSRF’s and Holdco's right, title and interest from time to time in and to
certain land and other real property and the proceeds of any disposal thereof;
(iii)
all present and future plant, machinery, office equipment, computers, vehicles and
other chattels;
(iv)
all monies standing to the credit of the Obligors’ bank accounts;
(v)
all Intellectual Property Rights owned by HS1, HSRF and Holdco;
(vi)
uncalled capital and goodwill;
(vii)
each Cash Equivalent Investment;
(viii)
all present and future book debts;
(ix)
all benefit in respect of its insurances;
(b)
an assignment of HS1’s, HSRF’s and Holdco's right in respect of the Hedging Agreements,
each IBLA, each other intra-group loan to which the relevant chargor is a party, any bill of
exchange or negotiable instrument, any letter of credit issued in its favour, (subject to consent
requirements where the assignment would contravene a prohibition in a contract or a lease
with a third party) each Project Document to which the relevant chargor is a party, or which
the Security Trustee designates to be so charged (acting reasonably); and
(c)
a first floating charge of the whole of the undertaking of HS1, HSRF and Holdco.
Any entity acquired or established by HS1 which becomes a New Obligor under the STID will be
required to accede to the HS1 Security Agreement as an Obligor and provide supplementary security
and a guarantee of HS1's obligations under the Finance Documents.
The HS1 Security Trustee holds the benefit of the HS1 Security Agreement on trust for the Receiver
and the HS1 Secured Creditors in accordance with and subject to the terms of the STID.
The HS1 Security Agreement and any non-contractual obligations arising out of or in connection with
it are governed by English law.
Additional Authorised Credit Facilities
HS1 is permitted to incur Financial Indebtedness under Authorised Credit Facilities with an Authorised
Credit Provider subject to any applicable financial covenants and the terms of the CTA and the STID.
Each Authorised Credit Provider will be party to the CTA and the STID.
Account Bank Agreement
General
HS1 has established a debt service reserve account and one or more operating accounts, hedge
collateral accounts, liquidity standby accounts and defeasance accounts (together with any other
accounts that may be opened by HS1 from time to time, the “HS1 Accounts”). HSRF has established a
debt service reserve account and one or more operating accounts, liquidity standby accounts and
defeasance accounts (together with any other accounts that may be opened by HSRF from time to time,
the “HSRF Accounts”). The Issuer has established a debt service reserve account, one or more
transaction accounts, hedge collateral accounts and liquidity standby accounts (together with any other
accounts that may be opened by the Issuer from time to time, the “Issuer Accounts”). The HS1
Accounts, the HSRF Accounts and the Issuer Accounts are held with the Account Bank pursuant to the
Account Bank Agreement dated 14 February 2013 (as the same may be amended or supplemented from
time to time) between HS1, HSRF, the Issuer, the Account Bank, the Liquidity Facility Agent, the HS1
Security Trustee and the Issuer Security Trustee. A Liquidity Standby Account opened under the
Liquidity Facility Agreement may be opened and maintained with the Account Bank under the Account
Bank Agreement and any such account will be operated by the Liquidity Facility Agent.
The Royal Bank of Scotland plc, acting through its London corporate service centre currently serves as
the Account Bank pursuant to the Account Bank Agreement.
“Liquidity Standby Account” means a reserve account to be opened, if required, in the name of HS1,
HSRF or the Issuer, as the case may be and held at the applicable Liquidity Facility Provider in respect
of whom the Standby Drawing has been made, or if such Liquidity Facility Provider does not have the
Requisite Rating, at the Account Bank.
“Requisite Ratings” means as of any date (i) in respect of the Liquidity Facility, in respect of any
person, such person’s long term unsecured debt obligations being rated at least “BBB” or its equivalent
by the Rating Agency which the Issuer has engaged to provide a rating of the Bonds at such time and
(ii) in respect of all other Finance Documents, and each counterparty thereto which is required by the
Rating Agencies to maintain a minimum short-term or long-term credit rating, the minimum short-term
or long-term credit rating specified by each Rating Agency for such counterparty as of such date in
order to support the then applicable ratings of the Bonds pursuant to the then applicable ratings criteria.
Termination
The Account Bank may resign its appointment upon not less than 120 days' notice to HS1 (for itself
and on behalf of the Obligors) and the Issuer (copied to the HS1 Security Trustee and the Issuer
Security Trustee) provided that such resignation shall not take effect until a substitute Account Bank
with the Requisite Rating has been duly appointed.
HS1, HSRF and the Issuer may jointly revoke their appointment of the Account Bank by not less than
30 days' notice to the Account Bank provided that such revocation shall not take effect until a substitute
has been duly appointed. Furthermore the appointment of the Account Bank will terminate
automatically if, inter alia, (a) the Account Bank becomes incapable of acting as an Account Bank (b)
an Insolvency Event occurs in relation to the Account Bank, (b) the Account Bank no longer maintains
the Requisite Rating with either of the Rating Agencies and (c) if the Account Bank defaults in the
performance of any of its material obligations under the Account Bank Agreement subject to the
applicable grace period.
SUMMARY OF THE CREDIT AND LIQUIDITY SUPPORT DOCUMENTS
Initial Liquidity Facility Agreement
The Liquidity Facility provided by the Initial Liquidity Facility Providers pursuant to the Initial
Liquidity Facility Agreement is the only Liquidity Facility in place as at the date of this Prospectus.
HS1, the Issuer and HSRF (together the “LF Borrowers”) may enter into further or replacement
Liquidity Facilities in connection with the Authorised Credit Facilities to be entered into from time to
time.
Under the terms of the Initial Liquidity Facility Agreement, the Initial Liquidity Facility Providers
granted a 364 day committed sterling revolving credit facility (which may be renewed) in aggregate
amount specified in the Initial Liquidity Facility Agreement for the purpose of covering certain
shortfalls in the ability of the LF Borrowers to service amounts payable in respect of the Bonds, the
Senior Term Facilities, the PP Notes and certain other payments due to the HS1 Secured Creditors and
Issuer Secured Creditors, including amounts due under certain hedging agreements.
Each Liquidity Facility Provider must be a reputable and experienced financial institution which has
the Requisite Rating. Each Liquidity Facility Provider is required to be an HS1 Secured Creditor, an
Issuer Secured Creditor and a party to the STID, the CTA and the Master Definitions Agreement.
Under the Initial Liquidity Facility Agreement, the Liquidity Facility will not be available to be drawn
down if an LF Event of Default has occurred and is continuing. Following an LF Event of Default, the
Initial Liquidity Facility Agent may, by notice in writing to the affected Borrower, the HS1 Security
Trustee, the Issuer Security Trustee and the Bond Trustee, declare all outstanding drawings
immediately due and payable and/or cancel the commitments of each Initial Liquidity Facility
Provider.
The Initial Liquidity Facility Agreement provides that if (i) at any time the rating of the short term,
unsecured, unsubordinated and unguaranteed debt obligations of the relevant Liquidity Facility
Provider falls below the Requisite Rating or (ii) the relevant Liquidity Facility Provider does not agree
to renew its commitment under the Liquidity Facility prior to the expiry of the relevant availability
period, the Borrowers will:
(a)
use all reasonable endeavours to replace the relevant Liquidity Facility Provider with a
Successor Liquidity Facility Provider, a Substitute Liquidity Facility Provider or, in the case
of (i) above only, a guarantor of such Liquidity Facility Provider with the Requisite Rating;
and
(b)
(if a replacement is not made within the relevant time period specified in the Initial Liquidity
Facility Agreement) be entitled to require such Liquidity Facility Provider to pay into the
relevant Liquidity Standby Account the full amount of the relevant Liquidity Facility
Provider’s undrawn commitment (a “Standby Drawing”).
If the Standby Drawing results from a Liquidity Facility Provider falling below the Requisite Rating,
the Borrowers shall repay the Standby Drawing if: (i) the relevant Liquidity Facility Provider which
has been downgraded is re-rated with the Requisite Rating; (ii) the Borrowers serve a notice of
cancellation; (iii) the affected Liquidity Facility Provider assigns or transfers its rights, benefits or
obligations under the Initial Liquidity Facility Agreement; (iv) within 5 Business Days of the date on
which the Liquidity Facility Agent has served a notice on the Borrowers, the Cash Manager and the
HS1 Security Trustee and the Issuer Security Trustee indicating that the Liquidity Facility Provider has
been re-rated with the Requisite Rating, or (v) all Rating Agencies then rating the Bonds or any
Tranche of Bonds confirm to the HS1 Security Trustee and the Issuer Security Trustee that such
repayment would not lead to the ratings ascribed to any Tranche of Bonds being downgraded below
the then current ratings of such Tranche of Bonds.
If the Standby Drawing results from a Liquidity Facility Provider not agreeing to renew its
commitment, the Borrowers shall repay the Standby Drawing if: (i) a Successor Liquidity Facility
Provider accedes to the Initial Liquidity Facility Agreement in accordance with conditions set out
therein; (ii) the Borrowers enter into a replacement liquidity facility on terms acceptable to the HS1
Security Trustee, the Issuer Security Trustee and the Rating Agencies; (iii) the Borrowers serve a
notice of cancellation to the affected Liquidity Facility Provider; or (iv) all the Rating Agencies then
rating the Bonds or any Tranche of Bonds confirm to the HS1 Security Trustee and the Issuer Security
Trustee that such repayment would not lead to the ratings ascribed to any Tranche of Bonds being
downgraded below the then current ratings of such Tranche of Bonds.
The Initial Liquidity Facility Agreement and all non-contractual obligations arising out of or in
connection with it are governed by English law.
HS1 intends to amend and restate the Initial Liquidity Facility Agreement on or around 17 April 2015
to effect a reduction of certain of the commitments thereunder and to update certain other terms.
Initial HS1 Hedging Agreements
The Obligors may enter into various interest rate, inflation-linked and currency swap transactions with
the HS1 Hedge Counterparties in conformity with the Hedging Policy (see “Summary of the Common
Documents – Common Terms Agreement – Hedging Policy”).
Issuer Hedging Agreements
The Issuer may enter into various interest rate, inflation-linked and currency swap transactions with the
Issuer Hedge Counterparties in conformity with the Hedging Policy (see “Summary of the Common
Documents – Common Terms Agreement – Hedging Policy”).
SUMMARY OF THE ISSUER TRANSACTION DOCUMENTS
Bond Trust Deed
General
The Issuer and the Bond Trustee entered into the Bond Trust Deed on 14 February 2013 (and as
supplemented by a supplemental bond trust deed on or about the date of this Prospectus) pursuant to
which the Bonds will be constituted. The Bond Trust Deed includes the form of the Bonds and
contains a covenant from the Issuer to the Bond Trustee to pay all amounts due under the Bonds. The
Bond Trustee holds the benefit of that covenant on trust for itself and the Bondholders in accordance
with their respective interests.
Enforcement
Notwithstanding the provisions of any other Issuer Transaction Document, the Issuer Security shall
only become enforceable upon the delivery of a Bond Enforcement Notice in accordance with the
Issuer Deed of Charge. Only the Bond Trustee may enforce the provisions of the Bonds or the Bond
Trust Deed and no Bondholder, Receiptholder or Couponholder shall be entitled to proceed directly
against the Issuer unless the Bond Trustee, having become bound so to proceed, fails to do so within a
reasonable time and such failure is continuing.
Waiver of a Bond Event of Default
The Bond Trustee may, without the consent or sanction of the Bondholders or any other Issuer Secured
Creditor at any time (but only if and so far as in its opinion the interests of the Bondholders shall not be
materially prejudiced thereby (where “materially prejudiced” means that such waiver would have a
material adverse effect on the ability of the Issuer to pay any amounts of principal or interest in respect
of the Bonds on the relevant due date for payment therefor)) determine that any event which would
otherwise constitute a Bond Event of Default or Potential Bond Event of Default shall not be treated as
such for the purposes of the Bond Trust Deed provided that the Bond Trustee shall not exercise such
powers in contravention of any express direction given by Extraordinary Resolution of the Bondholders
or of a request in writing made by holders of not less than 25% in aggregate of the principal amount of
the Bonds then outstanding, but no such direction or request shall affect any waiver or authorisation
previously given or made or so as to authorise or waive any such proposed breach or breach relating to
any Basic Terms Modification.
Modification
The Bond Trustee may without the consent or sanction of the Bondholders and without the consent of
the other Issuer Secured Creditors (other than any Issuer Secured Creditor which is party to the
Relevant Documents), at any time and from time to time concur with the Issuer and any other person,
or direct the Issuer Security Trustee to concur with the Issuer or any other person, in making any
modification to:
(a)
the Bond Trust Deed, the Conditions, the Bonds, the Receipts, the Coupons and/or the other
Issuer Transaction Documents (other than a Basic Terms Modification or any modification to
the Dealership Agreement or any Subscription Agreement) (subject as provided in the STID in
relation to any Common Documents) or other document to which it is party or in respect of
which it holds security provided that the Bond Trustee is of the opinion that such modification
will not be materially prejudicial to the interests of the Bondholders (where “materially
prejudicial” means that such modification would have a material adverse effect on the ability
of the Issuer to pay any amounts of principal or interest in respect of the Bonds on the relevant
due date for payment therefor) and provided further that if any such modification relates to a
Issuer Secured Creditor Entrenched Right, each of the affected Issuer Secured Creditors has
given its prior written consent or, where any Bondholders are affected Issuer Secured
Creditors, the holders of each Tranche of Bonds affected thereby have sanctioned such
modification in accordance with Schedule 5 to the Bond Trust Deed; or
(b)
the Bond Trust Deed, the Conditions, the Bonds, the Receipts, the Coupons or the other the
Issuer Transaction Documents (other than the Dealership Agreement and each Subscription
Agreement) (subject as provided in the STID in relation to any Common Documents) or other
documents to which it is a party or in respect of which it holds security which is, in the
opinion of the Bond Trustee, of a formal, minor or technical nature, to correct a manifest error
or an error in respect of which an English court would reasonably be expected to make a
rectification order.
The Bond Trust Deed provides that in connection with the exercise by it of any of its trusts, powers,
authorities or discretions under the Bond Trust Deed (including, without limitation, any modification,
waiver, authorisation, determination or substitution) or any other Issuer Transaction Document the
Bond Trustee shall have regard to the general interests of the Bondholders.
The Bond Trustee is authorised by each Bondholder, to execute and deliver on its behalf all
documentation required to implement, or direct the Issuer Security Trustee to implement any
modifications, waivers or consents which have been granted by the Bond Trustee in respect of the
Bond Trust Deed, the Conditions, the Bonds, the Receipts, the Coupons and/or any Issuer Transaction
Document or any Common Document ((other than a Basic Terms Modification or any modification to
the Dealership Agreement or any Subscription Agreement) subject as provided in the STID in relation
to any Common Document) and such execution and delivery shall bind each Bondholder as if such
documentation had been duly executed by it.
Action, proceedings and indemnification
The Bond Trustee shall not be bound to take any actions, proceedings, or steps in relation to the Bond
Trust Deed, the Bonds or any other Issuer Transaction Document (other than the Dealership Agreement
or any Subscription Agreement) unless directed or requested to do so in writing by the Issuer
Qualifying Creditors together holding or representing 25% or more of the Issuer Qualifying Debt, and
then only if it shall be indemnified and/or secured and /or prefunded to its satisfaction against any
liabilities relating to such actions.
Only the Bond Trustee may enforce the provisions of the Bond Trust Deed or the other Issuer
Transaction Documents to which it is party.
Provisions for Voting
In respect of any STID Proposal other than an Entrenched Right STID Proposal (defined below).
Each Bondholder may only vote on such STID Proposal by way of Block Voting Instruction and each
Bondholder shall have one vote in respect of each £1 (or its equivalent expressed in sterling on the
basis of the Exchange Rate) of Outstanding Principal Amount of Bonds held or represented by it.
Each Bondholder must vote on or prior to the time specified in order to enable the Principal Paying
Agent or, as the case may be, a Paying Agent or the Registrar to issue a Block Voting Instruction on the
Voting Date, provided that if a Bondholder does not vote in sufficient time for a Block Voting
Instruction to be issued in respect of its Bonds prior to the end of the Voting Period, the Votes of such
Bondholder may not be counted.
In respect of such STID Proposal, the Bond Trustee shall vote as the Secured Creditor Representative
of the Bondholders in respect of each Tranche of Bonds then outstanding by notifying the HS1 Security
Trustee, the Issuer and the Issuer Security Trustee, in accordance with the STID promptly following the
receipt by it of such Votes, of each Vote comprised in a Block Voting Instruction received by it from a
Paying Agent or the Registrar on or prior to the Voting Date (or, if earlier the relevant Voting Closure
Date).
In respect of (a) a STID Proposal that gives rise to an Entrenched Right in respect of which the Issuer is
an Affected HS1 Secured Creditor (an “Entrenched Right STID Proposal”); and (b) any Voting
Matter which is not a STID Proposal:
●
the Issuer or the Bond Trustee may at any time, and the Bond Trustee must if (a) it receives an
Entrenched Right STID Proposal; or (b) directed to do so by Bondholders representing not
less than 10% of the Principal Amount Outstanding of the Bonds, request that such Voting
Matter be considered by the Bondholders. The Bond Trustee shall send a notice (a “Voting
Notice”) to the Bondholders of each affected Tranche of Bonds, specifying the Voting Date
(which shall initially be set with at least 21 days’ notice) and Voting Matter(s) including the
terms of any resolution to be proposed;
●
each Bondholder shall have one vote in respect of each £1 (or its equivalent expressed in
Sterling on the basis of the Exchange Rate) of Principal Amount Outstanding of the Bonds
held or represented by it;
●
each Bondholder must vote prior to the close of business (London time) 24 hours prior to the
Voting Date so that his votes can be included in a Block Voting Instruction which needs to be
deposited at least 24 hours before the Voting Date;
●
the initial quorum requirement for an Ordinary Resolution is one or more Bondholders
representing 25 per cent. or more of the aggregate Principal Amount Outstanding of the Bonds
who for the time being are entitled to receive notice of such Voting Matter;
●
the initial quorum requirement for an Extraordinary Resolution (subject as provided below), is
one or more Bondholders representing 50 per cent. or more of the aggregate Principal Amount
Outstanding of the Bonds for the time being outstanding, who for the time being are entitled to
receive notice of such Voting Matter, except that in respect of any Voting Matter comprising
any of the matters specified to be a Basic Terms Modification (which shall only be capable of
being effected after having been approved by an Extraordinary Resolution) the initial quorum
requirement is one or more Bondholders representing 75 per cent. or more of the aggregate
Principal Amount Outstanding of Bonds for the time being outstanding, who, for the time
being are entitled to receive notice of such Voting Matter;
●
if the relevant Extraordinary Quorum Requirements are not satisfied on a Voting Date, then
such Voting Date shall be postponed to the same day in the next week (or if such day is a
public holiday the next succeeding business day) (an “Adjourned Voting Date”) except
where an Extraordinary Resolution is to be proposed in which case the Adjourned Voting Date
shall be a day (being a business day) during the period, being not less than 7 clear days nor
more than 14 clear days, subsequent to such Voting Date, and approved by the Bond Trustee.
On any Adjourned Voting Date, one or more Votes shall (subject as provided below) form a
quorum and shall have the power to pass any Extraordinary Resolution or Ordinary Resolution
and to decide upon all matters which could properly have been dealt with through the original
Vote had the requisite Extraordinary Quorum Requirements been met, provided that on any
Adjourned Voting Date the Extraordinary Quorum Requirements for the transaction of
business comprising any of the matters specified to be a Basic Terms Modification shall be at
least 25 per cent. of the aggregate Principal Amount Outstanding of the Bonds for the time
being outstanding, who for the time being are entitled to receive notice of such Voting Matter;
and
●
notice of any Adjourned Voting Date at which an Extraordinary Resolution is to be voted
upon shall be given in the same manner as a Voting Notice but the minimum notice period is
only 5 days as opposed to 21. Subject as aforesaid it shall not be necessary to give any notice
of an Adjourned Voting Date.
Subject to all other provisions of the Bond Trust Deed, the Bond Trustee may, without the consent of
the Issuer or the Bondholders, prescribe such further regulations regarding voting by the Bondholders
in respect of such Voting Matters (but, not for the avoidance of doubt, in respect of any STID Proposal
other than an Entrenched Right STID Proposal) as the Bond Trustee may in its sole discretion think fit,
including the calling of one or more meetings of Bondholders (or any Tranche thereof) in order to
approve any resolution to be put to the Bondholders (or any Tranche thereof) where the Bond Trustee,
in its sole discretion, considers it to be appropriate to hold a meeting.
Issuer representations
The Issuer has made representations (subject to detailed carve-outs, exceptions and qualifications set
forth in the Bond Trust Deed) in the Bond Trust Deed as at the date of the Bond Trust Deed which it
will repeat on each Issue Date, including as to:
(a)
its corporate status, power and authority and certain other legal matters;
(b)
the enforceability of the Transaction Documents;
(c)
the legal validity of the Bonds;
(d)
non-conflict with the documents binding on it, its constitutional documents, licences and laws;
(e)
no existing default or potential default;
(f)
consents, licences, authorisations and approvals are obtained and complied with;
(g)
no current litigation;
(h)
no Security Interest on any of its present or future revenues or assets other than pursuant to the
Issuer Deed of Charge;
(i)
no winding up or insolvency event in relation to it; and
(j)
status of security.
Issuer covenants
The covenants given by the Issuer in the Bond Trust Deed (subject to detailed carve-outs, exceptions
and qualifications) include the following:
(a)
maintain at all times at least one independent director who is not otherwise affiliated with the
Holdco Group or the Sponsors;
(b)
conduct its business in accordance with its obligations under the Bond Trust Deed;
(c)
so far as permitted by applicable law and subject to any binding confidentiality restrictions
give the Bond Trustee such documents needed to discharge or exercise its powers under the
Bond Trust Deed or by operation of law;
(d)
ensure compliance with accounting requirements as set forth by the relevant Stock Exchange;
(e)
keep proper books of account and allow the Bond Trustee free access to such books of
account;
(f)
at all times maintain separate books, records and accounts;
(g)
not commingle its assets with the assets of any other entities;
(h)
use its own stationery, invoice and cheques;
(i)
not grant, create or permit to subsist any Security Interests (unless by operation of law) over
its assets other than pursuant to the Issuer Deed of Charge;
(j)
not to have any Subsidiaries or any employees or premises;
(k)
not to acquire any leasehold, freehold or heritable property;
(l)
not dispose of assets save as permitted by the Issuer Transaction Documents;
(m)
not merge or legally consolidate save as permitted by the Issuer Transaction Documents;
(n)
not to incur any financial indebtedness save as permitted by the Issuer Transaction
Documents;
(o)
not to pay any dividend or make any distributions to its shareholders save as permitted by the
Issuer Transaction Documents;
(p)
subject to the Reservations not to permit any of the Issuer Transaction Documents to become
invalid and not to vary or waive any term save as permitted by the Issuer Transaction
Documents;
(q)
send to the Bond Trustee every document issued or sent to its shareholders;
(r)
execute and perform such acts necessary in order for the Bond Trustee to discharge its
functions under the Bond Trust Deed;
(s)
procure the Principal Paying Agent and the Registrar notify the Bond Trustee in the event they
do not receive payment of the full amount due on all Bonds, Receipts or Coupons;
(t)
if the relevant Final Terms indicate that the Bonds are to be listed on a relevant Stock
Exchange, maintain the quotation or listing on the relevant Stock Exchange of those of the
Bonds;
(u)
send to the Bond Trustee and obtain its approval, prior to the date on which any such notice is
to be given, the form of every notice to be given to the Bondholders;
(v)
notify the Bond Trustee if payments by the Issuer become subject to withholding;
(w)
deliver to the Bond Trustee a certificate setting out the total number and aggregate nominal
amount of the Bonds which:
(i)
up to and including the date of such certificate have been purchased by the Issuer or
any Obligor and cancelled; and
(ii)
are at the date of such certificate held by, for the benefit of, or on behalf of, the Issuer
or any Obligor;
(x)
give notice to the Bond Trustee of the proposed redemption of the Bonds;
(y)
minimise taxes and any other costs arising in connection with its payment obligations in
respect of the Bonds;
(z)
maintain its registered office in the United Kingdom; and
(aa)
give notice to the Bond Trustee of the occurrence of any Bond Event of Default or Potential
Bond Event of Default.
Issuer Deed of Charge
General
The Issuer entered into the Issuer Deed of Charge on 14 February 2013 with the Issuer Security
Trustee, the Bond Trustee for itself and on behalf of the Bondholders, the Initial Liquidity Facility
Providers, the Liquidity Facility Agent, the Account Bank, the Registrar, the Principal Paying Agent,
the Agent Bank, the Cash Manager, the Issuer Corporate Services Provider, the Transfer Agent, any
receiver or other appointee and any other creditor of the Issuer which accedes to the Issuer Deed of
Charge (together the “Issuer Secured Creditors”).
Issuer Security
Pursuant to the Issuer Deed of Charge, the Issuer has, on and from the Initial Issue Date, secured its
obligations to the Issuer Secured Creditors by granting the following security (the “Issuer Security”):
●
an absolute assignment, subject to a proviso for re-assignment on redemption (or, to the extent
not assignable, a first fixed charge) of all of its rights in respect of the Issuer Charged
Documents (other than the Dealership Agreement and each Subscription Agreement);
●
an absolute assignment, subject to a proviso for re-assignment on redemption (or, to the extent
not assignable, a first fixed charge) of all of its rights in respect of any amount standing from
time to time to the credit of the Issuer Accounts and all interest paid or payable in relation to
those amounts and all debts represented by those amounts;
●
a first fixed charge of all its rights in respect of each Cash Equivalent Investment of the Issuer;
●
a first fixed charge of all its rights in respect of the benefit of all authorisations held in
connection with use of the assets charged under the Issuer Deed of Charge and any
compensation which may be payable to it in respect of those authorisations; and
●
a first floating charge over the whole of the Issuer’s assets (including, without limitation, its
uncalled capital) other than any assets at any time otherwise effectively charged or assigned
by way of fixed charge or assignment under the Issuer Deed of Charge.
The Issuer Security is held on trust by the Issuer Security Trustee for itself and on behalf of the Issuer
Secured Creditors in accordance with, and subject to the Issuer Deed of Charge.
Restrictions on the exercise of rights
The Issuer Deed of Charge contains certain restrictions on the Issuer Secured Creditors on the exercise
of their rights. These include that, each of the Issuer Secured Creditors agrees with the Issuer and the
Issuer Security Trustee that (a) only the Issuer Security Trustee may enforce the Issuer Security in
accordance with the terms of the Issuer Deed of Charge, (b) it will not take any steps or proceedings to
procure the winding up, administration or liquidation of the Issuer and (c) it will not take any other
steps or action against the Issuer or in relation to the Issuer Charged Property for the purpose of
recovering any of the secured liabilities or enforcing any rights arising out of the Issuer Transaction
Documents against the Issuer or take any other proceedings in respect of or concerning the Issuer or the
Issuer Charged Property provided that, subject to item (b) above, the Liquidity Facility Agent and the
Super Senior Hedge Counterparties may sue for, commence or join legal or arbitration proceedings
against the Issuer to recover any amounts due and payable in respect of or under the Liquidity Facility
Agreement or the relevant Super Senior Issuer Hedging Agreement, as the case may be upon the expiry
of a period of 30 days from such non-payment.
Furthermore, each of the Issuer Secured Creditors agrees that all obligations of the Issuer to each Issuer
Secured Creditor are limited in recourse to the property, assets, rights and undertakings of each of the
Issuer and Holdco that are subject to the Security Interests created in or pursuant to the Issuer Deed of
Charge (the “Issuer Charged Property”). If (a) there is no Issuer Charged Property remaining which
is capable of being realised or otherwise converted into cash, (b) all amounts available from the Issuer
Charged Property have been applied to meet or provide for the relevant obligations in accordance with
the provisions of the Issuer Deed of Charge and (c) there are insufficient amounts available from the
Issuer Charged Property to pay in full the secured liabilities, then the Issuer Secured Creditors shall
have no further claim against the Issuer in respect of any amounts owing to them which remain unpaid
and such unpaid amounts shall be deemed to be discharged in full and any relevant payment rights shall
be deemed to cease.
The Issuer Secured Creditors in respect of the Common Documents shall only exercise their rights
(including, for the avoidance of doubt, Entrenched Rights) through their Secured Creditor
Representative.
Priority of payments upon acceleration
The Cash Manager (or any substitute Issuer cash manager appointed by the Issuer Security Trustee to
act on its behalf) shall (to the extent that such funds are available) apply all moneys received or
recovered by the Issuer Security Trustee or any receiver appointed under the Issuer Deed of Charge
following the service of a Bond Enforcement Notice, other than (a) amounts standing to the credit of
the Liquidity Standby Account (which are to be paid directly and only to the Liquidity Facility
Provider) (b) any Issuer Hedge Collateral Amounts (which are to be applied in returning collateral to,
or in satisfaction of amounts owing by, the Issuer Hedge Counterparty in accordance with the Issuer
Hedging Agreement), and (c) any HS1 Defeasance Amounts, the proceeds of which are to be applied in
redemption of Bonds, will be applied in accordance with the Issuer Post-Enforcement Priority of
Payments. See “Cashflows – Issuer Post-Enforcement Priority of Payments” for a detailed description.
Enforcement of the Issuer Security
The Issuer Security Trustee is bound to enforce the Issuer Security if directed to do so by the Bond
Trustee, provided that the Issuer Security Trustee has been indemnified and/or secured and/or
prefunded to its satisfaction against any liabilities.
The Issuer Security will become immediately enforceable following the occurrence of a Bond Event of
Default and the delivery of a Bond Enforcement Notice by the Bond Trustee or, if there are no Bonds
outstanding, upon failure by the Issuer to pay any other secured liability on its due date.
Directions, Duties and Liabilities
The Issuer Security Trustee will not be liable or responsible for any liabilities or inconvenience which
may result from anything done or omitted to be done by it in accordance with the provisions of the
Issuer Deed of Charge, except where the Issuer Security Trustee has failed to show the degree of care
and due diligence.
The Issuer Deed of Charge and any non-contractual obligations arising out of or in connection with it
shall be governed by and constructed in accordance with English law.
Issuer Corporate Services Agreement
General
The Issuer has appointed the Issuer Corporate Services Provider to provide certain corporate services to
the Issuer and nominate an independent, UK-resident director to serve in the capacity of director of the
Issuer, each in consideration for the payment by the Issuer of a fee to the Issuer Corporate Services
Provider.
Termination
The Issuer Corporate Services Provider shall be entitled to terminate the Issuer Corporate Services
Agreement (a) by giving not less than 90 days' notice in writing to the Issuer; and (b) at any time by
notice in writing to the Issuer if the Issuer shall commit any material breach of its obligations under the
Issuer Corporate Services Agreement and (if such breach shall be capable of remedy) shall fail within
30 days to make good such breach.
The Issuer shall be entitled to terminate the Issuer Corporate Services Agreement (a) by giving not less
than 60 days' notice in writing to the Issuer Corporate Services Provider; (b) at any time by notice in
writing to the Issuer Corporate Services Provider if the Issuer Corporate Services Provider becomes
subject to a winding-up or liquidation (except for a summary winding-up or a voluntary liquidation for
the purpose of reconstruction or amalgamation upon terms previously approved by the Issuer in
writing) or becomes bankrupt, makes, suffers, consents to or acquiesces in any other act or omission
indicative of insolvency under the law of any relevant jurisdiction; (c) at any time by notice in writing
to the Issuer Corporate Services Provider if the Issuer Corporate Services Provider shall commit any
material breach of its obligations under the Issuer Corporate Services Agreement and (if such breach
shall be capable of remedy) shall fail within 30 days of receipt of notice in writing served by the Issuer,
to make good such breach; or (d) if the Issuer Corporate Services Provider ceases or threatens to cease
to carry on its business or a substantial part of its business or stops payment or threatens to stop
payment of its debts.
In the event of termination of the Issuer Corporate Services Agreement, the Issuer Corporate Services
Provider shall use its reasonable endeavours to procure the services of another person willing to
provide corporate services substantially similar to the services performed and agreed by the Issuer
Corporate Services Provider under the Issuer Corporate Services Agreement.
Upon the termination of its appointment, the Issuer Corporate Services Provider is required within 5
Business Days of the Issuer's request, to deliver to the Issuer all books and records of the Issuer held by
the Issuer Corporate Services Provider.
Agency Agreement
Pursuant to the Agency Agreement entered into on 14 February 2013 between the Issuer, the Bond
Trustee, the Registrar, the Principal Paying Agent, the Transfer Agent and the Agent Bank, provision
has been made for, among other things, payment of principal and interest in respect of the Bonds and
the maintenance of a register of the holders of the Registered Bonds.
CP Agreement
The conditions precedent to among other things the signing of the CTA, the Establishment Date, the
Initial Issue Date and the initial utilisation under the Initial Authorised Credit Facilities Agreement are
set out in a conditions precedent agreement (the “CP Agreement”) as agreed between, among others,
the Bond Trustee, the HS1 Security Trustee and the Obligors.
Issuer Cash Management Agreement
General
The Issuer has appointed HS1 as the Cash Manager pursuant to the Issuer Cash Management
Agreement dated 14 February 2013. Pursuant to the Issuer Cash Management Agreement, the Cash
Manager undertakes certain cash administration functions on behalf of the Issuer.
Cash management functions
As part of its duties under the Issuer Cash Management Agreement, the Cash Manager will, inter alia,
(a) operate the Issuer Accounts and effect payments to and from the Issuer Accounts in accordance
with the provisions of the relevant Issuer Transaction Documents provided that such moneys are at the
relevant time available to the Issuer, (b) invest funds not immediately required by the Issuer in Cash
Equivalent Investments in accordance with the provisions of the Issuer Cash Management Agreement,
(c) make determinations and perform certain obligations on behalf of the Issuer as set out in, and in
accordance with, the provisions of the Liquidity Facility Agreement including directing the Issuer to
make drawings (or making drawings on behalf of the Issuer) under the Liquidity Facility Agreement,
and (d) carry out treasury management functions including the arrangement of Treasury Transactions in
line with the Hedging Policy.
Liquidity facility
Allowing sufficient time to deliver any relevant LF Notice of Drawing, the Cash Manager shall
determine the amount of any anticipated Issuer Liquidity Shortfall on the next Interest Payment Date
after taking into account the balance standing to the credit of the Issuer Accounts (excluding any Issuer
Hedge Collateral Accounts and the Issuer Liquidity Standby Accounts) which will be available to the
Issuer on the next Interest Payment Date. Any amounts standing to the credit of the Issuer Debt
Service Reserve Account (if any) will be applied to decrease the amount which would otherwise
constitute a Issuer Liquidity Shortfall by applying such amount towards payment of items (i) to (vii)
(inclusive) of the Issuer Pre-Enforcement Priority of Payments (excluding any termination payments
and all other unscheduled amounts payable to any Issuer Hedge Counterparty). The Issuer, or the Cash
Manager on its behalf, will issue a notice of drawing to the facility agent under the Liquidity Facility
Agreement to cover any such liquidity shortfall.
Pre-enforcement priority of payments
Prior to the delivery of a Bond Enforcement Notice by the Bond Trustee in accordance with Condition
11(b) (Delivery of Bond Enforcement Notice), amounts standing to the credit of the Issuer Transaction
Accounts (subject to certain exceptions), will be applied by the Cash Manager (on behalf of the Issuer)
in accordance with the Issuer pre-enforcement priority of payments waterfall as described in more
detail in “Cashflows – Issuer Pre-Enforcement Priority of Payments”.
Termination
The Issuer may terminate the appointment of the Cash Manager (a) at any time with at least 30 days'
prior notice and the consent of the Issuer Security Trustee, (b) if default is made by the Cash Manager
in the performance or observance of any of its material covenants and material obligations under the
Issuer Cash Management Agreement subject to the applicable grace period, (c) if any Insolvency Event
occurs in relation to the Cash Manager and (d) if a Bond Enforcement Notice is given and the Issuer
Security Trustee is of the opinion that the continuation of the appointment of the Cash Manager is
materially prejudicial to the interests of the Issuer Secured Creditors.
Subject to certain conditions (including that a suitable Successor Cash Manager has been installed), the
Cash Manager is entitled to resign upon giving 30 days' written notice of termination to the Issuer and
the Issuer Security Trustee.
CASHFLOWS
The following sets out the various priorities of payment as included in the respective Finance
Documents or Issuer Transaction Documents, as more fully summarised in “Summary of the Common
Documents”, “Summary of the Finance Documents”, “Summary of the Credit and Liquidity Support
Documents” and “Summary of the Issuer Transaction Documents” above.
HS1 Pre-Enforcement Priority of Payments
Prior to delivery of a Loan Enforcement Notice, on each Payment Date (or in the case of paragraphs (a)
to (c) below, on any day on which such amounts are due and payable), payments to the HS1 Secured
Creditors will be made out of monies standing to the credit of the Obligor Operating Accounts
(provided that monies standing to the credit of the Obligor Operating Accounts in respect of: (x) HS1
Hedge Replacement Premium (if any) shall be paid directly to the relevant HS1 Hedge Counterparty;
and (y) any cash benefit in respect of a Tax Credit that has been received by HS1 in respect of an HS1
Hedging Agreement that HS1 is required to pay to an HS1 Hedge Counterparty under the relevant HS1
Hedging Agreement, shall be paid to the relevant HS1 Hedge Counterparty in accordance with the
relevant HS1 Hedging Agreement) in the following order (the “HS1 Pre-Enforcement Priority of
Payments”), without double-counting and including, in each case, any amount of or in respect of VAT:
(a)
first, pro rata, according to the respective amounts thereof in or towards satisfaction of (i) the
fees, costs, charges, liabilities, expenses and other remuneration and indemnity payments (if
any) and any other amounts payable by any Obligor to the HS1 Security Trustee or any
Receiver under any Transaction Document and (ii) to the Issuer by way of Ongoing Facility
Fee, the amounts due in respect of the fees, costs, charges, liabilities, expenses and other
remuneration and indemnity payments (if any) and any other amounts payable by the Issuer to
the Issuer Security Trustee, the Bond Trustee and any Receiver under any Issuer Transaction
Document;
(b)
second, pro rata, according to the respective amounts thereof in or towards satisfaction of (i)
the fees, other remuneration, indemnity payments, costs, charges, liabilities and expenses of
the Account Bank and attributable to an Obligor incurred under the Account Bank Agreement
and (ii) to the Issuer by way of Ongoing Facility Fee, in or towards satisfaction, pro rata and
pari passu of the amounts payable by the Issuer in respect of:
(c)
(i)
the fees, other remuneration, indemnity payments, costs, charges, liabilities and
expenses of the Agents incurred under the Agency Agreement or a Calculation
Agency Agreement;
(ii)
the fees, other remuneration, indemnity payments, costs, charges, liabilities and
expenses of the Account Bank incurred under the Account Bank Agreement;
(iii)
the fees, other remuneration, indemnity payments, costs, charges and expenses of the
Issuer Corporate Services Providers under the Issuer Corporate Services Agreements;
and
(iv)
the fees, other remuneration, indemnity payments, costs, charges, liabilities and
expenses of the Cash Manager incurred under the Issuer Cash Management
Agreement;
third, prior to the delivery of a Bond Enforcement Notice only, an amount to the Issuer by
way of Ongoing Facility Fee in or towards satisfaction, pro rata and pari passu, of:
(i)
payment of amounts due and payable to any third party creditors of the Issuer (other
than those creditors otherwise specifically provided for in this priority of payments),
or to become due and payable to any third party creditors of the Issuer (other than
those creditors otherwise specifically provided for in this priority of payments) prior
to the next Payment Date, of which the Cash Manager has notice prior to the relevant
Payment Date, which amounts have been incurred without breach by the Issuer of the
Issuer Transaction Documents to which it is a party (and for which payment has not
been provided elsewhere);
(d)
(e)
(f)
(ii)
Tax for which the Issuer is liable under the laws of any jurisdiction (other than UK
corporation tax in respect of the Issuer Profit Amount, which shall be met out of the
Issuer Profit Amount); and
(iii)
to the Issuer by way of Ongoing Facility Fee an amount equal to the Issuer Profit
Amount;
fourth, pro rata, according to the respective amounts thereof, pro rata and pari passu:
(i)
to the Issuer by way of Ongoing Facility Fee in respect of all amounts due by the
Issuer to any Liquidity Facility Provider (and any facility agent and arranger under
the Liquidity Facility Agreement);
(ii)
all amounts due by an Obligor to any Liquidity Facility Provider (and any Liquidity
Facility Agent and arranger under any Liquidity Facility Agreement); and
(iii)
the fees, other remuneration, indemnity payments, costs, charges and expenses of
each facility agent under each Authorised Credit Facility;
fifth, pro rata, according to the respective amounts thereof, pro rata and pari passu:
(i)
all scheduled amounts, termination payments and accretion or other pay as you go
payments payable to each HS1 Hedge Counterparty under any Super Senior HS1
Hedging Agreement in respect of HS1 Senior Debt between HS1 and an HS1 Hedge
Counterparty (other than amounts in respect of HS1 Subordinated Hedge Amounts);
and
(ii)
to the Issuer by way of Ongoing Facility Fee (or pursuant to a back-to-back hedge
agreement) in respect of scheduled amounts, termination payments and accretion or
other pay as you go payments payable by the Issuer to each Issuer Hedge
Counterparty under any Super Senior Issuer Hedging Agreement in respect of Issuer
Senior Debt outstanding under the Bonds between the Issuer and an Issuer Hedge
Counterparty (other than in respect of Issuer Subordinated Hedge Amounts);
sixth, pro rata, according to the respective amounts thereof, in each case without double
counting, in or towards satisfaction of, pro rata and pari passu:
(i)
to the Issuer all amounts of interest due or overdue in respect of the IBLA Loans
relating to payments of interest on the Bonds (other than any Subordinated Step-Up
Fee Amounts);
(ii)
all amounts of interest due or overdue in respect of the PP Notes;
(iii)
all amounts of interest, underwriting and commitment commissions due or overdue in
respect of HS1 Senior Debt outstanding under any other Authorised Credit Facility
(other than the applicable IBLAs);
(iv)
all amounts in respect of other unscheduled amounts which are payable to each HS1
Hedge Counterparty under any Super Senior HS1 Hedging Agreement in respect of
HS1 Senior Debt between HS1 and an HS1 Hedge Counterparty (other than amounts
payable in accordance with the foregoing provisions or in respect of HS1
Subordinated Hedge Amounts);
(g)
(v)
to the Issuer by way of Ongoing Facility Fee (or pursuant to a back-to-back hedge
agreement) in respect of other unscheduled amounts payable by the Issuer to each
Issuer Hedge Counterparty under any Super Senior Issuer Hedging Agreement in
respect of Issuer Senior Debt between the Issuer and an Issuer Hedge Counterparty
(other than amounts payable in accordance with the foregoing provisions or in
respect of the Issuer Subordinated Hedge Amounts);
(vi)
all scheduled amounts (other than principal exchange amounts, termination
payments, final payments on cross-currency swaps, accretion and other pay as you go
payments) payable to each HS1 Hedge Counterparty under any Pari Passu HS1
Hedging Agreement in respect of the HS1 Senior Debt outstanding under the PP
Notes or any other Authorised Credit Facility (other than the applicable IBLAs); and
(vii)
to the Issuer by way of Ongoing Facility Fee (or pursuant to a back-to-back hedge
agreement) in respect of all amounts in respect of scheduled amounts (other than
principal exchange amounts, termination payments, final payments on cross-currency
swaps, accretion and other pay as you go payments) payable to each Issuer Hedge
Counterparty under any Pari Passu Issuer Hedging Agreement in respect of the Issuer
Senior Debt outstanding under the Bonds;
seventh, pro rata, according to the respective amounts thereof, in each case without double
counting, in or towards satisfaction of, pro rata and pari passu:
(i)
all amounts of principal due or overdue in respect of the IBLA Loans relating to
repayments of principal on the Bonds;
(ii)
all amounts of principal due or overdue in respect of the PP Notes;
(iii)
all amounts of principal due or overdue in respect of HS1 Senior Debt outstanding
under any other Authorised Credit Facility (other than the applicable IBLAs);
(iv)
all scheduled principal exchange amounts, termination payments, final payments on
cross-currency swaps, accretion and other pay as you go payments or other
unscheduled sums due and payable by HS1 to each HS1 Hedge Counterparty under
any Pari Passu HS1 Hedging Agreement in respect of HS1 Senior Debt outstanding
under any Authorised Credit Facility (other than the applicable IBLAs and HS1
Subordinated Hedge Amounts); and
(v)
to the Issuer by way of Ongoing Facility Fee (or pursuant to a back-to-back hedge
agreement) in respect of all scheduled principal exchange amounts, termination
payments, final payments on cross-currency swaps, accretion and other pay as you go
payments or other unscheduled sums payable by the Issuer to each Issuer Hedge
Counterparty under any Pari Passu Issuer Hedging Agreement in respect of Issuer
Senior Debt outstanding under the Bonds (other than in respect of Issuer
Subordinated Hedge Amounts);
(h)
eighth, in or towards satisfaction of amounts in respect of any Make-Whole Amount due and
payable on the Bonds (if any) payable under the applicable IBLA or in respect of any MakeWhole Amount due and payable on the PP Notes (if any);
(i)
ninth, so much of the interest under the applicable IBLA as relates to Subordinated Step-Up
Fee Amounts in respect of the Bonds (if any); and
(j)
tenth, pro rata and pari passu, according to the respective amounts thereof:
(i)
to the Issuer by way of Ongoing Facility Fee (or pursuant to a back-to-back hedge
agreement) in respect of any Issuer Subordinated Hedge Amounts due or overdue by
the Issuer to an Issuer Hedge Counterparty; and
(ii)
any HS1 Subordinated Hedge Amounts due or overdue to an HS1 Hedge
Counterparty.
HS1 Post-Enforcement Priority of Payments
Pursuant to the section entitled “Summary of the Common Documents – Security Trust and
Intercreditor Deed – Qualifying HS1 Secured Creditor Instructions – HS1 Post-Enforcement Priority
of Payments”, all Available Enforcement Proceeds (other than any HS1 Defeasance Amounts, which
shall be applied in repayment of the Authorised Credit Facility to which the HS1 Defeasance Account
in question relates) shall, following the delivery of a Loan Enforcement Notice by the HS1 Security
Trustee, or in the circumstances set out in the section entitled “Summary of the Common Documents –
Common Terms Agreement – HS1 Cash Management Agreement – Liquidity Facility” be applied (to
the extent that it is lawfully able to do so) on each Payment Date (or, in the case of items (a) to (c)
below, on any day on which such amounts are due and payable) by or on behalf of the HS1 Security
Trustee (or, as the case may be, any Receiver), in accordance with the following “HS1 PostEnforcement Priority of Payments” (including in each case any amount of or in respect of VAT) as
set out below, without double counting:
(a)
first, pro rata and pari passu, according to the respective amounts thereof in or towards
satisfaction of (i) the fees, costs, charges, liabilities, expenses and other remuneration and
indemnity payments (if any) and any other amounts payable by any Obligor to the HS1
Security Trustee or any Receiver under any Transaction Document and (ii) to the Issuer by
way of Ongoing Facility Fee, the amounts due in respect of the fees, costs, charges, liabilities,
expenses and other remuneration and indemnity payments (if any) and any other amounts
payable by the Issuer to the Issuer Security Trustee, the Bond Trustee and any Receiver under
any Issuer Transaction Document;
(b)
second, pro rata and pari passu, according to the respective amounts thereof in or towards
satisfaction of (i) the fees, other remuneration, indemnity payments, costs, charges, liabilities
and expenses of the Account Bank attributable to an Obligor under the Account Bank
Agreement and (ii) to the Issuer by way of Ongoing Facility Fee, in or towards satisfaction,
pro rata and pari passu of the amounts payable by the Issuer in respect of:
(c)
(i)
the fees, other remuneration, indemnity payments, costs, charges, liabilities and
expenses of the Agents incurred under the Agency Agreement or a Calculation
Agency Agreement;
(ii)
the fees, other remuneration, indemnity payments, costs, charges, liabilities and
expenses of the Account Bank attributable to the Issuer under the Account Bank
Agreement;
(iii)
the fees, other remuneration, indemnity payments, costs, charges and expenses of
the Issuer Corporate Services Provider under the Issuer Corporate Services
Agreement; and
(iv)
the fees, other remuneration, indemnity payments, costs, charges, liabilities and
expenses of the Cash Manager incurred under the Issuer Cash Management
Agreement;
third, prior to the delivery of a Bond Enforcement Notice only, an amount to the Issuer by
way of Ongoing Facility Fee in or towards satisfaction, pro rata and pari passu, of:
(i)
payment of amounts due and payable to any third party creditors of the Issuer (other
than those creditors otherwise specifically provided for in this priority of
payments), or to become due and payable to any third party creditors of the Issuer
(other than those creditors otherwise specifically provided for in this priority of
payments) prior to the next Payment Date, of which the Cash Manager has notice
prior to the relevant Payment Date, which amounts have been incurred without
breach by the Issuer of the Issuer Transaction Documents to which it is a party (and
for which payment has not been provided elsewhere);
(d)
(e)
(f)
(ii)
any tax for which the Issuer is liable under the laws of any jurisdiction (other than
UK corporation tax in respect of the Issuer Profit Amount, which shall be met out
of the Issuer Profit Amount); and
(iii)
to the Issuer by way of Ongoing Facility Fee an amount equal to the Issuer Profit
Amount;
fourth, pro rata and pari passu, according to the respective amounts thereof:
(i)
to the Issuer by way of Ongoing Facility Fee in respect of all amounts due by the
Issuer to any Liquidity Facility Provider (and any facility agent and arranger under
the Liquidity Facility Agreement);
(ii)
all amounts due by an Obligor to any Liquidity Facility Provider (and any Liquidity
Facility Agent and arranger under any Liquidity Facility Agreement); and
(iii)
the fees, other remuneration, indemnity payments, costs, charges and expenses of
each facility agent under each Authorised Credit Facility;
fifth, pro rata and pari passu, according to the respective amounts thereof:
(i)
all scheduled amounts, termination payments and accretion or other pay as you go
payments payable to each HS1 Hedge Counterparty under any Super Senior HS1
Hedging Agreement in respect of HS1 Senior Debt between HS1 and an HS1
Hedge Counterparty (other than amounts in respect of HS1 Subordinated Hedge
Amounts); and
(ii)
to the Issuer by way of Ongoing Facility Fee (or pursuant to any back-to-back
hedging arrangements) in respect of scheduled amounts, termination payments and
accretion or other pay as you go payments payable by the Issuer to each Issuer
Hedge Counterparty under any Super Senior Issuer Hedging Agreement in respect
of Issuer Senior Debt outstanding under the Bonds between the Issuer and an Issuer
Hedge Counterparty (other than in respect of Issuer Subordinated Hedge Amounts);
sixth, pro rata and pari passu, according to the respective amounts thereof, in each case
without double counting, in or towards satisfaction of:
(i)
to the Issuer all amounts of interest due or overdue in respect of the IBLA Advance
relating to payments of interest on the Bonds (other than any Subordinated Step-Up
Fee Amounts);
(ii)
all amounts of interest due or overdue in respect of the PP Notes;
(iii)
all amounts of interest, underwriting and commitment commissions due or overdue
in respect of HS1 Senior Debt outstanding under any other Authorised Credit
Facility (other than the applicable IBLAs);
(iv)
other unscheduled amounts which are payable to each HS1 Hedge Counterparty
under any Super Senior HS1 Hedging Agreement in respect of HS1 Senior Debt
between HS1 and an HS1 Hedge Counterparty (other than amounts payable in
accordance with the foregoing provisions or in respect of HS1 Subordinated Hedge
Amounts);
(v)
to the Issuer by way of Ongoing Facility Fee (or pursuant to any back-to-back
hedging arrangements) in respect of other unscheduled amounts payable by the
Issuer to each Issuer Hedge Counterparty under any Super Senior Issuer Hedging
Agreement in respect of Issuer Senior Debt between the Issuer and an Issuer Hedge
Counterparty (other than amounts payable in accordance with the foregoing
provisions or in respect of Issuer Subordinated Hedge Amounts);
(g)
(vi)
all scheduled amounts (other than principal exchange amounts, termination
payments, final payments on cross-currency swaps, accretion and other pay as you
go payments) payable to each HS1 Hedge Counterparty under any Pari Passu HS1
Hedging Agreement in respect of the HS1 Senior Debt outstanding under any
Authorised Credit Facility (other than the applicable IBLAs); and
(vii)
to the Issuer by way of Ongoing Facility Fee (or pursuant to any back-to-back
hedging arrangements) in respect of all amounts in respect of scheduled amounts
(other than principal exchange amounts, termination payments, final payments on
cross-currency swaps, accretion and other pay as you go payments) payable to each
Issuer Hedge Counterparty under any Pari Passu Issuer Hedging Agreement in
respect of the Issuer Senior Debt outstanding under the Bonds;
seventh, pro rata and pari passu, according to the respective amounts thereof, in each case
without double counting, in or towards satisfaction of:
(i)
all amounts of principal due or overdue in respect of the IBLA Advance relating to
repayments of principal on the Bonds;
(ii)
all amounts of principal due or overdue in respect of the PP Notes;
(iii)
all amounts of principal due or overdue in respect of HS1 Senior Debt outstanding
under any other Authorised Credit Facility (other than the applicable IBLAs);
(iv)
all scheduled principal exchange amounts, termination payments, final payments on
cross-currency swaps, accretion and other pay as you go payments or other
unscheduled sums due and payable by HS1 to each HS1 Hedge Counterparty under
any Pari Passu HS1 Hedging Agreement in respect of HS1 Senior Debt outstanding
under any Authorised Credit Facility (other than the applicable IBLAs and HS1
Subordinated Hedge Amounts); and
(v)
to the Issuer by way of Ongoing Facility Fee (or pursuant to any back-to-back
hedging arrangements) in respect of all scheduled principal exchange amounts,
termination payments, final payments on cross-currency swaps, accretion and other
pay as you go payments or other unscheduled sums payable by the Issuer to each
Issuer Hedge Counterparty under any Pari Passu Issuer Hedging Agreement in
respect of Issuer Senior Debt outstanding under the Bonds (other than in respect of
Issuer Subordinated Hedge Amounts);
(h)
eighth, in or towards satisfaction of amounts in respect of any Make-Whole Amount due and
payable on the Bonds (if any) payable under the applicable IBLA or in respect of any MakeWhole Amount due and payable on the PP Notes (if any);
(i)
ninth, so much of the interest under the applicable IBLA as relates to Subordinated Step-Up
Fee Amounts in respect of the Bonds (if any);
(j)
tenth, pro rata and pari passu, according to the respective amounts thereof:
(i)
to the Issuer by way of Ongoing Facility Fee (or pursuant to any back-to-back
hedging arrangements) in respect of any Issuer Subordinated Hedge Amounts due
or overdue by the Issuer to an Issuer Hedge Counterparty; and
(ii)
(k)
any HS1 Subordinated Hedge Amounts due or overdue to an HS1 Hedge
Counterparty; and
eleventh:
(i)
prior to the delivery of a Loan Acceleration Notice any surplus (if any) to an
account or accounts specified by the HS1 Security Trustee to be applied by it
thereafter in accordance with the foregoing provisions; and
(ii)
following the delivery of a Loan Acceleration Notice, the surplus (if any) together
with all amounts standing to the credit of the Accounts of the Obligors shall be
available to each Obligor entitled thereto to deal with as it sees fit.
Issuer Pre-Enforcement Priority of Payments
Prior to the service of a Bond Enforcement Notice by the Bond Trustee in accordance with Condition
11(b) (Delivery of Bond Enforcement Notice), amounts standing to the credit of the Issuer Transaction
Account (save as expressly provided in Condition 8(f) (Early Redemption on Prepayment of an IBLA))
will be applied by the Issuer on each Interest Payment Date (provided that payments may be made from
the Issuer Transaction Account other than on an Interest Payment Date to satisfy liabilities in paragraph
(b)) in making payment or provision of any amounts then due and payable in the following order of
priority (the “Issuer Pre-Enforcement Priority of Payments”) including in each case any amount of
or in respect of VAT payable thereon:
(a)
first, pro rata and pari passu, according to the respective amounts thereof in or towards
satisfaction of the fees, costs, charges, Liabilities, expenses and other remuneration and
indemnity payments (if any) and any other amounts payable by the Issuer to the Issuer
Security Trustee, the Bond Trustee and any Receiver or other Appointee under any Issuer
Transaction Document;
(b)
second, pro rata and pari passu, of the amounts payable by the Issuer in respect of:
(c)
(i)
the fees, other remuneration, indemnity payments, costs, charges, Liabilities and
expenses of the Agents incurred under the Agency Agreement or a Calculation
Agency Agreement;
(ii)
the fees, other remuneration, indemnity payments, costs, charges, liabilities and
expenses of the Account Bank attributable to the Issuer under the Account Bank
Agreement;
(iii)
the fees, other remuneration, indemnity payments, costs, charges and expenses of the
Issuer Corporate Services Provider under the Issuer Corporate Services Agreement;
and
(iv)
the fees, other remuneration, indemnity payments, costs, charges, liabilities and
expenses of the Cash Manager incurred under the Issuer Cash Management
Agreement;
third, in or towards satisfaction, pari passu and pro rata, of:
(i)
payment of amounts due and payable to any third party creditors of the Issuer (other
than those creditors otherwise specifically provided for in this priority of payments),
or to become due and payable to any third party creditors of the Issuer (other than
those creditors otherwise specifically provided for in this priority of payments) prior
to the next Payment Date, of which the Cash Manager has notice prior to the relevant
Payment Date, which amounts have been incurred without breach by the Issuer of the
Issuer Transaction Documents to which it is a party (and for which payment has not
been provided elsewhere);
(ii)
any tax for which the Issuer is liable under the laws of any jurisdiction (other than
UK corporation tax in respect of the Issuer Profit Amount, which shall be met out of
the Issuer Profit Amount); and
(iii)
an amount equal to the Issuer Profit Amount;
(d)
fourth, in or towards satisfaction of payment of all amounts due by the Issuer to any Liquidity
Facility Provider (and any facility agent and arranger under the Liquidity Facility Agreement);
(e)
fifth, pro rata and pari passu, according to the respective amounts thereof:
(f)
(g)
(i)
scheduled amounts, termination payments and accretion or other pay as you go
payments payable by the Issuer to each Issuer Hedge Counterparty under any Super
Senior Issuer Hedging Agreement in respect of Issuer Senior Debt outstanding under
the Bonds between the Issuer and an Issuer Hedge Counterparty (other than in respect
of Issuer Subordinated Hedge Amounts); and
(ii)
to HS1 pursuant to any back-to-back hedging arrangements in respect of scheduled
amounts, termination payments and accretion or other pay as you go payments
payable to each HS1 Hedge Counterparty under any Super Senior HS1 Hedging
Agreement in respect of HS1 Senior Debt between HS1 and an HS1 Hedge
Counterparty (other than amounts in respect of HS1 Subordinated Hedge Amounts);
sixth, pro rata and pari passu, according to the respective amounts thereof, in each case
without double counting, in or towards satisfaction of:
(i)
all amounts of interest due or overdue in respect of the Bonds (other than
Subordinated Step-Up Fee Amounts);
(ii)
other unscheduled amounts payable by the Issuer to each Issuer Hedge Counterparty
under any Super Senior Issuer Hedging Agreement in respect of Issuer Senior Debt
between the Issuer and an Issuer Hedge Counterparty (other than amounts payable in
accordance with the foregoing provisions or in respect of Issuer Subordinated Hedge
Amounts);
(iii)
to HS1 pursuant to any back-to-back hedging arrangements, all amounts in respect of
other unscheduled amounts which are payable to each HS1 Hedge Counterparty
under any Super Senior HS1 Hedging Agreement in respect of HS1 Senior Debt
between HS1 and an HS1 Hedge Counterparty (other than amounts payable in
accordance with the foregoing provisions or in respect of HS1 Subordinated Hedge
Amounts);
(iv)
all amounts in respect of scheduled amounts (other than principal exchange amounts,
termination payments, final payments on cross-currency swaps, accretion and other
pay as you go payments) payable to each Issuer Hedge Counterparty under any Pari
Passu Issuer Hedging Agreement in respect of the Issuer Senior Debt outstanding
under the Bonds; and
(v)
to HS1 pursuant to any back-to-back hedging arrangements, all scheduled amounts
(other than principal exchange amounts, termination payments, final payments on
cross-currency swaps, accretion and other pay as you go payments) payable to each
HS1 Hedge Counterparty under any Pari Passu HS1 Hedging Agreement in respect of
the HS1 Senior Debt outstanding under any Authorised Credit Facility (other than the
applicable IBLAs);
seventh, pro rata and pari passu, according to the respective amounts thereof, in each case
without double counting, in or towards satisfaction of:
(i)
all amounts of principal due or overdue in respect of the Bonds;
(ii)
all scheduled principal exchange amounts, termination payments, final payments on
cross-currency swaps, accretion and other pay as you go payments or other
unscheduled sums payable by the Issuer to each Issuer Hedge Counterparty under any
Pari Passu Issuer Hedging Agreement in respect of Issuer Senior Debt outstanding
under the Bonds (other than in respect of Issuer Subordinated Hedge Amounts); and
(iii)
to HS1 pursuant to any back-to-back hedging arrangements, all scheduled principal
exchange amounts, termination payments, final payments on cross-currency swaps,
accretion and other pay as you go payments or other unscheduled sums due and
payable by HS1 to each HS1 Hedge Counterparty under any Pari Passu HS1 Hedging
Agreement in respect of HS1 Senior Debt outstanding under any Authorised Credit
Facility (other than the applicable IBLAs and HS1 Subordinated Hedge Amounts);
(h)
eighth, in or towards satisfaction of amounts in respect of any Make-Whole Amount due and
payable on the Bonds (if any);
(i)
ninth, in or towards satisfaction of amounts in respect of Subordinated Step-Up Fee Amounts
in respect of the Bonds (if any);
(j)
tenth, in or towards satisfaction of any amount due to HS1 under any IBLA; and
(k)
eleventh, after retaining the Issuer Profit Amount which the Issuer may, after meeting any UK
corporation tax thereon, use to pay a dividend or otherwise to pay to such account or person
nominated by the Issuer), any remaining amount, to the maximum extent possible, by way of a
rebate of Ongoing Facility Fees to HS1 under the relevant IBLAs.
Issuer Post-Enforcement Priority of Payments
The Cash Manager (or any substitute cash manager) shall (to the extent such funds are available) apply
all moneys received or recovered by the Issuer Security Trustee (or any Receiver appointed) following
the service of a Bond Enforcement Notice other than (a) amounts standing to the credit of the Liquidity
Standby Account (which are to be paid directly and only to the Liquidity Facility Provider), (b) any
Issuer Hedge Collateral Amounts (which are to be applied in returning collateral to, or in satisfaction of
amounts owing by, the Issuer Hedge Counterparty in accordance with the Issuer Hedging Agreement)
and (c) any HS1 Defeasance Amounts, the proceeds of which are to be applied in redemption of Bonds,
in accordance with the following “Issuer Post-Enforcement Priority of Payments”, including in each
case any amount of or in respect of VAT payable thereon:
(a)
first, pro rata and pari passu, according to the respective amounts thereof in or towards
satisfaction of the fees, costs, charges, Liabilities, expenses and other remuneration and
indemnity payments (if any) and any other amounts payable by the Issuer to the Issuer
Security Trustee, the Bond Trustee and any Receiver or other Appointee under any Issuer
Transaction Document;
(b)
second, pro rata and pari passu, of the amounts payable by the Issuer in respect of:
(i)
the fees, other remuneration, indemnity payments, costs, charges, Liabilities and
expenses of the Agents incurred under the Agency Agreement or a Calculation
Agency Agreement;
(ii)
the fees, other remuneration, indemnity payments, costs, charges, liabilities and
expenses of the Account Bank attributable to the Issuer under the Account Bank
Agreement;
(iii)
the fees, other remuneration, indemnity payments, costs, charges and expenses of the
Issuer Corporate Services Provider under the Issuer Corporate Services Agreement;
and
(iv)
the fees, other remuneration, indemnity payments, costs, charges, liabilities and
expenses of the Cash Manager incurred under the Issuer Cash Management
Agreement;
(c)
third, in or towards satisfaction of payment of all amounts due by the Issuer to any Liquidity
Facility Provider (and any facility agent and arranger under the Liquidity Facility Agreement);
(d)
fourth, pro rata and pari passu, according to the respective amounts thereof;
(e)
(i)
scheduled amounts, termination payments and accretion or other pay as you go
payments payable by the Issuer to each Issuer Hedge Counterparty under any Super
Senior Issuer Hedging Agreement in respect of Issuer Senior Debt outstanding under
the Bonds between the Issuer and an Issuer Hedge Counterparty (other than in respect
of Issuer Subordinated Hedge Amounts); and
(ii)
to HS1 pursuant to any back-to-back hedging arrangements in respect of scheduled
amounts, termination payments and accretion or other pay as you go payments
payable to each HS1 Hedge Counterparty under any Super Senior HS1 Hedging
Agreement in respect of HS1 Senior Debt between HS1 and an HS1 Hedge
Counterparty (other than amounts in respect of HS1 Subordinated Hedge Amounts);
fifth, pro rata and pari passu, according to the respective amounts thereof, in each case
without double counting, in or towards satisfaction of:
(i)
all amounts of interest due or overdue in respect of the Bonds (other than
Subordinated Step-Up Fee Amounts);
(ii)
other unscheduled amounts payable by the Issuer to each Issuer Hedge Counterparty
under any Super Senior Issuer Hedging Agreement in respect of Issuer Senior Debt
between the Issuer and an Issuer Hedge Counterparty (other than amounts payable in
accordance with the foregoing provisions or in respect of Issuer Subordinated Hedge
Amounts);
(iii)
to HS1 pursuant to any back-to-back hedging arrangements, all amounts in respect of
other unscheduled amounts which are payable to each HS1 Hedge Counterparty
under any Super Senior HS1 Hedging Agreement in respect of HS1 Senior Debt
between HS1 and an HS1 Hedge Counterparty (other than amounts payable in
accordance with the foregoing provisions or in respect of HS1 Subordinated Hedge
Amounts);
(iv)
all amounts in respect of scheduled amounts (other than principal exchange amounts,
termination payments, final payments on cross-currency swaps, accretion and other
pay as you go payments) payable to each Issuer Hedge Counterparty under any Pari
Passu Issuer Hedging Agreement in respect of the Issuer Senior Debt outstanding
under the Bonds; and
(v)
to HS1 pursuant to any back-to-back hedging arrangements, all scheduled amounts
(other than principal exchange amounts, termination payments, final payments on
cross-currency swaps, accretion and other pay as you go payments) payable to each
HS1 Hedge Counterparty under any Pari Passu HS1 Hedging Agreement in respect of
the HS1 Senior Debt outstanding under any Authorised Credit Facility (other than the
applicable IBLAs);
(f)
sixth¸ pro rata and pari passu, according to the respective amounts thereof, in each case
without double counting, in or towards satisfaction of:
(i)
all amounts of principal due or overdue in respect of the Bonds;
(ii)
all scheduled principal exchange amounts, termination payments, final payments on
cross-currency swaps, accretion and other pay as you go payments or other
unscheduled sums payable by the Issuer to each Issuer Hedge Counterparty under any
Pari Passu Issuer Hedging Agreement in respect of Issuer Senior Debt outstanding
under the Bonds (other than in respect of Issuer Subordinated Hedge Amounts); and
(iii)
to HS1 pursuant to any back-to-back hedging arrangements, all scheduled principal
exchange amounts, termination payments, final payments on cross-currency swaps,
accretion and other pay as you go payments or other unscheduled sums due and
payable by HS1 to each HS1 Hedge Counterparty under any Pari Passu HS1 Hedging
Agreement in respect of HS1 Senior Debt outstanding under any Authorised Credit
Facility (other than the applicable IBLAs and HS1 Subordinated Hedge Amounts);
(g)
seventh¸ in or towards satisfaction of amounts in respect of any Make-Whole Amount due and
payable on the Bonds (if any);
(h)
eighth, in or towards satisfaction of amounts in respect of Subordinated Step-Up Fee Amounts
in respect of the Bonds (if any);
(i)
ninth, in or towards satisfaction of any amounts in respect of any Issuer Subordinated Hedge
Amounts due or overdue by the Issuer to an Issuer Hedge Counterparty;
(j)
tenth, in or towards satisfaction of any amount due to HS1 under any IBLA; and
(k)
eleventh, the surplus (if any) to the Issuer which will be retained by the Issuer as profit (out of
which the Issuer shall satisfy any UK corporation tax thereon) or to other persons entitled
thereto.
USE OF PROCEEDS
The net proceeds from each issue of Bonds under the Programme will be on-lent to HS1 under the
terms of the Initial IBLA or subsequent IBLAs as the case may be. HS1 will apply the proceeds of the
Advances under the each IBLA:
(a)
to refinance the Existing Indebtedness or (in accordance with the terms of the Transaction
Documents) other Financial Indebtedness of HS1; and/or
(b)
towards fees, costs, expenses, stamp, registration and other taxes incurred in connection with
the above; and/or
(c)
for general corporate purposes of the Obligors.
TERMS AND CONDITIONS OF THE BONDS
References herein to the Bonds shall be references to the Bonds of a Tranche and shall mean:
(a)
in relation to a Global Bond, units of each Specified Denomination in the Specified Currency;
(b)
any Global Bond;
(c)
any Bearer Bonds issued in exchange for a Global Bond in bearer form; and
(d)
any Registered Bonds (whether or not issued in definitive form and whether or not in
exchange for a Global Bond in registered form).
High Speed Rail Finance (1) PLC (the “Issuer”) has established a bond programme (the
“Programme”) for the issuance of bonds (the “Bonds”). As used herein, “Tranche” means Bonds
which are identical in all respects (including as to listing and admission to trading) and “Series” means
a Tranche of Bonds together with any further Tranche or Tranches of Bonds which are (a) expressed to
be consolidated and form a single series and (b) identical in all respects (including as to listing and
admission to trading) except for their respective Issue Dates, Interest Commencement Dates and/or
Issue Prices.
Each Series of Bonds may be denominated in different currencies or have different interest rates,
maturity dates or other terms. Bonds of any Series may be zero coupon (“Zero Coupon Bonds”), fixed
rate (“Fixed Rate Bonds”), floating rate (“Floating Rate Bonds”), index-linked (“Index-Linked
Bonds”) or instalment (“Instalment Bonds”) depending on the method of calculating interest payable
in respect of such Bonds and may be denominated in sterling, euro, U.S. dollars or in other currencies
subject to compliance with applicable law or regulation.
The terms and conditions applicable to the Bonds are these terms and conditions (the “Conditions”) as
may be completed by Part A of a set of final terms, in relation to each Tranche (“Final Terms”). In the
event of any inconsistency between these Conditions and the relevant Final Terms, the relevant Final
Terms shall prevail.
The Bonds will be subject to and have the benefit of a bond trust deed dated 14 February 2013 as the
same may be amended, supplemented, restated and/or novated from time to time (the “Bond Trust
Deed”), between the Issuer and Deutsche Trustee Company Limited as trustee (the “Bond Trustee”,
which expression includes the trustee or trustees for the time being of the Bond Trust Deed).
The Bonds have the benefit (to the extent applicable) of an agency agreement (as amended,
supplemented and/or restated from time to time, the “Agency Agreement”) dated 14 February 2013 (to
which, among others, the Issuer, the Bond Trustee, the Principal Paying Agent and the other Paying
Agents or the Transfer Agents and the Registrar are party). As used herein, each of “Principal Paying
Agent”, “Paying Agents”, “Agent Bank”, “Transfer Agent” and/or “Registrar” means, in relation to
the Bonds, the persons specified in the Agency Agreement as the Principal Paying Agent, Paying
Agents, Agent Bank, Transfer Agents and/or Registrar, respectively, and, in each case, any successor to
such person in such capacity. The Bonds may also have the benefit (to the extent applicable) of a
calculation agency agreement (in the form or substantially in the form of schedule 1 to the Agency
Agreement, the “Calculation Agency Agreement”) between, inter alia, the Issuer and any calculation
agent appointed by the Issuer as calculation agent (the “Calculation Agent”). “Agents” shall mean the
Principal Paying Agent, the Transfer Agent, the Registrar, the Agent Bank, any Calculation Agent
appointed thereunder and any additional Paying Agents also appointed thereunder.
On 14 February 2013, the Issuer entered into a deed of charge (the “Issuer Deed of Charge”) with the
Issuer Security Trustee as security trustee, pursuant to which the Issuer will grant certain fixed and
floating charge security (the “Issuer Security”) to the Issuer Security Trustee for itself and the other
Issuer Secured Creditors, the Bond Trustee for itself and on behalf of the Bondholders, the
Bondholders, each Issuer Hedge Counterparty, each Liquidity Facility Provider, the Liquidity Facility
Agreement, the Principal Paying Agent, each Paying Agent, the Calculation Agent (if any) the Transfer
Agent, the Registrar, the Account Bank, the Agent Bank, the Cash Manager and the Issuer Corporate
Services Provider (together the “Issuer Secured Creditors”).
On 25 January 2013, the Issuer entered into a dealership agreement (as amended, supplemented and
restated from time to time, the “Dealership Agreement”) with the dealers named therein (the
“Dealers”) in respect of the Programme, pursuant to which any of the Dealers may enter into
subscription agreements (each a “Subscription Agreement”) in relation to each Tranche of Bonds
issued by the Issuer, and pursuant to which the Dealers will agree to subscribe for the relevant Bonds.
In any Subscription Agreement relating to a Tranche of Bonds, any of the Dealers may agree to procure
subscribers to subscribe for the relevant Tranche of Bonds.
The Issuer may enter into liquidity facility agreements (together, the “Liquidity Facility
Agreements”) with certain liquidity facility providers (each a “Liquidity Facility Provider” and
together, the “Liquidity Facility Providers”) pursuant to which the Liquidity Facility Providers agree
to make certain facilities available to meet liquidity shortfalls.
The Issuer may enter into certain currency, inflation-linked and interest rate hedging agreements
(together, the “Issuer Hedging Agreements”) with certain hedge counterparties (together, the “Issuer
Hedge Counterparties”) in respect of certain Tranches of Bonds, pursuant to which the Issuer hedges
certain of its currency and interest rate obligations.
On 14 February 2013, the Issuer entered into a common terms agreement with amongst others, the
Obligors and the HS1 Secured Creditors (as amended from time to time, the “CTA”) and a security
trust and intercreditor deed between amongst others, the Obligors and the other HS1 Secured Creditors
(as amended from time to time, the “STID”).
The Bond Trust Deed, the Bonds (including the applicable Final Terms), the Issuer Deed of Charge, the
Agency Agreement, the Liquidity Facility Agreement, the Issuer Hedging Agreements, each IBLA, the
STID, the CTA, the Dealership Agreement, each Subscription Agreement, the Issuer Cash
Management Agreement, the master definitions agreement between, among others, the Issuer and the
Bond Trustee dated 14 February 2013 (as amended from time to time, the “Master Definitions
Agreement”), the account bank agreement between, among others, the Account Bank, the Issuer, HS1,
the HS1 Security Trustee and the Bond Trustee (as amended from time to time, the “Account Bank
Agreement”), the Tax Deed of Covenant and any related document (each, if not defined above, as
defined below or in the Master Definitions Agreement) are, in relation to the Bonds, together referred
to as the “Issuer Transaction Documents”.
In these Conditions, words denoting the singular number only shall include the plural number also and
vice versa. Capitalised terms not otherwise defined in these Conditions shall bear the meanings given
to them in the Master Definitions Agreement and these Conditions shall be construed in accordance
with the principles of construction set out in the Master Definitions Agreement.
Certain statements in these Conditions are summaries of the detailed provisions appearing on the face
of the Bonds (which expression shall include the body thereof), in the relevant Final Terms or in the
Bond Trust Deed, the STID, the CTA or the Issuer Deed of Charge. Copies of the Bond Trust Deed,
STID, CTA, Master Definitions Agreement and the Issuer Deed of Charge are available for inspection
during normal business hours at the specified offices of the Principal Paying Agent (in the case of
Bearer Bonds) or the specified offices of the Transfer Agents and the Registrar (in the case of
Registered Bonds).
The Bondholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the
provisions of the Bond Trust Deed, the Issuer Deed of Charge, the STID, CTA and other Issuer
Transaction Documents applicable to them and the relevant Final Terms and to have notice of those
provisions of the Agency Agreement and the other Issuer Transaction Documents applicable to them.
In the event of any inconsistency between the terms and conditions set out herein and the terms set out
in the STID, the Issuer Deed of Charge and the CTA, the terms of the STID, the Issuer Deed of Charge
or the CTA (as the case may be) shall prevail.
Any reference in these conditions to a matter being “specified” means as the same may be specified in
the relevant Final Terms.
1.
Form, Denomination and Title
(a)
Form and Denomination
The Bonds are in bearer form (“Bearer Bonds”) or in registered form (“Registered
Bonds”) as specified in the applicable Final Terms and, in the case of Definitive
Bonds, serially numbered in the Specified Denomination(s) provided that in the case
of any Bonds which are to be admitted to trading on a regulated market within the
European Economic Area or offered to the public in a Member State of the European
Economic Area in circumstances which require the publication of a prospectus under
the Prospectus Directive, the minimum Specified Denomination shall be €100,000 or
not less than the equivalent of €100,000 in any other currency as at the date of issue
of the relevant Bonds (or such other amount required by applicable law from time to
time as stated in the applicable Final Terms) and in the case of the Bonds in respect
of which the publication of a Prospectus is not required under the Prospectus
Directive the minimum Specified Denomination shall not be less than that required
by applicable law as stated in the applicable Final Terms. Bonds may be issued in
such denomination and higher integral multiples of a smaller amount if specified in
the applicable Final Terms. Bonds of one Specified Denomination may not be
exchanged for Bonds of another Specified Denomination and Registered Bonds may
not be exchanged for Bearer Bonds. References in these Conditions to “Bonds”
include Bearer Bonds and Registered Bonds and all Tranches.
The Bonds may be Zero Coupon Bonds, Fixed Rate Bonds, Floating Rate Bonds,
Index-Linked Bonds or Instalment Bonds, as specified in the applicable Final Terms.
Interest bearing Bearer Bonds are issued with Coupons (as defined below) (and,
where appropriate, a Talon, (as defined below)) attached. After all the Coupons
attached to, or issued in respect of, any Bearer Bond which was issued with a Talon
have matured, a coupon sheet comprising further Coupons (other than Coupons
which would be void) and (if necessary) one further Talon will be issued against
presentation of the relevant Talon at the specified office of any Paying Agent. Any
Bearer Bond the principal amount of which is redeemable in instalments may be
issued with one or more Receipts (as defined below) (and, where appropriate, a
Talon) attached thereto. After all the Receipts attached to, or issued in respect of, any
Instalment Bond which was issued with a Talon have matured, a receipt sheet
comprising further Receipts (other than Receipts which would be void) and (if
necessary) a further Talon will be issued against presentation of the relevant Talon at
the specified office of any Paying Agent.
(b)
Title
Title to Bearer Bonds, Coupons, Receipts and Talons (if any) passes by delivery.
Title to Registered Bonds passes by registration in the register (the “Register”),
which the Issuer shall procure to be kept by the Registrar.
In these Conditions, subject as provided below, each reference to “Bondholder” (in
relation to a Bond, Coupon, Receipt or Talon), “holder” and “Holder” means (i) in
relation to a Bearer Bond, the bearer of any Bearer Bond, Coupon, Receipt or Talon
(as the case may be) and (ii) in relation to a Registered Bond, the person in whose
name a Registered Bond is registered, as the case may be. The expressions
“Bondholder”, “holder” and “Holder” include the holders of instalment receipts
(“Receipts”) appertaining to the payment of principal by instalments (if any) attached
to such Bonds in bearer form (the “Receiptholders”), the holders of the coupons
(“Coupons”) (if any) appertaining to interest bearing Bonds in bearer form (the
“Couponholders”), and the expression Couponholders or Receiptholders includes
the holders of talons (“Talons”) in relation to Coupons or Receipts as applicable,
(“Talonholders”).
The bearer of any Bearer Bond, Coupon, Receipt or Talon and the registered holder
of any Registered Bond will (except as otherwise required by law) be treated as its
absolute owner for all purposes (whether or not it is overdue and regardless of any
notice of ownership, trust or any interest in it, any writing on the relevant Bond, or its
theft or loss or any express or constructive notice of any claim by any other person of
any interest therein other than, in the case of a Registered Bond, a duly executed
transfer of such Bond in the form endorsed on the Bond in respect thereof) and no
person will be liable for so treating the holder.
Bonds which are represented by a Global Bond will be transferable only in
accordance with the rules and procedures for the time being of Euroclear and
Clearstream, Luxembourg, as the case may be. References to Euroclear and/or
Clearstream, Luxembourg shall, whenever the context so permits, be deemed to
include a reference to any additional or alternative clearing system specified in the
applicable Final Terms.
(c)
2.
The Issuer may, from time to time, without the consent of the Bondholders,
Receiptholders or Couponholders, create and issue further Bonds having the same
terms and conditions as the Bonds of a Tranche in all respects (or in all respects
except for the first payment of interest) so that the same shall be consolidated and
form a single Series with the outstanding Bonds. Accordingly, a Series of Bonds may
comprise a number of Tranches in addition to the initial Tranche. Such further
Tranches of the same Series will be consolidated and form a single Series with the
prior Tranches.
Exchanges of Bearer Bonds for Registered Bonds and Transfers of Registered Bonds
(a)
Exchange of Bonds
Subject to Condition 2(e) (Closed Periods), Bearer Bonds may, if so specified in the
relevant Final Terms, be exchanged at the expense of the transferor Bondholder for
the same aggregate principal amount of Registered Bonds at the request in writing of
the relevant Bondholder and upon surrender of the Bearer Bond to be exchanged
together with all unmatured Coupons, Receipts and Talons (if any) relating to it at the
specified office of the Registrar or any Transfer Agent or Paying Agent. Where,
however, a Bearer Bond is surrendered for exchange after the Record Date (as
defined below) for any payment of interest or Interest Amount (as defined below),
the Coupon in respect of that payment of interest or Interest Amount need not be
surrendered with it. Registered Bonds may not be exchanged for Bearer Bonds.
(b)
Transfer of Registered Bonds
A Registered Bond may be transferred upon the surrender of the relevant Registered
Definitive Bond, together with the form of transfer endorsed on it duly completed
and executed, at the specified office of any Transfer Agent or the Registrar.
However, a Registered Bond may not be transferred unless (i) the principal amount
of Registered Bonds proposed to be transferred and (ii) the principal amount of the
balance of Registered Bonds to be retained by the relevant transferor are, in each
case, Specified Denominations. In the case of a transfer of part only of a holding of
Registered Bonds represented by a Registered Definitive Bond, a new Registered
Definitive Bond in respect of the balance not transferred will be issued to the
transferor within three business days (in the place of the specified office of the
Transfer Agent or the Registrar) of receipt of such form of transfer.
(c)
Delivery of New Registered Definitive Bonds
Each new Registered Definitive Bond to be issued upon exchange of Bearer Bonds or
transfer of Registered Bonds will, within three business days (in the place of the
specified office of the Transfer Agent or the Registrar) of receipt of such request for
exchange or form of transfer, be available for delivery at the specified office of the
Transfer Agent or the Registrar stipulated in the request for exchange or form of
transfer, or be mailed at the risk of the Bondholder entitled to the Registered
Definitive Bond to such address as may be specified in such request for exchange or
form of transfer. For these purposes, a form of transfer or request for exchange
received by the Registrar after the Record Date (as defined below) in respect of any
payment due in respect of Registered Bonds shall be deemed not to be effectively
received by the Registrar until the Business Day (as defined in Condition 22
(Definitions)) following the due date for such payment.
(d)
Exchange at the Expense of Transferor Bondholder
Registration of Bonds on exchange or transfer will be effected at the expense of the
transferor Bondholder by or on behalf of the Issuer, the Transfer Agent or the
Registrar, and upon payment of (or the giving of such indemnity as the Transfer
Agent or the Registrar may require in respect of) any tax or other governmental
charges which may be imposed in relation to it.
(e)
Closed Periods
No transfer of a Registered Bond may be registered, nor may any exchange of a
Bearer Bond for a Registered Bond occur during the period of 15 days ending on the
due date for any payment of principal, interest, Interest Amount (as defined below) or
Redemption Amount (as defined below) on that Bond.
(f)
Regulations Concerning the Transfer of Registered Bonds
All transfers of Registered Bonds and entries on the Register are subject to the
detailed regulations concerning the transfer of Registered Bonds scheduled to the
Agency Agreement. The regulations may be changed by the Issuer with the prior
written approval of the Principal Paying Agent, the Bond Trustee and the Registrar.
A copy of the current regulations will be mailed (free of charge) by the Registrar to
any Bondholder who requests in writing a copy of such regulations.
3.
Status of Bonds
(a)
Status of the Bonds
The Bonds, Coupons, Talons and Receipts (if any) are direct and (subject to
Condition 20 (Limited Recourse)) unconditional obligations of the Issuer, are secured
in the manner described in Condition 4 (Security, Priority and Relationship with the
Issuer Secured Creditors) and rank pari passu without any preference among
themselves.
(b)
Bond Trustee not responsible for monitoring compliance
The Bond Trustee shall not be responsible for monitoring compliance by the Issuer
with any of its obligations under the Issuer Transaction Documents except by means
of receipt of a certificate from the Issuer which will state, among other things, that no
Bond Event of Default is outstanding. The Bond Trustee shall be entitled to rely on
such certificates absolutely. The Bond Trustee is not responsible for monitoring
compliance by any of the parties with their respective obligations under the Issuer
Transaction Documents. The Bond Trustee may call for and is at liberty to accept as
sufficient evidence a certificate signed by any one director of the Issuer, the Obligors
(or any of them) or any other party to any Issuer Transaction Document to the effect
that any particular dealing, transaction, step or thing is in the opinion of the persons
so certifying suitable or expedient or as to any other fact or matter upon which the
Bond Trustee may require to be satisfied. The Bond Trustee is in no way bound to
call for further evidence or be responsible for any loss that may be occasioned by
acting on any such certificate although the same may contain some error or is not
authentic. The Bond Trustee is entitled to rely upon any certificate believed by it to
be genuine and will not be liable for so acting.
4.
Security, Priority and Relationship with the Issuer Secured Creditors
(a)
Security
As continuing security for the payment or discharge of the Issuer Secured Liabilities
(including all moneys payable in respect of the Bonds, Coupons and Receipts and
otherwise under the Bond Trust Deed, the Issuer Deed of Charge and any deed or
other document executed in accordance with the Bond Trust Deed or the Issuer Deed
of Charge and expressed to be supplemental to the Bond Trust Deed or the Issuer
Deed of Charge (as applicable) (the “Trust Documents”) (including the
remuneration, expenses and other claims of the Issuer Security Trustee and any
Receiver appointed under the Issuer Deed of Charge)), the Issuer has entered in to the
Issuer Deed of Charge to create as far as permitted by and subject to compliance with
any applicable law, the following security, (the “Issuer Security”) in favour of the
Issuer Security Trustee for itself and on trust for the other Issuer Secured Creditors:
(i)
an assignment by the Issuer by way of a first fixed security of its right, title,
interest and benefit, present and future, in, to and under the Issuer
Transaction Documents to which it is a party (other than the Dealership
Agreement and each Subscription Agreement), including the security trusts
created under the HS1 Deed of Charge, each IBLA, the CTA, the Issuer
Hedging Agreements, the Liquidity Facility Agreement and the STID;
(ii)
fixed or floating charges over the Issuer Accounts, and amounts standing to
the credit of the Issuer Accounts and charges over investments;
(iii)
a first fixed charge over all investments in Cash Equivalent Investments
permitted to be made by the Issuer pursuant to the Account Bank
Agreement, which security interests may take effect as a floating charge and
thus rank behind the claims of certain preferential and other creditors; and
(iv)
a first floating charge (ranking behind the claims of certain preferential and
other creditors) over all of the property, assets and undertakings of the Issuer
not already subject to fixed security,
all as more particularly set out in the Issuer Deed of Charge.
All Bonds issued by the Issuer under the Programme will share in the Issuer Security
constituted by the Issuer Deed of Charge, upon and subject to the terms thereof.
(b)
Relationship among Bondholders and with other Issuer Secured Creditors
The Bondholders from time to time are Issuer Secured Creditors. The Bond Trustee
is an Issuer Secured Creditor on its own behalf and on behalf of the Bondholders
from time to time.
The Bond Trust Deed contains provisions detailing the Bond Trustee’s obligations to
consider the interests of Bondholders as regards all discretions of the Bond Trustee
(except where expressly provided or otherwise referred to in Condition 16 (Bond
Trustee Protections)).
(c)
Enforceable Security
In the event of the Issuer Security becoming enforceable as provided in the Issuer
Deed of Charge, the Issuer Security Trustee shall, if instructed by the Bond Trustee
(acting on the instructions of the holders of the Bonds then outstanding in accordance
with the terms of the Bond Trust Deed) enforce its rights with respect to the Issuer
Security, but without any liability as to the consequence of such action and without
having regard to the effect thereof on, or being required to account for such action to,
any particular Bondholder, provided that the Issuer Security Trustee shall not be
obliged to take any action unless it is indemnified and/or secured and/or prefunded to
its satisfaction.
(d)
Application After Enforcement
After enforcement of the Issuer Security, the Issuer Security Trustee shall (to the
extent that such funds are available) use funds standing to the credit of the Issuer
Accounts and proceeds of the enforcement of the Issuer Security to make payments
in accordance with the Issuer Post-Enforcement Priority of Payments (as set out in
the Issuer Deed of Charge).
(e)
Issuer Security Trustee not liable for security
The Issuer Security Trustee will not make, and will not be liable for any failure to
make any investigations in relation to the property which is the subject of the Issuer
Security, and shall not be bound to enquire into or be liable for any defect or failure
in the right or title of the Issuer to the Issuer Security, whether such defect or failure
was known to the Issuer Security Trustee or might have been discovered upon
examination or enquiry or whether capable of remedy or not, nor will it have any
liability for the enforceability of the Issuer Security created under the Issuer Deed of
Charge whether as a result of any failure, omission or defect in registering or filing or
otherwise protecting or perfecting such Issuer Security or otherwise. The Issuer
Security Trustee shall have no responsibility for the value of any such Issuer
Security.
5.
Issuer Covenants
So long as any of the Bonds remains outstanding, the Issuer has agreed to comply with the
covenants as set out in the Bond Trust Deed.
The Bond Trustee shall be entitled to rely absolutely on a certificate of any director of the
Issuer in relation to any matter relating to such covenants and to accept without liability any
such certificate as sufficient evidence of the relevant fact or matter stated in such certificate.
6.
Interest and other Calculations
(a)
Interest Rate and Accrual
Each Bond (unless specified in the relevant Final Terms to be a Zero Coupon Bond)
bears interest on its Principal Amount Outstanding as defined below from the Interest
Commencement Date (as defined below) at the Interest Rate (as defined below), such
interest being payable in arrear (unless otherwise specified in the relevant Final
Terms) on each Interest Payment Date (as defined below).
Interest will cease to accrue on each Bond (or, in the case of the redemption of part
only of a Bond, that part only of such Bond) on the due date for redemption unless,
upon due presentation, payment of principal is improperly withheld or refused, in
which event interest will continue to accrue (both before and after judgment) at the
Interest Rate that would otherwise apply in respect of unpaid amounts on such Bonds
at such time to the Bond Relevant Date (as defined in Condition 22 (Definitions)).
If any maximum rate of interest or minimum rate of interest is specified in the
relevant Final Terms, then the Interest Rate shall in no event be greater than the
maximum or be less than the minimum so specified, as the case may be.
(b)
Business Day Convention
If any date referred to in these Conditions or the relevant Final Terms is specified to
be subject to adjustment in accordance with a Business Day Convention and would
otherwise fall on a day which is not a Business Day (as defined in Condition 22
(Definitions)), then if the business day convention specified in the relevant Final
Terms is:
(c)
(i)
the “Following Business Day Convention”, such date shall be postponed to
the next day which is a Business Day;
(ii)
the “Modified Following Business Day Convention”, such date shall be
postponed to the next day which is a Business Day unless it would thereby
fall into the next calendar month, in which event such date shall be brought
forward to the immediately preceding Business Day; or
(iii)
the “Preceding Business Day Convention”, such date shall be brought
forward to the immediately preceding Business Day.
Floating Rate Bonds
This Condition 6(c) is applicable if the relevant Final Terms specify the Bonds as
Floating Rate Bonds and in the limited circumstances set out in Condition 6(d) (Fixed
Rate Bonds) and Condition 6(e) (Index-Linked Bonds).
If “Screen Rate Determination” is specified in the relevant Final Terms as the
manner in which the Interest Rate(s) is/are to be determined, the Interest Rate
applicable to the Bonds for each Interest Period will be determined by the Agent
Bank (or the Calculation Agent, if applicable) on the following basis:
(i)
if the Page (as defined below) displays a rate which is a composite quotation
or customarily supplied by one entity, the Agent Bank (or the Calculation
Agent, if applicable) will determine the Relevant Rate (as defined in
Condition 22 (Definitions));
(ii)
in any other case, the Agent Bank (or the Calculation Agent, if applicable)
will determine the arithmetic mean of the Relevant Rates (as defined below)
which appear on the Page as of the Relevant Time (as defined below) on the
relevant Interest Determination Date (as defined below) provided that, if
five or more offered quotations are available on the relevant Page, the
highest (or, if there is more than one highest quotation, one only of those
quotations) and the lowest (or, if there is more than one lowest quotation,
one only of those quotations) shall be disregarded by the Agent Bank (or
Calculation Agent, if applicable) for the purpose of determining the
arithmetic mean (rounded as provided above) of the offered quotations);
(iii)
if, in the case of (i) above, such rate does not appear on that Page or, in the
case of (ii) above, fewer than two such rates appear on that Page or if, in
either case, the Page is unavailable, the Agent Bank (or the Calculation
Agent, if applicable) will:
(iv)
(A)
request the principal Relevant Financial Centre office of each of the
Reference Banks (as defined in Condition 22 (Definitions)) to
provide a quotation of the Relevant Rate at approximately the
Relevant Time on the relevant Interest Determination Date to prime
banks in the Relevant Financial Centre (as defined below)
interbank market (or, if appropriate, money market) in an amount
that is representative for a single transaction in that market at that
time; and
(B)
determine the arithmetic mean of such quotations; and
if fewer than two such quotations are provided as requested in Condition
6(c)(iii), the Agent Bank (or the Calculation Agent, if applicable) will
determine the arithmetic mean of the rates (being the rates nearest to the
Relevant Rate as determined by the Agent Bank (or the Calculation Agent,
if applicable)) quoted by the Reference Banks at approximately 11.00 a.m.
(local time in the Relevant Financial Centre of the Relevant Currency) on
the relevant Interest Determination Date (as defined in Condition 22
(Definitions)) for loans in the Relevant Currency to leading European banks
for a period equal to the relevant Interest Period and in the Representative
Amount (as defined in Condition 22 (Definitions)),
and the Interest Rate for such Interest Period shall be the sum of the rate or (as the
case may be) the arithmetic mean so determined and (a) for any Interest Period that
ends before the Scheduled Redemption Date, the Margin and (b) for any Interest
Period that ends on or after the Scheduled Redemption Date, the Margin and the
Step-Up Floating Fee Rate. However, if the Agent Bank or the Calculation Agent (as
applicable) is unable to determine a rate or (as the case may be) an arithmetic mean
in accordance with the above provisions in relation to any Interest Period, the Interest
Rate applicable to the Bonds during such Interest Period will be the sum of the
Margin and the rate or (as the case may be) the arithmetic mean last determined in
relation to the Bonds in respect of a preceding Interest Period.
If “ISDA Determination” is specified in the relevant Final Terms as the manner in
which the Interest Rate(s) is/are to be determined, the Interest Rate(s) applicable to
the Bonds for each Interest Period will be the sum of the ISDA Rate and (a) for any
Interest Period that ends before the Scheduled Redemption Date, the Margin and (b)
for any Interest Period that ends on or after the Scheduled Redemption Date, the
Margin and the Step-Up Floating Fee Rate where “ISDA Rate” in relation to any
Interest Period means a rate equal to the Floating Rate (as defined in the ISDA
Definitions) that would be determined by the Agent Bank (or the Calculation Agent,
if applicable) under an interest rate swap transaction if the Agent Bank (or the
Calculation Agent, if applicable) were acting as calculation agent for that interest rate
swap transaction under the terms of an agreement incorporating the ISDA Definitions
and under which:
(i)
the Floating Rate Option (as defined in the ISDA Definitions) is as specified
in the relevant Final Terms;
(ii)
the Designated Maturity (as defined in the ISDA Definitions) is the
Specified Duration (as defined in Condition 22 (Definitions)); and
(iii)
the relevant Reset Date (as defined in the ISDA Definitions) is either (1) if
the relevant Floating Rate Option is based on London interbank offered rate
(“LIBOR”) for a currency, the first day of that Interest Period, (2) if the
relevant Floating Rate Option is based on the Euro-zone interbank offered
rate (“EURIBOR”), the first day of that Interest Period or (3) in any other
case, as specified in the relevant Final Terms.
(d)
Fixed Rate Bonds
This Condition 6(d) is applicable only if the relevant Final Terms specify the Bonds
as Fixed Rate Bonds.
Subject to the next paragraph, the Interest Rate applicable to the Bonds for each
Interest Period will be the rate specified in the relevant Final Terms.
The Interest Rate applicable to the Bonds for each Interest Period from (and
including) the Scheduled Redemption Date will be a floating rate equal to the sum of
(a) the rate determined in accordance with Condition 6(c) (Floating Rate Bonds) if
that Condition otherwise applied and (b) the Step-Up Fixed Fee Rate.
(e)
Index-Linked Bonds
This Condition 6(e) is applicable only if the relevant Final Terms specify the Bonds
as Index-Linked Bonds.
Payments of principal on, and the interest payable in respect of, the Bonds will be
subject to adjustment for indexation and to the extent set out in Condition 7(b)
(Application of the Index Ratio).
Subject to the next paragraph, the Interest Rate applicable to the Bonds for each
Interest Period will be the rate specified in the relevant Final Terms.
The Interest Rate applicable to the Bonds for each Interest Period from (and
including) the Scheduled Redemption Date will be a floating rate equal to the sum of
(a) the arithmetic mean rate determined in accordance with Condition 6(c) (Floating
Rate Bonds) if that Condition otherwise applied and (b) the Step-Up Fixed Fee Rate.
(f)
Rounding
For the purposes of any calculations required pursuant to these Conditions (unless
otherwise specified):
(g)
(i)
all percentages resulting from such calculations will be rounded, if
necessary, to the nearest one hundred thousandth of a percentage point (with
halves being rounded up);
(ii)
all figures will be rounded to seven significant figures (with halves being
rounded up); and
(iii)
all currency amounts which fall due and payable will be rounded to the
nearest unit of such currency (with halves being rounded up). For these
purposes, “unit” means, with respect to any currency other than euro, the
lowest amount of such currency which is available as legal tender in the
country of such currency and, with respect to euro, means 0.01 euro.
Calculations
The amount of interest payable in respect of any Bond for each Interest Period shall
be calculated by applying the Interest Rate to the Calculation Amount, multiplying
the product by the relevant Day Count Fraction, rounding the resulting figure to the
nearest sub-unit of the Specified Currency (half a sub-unit being rounded upwards)
and multiplying such rounded figure by a fraction equal to the Specified
Denomination of such Bond divided by the Calculation Amount (as defined in
Condition 22 (Definitions)) and, in the case of Index-Linked Bonds only, adjusted
according to the indexation set out in Condition 7(b) (Application of the Index Ratio),
unless an Interest Amount is specified in respect of such period in the relevant Final
Terms, in which case the amount of interest payable in respect of such Bond for such
Interest Period will equal such Interest Amount.
(h)
Determination and Publication of Interest Rates, Interest Amounts, Redemption
Amounts and Instalment Amounts
As soon as practicable after the Relevant Time on each Interest Determination Date
or such other time on such date as the Agent Bank (or the Calculation Agent, if
applicable) may be required to calculate any Redemption Amount or the amount of
an instalment of scheduled principal (an “Instalment Amount”), obtain any quote or
make any determination or calculation, the Agent Bank (or the Calculation Agent, if
applicable) will determine the Interest Rate and calculate the amount of interest
payable (the “Interest Amounts”) in respect of each Specified Denomination of
Bonds for the relevant Interest Period (including, for the avoidance of doubt any
applicable Index Ratio to be calculated in accordance with Condition 7(b)
(Application of the Index Ratio), calculate the Redemption Amount or Instalment
Amount, obtain such quote or make such determination or calculation, as the case
may be, and cause the Interest Rate and the Interest Amounts for each Interest Period
and the relevant Interest Payment Date and, if required to be calculated, the
Redemption Amount, Principal Amount Outstanding or any Instalment Amount to be
notified to, in the case of Bearer Bonds, the Paying Agents or in the case of
Registered Bonds, the Registrar, and, in each case, the Bond Trustee, the Issuer, the
Bondholders and the Stock Exchange and each other listing authority, stock exchange
and/or quotation system by which the relevant Bonds have then been admitted to
listing, trading and/or quotation as soon as possible after its determination but in no
event later than (i) (in case of notification to the Stock Exchange and each other
listing authority, stock exchange and/or quotation system by which the relevant
Bonds have then been admitted to listing, trading and/or quotation) the
commencement of the relevant Interest Period, if determined prior to such time, in
the case of an Interest Rate and Interest Amount, or (ii) in all other cases, the fourth
Business Day after such determination. The Interest Amounts and the Interest
Payment Date so published may subsequently be amended (or appropriate alternative
arrangements made by way of adjustment) without notice in the event of an extension
or shortening of the Interest Period. Any such amendment will be promptly notified
to each stock exchange or other relevant authority on which the relevant Bonds are
for the time being listed or by which they have been admitted to listing, to the
Principal Paying Agent, the Bond Trustee and to the Bondholders in accordance with
Condition 17 (Notices). If the Bonds become due and payable under Condition 11
(Bond Events of Default), the accrued interest and the Interest Rate payable in respect
of the Bonds shall nevertheless continue to be calculated as previously provided in
accordance with this Condition but no publication of the Interest Rate or the Interest
Amount so calculated need be made unless otherwise required by the Bond Trustee.
The determination of each Interest Rate, Interest Amount, Redemption Amount and
Instalment Amount, the obtaining of each quote and the making of each
determination or calculation by the Agent Bank (or the Calculation Agent, if
applicable) or, as the case may be, the Bond Trustee pursuant to this Condition 6 or
Condition 7 (Indexation), shall (in the absence of manifest error) be final and binding
upon all parties.
(i)
Agent Bank, Calculation Agent and Reference Banks
The Issuer will procure that there shall at all times be an Agent Bank (and a
Calculation Agent, if applicable) and four Reference Banks selected by the Issuer
acting through the Agent Bank (or the Calculation Agent, if applicable) with offices
in the Relevant Financial Centre if provision is made for them in these Conditions
applicable to this Bond and for so long as it is outstanding. If any Reference Bank
(acting through its relevant office) is unable or unwilling to continue to act as a
Reference Bank, then the Issuer acting through the Agent Bank (or the Calculation
Agent, if applicable) will select another Reference Bank with an office in the
Relevant Financial Centre to act as such in its place. If the Agent Bank (or the
Calculation Agent, if applicable) is unable or unwilling to act as such or if the Agent
Bank (or the Calculation Agent, if applicable) fails duly to establish the Interest Rate
for any Interest Period or to calculate the Interest Amounts or any other requirements,
the Issuer will appoint (with the prior written consent of the Bond Trustee) a
successor to act as such in its place. The Agent Bank may not resign its duties
without a successor having been appointed as aforesaid.
(j)
Determination or Calculation by Bond Trustee
If the Agent Bank (or the Calculation Agent, if applicable) does not at any time for
any reason determine any Interest Rate, Interest Amount, Redemption Amount,
Instalment Amount or any other amount to be determined or calculated by it, the
Bond Trustee shall (without liability to any person for so doing) determine such
Interest Rate, Interest Amount, Redemption Amount, Instalment Amount or other
amount as aforesaid at such rate or in such amount as in its absolute discretion
(having regard as it shall think fit to the procedures described above, but subject to (i)
any minimum interest rate or maximum interest rate specified in the applicable Final
Terms; and (ii) the terms of the Bond Trust Deed) it shall deem fair and reasonable in
all the circumstances or, subject as aforesaid, apply the foregoing provisions of this
Condition, with any consequential amendments, to the extent that, in its sole opinion,
it can do so and in all other respects it shall do so in such manner as it shall, in its
absolute discretion, deem fair and reasonable in the circumstances, and each such
determination or calculation shall be deemed to have been made by the Agent Bank
(or the Calculation Agent, if applicable). In making any such determination or
calculation, the Bond Trustee may appoint and rely on a determination or calculation
by a calculation agent (which shall be an investment bank or other suitable entity of
international repute). Each such determination or calculation shall be deemed to have
been made by the Agent Bank (or Calculation Agent if applicable).
(k)
Certificates to be final
All certificates, communications, opinions, determinations, calculations, quotations
and decisions given, expressed, made or obtained for the purposes of the provisions
of Condition 6 (Interest and Other Calculations) whether by the Principal Paying
Agent or the Agent Bank (or the Calculation Agent, if applicable) shall (in the
absence of wilful default, gross negligence, bad faith or manifest error) be binding on
the Issuer, each Obligor, the Agent Bank, the Bond Trustee, the Principal Paying
Agent, the other Agents and all Bondholders, Receiptholders and Couponholders and
(in the absence as aforesaid) no liability to the Issuer, the Obligors, the Bond Trustee,
the Bondholders, the Receiptholders or the Couponholders shall attach to the
Principal Paying Agent, the Agent Bank or, if applicable, the Calculation Agent in
connection with the exercise or non exercise by it of its powers, duties and
discretions pursuant to such provisions.
7.
Indexation
This Condition 7 is applicable only if the relevant Final Terms specify the Bonds as
Index-Linked Bonds.
(a)
Definitions
“affiliate” means in relation to any person, any entity controlled, directly or indirectly, by that
person, any entity that controls directly or indirectly, that person or any entity, directly or
indirectly under common control with that person and for this purpose “control” means
control as defined in the Companies Act 2006;
“Base Index Figure” means (subject to Condition 7(c)(i) (Change in base)) the base index
figure as specified in the relevant Final Terms;
“Index” or “Index Figure” means, subject as provided in Condition 7(c)(i) (Change in base),
the UK Retail Price Index (“RPI”) (for all items) published by the Central Statistical Office
and available to view at www.statistics.gov.uk (January 1987 = 100) or any comparable index
which may replace the UK Retail Price Index for the purpose of calculating the amount
payable on repayment of the Reference Gilt. Any reference to the Index Figure:
(i)
applicable to a particular month shall, subject as provided in Condition 7(c) (Changes
in Circumstances Affecting the Index) and (e) (Cessation of or Fundamental Changes
to the Index), be construed as a reference to the Index Figure published in the seventh
month prior to that particular month and relating to the month before that of
publication;
(ii)
applicable to the first calendar day of any month shall, subject as provided in
Condition 7(c) (Changes in Circumstances Affecting the Index) and (e) (Cessation of
or Fundamental Changes to the Index), be construed as a reference to the Index
Figure published in the second month prior to that particular month and relating to
the month before that of publication; or
(iii)
applicable to any other day in any month shall, subject as provided in Condition 7(c)
(Changes in Circumstances Affecting the Index) and (e) (Cessation of or
Fundamental Changes to the Index), be calculated by linear interpolation between (x)
the Index Figure applicable to the first calendar day of the month in which the day
falls, calculated as specified in sub-paragraph (ii) above, and (y) the Index Figure
applicable to the first calendar day of the following month, calculated as specified in
sub-paragraph (ii) above, and rounded in accordance with Condition 6(f) (Rounding).
If the Index is replaced, the Issuer will describe the replacement Index in a supplementary
prospectus;
“Index Ratio” applicable to any month means the Index Figure applicable to such month
divided by the Base Index Figure;
“Limited Index Ratio” means (a) in respect of any month prior to the relevant Issue Date, the
Index Ratio for that month; (b) in respect of any Limited Indexation Month after the relevant
Issue Date, the product of the Limited Indexation Factor for that month and the Limited Index
Ratio as previously calculated in respect of the month twelve months prior thereto; and (c) in
respect of any other month, the Limited Index Ratio as previously calculated in respect of the
most recent Limited Indexation Month;
“Limited Indexation Factor” means, in respect of a Limited Indexation Month, the ratio of
the Index Figure applicable to that month divided by the Index Figure applicable to the month
twelve months prior thereto, provided that (a) if such ratio is greater than the maximum
indexation factor in relation to the Index Ratio specified in the relevant Final Terms (the
“Maximum Indexation Factor”), it shall be deemed to be equal to such Maximum
Indexation Factor and (b) if such ratio is less than the minimum indexation factor in relation to
the Index Ratio specified in the relevant Final Terms (the “Minimum Indexation Factor”), it
shall be deemed to be equal to such Minimum Indexation Factor;
“Limited Indexation Month” means any month specified in the relevant Final Terms for
which a Limited Indexation Factor is to be calculated;
“Limited Index-Linked Bonds” means Index-Linked Bonds to which a Maximum Indexation
Factor and/or a Minimum Indexation Factor (as specified in the relevant Final Terms) applies;
and
“Reference Gilt” means the United Kingdom government stock specified as such in the
relevant Final Terms, for so long as such stock is in issue, as the benchmark gilt the maturity
of which most closely matches the average life of the relevant Index-Linked Bonds, and
thereafter such issue of index-linked United Kingdom government stock determined to be
appropriate by a gilt-edged market maker or other adviser selected by the Issuer and approved
by the Bond Trustee (an “Indexation Adviser”).
(b)
Application of the Index Ratio
Each payment of interest and principal in respect of the Bonds shall be the amount
provided in, or determined in accordance with, these Conditions, multiplied by the
Index Ratio or Limited Index Ratio in the case of Limited Index-Linked Bonds
applicable to the month in which such payment falls to be made and rounded in
accordance with Condition 6(f) (Rounding).
(c)
(d)
Changes in Circumstances Affecting the Index
(i)
Change in base: If at any time and from time to time the Index is changed
by the substitution of a new base therefor, then with effect from the calendar
month from and including that in which such substitution takes effect (1) the
definition of “Index” and “Index Figure” in Condition 7(a) (Definitions)
shall be deemed to refer to the new date or month in substitution for January
1987 (or, as the case may be, to such other date or month as may have been
substituted therefor), and (2) the new Base Index Figure shall be the product
of the then existing Base Index Figure and the Index Figure immediately
following such substitution, divided by the Index Figure immediately prior
to such substitution.
(ii)
Delay in publication of Index: If the Index Figure relating to any month (the
“relevant month”) which is required to be taken into account for the
purposes of the determination of the Index Figure for any date is not
published on or before the fourteenth business day before the date on which
such payment is due (the “date for payment”) (otherwise than because the
Index has ceased to be published), the Index Figure applicable to the
relevant month shall be (1) such substitute index figure (if any) as the Bond
Trustee considers to have been published by the United Kingdom Debt
Management Office or the Bank of England, as the case may be, (or such
other body designated by the UK government for such purpose) for the
purposes of indexation of payments on the Reference Gilt or, failing such
publication, on any one or more issues of index-linked treasury stock
selected by an Indexation Adviser (and approved by the Bond Trustee); or
(2) if no such determination is made by such Indexation Adviser within
seven days, the Index Figure last published (or, if later, the substitute index
figure last determined pursuant to Condition 7(c)(ii)(1)) before the date for
payment.
Application of Changes
Where the provisions of Condition 7(c)(ii) (Delay in publication of Index) apply, the
determination of the Indexation Adviser as to the Index Figure applicable to the
month in which the date for payment falls shall be conclusive and binding. If, an
Index Figure having been applied pursuant to Condition 7(c)(ii)(2), the Index Figure
relating to the relevant month is subsequently published while a Bond is still
outstanding, then:
(e)
(i)
in relation to a payment of principal or interest in respect of such Bond other
than upon final redemption of such Bond, the principal or interest (as the
case may be) next payable after the date of such subsequent publication
shall be increased or reduced by an amount equal to (respectively) the
shortfall or excess of the amount of the relevant payment made on the basis
of the Index Figure applicable by virtue of Condition 7(c)(ii)(2), below or
above the amount of the relevant payment that would have been due if the
Index Figure subsequently published had been published on or before the
fourteenth business day before the date for payment; and
(ii)
in relation to a payment of principal or interest upon final redemption, no
subsequent adjustment to amounts paid will be made.
Cessation of or Fundamental Changes to the Index
(i)
If (1) the Bond Trustee has been notified by the Agent Bank (or the
Calculation Agent, if applicable) that the Index has ceased to be published
or (2) any change is made to the coverage or the basic calculation of the
Index which constitutes a fundamental change which would, in the opinion
of the Bond Trustee acting solely on the advice of an Indexation Adviser, be
materially prejudicial to the interests of the Bondholders (where “materially
prejudicial” means that such change would have a material adverse effect on
the ability of the Issuer to pay any amounts of principal or interest in respect
of the Bonds on the relevant due date for payment therefor), the Bond
Trustee will give written notice of such occurrence to the Issuer, and the
Issuer and the Bond Trustee together shall seek to agree for the purpose of
the Bonds one or more adjustments to the Index or a substitute index (with
or without adjustments) with the intention that the same should leave the
Issuer and the Bondholders in no better and no worse position than they
would have been had the Index not ceased to be published or the relevant
fundamental change not been made.
(ii)
If the Issuer and the Bond Trustee fail to reach agreement as mentioned
above within 20 business days following the giving of notice as mentioned
in paragraph (i), a bank or other person in London shall be appointed by the
Issuer and the Bond Trustee or, failing agreement on and the making of such
appointment within 20 business days following the expiry of the 20 business
day period referred to above, by the Bond Trustee (in each case, such bank
or other person so appointed being referred to as the “Expert”), to
determine for the purpose of the Bonds one or more adjustments to the
Index or a substitute index (with or without adjustments) with the intention
that the same should leave the Issuer and the Bondholders in no better and
no worse position than they would have been had the Index not ceased to be
published or the relevant fundamental change not been made. Any Expert so
appointed shall act as an expert and not as an arbitrator and all fees, costs
and expenses of the Expert and of any Indexation Adviser and of any of the
Issuer and the Bond Trustee in connection with such appointment shall be
borne by the Issuer.
(iii)
If any payment in respect of the Bonds is due to be made after the cessation
or changes referred to in Condition 7(e)(i) but before any such adjustment
to, or replacement of, the Index takes effect, the Issuer shall (if the Index
Figure applicable (or deemed applicable) to the relevant month is not
available in accordance with the provisions of Condition 7(c)(i) (Change in
base) above) make a provisional payment on the basis that the Index Figure
applicable to the month in which such payment is due to be made is the
Index Figure last published. In that event, or in the event of any payment
(also referred to below as a “provisional payment”) on the Bonds having
been made on the basis of an Index applicable under Condition 7(c)(ii)(1)
and the Bond Trustee (acting solely on the advice of an Indexation Adviser)
subsequently determining that the relevant circumstances fall within this
Condition 7(e) (Cessation of or Fundamental Changes to the Index), then:
(iv)
8.
(A)
in relation to a payment of principal or interest in respect of the
Bonds other than upon final redemption of such Bond, if the sum
which would have been payable if such adjustment of substitute
index had been in effect on the due date for such payment is greater
or less than the amount of such provisional payment, the Interest
Amount payable on the Bonds on the Interest Payment Date next
succeeding the date on which such adjustment or substitute index
becomes effective shall be increased or reduced to reflect the
amount by which such provisional payment fell short of, or (as the
case may be) exceeded, the sum which would have been paid on
the Bonds if such adjustment or substituted index had been in effect
on that date; or
(B)
in relation to a payment of principal or interest upon final
redemption, no subsequent adjustment to amounts paid will be
made.
The Index shall be adjusted or replaced by a substitute index as agreed by
the Issuer and the Bond Trustee or as determined by the Expert pursuant to
the foregoing paragraphs, as the case may be, and references in these
Conditions to the Index and to any Index Figure shall be deemed amended
in such manner as the Bond Trustee and the Issuer agree are appropriate to
give effect to such adjustment or replacement. Such amendments shall be
effective from the date of such notification and binding upon the Issuer, the
other Issuer Secured Creditors, the Bond Trustee and the Bondholders, and
the Issuer shall give notice to the Bondholders in accordance with Condition
17 (Notices) of such amendments as promptly as practicable following such
notification.
Redemption, Purchase and Cancellation
(a)
Scheduled Redemption
Unless previously redeemed in full, or purchased and cancelled as provided below, or
unless such Bond is stated in the relevant Final Terms as having no fixed Final
Maturity Date, the Bonds will be redeemed on the Scheduled Redemption Date as
follows and to the following extent:
(i)
if, by the Scheduled Redemption Date, the Issuer has received repayment of
the related advance (in accordance with the provisions of the relevant IBLA)
of a principal amount equal to the Principal Amount Outstanding (in the
case of Index-Linked Bonds as adjusted in accordance with Condition 7(b)
(Application of the Index Ratio)), then the Bonds will be redeemed in full
(after exchange of such principal amount to the relevant currency pursuant
to the relevant Pari Passu Issuer Hedging Agreement, if such a Pari Passu
Issuer Hedging Agreement has been entered into); and
(ii)
if, by the Scheduled Redemption Date, the Issuer has received repayment of
the related advance (in accordance with the provisions of the relevant IBLA)
of a principal amount less than the Principal Amount Outstanding (in the
case of Index-Linked Bonds as adjusted in accordance with Condition 7(b)
(Application of the Index Ratio)), then the Bonds will be redeemed pro rata
in part to the extent of the amount which is so deposited (after exchange of
such principal amount to the relevant currency pursuant to the relevant Pari
Passu Issuer Hedging Agreement, if such a Pari Passu Issuer Hedging
Agreement has been entered into).
If the Bonds are not redeemed in full by the Scheduled Redemption Date, then on
each Interest Payment Date which thereafter occurs, the Bonds will be redeemed in
full or, as the case may be, pro rata in part to the extent of the principal amount (after
exchange of such principal amount to the relevant currency pursuant to the relevant
Pari Passu Issuer Hedging Agreement, if such a Pari Passu Issuer Hedging
Agreement has been entered into or, if there is no longer a Pari Passu Issuer Hedging
Agreement in place and the Bonds are denominated in a currency other than the
currency of the related advance, at a spot rate of exchange) which, if any, is received
by the Issuer in repayment of the related advance(s) (in accordance with the
provisions the relevant IBLA) until the earlier of (a) such time as the Bonds are
redeemed in full or (b) the Final Maturity Date specified in the relevant Final Terms
for the Bonds.
(b)
Final Redemption
If the Bonds of a Tranche have not previously been redeemed in full, or purchased
and cancelled, the Bonds of such Tranche will be finally redeemed at the then
Principal Amount Outstanding (in the case of Index-Linked Bonds as adjusted in
accordance with Condition 7(b) (Application of the Index Ratio)) plus accrued but
unpaid interest on the Final Maturity Date specified in the relevant Final Terms for
such Tranche.
(c)
Redemption of Zero Coupon Bonds after Scheduled Redemption Date
If the relevant Final Terms specifies that there is a Scheduled Redemption Date for
the Bonds, the Redemption Amount payable upon redemption of a Zero Coupon
Bond at any time after the Scheduled Redemption Date shall be an amount equal to
the sum of:
(i)
the Redemption Amount that would have been payable if the Bond had been
redeemed on the Scheduled Redemption Date; and
(ii)
the product of the Accrual Yield (compounded annually) being applied to
such amount from (and including) the Scheduled Redemption Date to (but
excluding) the date of redemption or (as the case may be) the date upon
which the Bond becomes due and payable.
Where such calculation is to be made for a period which is not a whole number of
years, the calculation in respect of the period of less than a full year shall be made on
the basis of such Day Count Fraction as may be specified in the Final Terms for the
purposes of Condition 8(h) (Early redemption of Zero Coupon Bonds) or, if none is
so specified, a Day Count Fraction of 30/360.
In these Conditions, “Accrual Yield” has the meaning given to it in the relevant
Final Terms.
(d)
Optional Redemption
Subject as provided below, upon giving not more than 60 nor less than 15 days’ prior
written notice to the Bond Trustee, the Issuer Secured Creditors and the Bondholders,
the Issuer may (prior to the Final Maturity Date) redeem the Bonds in whole or in
part (but on a pro rata basis only) on any Interest Payment Date at their Redemption
Amount, as follows:
(i)
In respect of Fixed Rate Bonds denominated in sterling, the Redemption
Amount will, unless otherwise specified in the relevant Final Terms, be an
amount equal to the higher of (i) their Principal Amount Outstanding and
(ii) the price determined to be appropriate by a financial adviser in London
(selected by the Issuer and approved by the Bond Trustee) as being the price
at which the Gross Redemption Yield (as defined below) on such Bonds on
the Reference Date (as defined below) is equal to the Gross Redemption
Yield at 3:00 p.m. (London time) on the Reference Date on the Reference
Gilt (as defined below) while that stock is in issue, and thereafter such UK
government stock as the Issuer may, with the advice of three persons
operating in the gilt edged market (selected by the Issuer and approved by
the Bond Trustee) determine to be appropriate, plus accrued but unpaid
interest on the Principal Amount Outstanding.
For the purposes of this Condition 8(d)(i), “Gross Redemption Yield”
means a yield expressed as a percentage and calculated on a basis consistent
with the basis indicated by the United Kingdom Debt Management Office
publication “Formulae for Calculating Gilt Prices from Yields” published on
8 June 1998 with effect from 1 November 1998 and updated on 15 January
2002, page 5 or any replacement therefor and, for the purposes of such
calculation, the date of redemption of the relevant Fixed Rate Bonds shall be
assumed to be the Scheduled Redemption Date and not Final Maturity Date;
“Reference Date” means the date which is two Business Days prior to the
despatch of the notice of redemption under this Condition 8(d)(i); and
“Reference Gilt” means the treasury stock specified in the relevant Final
Terms or, if no such security is specified, the Treasury stock whose
modified duration most closely matches that of the Bonds on the Reference
Date with the advice of three persons operating in the gilt-edged market
(selected by the Issuer and approved by the Bond Trustee).
(ii)
In respect of Floating Rate Bonds, the Redemption Amount will, unless
otherwise specified in the relevant Final Terms, be the Principal Amount
Outstanding plus any premium for early redemption in certain years (as
specified in the relevant Final Terms) plus any accrued but unpaid interest
on the Principal Amount Outstanding.
(iii)
In respect of Index-Linked Bonds denominated in sterling, the Redemption
Amount will (unless otherwise specified in the relevant Final Terms) be the
higher of (i) the Principal Amount Outstanding and (ii) the price determined
to be appropriate (without any additional indexation beyond the implicit
indexation in such determined price) by a financial adviser in London
(selected by the Issuer and approved by the Bond Trustee) as being the price
at which the Gross Real Redemption Yield (as defined below) on the Bonds
on the Reference Date (as defined below) is equal to the Gross Real
Redemption Yield at 3:00 p.m. (London time) on the Reference Date on the
Reference Gilt while that stock is in issue, and thereafter such UK
government stock as the Issuer may, with the advice of three persons
operating in the gilt edged market, (selected by the Issuer and approved by
the Bond Trustee), determine to be appropriate, plus accrued but unpaid
interest (as adjusted in accordance with Condition 7(b) (Application of the
Index Ratio)) on the Principal Amount Outstanding.
For the purposes of this Condition 8(d)(iii), “Gross Real Redemption
Yield” means a yield expressed as a percentage and calculated on a basis
consistent with the basis indicated by the United Kingdom Debt
Management Office publication “Formulae for Calculating Gilt Prices from
Yields” published on 8 June 1998 with effect from 1 November 1998 and
updated on 15 January 2002 and 16 March 2005 or any replacement
therefor, and, for the purposes of such calculation, the date of redemption of
the relevant Index-Linked Bonds shall be assumed to be Scheduled
Redemption Date and not the Final Maturity Date; “Reference Date” means
the date which is two Business Days prior to the despatch of the notice of
redemption under this Condition 8(d)(iii); and “Reference Gilt” means the
treasury stock specified in the relevant Final Terms or, if no such security is
specified, the Treasury stock whose modified duration most closely matches
that of the Bonds on the Reference Date with the advice of three persons
operating in the gilt-edged market (selected by the Issuer and approved by
the Bond Trustee).
(iv)
In respect of Fixed Rate Bonds denominated in euro, the Redemption
Amount will, unless otherwise specified in the relevant Final Terms, be an
amount equal to the higher of (i) their Principal Amount Outstanding and
(ii) the present value at the Reference Date (as defined below) of (A) their
Principal Amount Outstanding plus (B) all required interest payments due
on the Bonds (excluding accrued but unpaid interest to the date on which the
Bonds are to be redeemed (the “Redemption Date”)), computed using a
discount rate equal to the Bund Rate as of the Reference Date and assuming
the relevant Fixed Rate Bonds would otherwise have been redeemed on the
Scheduled Redemption Date, plus, in either case, accrued but unpaid interest
to the Redemption Date.
For the purposes of this Condition 8(d)(iv), “Bund Rate” means, with
respect to any Reference Date, the rate per annum equal to the equivalent
yield to maturity as of such date of the Comparable German Bund Issue,
assuming a price for the Comparable German Bund Issue (expressed as a
percentage of its principal amount) equal to the Comparable German Bund
Price on such date of determination; “Comparable German Bund Issue”
means the German Bundesanleihe security specified in the relevant Final
Terms or, if no such security is specified or the specified security is no
longer in issue, the German Bundesanleihe security selected by any
Reference German Bund Dealer as having a fixed maturity most nearly
equal to the period from such Reference Date to the Scheduled Redemption
Date and that would be utilised, at the time of selection and in accordance
with customary financial practice, in pricing new issues of eurodenominated corporate debt securities in a principal amount approximately
equal to the then Principal Amount Outstanding of the Bonds and of a
maturity most nearly equal to the Scheduled Redemption Date provided,
however, that if the period from such Redemption Date to the Scheduled
Redemption Date is less than one year, a fixed maturity of one year shall be
used; “Comparable German Bund Price” means, with respect to any
relevant date, the average of all Reference German Bund Dealer Quotations
for such date (which, in any event, must include at least two such
quotations), after excluding the highest and lowest such Reference German
Bund Dealer Quotations or, if the Financial Adviser obtains fewer than four
such Reference German Bund Dealer Quotations, the average of all such
quotations; “Financial Adviser” means a financial adviser in Frankfurt
(selected by the Issuer and approved by the Bond Trustee); “Reference
Date” means the date which is three Business Days prior to the dispatch of
the notice of redemption under this Condition 8(d)(iv); “Reference German
Bund Dealer” means any dealer of German Bundesanleihe securities
appointed by the Financial Adviser; and “Reference German Bund Dealer
Quotations” means, with respect to each Reference German Bund Dealer
and any relevant date, the average as determined by the Financial Adviser of
the bid and offered prices for the Comparable German Bund Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Financial Adviser by such Reference German Bund Dealer at
or about 3:30 p.m. (Frankfurt, Germany time) on the Reference Date.
(v)
In respect of Fixed Rate Bonds denominated in U.S. dollars, the Redemption
Amount will, unless otherwise specified in the relevant Final Terms, be an
amount equal to, the accrued but unpaid interest on the Principal Amount
Outstanding, plus the greater of (a) one per cent. of the Principal Amount
Outstanding and (b) the excess of: (i) the present value at such Optional
Redemption Date (as defined in the Final Terms) of the redemption price of
the Bonds at the Scheduled Redemption Date, plus all required interest
payments, that would otherwise be due to be paid on the Bonds during the
period between such Optional Redemption Date and the Scheduled
Redemption Date, excluding accrued but unpaid interest, computed using a
discount rate equal to the Treasury Rate (as defined below) at such Optional
Redemption Date plus 50 basis points, over (ii) the Principal Amount
Outstanding on such Optional Redemption Date.
“Treasury Rate” means, with respect to any Optional Redemption Date, (i)
the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated “H.15(519)” or any successor publication
which is published weekly by the Board of Governors of the Federal
Reserve System and which establishes yields on actively traded United
States Treasury securities adjusted to constant maturity under the caption
“Treasury Constant Maturities”, for the maturity corresponding to the
Comparable Treasury Issue (if no maturity is within three months before or
after the Scheduled Redemption Date, yields for the two published
maturities most closely corresponding to the Comparable Treasury Issue
shall be determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight line basis, rounding to the nearest
month) or (ii) if such release (or any successor release) is not published
during the week preceding the calculation date or does not contain such
yields, the rate per year equal to the semi-annual equivalent yield to maturity
of the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such redemption date,
in each case calculated on the third Business Day immediately preceding the
redemption date, where:
“Comparable Treasury Issue” means the United States Treasury security
specified in the relevant Final Terms or, if no such security is specified the
United States Treasury security selected by any Reference Treasury Dealer
as having a maturity comparable to the remaining term of the Bonds from
the Optional Redemption Date to the Scheduled Redemption Date, that
would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of a
maturity most nearly equal to the Scheduled Redemption Date;
“Comparable Treasury Price” means, with respect to any redemption date,
if clause (ii) of the definition of “Treasury Rate” is applicable, the average
of all Reference Treasury Dealer Quotations for such date (which, in any
event, must include at least two such quotations), after excluding the highest
and lowest such Reference Treasury Dealer Quotations, of if the Issuer
obtains fewer than four such Reference Treasury Dealer Quotations, the
average of all such quotations;
“Federal Reserve System” means the central banking system of the United
States;
“Reference Treasury Dealer” means any primary U.S. government
securities dealer appointed by the Issuer; and
“Reference Treasury Dealer Quotations” means with respect to each
Reference Treasury Dealer and any redemption date, the average, as
determined by the Issuer, of the bid and asked prices for the Comparable
Treasury Issue, expressed in each case as a percentage of its principal
amount, quoted in writing to the Issuer by such Reference Treasury Dealer
at 5:00 p.m., New York City time, on the third Business Day immediately
preceding such redemption date.
In any case, prior to giving any such notice, the Issuer must certify (as
further specified in the Finance Documents) to the Bond Trustee that it will
have the funds, not subject to any interest (other than under the Issuer
Security) of any other person, required to redeem the Bonds as aforesaid and
the Bond Trustee shall be entitled to rely on such certificate without liability
to any person.
In the case of a partial redemption of a Tranche of Bonds represented by a
Global Note (as defined in the Bond Trust Deed) pursuant to this Condition,
the Bonds to be redeemed (the “Redeemed Bonds”) will be selected in
accordance with the rules and procedures of Euroclear and/or Clearstream,
Luxembourg (to be reflected in the records of Euroclear and Clearstream,
Luxembourg as either a pool factor or a reduction in nominal amount, at
their discretion), not more than 30 days prior to the date fixed for
redemption (such date of selection being hereinafter called the “Selection
Date”). In the case of Redeemed Bonds in definitive form, a list of the
serial numbers of such Redeemed Bonds will be published in accordance
with Condition 17 (Notices) not less than 15 days (or such shorter period as
is specified in the applicable Final Terms) prior to the date fixed for
redemption. No exchange of the relevant Global Bond will be permitted
during the period from (and including) the Selection Date to (and including)
the date fixed for redemption pursuant to this Condition 8(d) and notice to
that effect shall be given by the Issuer to the Bondholders in accordance
with Condition 17 (Notices) at least five days (or such shorter period as is
specified in the applicable Final Terms) prior to the Selection Date.
(e)
Redemption for Index Event, Taxation or Other Reasons
(i)
Redemption for Index Events: Upon the occurrence of any Index Event (as
defined below), the Issuer may, upon giving not more than 15 nor less than
5 Business Days’ prior written notice to the Bond Trustee, the Issuer
Secured Creditors and the holders of the Index-Linked Bonds in accordance
with Condition 17 (Notices), redeem all (but not some only) of the
Index-Linked Bonds of all Tranche of Bonds on any Interest Payment Date
at the Principal Amount Outstanding (adjusted in accordance with Condition
7(b) (Application of Index Ratio)) plus accrued but unpaid interest. No
single Tranche of Index-Linked Bonds may be redeemed in these
circumstances unless all the other Tranche of Indexed Bonds linked to the
same underlying Index are also redeemed at the same time. Before giving
any such notice, the Issuer shall provide to the Bond Trustee and the Issuer
Secured Creditors a certificate signed by an authorised signatory (a) stating
that the Issuer is entitled to effect such redemption and setting forth a
statement of facts showing that the conditions precedent to the right of the
Issuer so to redeem have occurred and (b) confirming that the Issuer will
have sufficient funds on such Interest Payment Date to effect such
redemption.
“Index Event” means (i) if the Index Figure for three consecutive months
falls to be determined on the basis of an Index Figure previously published
as provided in Condition 7(c)(ii) (Delay in publication of Index) and the
Bond Trustee has been notified by the Principal Paying Agent that
publication of the Index has ceased or (ii) notice is published by Her
Majesty’s Treasury, or on its behalf, following a change in relation to the
Index, offering a right of redemption to the holders of the Reference Gilt,
and (in either case) no amendment or substitution of the Index has been
advised by the Indexation Adviser to the Issuer and such circumstances are
continuing.
(ii)
Redemption for Taxation Reasons and Illegality: In addition, if at any time
the Issuer satisfies the Bond Trustee:
(A)
that the Issuer would become obliged to deduct or withhold from
any payment of interest or principal in respect of the Bonds (other
than in respect of default interest), any amount for or on account of
Taxes by reason of any change in or amendment to such laws or
regulations or any change in the application or official
interpretation of such laws or regulations (including a holding by a
court of competent jurisdiction),
(B)
that, by reason of a change in law (or the application or official
interpretation thereof), which change becomes effective on or after
the Initial Issue Date, the Issuer is no longer a “securitisation
company” (as defined in the Taxation of Securitisation Companies
Regulations 2006 (SI 2006/3296) (for the purposes of this
Condition 8(e)(ii)(B), the “Regulations”)) and is otherwise unable
to claim a tax treatment in the United Kingdom that would prevent
a material increase in the tax liabilities of the Issuer compared to
the treatment previously provided to the Issuer under the
Regulations;
(C)
by reason of a change in law (or the application or official
interpretation thereof), which change becomes effective on or after
the Initial Issue Date that HS1 would on the next Interest Payment
Date be required to make any withholding or deduction for or on
account of any Taxes from payments in respect of an IBLA;
(D)
by reason of a change in law (or the application or official
interpretation thereof), which change becomes effective on or after
the Initial Issue Date that an Issuer Hedge Counterparty would be
entitled to terminate a Hedging Agreement in accordance with its
terms as a result of the Issuer or the Issuer Hedge Counterparty
being required to make any withholding or deduction for or on
account of any Taxes from payments in respect of an Issuer
Hedging Agreement; or
(E)
by reason of a change in law (or the application or official
interpretation thereof), which change becomes effective on or after
the Initial Issue Date that it has or will have the result that it will
become unlawful for the Issuer to perform any of its obligations
under any IBLA or to fund or to maintain its participation in the
Advances,
then the Issuer may, in order to avoid the relevant deductions,
withholding or illegality but is not obliged to, (i) use its reasonable
endeavours to arrange the substitution of a company incorporated
under the laws of another jurisdiction approved by the Bond
Trustee as principal debtor under the Bonds and as lender under an
IBLA upon satisfying the conditions for substitution of the Issuer
as set out in Condition 15 (Passing of resolutions by Bondholders,
Modification, Waiver and Substitution)) or (ii) convert any Bearer
Bonds into Registered Bonds in accordance with Condition 2(a)
(Exchange of Bonds) if such conversion will be effective to avoid
the relevant deduction or withholding or illegality. If the Issuer
elects not to seek to avoid the relevant deductions, or is unable to
arrange a substitution as described above having used reasonable
endeavours to do so or a conversion of Bearer Bonds to Registered
Bonds would not prevent any withholding or deduction or illegality
and, as a result, the relevant deduction or withholding or illegality
is continuing then the Issuer may, upon giving not more than 15
nor less than 5 Business Days’ prior written notice to the Bond
Trustee, the Issuer Secured Creditors and the Bondholders in
accordance with Condition 17 (Notices), redeem all (but not some
only) of the affected Tranche of Bonds on any Interest Payment
Date at their Principal Amount Outstanding plus accrued but
unpaid interest thereon (each adjusted, in the case of Index-Linked
Bonds, in accordance with Condition 7(b) (Application of the Index
Ratio)). Before giving any such notice of redemption, the Issuer
shall provide to the Bond Trustee a certificate signed by a director
of the Issuer (a) stating that the Issuer is entitled to effect such
redemption and setting forth a statement of facts showing that the
conditions precedent to the right of the Issuer so to redeem have
been satisfied and (b) confirming that the Issuer will have sufficient
funds on such Interest Payment Date to discharge all its liabilities
in respect of the Bonds and any amounts under the Issuer Deed of
Charge to be paid in priority to, or pari passu with, such Bonds
under the Issuer Payment Priorities. Upon the expiry of any such
notice as is referred to in Condition 8(e)(i) (Redemption for Index
Events), the Issuer shall be bound to redeem the Bonds in
accordance with this Condition 8(e)(ii).
The Bond Trustee shall be entitled to accept and rely without
further enquiry on any certificate referred to in this Condition 8(e)
as sufficient evidence of the satisfaction of the conditions precedent
set out above, in which event they shall be conclusive and binding
on the Bondholders, the Receiptholders and the Couponholders.
(f)
Early Redemption on Prepayment of an IBLA
If:
(i)
HS1 gives notice to the Issuer under an IBLA that it intends to prepay all or
part of any advance made under such IBLA or HS1 is required to prepay all
or part of any advance made under any IBLA; and
(ii)
in each case, such advance was funded by the Issuer from the proceeds of a
Tranche of Bonds,
the Issuer shall, upon giving not more than 10 nor less than 5 days’ notice to the
Bond Trustee, the Issuer Secured Creditors and the Bondholders in accordance with
Condition 17 (Notices), (where such advance is being prepaid in whole) redeem all of
the relevant Tranche of Bonds or (where part only of such advance is being prepaid)
the proportion of the relevant Tranche of Bonds which the proposed prepayment
amount bears to the amount of the relevant advance.
Subject to Condition 8(g) (Early redemption following Loan Enforcement Notice), in
the case of a voluntary prepayment, the relevant Tranche of Bonds will be redeemed
at its Redemption Amount determined in accordance with Condition 8(d) (Optional
Redemption) except that, in the case of Fixed Rate Bonds and Index-Linked Bonds,
for purposes of this Condition 8(f), “Reference Date” means the date two Business
Days prior to the despatch of the notice of redemption given under this Condition
8(f), plus accrued but unpaid interest and, in the case of any other prepayment, the
relevant Bonds will be redeemed at their Principal Amount Outstanding plus accrued
but unpaid interest.
Notwithstanding the foregoing, no redemption of Call Protected Floating Rate Bonds,
Fixed Rate Bonds or Index-Linked Bonds shall be made in respect of any Tranche of
Call Protected Floating Rate Bonds, Fixed Rate Bonds or Index-Linked Bonds at
such Redemption Amount unless sanctioned by an Extraordinary Resolution of the
Bondholders of the relevant Tranche of Call Protected Floating Rate Bonds, Fixed
Rate Bonds or Index-Linked Bonds, duly passed in accordance with the Bond Trust
Deed. For the purposes of this Condition 8(f) “Call Protected Floating Rate
Bonds” means any Floating Rate Bonds, the Final Terms in respect of which, at the
proposal date of redemption, would oblige the Issuer to pay a premium to par upon
the optional early redemption of such Floating Rate Bonds.
(g)
Early redemption following Loan Enforcement Notice
If the Issuer receives (or is to receive) any monies from HS1 following the service of
a Loan Enforcement Notice in repayment of all or any part of an Advance, the Issuer
shall, upon giving not more than 10 nor less than 5 days’ notice to the Bond Trustee,
the Issuer Secured Creditors and the Bondholders in accordance with Condition 17
(Notices) apply such monies to redeem the then outstanding Bonds of the relevant
Tranche corresponding to the advance under an IBLA which is prepaid at their
Principal Amount Outstanding (adjusted for indexation in the case of Index-Linked
Bonds) plus accrued but unpaid interest on the next Interest Payment Date (or, if
sooner, Final Maturity Date). In the event that there are insufficient monies to
redeem all of the Bonds outstanding of a particular Tranche, the Bonds of such
Tranche shall be redeemed in part in the proportion which the Principal Amount
Outstanding of such Tranche to be redeemed bears to the Principal Amount
Outstanding of such Tranche.
(h)
Early redemption of Zero Coupon Bonds
Unless otherwise specified in the relevant Final Terms, the Redemption Amount
payable on redemption of a Zero Coupon Bond at any time before the Final Maturity
Date shall be an amount equal to the sum of:
(i)
the Reference Price; and
(ii)
the product of the Accrual Yield (compounded annually) being applied to
the Reference Price from (and including) the Issue Date to (but excluding)
the date fixed for redemption or (as the case may be) the date upon which
the Bond becomes due and payable.
Where such calculation is to be made for a period which is not a whole number of
years, the calculation in respect of the period of less than a full year shall be made on
the basis of such Day Count Fraction as may be specified in the Final Terms for the
purposes of this Condition 8(h) or, if none is so specified, a Day Count Fraction of
30/360.
In these Conditions, “Accrual Yield” and “Reference Price” have the meanings
given to them in the relevant Final Terms.
(i)
Purchase of Bonds
Each of the Issuer, a nominee of the Issuer, Holdco or a Subsidiary of Holdco may,
provided that no Loan Event of Default or Bond Event of Default has occurred and is
continuing, purchase Bonds (together with all unmatured Receipts and Coupons and
unexchanged Talons (if any) appertaining thereto) in the open market or otherwise
(but not, for the avoidance of doubt, in any initial distribution of Bonds) at any price
(without any obligation to surrender such Bonds for cancellation other than as set out
in Condition 8(k) (Cancellation)) and, to the extent that such Bonds have not been
cancelled, may resell them in the open market or otherwise at any price. Any
purchase by tender shall be made available to all Bondholders alike.
Any Bond purchased by the Issuer, Holdco or a Subsidiary of Holdco shall, for so
long as it is held by it (or on its behalf), cease to have voting rights and be excluded
from any quorum or voting calculations set out in the Conditions.
While the Bonds are represented by a Global Bond, the relevant Global Bond will be
endorsed to reflect the Principal Amount Outstanding of Bonds to be so redeemed or
purchased.
(j)
Redemption by Instalments
Unless previously redeemed, purchased and cancelled as provided in this Condition
8, each Bond which provides for Instalment Dates (as specified in the relevant Final
Terms) and Instalment Amounts (as specified in the relevant Final Terms) will be
partially redeemed on each Instalment Date at the Instalment Amount.
(k)
Cancellation
Any Bearer Bonds or Registered Bonds which are: (i) redeemed by the Issuer; (ii)
purchased or held by or on behalf of the Issuer or any other person specified in
Condition 8(i) (Purchase of Bonds) following a Loan Event of Default; or (iii)
purchased by or on behalf of the Issuer or a Obligor or any equivalent or similar
provision in any Authorised Credit Facility to the extent required to cure a Trigger
Event in accordance with the CTA, shall, in each case, be surrendered to or to the
order of the Principal Paying Agent or the Registrar, as the case may be, for
cancellation and, if so surrendered, will, together with all Bonds redeemed by the
Issuer, be cancelled forthwith (together with, in the case of Bearer Bonds, all
unmatured Receipts and Coupons and unexchanged Talons attached thereto or
surrendered therewith). Any Bonds so surrendered for cancellation may not be
reissued or resold and the obligations of the Issuer in respect of any such Bonds shall
be discharged.
9.
Payments
(a)
Bearer Bonds
Payments to the Bondholders of principal (or, as the case may be, Redemption Amounts or
other amounts payable on redemption) and interest (or, as the case may be, Interest Amounts)
in respect of Bearer Bonds will, subject as mentioned below, be made against presentation and
surrender of the relevant Receipts (in the case of payment of Instalment Amounts other than
on the due date for final redemption and provided that the Receipt is presented for payment
together with its relative Bond), Bonds (in the case of all other payments of principal and, in
the case of interest, as specified in Condition 9(f) (Unmatured Coupons and Receipts and
Unexchanged Talons)) or Coupons (in the case of interest, save as specified in Condition 9(f)
(Unmatured Coupons and Receipts and Unexchanged Talons)), as the case may be, at the
specified office of any Paying Agent outside the United States of America by transfer to an
account denominated in the currency in which such payment is due with, or (in the case of
Bonds in definitive form only) a cheque payable in that currency drawn on, a bank in (i) the
principal financial centre of that currency provided that such currency is not euro, or (ii) the
principal financial centre of any Participating Member State if that currency is euro.
No payment of principal and/or interest in respect of a Bearer Bond with an original maturity
of more than 1 year will be made by a transfer of funds into an account maintained by the
payee in the United States or by mailing a cheque to an address in the United States, except as
provided in Condition 9(c) (Payments in the United States of America).
(b)
Registered Bonds
Payments of principal (or, as the case may be, Redemption Amounts) in respect of Registered
Bonds will be made to the holder (or the first named of joint holders) of such Bond against
presentation and surrender of the relevant Registered Bond at the specified office of the
Registrar and in the manner provided in Condition 9(a) (Bearer Bonds).
Payments of instalments in respect of Registered Bonds will be made to the holder (or the first
named of joint holders) of such Bond against presentation of the relevant Registered Bond at
the specified office of the Registrar in the manner provided in Condition 9(a) (Bearer Bonds)
above and annotation of such payment on the Register and the relevant Bond certificate.
Interest (or, as the case may be, Interest Amounts) on Registered Bonds payable on any
Interest Payment Date will be paid to the holder (or the first named if joint holders) on the
fifteenth day before the due date for payment thereof (the “Record Date”). Payment of
interest or Interest Amounts on each Registered Bond will be made in the currency in which
such payment is due by cheque drawn on a bank in (a) the principal financial centre of the
country of the currency concerned, provided that such currency is not euro, or (b) the principal
financial centre of any Participating Member State if that currency is euro and mailed to the
holder (or to the first named of joint holders) of such Bond at its address appearing in the
Register. Upon application by the Bondholder to the specified office of the Registrar before
the relevant Record Date, such payment of interest may be made by transfer to an account in
the relevant currency maintained by the payee with a bank in (a) the principal financial centre
of the country of that currency provided that such currency is not euro, or (b) the principal
financial centre of any Participating Member State if that currency is euro.
A record of each payment so made will be endorsed on the schedule to the Global Bond by or
on behalf of the Principal Paying Agent or the Registrar, as the case may be, which
endorsement shall be prima facie evidence that such payment has been made.
(c)
Payments in the United States of America
Notwithstanding the foregoing, if any Bearer Bonds are denominated in U.S. dollars,
payments in respect thereof may be made at the specified office of any Paying Agent in New
York City in the same manner as aforesaid if:
(d)
(i)
the Issuer shall have appointed Paying Agents with specified offices outside the
United States of America with the reasonable expectation that such Paying Agents
would be able to make payment of the amounts on the Bonds in the manner provided
above when due;
(ii)
payment in full of such amounts at all such offices is illegal or effectively precluded
by exchange controls or other similar restrictions on payment or receipt of such
amounts; and
(iii)
such payment is then permitted by the law of the United States of America, without
involving, in the opinion of the Issuer, adverse tax consequences to the Issuer.
Payments subject to fiscal laws; payments on Global Bonds and Registered Bonds
All payments are subject in all cases to any applicable fiscal or other laws, regulations and
directives, but without prejudice to the provisions of this Condition 9. No commission or
expenses shall be charged to the Bondholders, Couponholders or Receiptholders (if any) in
respect of such payments.
The holder of a Global Bond shall be the only person entitled to receive payments of principal
(or Redemption Amounts) and interest (or Interest Amounts) on the Global Bond and the
Issuer will be discharged by payment to, or to the order of, the holder of such Global Bond in
respect of each amount paid.
(e)
Appointment of the Agents
The Agents appointed by the Issuer (and their respective specified offices) are listed in the
Agency Agreement. Any Calculation Agent will be listed in the relevant Final Terms and will
be appointed pursuant to a Calculation Agency Agreement. The Agents act solely as agents of
the Issuer (and, in the circumstances set out in the Agency Agreement, the Bond Trustee) and
do not assume any obligation or relationship of agency or trust for or with any holder. The
Issuer reserves the right, with the prior written consent of the Bond Trustee at any time to vary
or terminate the appointment of any Agent, and to appoint additional or other Agents,
provided that the Issuer will at all times maintain (i) a Principal Paying Agent (in the case of
Bearer Bonds), (ii) a Registrar (in the case of Registered Bonds), (iii) an Agent Bank or
Calculation Agent (as specified in the relevant Final Terms) (in the case of Floating Rate
Bonds or Index-Linked Bonds), (iv) a Paying Agent with a specified office in a European
Union member state that will not be obliged to withhold or deduct tax pursuant to European
Council Directive 2003/48/EC on the taxation of savings income or any law implementing or
complying with, or introduced to conform to, such Directive; and (v) if and for so long as the
Bonds are admitted to listing, trading and/or quotation by any listing authority, stock exchange
and/or quotation system which requires the appointment of a Paying Agent, Transfer Agent or
Registrar in any particular place, a Paying Agent, Transfer Agent and/or Registrar, as
applicable, having its specified office in the place required by such listing authority, stock
exchange and/or quotation system, which, while any Bonds are admitted to the Official List of
the UK Listing Authority and/or admitted to trading on the London Stock Exchange, shall be
London. Notice of any such variation, termination or appointment will be given in accordance
with Condition 17 (Notices).
(f)
Unmatured Coupons and Receipts and Unexchanged Talons
(i)
Subject to the provisions of the relevant Final Terms, upon the due date for
redemption of any Bond which is a Bearer Bond (other than a Fixed Rate Bond,
unless it has all unmatured Coupons attached), unmatured Coupons and Receipts
relating to such Bond (whether or not attached) shall become void and no payment
shall be made in respect of them.
(ii)
Upon the date for redemption of any Bond, any unmatured Talon relating to such
Bond (whether or not attached) shall become void and no Coupon shall be delivered
in respect of such Talon.
(iii)
Upon the due date for redemption of any Bond which is redeemable in instalments,
all Receipts relating to such Bond having an Instalment Date falling on or after such
due date (whether or not attached) shall become void and no payment shall be made
in respect of them.
(iv)
Where any Bond, which is a Bearer Bond and is a Fixed Rate Bond, is presented for
redemption without all unmatured Coupons and any unexchanged Talon relating to it,
a sum equal to the aggregate amount of the missing unmatured Coupons will be
deducted from the amount of principal due for payment and, redemption shall be
made only against the provision of such indemnity as the Issuer may require.
(v)
(g)
(h)
If the due date for redemption of any Bond is not an Interest Payment Date, interest
accrued from the preceding Interest Payment Date or the Interest Commencement
Date, as the case may be, or the Interest Amount payable on such date for redemption
shall only be payable against presentation (and surrender if appropriate) of the
relevant Bond and Coupon.
Payment Business Days
(i)
Bearer Bonds: If the due date for payment of any amount in respect of any Bearer
Bond or Coupon is not a Payment Business Day in the place of presentation, the
holder shall not be entitled to payment in such place of the amount due until the next
succeeding Payment Business Day in such place and shall not be entitled to any
further interest or other payment in respect of any such delay.
(ii)
Registered Bonds: Where payment is to be made by transfer to an account, payment
instructions (for value the due date, or, if the due date is not Payment Business Day,
for value the next succeeding Payment Business Day) will be initiated and, where
payment is to be made by cheque, the cheque will be mailed (i) (in the case of
payments of principal and interest payable on redemption) on the later of the due date
for payment and the day on which the relevant Bond is surrendered (or, in the case of
part payment only, endorsed) at the Specified Office of a Paying Agent and (ii) (in
the case of payments of interest payable other than on redemption) on the due date
for payment. A Holder of a Registered Bond shall not be entitled to any interest or
other payment in respect of any delay in payment resulting from (A) the due date for
a payment not being a Payment Business Day or (B) a cheque mailed in accordance
with this Condition 9(g) arriving after the due date for payment or being lost in the
mail.
Talons
On or after the Interest Payment Date for the final Coupon forming part of a coupon sheet
issued in respect of any Bond, the Talon forming part of such coupon sheet may be
surrendered at the specified office of any Paying Agent in exchange for a further coupon sheet
(and if necessary another Talon for a further coupon sheet) (but excluding any Coupons which
may have become void pursuant to Condition 13 (Prescription)).
10.
Taxation
All payments in respect of the Bonds, Receipts or Coupons will be made (whether by the
Issuer, any Paying Agent, the Registrar or the Bond Trustee) free and clear of, and without
withholding or deduction for, or on account of, any present or future taxes, duties, assessments
or charges of whatsoever nature unless the Issuer, any Paying Agent or the Registrar or, where
applicable, the Bond Trustee is required by applicable law to make any payment in respect of
the Bonds, Receipts or Coupons subject to any withholding or deduction for, or on account of,
any present or future taxes, duties, assessments or charges of whatsoever nature. In that event,
the Issuer, such Paying Agent, the Registrar or the Bond Trustee, as the case may be, shall
make such payment after such withholding or deduction has been made and shall account to
the relevant authorities for the amount so required to be withheld or deducted. None of the
Issuer, any Paying Agent, the Registrar or the Bond Trustee will be obliged to make any
additional payments to the Bondholders, Receiptholders or the Couponholders in respect of
such withholding or deduction. The Issuer, any Paying Agent, the Registrar or the Bond
Trustee may require holders to provide such certifications and other documents as required by
applicable law in order to qualify for exemptions from applicable tax laws.
For the avoidance of doubt, any amounts to be paid on the Bonds, Receipts or Coupons by or
on behalf of the Issuer, will be paid net of any deduction or withholding imposed or required
pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of
1986 (the “Code”), or otherwise imposed pursuant to Sections 1471 through 1474 of the Code
(or any regulations thereunder or official interpretations thereof) or an intergovernmental
agreement between the United States and another jurisdiction facilitating the implementation
thereof (or any fiscal or regulatory legislation, rules or practices implementing such an
intergovernmental agreement) (any such withholding or deduction, a “FATCA
Withholding”) and FATCA Withholding is a tax the deduction or withholding of which is
required by applicable law for purposes of this Condition 10 and Condition 9(d).
11.
Bond Events of Default
(a)
Bond Event of Default
Each and any of the following events shall be treated as a “Bond Event of Default”:
(b)
(i)
Non payment: default is made by the Issuer for a period of 3 Business Days
in the payment of interest or principal on any Tranche of the Bonds when
due in accordance with these Conditions;
(ii)
Breach of other obligations: default is made by the Issuer in the
performance or observance of any other obligation, condition, provision,
representation or warranty binding upon or made by it under the Bonds or
the Issuer Transaction Documents (other than the Dealership Agreement or
any Subscription Agreement and other than any obligation whose breach
would give rise to the Bond Event of Default provided for in Condition
11(a)(i) (Non Payment)) and, except where in the opinion of the Bond
Trustee the such default is not capable of remedy, such default continues for
a period of 30 Business Days;
(iii)
Insolvency Event: an Insolvency Event occurs in relation to the Issuer; or
(iv)
Unlawfulness: it is or will become unlawful for the Issuer to perform or
comply with any of its obligations under or in respect of the Bonds or the
Issuer Transaction Documents (other than the Dealership Agreement or any
Subscription Agreement).
Delivery of Bond Enforcement Notice
If any Bond Event of Default occurs and is continuing, the Bond Trustee (i) may, at
any time, at its discretion and (ii) shall, upon being so directed in writing by the
Issuer Qualifying Creditors together holding or representing 25 per cent. or more of
the Issuer Qualifying Debt or if directed by an Extraordinary Resolution, deliver a
Bond Enforcement Notice to the Issuer provided that, in either case, it is indemnified
and/or secured and/or prefunded to its satisfaction.
(c)
Confirmation of no Bond Event of Default
The Issuer, pursuant to the terms of the Bond Trust Deed, shall provide written
confirmation to the Bond Trustee, on an annual basis (and at any other time on
request of the Bond Trustee), that no Bond Event of Default has occurred.
(d)
Consequences of the delivery of a Bond Enforcement Notice
Upon delivery of a Bond Enforcement Notice in accordance with Condition 11(b)
(Delivery of Bond Enforcement Notice): (i) all Tranches of the Bonds then
outstanding shall immediately become due and repayable at their respective Principal
Amount Outstanding (in the case of Index-Linked Bonds, as adjusted in accordance
with Condition 7(b) (Application of the Index Ratio)) plus accrued but unpaid interest
(other than in the case of Zero Coupon Bonds) and, in the case of Index-Linked
Bonds, as adjusted in accordance with Condition 7(b) (Application of the Index
Ratio) and (ii) the Issuer Security shall become enforceable by the Issuer Security
Trustee in accordance with the Issuer Deed of Charge.
12.
(e)
“Issuer Qualifying Creditors” means in respect of Issuer Qualifying Debt, for so
long as any Bonds remain outstanding, the holders of the Bonds, and each Pari Passu
Issuer Hedge Counterparty that is party to an Issuer Hedging Agreement in respect of
the Bonds.
(f)
“Issuer Qualifying Debt” means for so long as any Bonds remain outstanding, the
sum of (i) the Principal Amount Outstanding of the Bonds and (ii) the mark to market
value of all transactions arising under Issuer Hedging Agreements in respect of the
Bonds to the extent that such value represents an amount which would be payable to
the relevant Pari Passu Issuer Hedge Counterparties if an early termination date was
designated at relevant date in respect of such transactions as determined by the
relevant Pari Passu Issuer Hedge Counterparty in accordance with the Issuer Hedging
Agreements, as certified by the relevant Pari Passu Issuer Hedge Counterparty to the
Bond Trustee.
Enforcement Against Issuer
No Bondholder, Receiptholder, Couponholder or other Issuer Secured Creditor is entitled to
take any action against the Issuer or any other member of the Holdco Group or against any
assets of the Issuer or any other member of the Holdco Group to enforce its rights in respect of
the Bonds or to enforce any of the Issuer Security unless the Bond Trustee or, as the case may
be, the Issuer Security Trustee, having become bound so to proceed, fails or neglects to do so
within a reasonable period and such failure or neglect is continuing. The Bond Trustee shall,
subject to being indemnified and/or secured and/or pre-funded to its satisfaction against all
fees, costs, expenses, liabilities, claims and demands to which it may thereby become liable or
which it may incur by so doing, upon being so directed in writing by the Issuer Qualifying
Creditors together holding or representing 25 per cent. or more of the Issuer Qualifying Debt,
enforce the Issuer Security in accordance with the Issuer Deed of Charge.
None of the Bond Trustee, the Issuer Security Trustee, the Bondholders, the Receiptholders,
the Couponholders or the other Issuer Secured Creditors may institute against, or join any
person in instituting against, the Issuer or any other member of the Holdco Group any
bankruptcy, winding up, re organisation, arrangement, insolvency or liquidation proceeding
(except for the taking of any enforcement action under the Issuer Deed of Charge including
the appointment of a Receiver pursuant to the terms of the Issuer Deed of Charge) or other
proceeding under any similar law for so long as any Bonds are outstanding or for two years
and a day after the latest Final Maturity Date on which any Bond of any Tranche is due to
mature.
13.
Prescription
Claims against the Issuer for payment in respect of the Bonds, Receipts or Coupons (which,
for this purpose, shall not include Talons) shall be prescribed and become void unless made
within ten years (in the case of principal) or five years (in the case of interest) from the
appropriate Bond Relevant Date (as defined in Condition 22 (Definitions)) in respect thereof.
14.
Replacement of Bonds, Coupons, Receipts and Talons
If any Bearer Bond, Registered Bond, Receipt, Coupon or Talon is lost, stolen, mutilated,
defaced or destroyed it may be replaced, subject to applicable laws and requirements of the
Stock Exchange (in the case of listed Bonds) (and each other listing authority, stock exchange
and or quotation system upon which the relevant Bonds have then been admitted to listing,
trading and/or quotation), at the specified office of the Principal Paying Agent or, as the case
may be, the Registrar upon payment by the claimant of the expenses incurred in connection
with such replacement and on such terms as to evidence, security, indemnity and otherwise as
the Issuer may require. Mutilated or defaced Bonds, Receipts, Coupons or Talons must be
surrendered before replacements will be issued.
15.
Passing of resolutions by Bondholders, Modification, Waiver and Substitution
(a)
Passing of resolutions by Bondholders, Modifications and Waiver
No physical meetings will be required in respect of any Voting Matter and a Bondholder may
only Vote in respect of any Voting Matter by means of a Block Voting Instruction. However,
the Bond Trustee may, without the consent of the Issuer or the Bondholders, prescribe such
further regulations regarding voting by the Bondholders in respect of all Voting Matters
except HS1 STID Proposals as the Bond Trustee may in its sole discretion think fit, including
the calling of one or more meetings of Bondholders in order to approve any resolution to be
put to the Bondholders where the Bond Trustee, in its sole discretion, considers it to be
appropriate to hold a meeting.
In respect of any HS1 STID Proposal:
(i)
each Bondholder may only vote on such HS1 STID Proposal by way of Block Voting
Instruction and each Bondholder shall have one vote in respect of each £1 (or its
equivalent expressed in sterling on the basis of the Exchange Rate) of the
Outstanding Principal Amount of Bonds held or represented by it;
(ii)
each Bondholder must vote on or prior to the time specified by the Principal Paying
Agent or, as the case may be, Registrar and/or relevant clearing system in order to
enable the Principal Paying Agent or, as the case may be, a Paying Agent or the
Registrar to issue a Block Voting Instruction on the Voting Date, provided that if a
Bondholder does not vote in sufficient time to allow the Principal Paying Agent, or,
as the case may be, a Paying Agent or the Registrar to issue a Block Voting
Instruction in respect of its Bonds prior to the end of the Voting Period, the Votes of
such Bondholder may not be counted;
(iii)
in respect of such HS1 STID Proposal, the Bond Trustee shall vote as the Secured
Creditor Representative of the Bondholders in respect of each Tranche of Bonds then
outstanding by notifying the HS1 Security Trustee, the Issuer and the Issuer Security
Trustee, in accordance with the STID promptly following the receipt by it of such
Votes (and in any case not later than the Business Day following receipt of each such
Vote), of each Vote comprised in a Block Voting Instruction received by it from a
Paying Agent or the Registrar on or prior to the Voting Date (or, if earlier the
relevant Voting Closure Date); and
(iv)
such HS1 STID Proposal duly approved by the Qualifying HS1 Secured Creditors in
accordance with the STID shall be binding on all Bondholders, Receiptholders and
Couponholders (subject as provided in the STID). The Bond Trustee shall, following
receipt of the result of any vote in respect of such HS1 STID Proposal, promptly
notify the Bondholders in accordance with Condition 17 (Notices).
In respect of (a) a STID Proposal that gives rise to an Entrenched Right in respect of which the
Issuer is an Affected HS1 Secured Creditor (an “Entrenched Right STID Proposal”); and
(b) any Voting Matter which is not a HS1 STID Proposal (an “Other Voting Matter”):
(i)
the Issuer or the Bond Trustee may at any time, and the Bond Trustee must if (a) it
receives an Entrenched Right STID Proposal; or (b) directed to do so by Bondholders
representing not less than 10% of the Principal Amount Outstanding of the Bonds,
request that such Voting Matter be considered by the Bondholders. The Issuer or the
Bond Trustee shall send a notice (a “Voting Notice”) to the Bondholders of each
affected Tranche of Bonds, specifying the Voting Date (which shall initially be set
with at least 21 days’ notice) and Voting Matter(s) including the terms of any
resolution to be proposed;
(ii)
each Bondholder shall have one vote in respect of each £1 (or its equivalent
expressed in Sterling on the basis of the Exchange Rate) of Principal Amount
Outstanding of the Bonds held or represented by it;
(iii)
each Bondholder must vote prior to the close of business (London time) 24 hours
prior to the Voting Date so that his votes can be included in a Block Voting
Instruction which needs to be deposited at least 24 hours before the Voting Date; and
(iv)
on or before the Business Day immediately preceding the last day of the Decision
Period, the Bond Trustee shall notify the HS1 Security Trustee, the Issuer and the
Issuer Security Trustee in writing of whether or not the holders of each affected
Tranche of Bonds then outstanding have passed an Extraordinary Resolution
approving the relevant STID Proposal.
In order for an Extraordinary Resolution to be approved by the Bondholders (subject as
provided below), one or more Bondholders representing 50 per cent. or more of the aggregate
Principal Amount Outstanding of the Bonds for the time being outstanding, who for the time
being are entitled to receive notice of an Other Voting Matter, need to participate in any initial
Vote, provided that in respect of any Voting Matter the business of which includes any of the
following matters (each of which, a “Basic Terms Modification” and which shall only be
capable of being effected after having been approved by an Extraordinary Resolution) namely:
(i)
to change any date fixed for payment of principal or interest in respect of any
Tranche of Bonds, to reduce or cancel the amount of principal or interest payable on
any date in respect of any Tranche of Bonds or (other than as specified in Condition 8
(Redemption, Purchase and Cancellation)) to alter the method of calculating the
amount of any payment in respect of any Tranche of Bonds on redemption or
maturity;
(ii)
to effect the exchange, conversion or substitution of any Tranche of Bonds for, or
their conversion into, shares, notes or other obligations or securities of the Issuer or
any other person or body corporate formed or to be formed;
(iii)
to change the currency in which amounts due in respect of any Tranche of Bonds are
payable other than pursuant to redenomination into euro pursuant to Condition 19
(European Economic and Monetary Union);
(iv)
to alter any of the Issuer Payment Priorities insofar as such alteration would affect
any Tranche of Bonds;
(v)
to change the quorum required or the majority required to pass an Extraordinary
Resolution; or
(vi)
to amend this definition or this Condition 15(a),
one or more Bondholders representing 75 per cent. or more of the aggregate Principal Amount
Outstanding of Bonds for the time being outstanding, who, for the time being are entitled to
receive notice of such an Other Voting Matter, need to participate in any initial Vote.
The above percentage requirements of Bondholders who need to participate in a particular
Other Voting Matter are referred to herein as the “Extraordinary Quorum Requirements”.
If, on a Voting Date, the Extraordinary Quorum Requirements are not satisfied for the
transaction of any particular business then, subject and without prejudice to the transaction of
the business (if any) for which the Extraordinary Quorum Requirements are satisfied, such
Voting Date shall be postponed to the same day in the next week (or if such day is a public
holiday the next succeeding business day) (an “Adjourned Voting Date”) except where an
Extraordinary Resolution is to be proposed in which case the Adjourned Voting Date shall be
a day (being a business day) during the period, being not less than 7 clear days nor more than
14 clear days, subsequent to such Voting Date, and approved by the Bond Trustee. On any
Adjourned Voting Date, one or more Votes (whatever the Principal Amount Outstanding of
the Bonds then outstanding so held or represented by them) shall (subject as provided below)
form a quorum and shall have the power to pass any Extraordinary Resolution or Ordinary
Resolution and to decide upon all matters which could properly have been dealt with through
the original Vote had the requisite Extraordinary Quorum Requirements been met, provided
that on any Adjourned Voting Date the Extraordinary Quorum Requirements for the
transaction of business comprising any of the matters specified to be a Basic Terms
Modification shall be at least 25 per cent. of the aggregate Principal Amount Outstanding of
the Bonds for the time being outstanding, who for the time being are entitled to receive notice
of an Other Voting Matter, need to participate in such Vote.
Notice of any Adjourned Voting Date at which an Extraordinary Resolution is to be voted
upon shall be given in the same manner as a Voting Notice but as if 5 days’ notice were
substituted for 21 days’ notice discussed above (in respect of an Other Voting Matter) and
such notice shall state the relevant quorum. Subject as aforesaid it shall not be necessary to
give any notice of an Adjourned Voting Date.
Any resolution approved by the Bondholders in accordance with the terms hereof shall be
binding upon all the Bondholders whether or not voting and upon all relevant Couponholders
and each of them shall be bound to give effect thereto accordingly and the approval of any
such resolution shall be conclusive evidence that the circumstances justify the approval
thereof. Notice of the result of the voting on any resolution duly approved by the Bondholders
shall be published in accordance with Condition 17 (Notices) by the Principal Paying Agent or
the Registrar, as applicable, on behalf of the Issuer within 7 days of such result being known,
provided that the non-publication of such notice shall not invalidate such result.
If and whenever the Issuer shall have issued and have outstanding more than one Tranche of
Bonds the foregoing provisions of this Condition shall have effect subject to the following
modifications:
(i)
a resolution which in the opinion of the Bond Trustee affects only one Tranche of
Bonds shall be deemed to have been duly approved if approved through a separate
Vote of the holders of that Tranche of Bonds;
(ii)
a resolution which in the opinion of the Bond Trustee affects holders of more than
one Tranche of Bonds but does not give rise to a conflict of interest between the
holders of any of the Tranches of Bonds so affected shall be deemed to have been
duly approved if approved through a separate Vote of the holders of all the Tranches
of the Bonds so affected;
(iii)
a resolution which in the opinion of the Bond Trustee affects more than one Tranche
of Bonds and gives or may give rise to a conflict of interest between the holders of
one Tranche of Bonds so affected and the holders of another Tranche of Bonds shall
be deemed to have been duly approved only if approved through separate Votes of
the holders of each Tranche of Bonds;
(iv)
in respect of all such approvals all the preceding provisions of this Condition shall
apply mutatis mutandis as though references therein to Bonds and Bondholders were
references to the Tranche of Bonds in question or to the holders of such Tranche of
Bonds, as the case may be;
(v)
no Extraordinary Resolution involving a Basic Terms Modification (other than where
such Basic Terms Modification is of the kind specified in limb (i) of the definition
thereof and where such Basic Terms Modification is passed by the holders of all
affected Tranche of Bonds in accordance with (vi) below) that is approved by the
holders of one Tranche of Bonds shall be effective unless it is sanctioned by an
Extraordinary Resolution of the holders of each of the other Tranches of Bonds (to
the extent that there are Bonds outstanding in each such other Tranche); and
(vi)
(b)
an Extraordinary Resolution involving a Basic Terms Modification of the kind
specified in limb (i) of the definition thereof may be approved by the holders of all
Tranches of Bonds adversely affected by such Basic Terms Modification (but need
not be approved by the holders of Tranches of Bonds which are not affected thereby).
Modification, waiver and substitution
As set out in the Bond Trust Deed and the Issuer Deed of Charge (and subject to the
conditions and qualifications therein), the Bond Trustee may, without the consent of the
Bondholders or (subject as provided below) any other Issuer Secured Creditor, concur with the
Issuer or any other relevant parties or direct the Issuer Security Trustee to concur with the
Issuer or any other relevant parties in making (i) any modification to the Bond Trust Deed, the
Conditions, the Bonds, the Receipts, the Coupons or the Issuer Transaction Documents (other
than the Dealership Agreement or any Subscription Agreement) (subject as provided in the
STID in relation to any Common Documents) or other document to which it is a party or in
respect of which it holds security if in the opinion of the Bond Trustee such modification is
made to correct a manifest error, or an error in respect of which an English court would
reasonably be expected to make a rectification order, or is of a formal, minor, administrative
or technical nature or (ii) any modification (other than in respect of a Basic Terms
Modification) to the Bond Trust Deed, the Conditions, the Bonds, the Receipts, the Coupons
or any Issuer Transaction Document (other than the Dealership Agreement or any
Subscription Agreement) (subject as provided in the STID in relation to any Common
Documents) or other document to which it is a party or in respect of which it holds security if
the Bond Trustee or the Issuer Security Trustee (as the case may be) is of the opinion that such
modification is not materially prejudicial to the interests of the holders of the Bonds then
outstanding (where “materially prejudicial” means that such modification, consent or waiver
would not have a material adverse effect on the ability of the Issuer to pay any amounts of
principal or interest in respect of the Bonds on the relevant due date for payment therefor)
provided that to the extent such modification under (ii) above relates to an Issuer Secured
Creditor Entrenched Right, each of the affected Issuer Secured Creditors has given its prior
written consent.
As more fully set out in the Bond Trust Deed and the Issuer Deed of Charge (and subject to
the conditions and qualifications therein), the Bond Trustee may, without the consent of the
Bondholders (subject as provided below) or any other Issuer Secured Creditor and without
prejudice to its rights in respect of any subsequent breach or Bond Event of Default, from time
to time and at any time but only if and in so far as in its opinion the interests of the holders of
the Bonds then outstanding shall not be materially prejudiced thereby (where “materially
prejudiced” means that such waiver or authorisation would have a material adverse effect on
the ability of the Issuer to pay any amounts of principal or interest in respect of the Bonds on
the relevant due date for payment therefor), waive or authorise (or instruct the Issuer Security
Trustee to waive or authorise) any breach or proposed breach by the Issuer of any of the
covenants or provisions contained in the Conditions or any Issuer Transaction Document
(other than a Common Document, the Dealership Agreement or any Subscription Agreement)
to which it is a party or in respect of which it holds security or determine that any event which
would otherwise constitute a Bond Event of Default shall not be treated as such for the
purposes of the Bond Trust Deed provided that to the extent such event, matter or thing relates
to a Issuer Secured Creditor Entrenched Right, each of the affected Issuer Secured Creditors
has given its prior written consent and provided further that the Bond Trustee shall not
exercise such powers in contravention of any express direction given by an Extraordinary
Resolution (or of a request in writing made by, holders of not less than one quarter in
aggregate of the principal amount of the Bonds then outstanding) but no such direction or
request shall affect any waiver or authorisation previously given or made or so as to authorise
or waive any such proposed breach or breach relating to any Basic Terms Modification.
Any such modification, waiver or authorisation shall be binding on the Bondholders of each
relevant Tranche and the holders of all relevant Receipts and Coupons and the other Issuer
Secured Creditors and, unless the Bond Trustee agrees otherwise, notice thereof shall be given
by the Issuer to the Bondholders as soon as practicable thereafter.
Notwithstanding that none of the Bond Trustee, the Bondholders or the other Issuer Secured
Creditors may have any right of recourse against the Rating Agencies in respect of any
Ratings Confirmation given by them and relied upon by the Bond Trustee, the Bond Trustee
shall be entitled to assume, for the purposes of exercising any power, trust, authority, duty or
discretion under or in relation to the Bonds or any Issuer Transaction Document, that such
exercise will not be materially prejudicial to the interests of the Bondholders if any of the
Rating Agencies has provided a Ratings Confirmation. Without prejudice to the foregoing,
the Bondholders are deemed to agree for the benefit of the Rating Agencies only that a credit
rating is, however, an assessment of credit and does not address other matters that may be of
relevance to Bondholders. The Bond Trustee and the Bondholders agree and acknowledge
that being entitled to rely on the fact that any of the Rating Agencies has delivered a Ratings
Confirmation does not impose or extend any actual or contingent liability for such Rating
Agency to the Bond Trustee, the Bondholders, any other Issuer Secured Creditor or any other
person or create any legal relations between such Rating Agency and the Bond Trustee, the
Bondholders, any other Issuer Secured Creditor or any other person whether by way of
contract or otherwise.
As more fully set forth in the Bond Trust Deed (and subject to the conditions and
qualifications therein), the Bond Trustee may, without the consent of the Bondholders or any
other Issuer Secured Creditor, also agree with the Issuer to the substitution of another
corporation in place of the Issuer as principal debtor in respect of the Bond Trust Deed and the
Bonds.
16.
Bond Trustee Protections
(a)
Trustee considerations
Subject to Condition 16(b) (Exercise of rights by Bond Trustee), in connection with
the exercise, under these Conditions, the Bond Trust Deed, any Issuer Transaction
Document, of its rights, powers, trusts, authorities and discretions (including any
modification, consent, waiver or authorisation), the Bond Trustee shall have regard to
the interests of the holders of the Bonds then outstanding provided that, if, in the
Bond Trustee’s opinion, there is a conflict of interest between the holders of two or
more Series or Tranches of Bonds, it shall have regard to the interests of the holders
of the Series or Tranche (as the case may be) then outstanding with the greatest
Principal Amount Outstanding and will not have regard to the consequences of such
exercise for the holders of other Series or Tranches of Bonds or, in any event, have
regard to the consequences for individual Bondholders, resulting from their being for
any purpose domiciled or resident in, or otherwise connected with, or subject to the
jurisdiction of, any particular territory. The Bond Trustee shall not be entitled to
require from the Issuer, nor shall any Bondholders be entitled to claim from the
Issuer, the Bond Trustee, any indemnification or other payment in respect of any
consequence (including any tax consequence) for individual Bondholders of any such
exercise.
(b)
Exercise of rights by Bond Trustee
Subject as provided in these Conditions and the Bond Trust Deed, the Bond Trustee
will exercise its rights under, or in relation to, the Bond Trust Deed, the Conditions,
and any Issuer Transaction Documents (other than the Dealership Agreement or any
Subscription Agreement) in accordance with the directions of the relevant
Bondholders, but the Bond Trustee shall not be bound as against the Bondholders to
take any such action unless it has (i) (a) been so requested in writing by the holders of
at least 25 per cent. in nominal amount of the Bonds outstanding or (b) been so
directed by an Extraordinary Resolution and (ii) been indemnified and/or furnished
with security or prefunding to its satisfaction.
17.
Notices
Notices to holders of Registered Bonds will be posted to them at their respective addresses in
the Register and deemed to have been given on the date of posting. Notices to holders of
Bearer Bonds will be valid if published in a leading daily newspaper having general
circulation in the United Kingdom (which is expected to be the Financial Times). The Issuer
shall also ensure that all notices are duly published in a manner which complies with the rules
and regulations of the Stock Exchange and any other listing authority, stock exchange and/or
quotation system on which the Bonds are for the time being listed. Any such notice (other than
to holders of Registered Bonds as specified above) shall be deemed to have been given on the
date of such publication or, if published more than once or on different dates, on the first date
on which publication is made. Couponholders and Receiptholders will be deemed for all
purposes to have notice of the contents of any notice given to the holders of Bearer Bonds in
accordance with this Condition 17.
So long as any Bonds are represented by Global Bonds, notices in respect of those Bonds may
be given only by delivery of the relevant notice to Euroclear or Clearstream, Luxembourg or
any other relevant clearing system as specified in the relevant Final Terms for communication
by them to entitled account holders in substitution for publication as provided above. Such
notices shall be deemed to have been received by the Bondholders on the day of delivery to
such clearing systems.
The Bond Trustee will provide each Rating Agency, at its request, from time to time and
provided that the Bond Trustee will not contravene any law or regulation in so doing, with all
notices, written information and reports that the Bond Trustee makes available to the
Bondholders except to the extent that such notices, information or reports, contain information
confidential to third parties.
18.
Indemnification Of The Bond Trustee and the Issuer Security Trustee
(a)
Indemnification of the Bond Trustee
The Bond Trust Deed contains provisions for indemnification of the Bond Trustee,
and for its relief from responsibility, including provisions relieving it from taking any
action including taking proceedings against the Issuer and/or any other person unless
indemnified and/or secured and/or prefunded to its satisfaction. The Issuer Deed of
Charge contains provisions for indemnification of the Issuer Security Trustee and for
its relief from responsibility, including provisions relieving it from enforcing the
Issuer Security unless it has been indemnified and/or secured and/or prefunded to its
satisfaction.
Each of the Bond Trustee and the Issuer Security Trustee or any of their affiliates (as
defined in Condition 7 (Indexation)) are entitled to enter into business transactions
with the Issuer, the other Issuer Secured Creditors or any of their respective
subsidiaries or associated companies without accounting for any profit resulting
therefrom. Save as otherwise provided in these Conditions or any Issuer Transaction
Document the Bond Trustee will only be required to take any action under or in
relation to, or to enforce or protect the Issuer Security, or a document referred to
therein, if so directed by an Extraordinary Resolution of the holders of the then
outstanding Bonds or if so requested in writing by holders of at least 25 per cent. in
nominal amount of the holders of any Tranche of the then outstanding Bonds and in
all cases if indemnified and/or secured and/or prefunded to its satisfaction.
(b)
Directions, Duties and Liabilities
The Bond Trustee, in the absence of its own wilful default, gross negligence or fraud,
and in all cases when acting as directed by or subject to the agreement of the
Bondholders shall not in any way be responsible for any loss, costs, damages or
expenses or other liability, which may result from the exercise or non exercise of any
consent, waiver, power, trust, authority or discretion vested in the Bond Trustee
pursuant to these Conditions, any Issuer Transaction Document or any ancillary
document.
19.
European Economic and Monetary Union
(a)
Notice of redenomination
The Issuer may, without the consent of the Bondholders, and on giving at least 30
days’ prior notice to the Bondholders, the Bond Trustee and the Principal Paying
Agent, designate a date (the “Redenomination Date”), being an Interest Payment
Date under the Bonds falling on or after the date on which the UK becomes a
Participating Member State.
(b)
Redenomination
Notwithstanding the other provisions of these Conditions, with effect from the
Redenomination Date:
(i)
the Bonds denominated in sterling (the “Sterling Bonds”) shall be deemed
to be redenominated into Euro in the denomination of Euro 0.01 with a
principal amount for each Bond equal to the principal amount of that Bond
in sterling, converted into Euro at the rate for conversion of such currency
into Euro established by the Council of the European Union pursuant to the
Treaty establishing the European Union, as amended, (including compliance
with rules relating to rounding in accordance with European Community
regulations), provided, however, that, if the Issuer determines, with the
agreement of the Bond Trustee, that the then current market practice in
respect of the redenomination into Euro 0.01 of internationally offered
securities is different from that specified above, such provisions shall be
deemed to be amended so as to comply with such market practice and the
Issuer shall promptly notify the Bondholders, the Stock Exchange and any
stock exchange (if any) on which the Bonds are then listed and the Principal
Paying Agent of such deemed amendments;
(ii)
if Bonds have been issued in definitive form:
(A)
all Bonds denominated in sterling will become void with effect
from the date (the “Euro Exchange Date”) on which the Issuer
gives notice (the “Euro Exchange Notice”) to the Bondholders
and the Bond Trustee that replacement Bonds denominated in Euro
are available for exchange (provided that such Bonds are available)
and no payments will be made in respect thereof;
(B)
the payment obligations contained in all Bonds denominated in
sterling will become void on the Euro Exchange Date but all other
obligations of the Issuer thereunder (including the obligation to
exchange such Bonds in accordance with this Condition 19) shall
remain in full force and effect; and
(C)
(c)
new Bonds denominated in Euro will be issued in exchange for
Sterling Bonds in such manner as the Principal Paying Agent or the
Registrar, as the case may be, may specify and as shall be notified
to the Bondholders in the Euro Exchange Notice;
(iii)
all payments in respect of the Sterling Bonds (other than, unless the
Redenomination Date is on or after such date as sterling ceases to be a sub
division of the Euro, payments of interest in respect of periods commencing
before the Redenomination Date) will be made solely in Euro by cheque
drawn on, or by credit or transfer to a Euro account (or any other account to
which Euro may be credited or transferred) maintained by the payee with, a
bank in the principal financial centre of any Participating Member State; and
(iv)
a Bond may only be presented for payment on a day which is a business day
in the place of presentation.
Interest
Following redenomination of the Bonds pursuant to this Condition 19, where Sterling
Bonds have been issued in definitive form, the amount of interest due in respect of
the Sterling Bonds will be calculated by reference to the aggregate principal amount
of the Sterling Bonds presented for payment by the relevant holder and the amount of
such payment shall be rounded down to the nearest Euro 0.01.
20.
Limited Recourse
Each of the Issuer Secured Creditors agrees that notwithstanding any other provision of the
Issuer Transaction Documents, all obligations of the Issuer to the Issuer Secured Creditors,
including its obligations under the Bonds and the Issuer Transaction Documents are limited in
recourse as set out below:
21.
(a)
it will have a claim only in respect of the Issuer Charged Property and will not have
any claims by operation of law or otherwise, against or recourse to any of the other
assets or the contributed capital of the Issuer;
(b)
the aggregate amount of all sums due and payable to the Bondholders in respect of
the Issuer’s obligations to such Bondholders shall reduce by the amount by which the
aggregate amount of sums due and payable to the Bondholders exceeds the aggregate
amounts received, realised or otherwise recovered by or for the account of the Issuer
in respect of the Issuer Charged Property (after payment of any sums which are
payable in accordance with the Issuer Payment Priorities in priority to or pari passu
with sums payable to such Bondholders), whether pursuant to enforcement of the
Issuer Security or otherwise; and
(c)
upon the Bond Trustee giving written notice to the Bondholders that it has
determined in its sole opinion that there is no reasonable likelihood of there being
any further realisations in respect of the Issuer Charged Property (whether arising
from an enforcement of the Issuer Security or otherwise) which would be available to
pay amounts outstanding under the Issuer Transaction Documents and the Bonds, the
Bondholders shall have no further claim against the Issuer in respect of any such
unpaid amounts and such unpaid amounts shall be discharged in full.
Miscellaneous
(a)
Governing Law
The Bond Trust Deed, the Issuer Deed of Charge, the Bonds, the Coupons, the
Receipts, the Talons (if any) and the other Issuer Transaction Documents are, and all
non-contractual or other obligations arising from or in connection with such
documents shall be governed by, and shall be construed in accordance with, English
law.
(b)
Jurisdiction
The courts of England and Wales are to have exclusive jurisdiction to settle any
dispute that may arise out of or in connection with the Bond Trust Deed, the Issuer
Deed of Charge, the Bonds, the Coupons, the Receipts, the Talons and the other
Issuer Transaction Documents and accordingly any legal action or proceedings
arising out of or in connection with the Bonds, the Coupons, the Receipts, the Talons
(if any) and/or the Issuer Transaction Documents may be brought in such courts. the
Issuer has in each of the Issuer Transaction Documents to which it is a party
irrevocably submitted to the jurisdiction of such courts.
(c)
Third Party Rights
No person shall have any right to enforce any term or condition of the Bonds or the
Bond Trust Deed under the Contracts (Rights of Third Parties) Act 1999.
(d)
Rights Against the Issuer
Under the Bond Trust Deed, persons shown in the records of Euroclear and/or
Clearstream, Luxembourg and/or any other relevant clearing system as being entitled
to interests in the Bonds will (subject to the terms of the Bond Trust Deed) acquire
directly against the Issuer all those rights to which they would have been entitled if,
immediately before the Global Bond became void, they had been the registered
Holders of Bonds in an aggregate principal amount equal to the principal amount of
Bonds they were shown as holding in the records of Euroclear, Clearstream,
Luxembourg or any other relevant clearing system (as the case may be).
(e)
Clearing System Accountholders
References in the Conditions of the Bonds to “Bondholder” are references to the
bearer of the relevant Bearer Global Bond or the registered holder of the Regulation
S Global Bond.
Each of the persons shown in the records of Euroclear and/or Clearstream,
Luxembourg and/or any other relevant clearing system, as the case may be, as being
entitled to an interest in a Global Bond (each an “Accountholder”) must look solely
to Euroclear and/or Clearstream, Luxembourg and/or such other relevant clearing
system (as the case may be) for such Accountholder’s share of each payment made
by the Issuer, to such Accountholder and in relation to all other rights arising under
the Global Bond. The extent to which, and the manner in which, Accountholders may
exercise any rights arising under a Global Bond will be determined by the respective
rules and procedures of Euroclear and Clearstream, Luxembourg and any other
relevant clearing system (as the case may be) from time to time. For so long as the
relevant Bonds are represented by a Global Bond, Accountholders shall have no
claim directly against the Issuer.
22.
Definitions
In these Conditions, unless the context otherwise requires, the following defined terms shall
have the meanings set out below.
“Block Voting Instruction” means:
(a)
in relation to voting by the holders of Bearer Bonds:
(b)
(i)
a document in the English language issued by a Paying Agent;
(ii)
certifying that the Deposited Bonds have been deposited with such Paying
Agent (or to its order at a bank or other depositary) or blocked in an account
with a clearing system and will not be released until the earlier of:
(A)
close of business (London time) on the Voting Date; and
(B)
the surrender to such Paying Agent, not less than 24 hours before
the Voting Date of the receipt for the Deposited Bonds and
notification thereof by such Paying Agent to the Bond Trustee;
(iii)
certifying that the depositor of each Deposited Bond or a duly authorised
person on its behalf has instructed the relevant Paying Agent that the Votes
attributable to such Deposited Bond are to be cast in a particular way on a
Voting Matter and that, until the end of the Voting Period, such instructions
may not be amended or revoked;
(iv)
listing the aggregate principal amount and (if in definitive form) the serial
numbers of the Deposited Bonds, distinguishing between those in respect of
which instructions have been given to Vote for, or against, such Voting
Matter; and
(v)
authorising the Bond Trustee to vote in respect of the Deposited Bonds in
connection with such Voting Matter in accordance with such instructions
and the provisions of the Bond Trust Deed.
in relation to voting by the holders of Registered Bonds:
(i)
a document in the English language issued by the Registrar or the Principal
Paying Agent;
(ii)
certifying:
(A)
(where the Registered Bonds are represented by a Global Bond)
that certain specified Registered Bonds (each a “Blocked Bond”)
have been blocked in an account with a clearing system and will
not be released until close of business (London time) on the Voting
Date and that the holder of each Blocked Bond or a duly authorised
person on its behalf has instructed the Registrar that the Votes
attributable to such Blocked Bond are to be cast in a particular way
on a Voting Matter; or
(B)
(where the Registered Bonds are represented by Registered
Definitive Bonds) that each registered holder of certain specified
Registered Bonds (each a “Relevant Bond”) or a duly authorised
person on its behalf has instructed the Registrar that that Votes
attributable to each Relevant Bond held by it are to be cast in a
particular way on such Voting Matter; and
in each case that, until the end of the Voting Period, such instructions may
not be amended or revoked;
(iii)
listing the aggregate principal amount of the Blocked Bonds and the
Relevant Bonds, distinguishing between those in respect of which
instructions have been given to Vote for, or against, such Voting Matter; and
(iv)
authorising the Bond Trustee to vote in respect of the Blocked Bonds and
the Relevant Bonds in connection with such Voting Matter in accordance
with such instructions and the provisions of the Bond Trust Deed.
“Bond Relevant Date” means, in respect of any Tranche of the Bonds, the earlier of (a) the
date on which all amounts in respect of the Bonds have been paid, and (b) five days after the
date on which all of the Principal Amount Outstanding (adjusted in the case of Index-Linked
Bonds in accordance with Condition 7(b) (Application of Index Ratio)) has been received by
the Principal Paying Agent or the Registrar, as the case may be, and notice to that effect has
been given to the Bondholders in accordance with Condition 17 (Notices);
“Business Day” means:
(a)
in relation to any sum payable in sterling, a day on which commercial banks and
foreign exchange markets settle payments and are open for general business
(including dealing in foreign exchange currency deposits) in London;
(b)
in relation to any sum payable in euro, a TARGET Settlement Day and a day on
which commercial banks and foreign exchange markets settle payments generally in
London and each (if any) additional city or cities specified in the relevant Final
Terms;
(c)
in relation to any sum payable in a currency other than euro, a day on which
commercial banks and foreign exchange markets settle payments, in the principal
financial centre of the Relevant Currency (which in the case of a payment in U.S.
Dollars shall be New York) and in each (if any) additional city or cities specified in
the relevant Final Terms; and
(d)
otherwise, a day (other than a Saturday or Sunday) on which banks are open for
general business in London;
“Business Day Convention” means the business day convention specified in the Final Terms;
“Calculation Amount” means the amount specified as such in the relevant Final Terms;
“Day Count Fraction” means, in respect of the calculation of an amount of interest on any
Bond for any period of time (whether or not constituting an Interest Period, the “Calculation
Period”):
(a)
if “Actual/Actual (ICMA)” is specified:
(i)
if the Calculation Period is equal to or shorter than the Determination Period
during which it falls, the number of days in the Calculation Period divided
by the product of (x) the number of days in such Determination Period and
(y) the number of Determination Periods normally ending in any year; and
(ii)
if the Calculation Period is longer than one Determination Period, the sum
of:
(A)
the number of days in such Calculation Period falling in the
Determination Period in which it begins divided by the product of
(1) the number of days in such Determination Period and (2) the
number of Determination Periods normally ending in any year; and
(B)
the number of days in such Calculation Period falling in the next
Determination Period divided by the product of (1) the number of
days in such Determination Period and (2) the number of
Determination Periods normally ending in any year,
where:
“Determination Period” means the period from and including a Determination Date
in any year to but excluding the next Determination Date; and
“Determination Date” means the date specified as such in the Final Terms or, if
none is so specified, the Interest Payment Date;
(b)
if “Actual/365” or “Actual/Actual” is specified, the actual number of days in the
Calculation Period divided by 365 (or, if any portion of that Calculation Period falls
in a leap year, the sum of (1) the actual number of days in that portion of the
Calculation Period falling in a leap year divided by 366, and (2) the actual number of
days in that portion of the Calculation Period falling in a non leap year divided by
365);
(c)
if “Actual/365 (Fixed)” is specified, the actual number of days in the Calculation
Period divided by 365;
(d)
if “Actual/360” is specified, the actual number of days in the Calculation Period
divided by 360;
(e)
if “30/360”, “360/360” or “Bond Basis” is specified, the number of days in the
Calculation Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction = [360 x (Y2 – Y1)] + [30 x (M2 – M1)] + (D2 – D1)
360
where:
“Y1”
is the year, expressed as a number, in which the first day of the Calculation
Period falls:
“Y2”
is the year, expressed as a number, in which the day immediately following
the last day of the Calculation Period falls;
“M1”
is the calendar month, expressed as a number, in which the first day of the
Calculation Period falls;
“M2”
is the calendar month, expressed as a number, in which the day immediately
following the last day of the Calculation Period falls;
“D1”
is the first calendar day, expressed as a number, of the Calculation Period,
unless such number is 31, in which case D1 will be 30; and
“D2” is the calendar day, expressed as a number, immediately following the last day
included in the Calculation Period, unless such number would be 31 and D1 is greater
than 29, in which case D2 will be 30; and
(f)
if “30E/360” or “Eurobond Basis” is specified, the number of days in the
Calculation Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction = [360 x (Y2 – Y1)] + [30 x (M2 – M1)] + (D2 – D1)
360
where:
“Y1”
is the year, expressed as a number, in which the first day of the Calculation
Period falls;
“Y2”
is the year, expressed as a number, in which the day immediately following
the last day of the Calculation Period falls;
“M1”
is the calendar month, expressed as a number, in which the first day of the
Calculation Period falls;
“M2”
is the calendar month, expressed as a number, in which the day immediately
following the last day of the Calculation Period falls;
“D1”
is the first calendar day, expressed as a number, of the Calculation Period,
unless such number would be 31, in which case D1 will be 30; and
“D2” is the calendar day, expressed as a number, immediately following the last day
included in the Calculation Period, unless such number would be 31, in which case
D2 will be 30;
“Deposited Bond” means certain specified Bearer Bonds which have been deposited with a
Paying Agent (or to its order at a bank or other depositary) or blocked in an account with a
clearing system, for the purposes of the issuance of a Block Voting Instruction.
“euro” means the lawful currency of the Participating Member States;
“Final Maturity Date” means the date specified in the relevant Final Terms as the final date
on which the principal amount of the Bond is due and payable;
“HS1 STID Proposal” means a STID Proposal other than an Entrenched Right STID
Proposal;
“Interest Commencement Date” means the Issue Date or such other date as may be specified
in the relevant Final Terms;
“Interest Determination Date” means, with respect to an Interest Rate and an Interest Period,
the date specified as such in the relevant Final Terms or, if none is so specified, the day falling
two Business Days in London prior to the first day of such Interest Period (or if the specified
currency is sterling the first day of such Interest Period) (as adjusted in accordance with any
Business Day Convention (as defined above) specified in the relevant Final Terms);
“Interest Payment Date” means the date(s) specified as such in the relevant Final Terms;
“Interest Period” means the period beginning on (and including) the Interest Commencement
Date and ending on (but excluding) the first Interest Payment Date and each successive period
beginning on (and including) an Interest Payment Date and ending on (but excluding) the next
succeeding Interest Payment Date;
“Interest Rate” means the rate of interest payable from time to time in respect of the Bonds
and which is either specified as such in, or calculated in accordance with the provisions of,
these Conditions and/or the relevant Final Terms;
“ISDA Definitions” means the 2006 ISDA Definitions (as amended and updated as at the date
of issue of the first Tranche of Bonds as published by the International Swaps and Derivatives
Association, Inc.);
“Issue Date” means the date specified as such in the relevant Final Terms;
“Margin” means the rate per annum (expressed as a percentage) specified as such in the
relevant Final Terms;
“Page” means such page, section, caption, column or other part of a particular information
service (including the Reuters Money 3000 Service (“Reuters”)) as may be specified in the
relevant Final Terms, or such other page, section, caption, column or other part as may replace
the same on that information service or on such other information service, in each case as may
be nominated by the person or organisation providing or sponsoring the information appearing
there for the purpose of displaying comparable rates or prices;
“Participating Member State” means a Member State of the European Communities which
adopts the euro as its lawful currency in accordance with the Treaty establishing the European
Communities (as amended), and “Participating Member States” means all of them;
“Payment Business Day” means:
(a)
(b)
if the currency of payment is euro, any day which is:
(i)
a day on which banks in the relevant place of presentation are open for
presentation and payment of bearer debt securities and for dealings in
foreign currencies; and
(ii)
in the case of payment by transfer to an account, a day on which the
TARGET2 system is open and a day on which dealings in foreign currencies
may be carried on in each (if any) Relevant Financial Centre; or
if the currency of payment is not euro, any day which is:
(i)
a day on which banks in the relevant place of presentation are open for
presentation and payment of bearer debt securities and for dealings in
foreign currencies;
(ii)
in the case of payment by transfer to an account, a day on which dealings in
foreign currencies may be carried on in the principal financial centre of the
currency of payment and in each (if any) Relevant Financial Centre;
“Principal Amount Outstanding” means:
(a)
in relation to a Bond (other than a Zero Coupon Bond) or a Tranche, the original face
value thereof less any repayment of principal made to the Holder(s) thereof in respect
of such Bond or Tranche; and
(b)
in relation to a Zero Coupon Bond, where the Principal Amount Outstanding of any
Zero Coupon Bond is required to be calculated on any date other than the Scheduled
Redemption Date, the Principal Amount Outstanding shall be calculated in
accordance with the following formula:
“The aggregate nominal amount of the relevant Tranche of Zero Coupon Bonds on
the Issue Date thereof * (1 + Accrual Yield) ^ N”
Where:
“N” = number of years between the Issue Date and the date on which the relevant
calculation is required to be made; and
“Accrual Yield” shall have the meaning given to it in the relevant Final Terms.
Where such calculation is to be made for a period which is not a whole number of
years, the calculation in respect of the period of less than a full year shall be made on
the basis of such Day Count Fraction as may be specified in the Final Terms for the
purposes of Condition 8(h) (Early redemption of Zero Coupon Bonds) or, if none is
so specified, a Day Count Fraction of 30/360.
“Redemption Amount” means the amount provided under Condition 8(d) (Optional
Redemption), unless otherwise specified in the relevant Final Terms;
“Reference Banks” means the institutions specified as such in the Final Terms or, if none is
so specified, four major banks selected by the Agent Bank (or the Calculation Agent, if
applicable) in the interbank market (or, if appropriate, money market) which is most closely
connected with the Relevant Rate as determined by the Agent Bank (or the Calculation Agent,
if applicable), on behalf of the Issuer, in its sole and absolute discretion;
“Relevant Currency” means the currency specified as such or, if none is specified, the
currency in which the Bonds are denominated;
“Relevant Financial Centre” means, with respect to any Bond, the financial centre specified
as such in the relevant Final Terms or, if none is so specified, the financial centre with which
the Relevant Rate is most closely connected as determined by the Agent Bank (or the
Calculation Agent, if applicable);
“Relevant Rate” means the offered rate for a Representative Amount of the Relevant
Currency for a period (if applicable) equal to the Specified Duration (or such other rate as
shall be specified in the relevant Final Terms);
“Relevant Time” means, with respect to any Interest Determination Date, the local time in the
Relevant Financial Centre specified in the relevant Final Terms or, if none is specified, the
local time in the Relevant Financial Centre at which it is customary to determine bid and
offered rates in respect of deposits in the Relevant Currency in the interbank market in the
Relevant Financial Centre;
“Representative Amount” means, with respect to any rate to be determined on an Interest
Determination Date, the amount specified in the relevant Final Terms as such or, if none is
specified, an amount that is representative for a single transaction in the relevant market at the
time;
“Scheduled Redemption Date” has the meaning given to it in the applicable Final Terms;
“Specified Currency” has the meaning given to it in the applicable Final Terms;
“Specified Denomination” has the meaning given to it in the applicable Final Terms;
“Specified Duration” means, with respect to any Floating Rate (as defined in the ISDA
Definitions) to be determined on an Interest Determination Date, the period or duration
specified as such in the relevant Final Terms or, if none is specified, a period of time equal to
the relative Interest Period;
“Step-Up Fixed Fee Rate” means the rate per annum (expressed as a percentage) specified as
such in the relevant Final Terms or, if no such rate is specified, zero;
“Step-Up Floating Fee Rate” means the rate per annum (expressed as a percentage) specified
as such in the relevant Final Terms or, if no such rate is specified, zero;
“Stock Exchange” means the London Stock Exchange plc or any other or further stock
exchange(s) on which any bonds from time to time may be listed and references to the
relevant Stock Exchange shall, in relation to any Bonds, be references to the Stock Exchange
on which such Bonds are, from time to time, or are intended to be, listed;
“sub-unit” means in the case of any currency, the lowest amount of such currency that was
available as legal tender in the country of such currency;
“TARGET Settlement Day” means any day on which the TARGET2 system is open; and
“TARGET2 system” means the Trans European Automated Real Time Gross Settlement
Express Transfer system (TARGET or TARGET2).
“Vote” means an instruction from a Bondholder to the Bond Trustee to vote on its behalf in
respect of a Voting Matter, such instructions to be given in accordance with the Bond Trust
Deed;
“Voting Date” means:
(a)
(b)
in respect of a STID Proposal:
(i)
in respect of a Decision Period, the Business Day immediately preceding the
last day of such Decision Period; and
(ii)
in respect of a Decision Period that is extended in respect of a Ordinary
Voting Matter or an Extraordinary Voting Matter in accordance with the
relevant provisions of the STID, means the last date of such extended
Decision Period; and
in respect of any other Voting Matter, the date set out in the relevant Voting Notice.
“Voting Matter” means any matter which is required to be approved by the Bondholders
including, without limitation:
(a)
any HS1 STID Proposal which requires the approval of the Bondholders;
(b)
any direction to be given by the Bondholders to the Bond Trustee (in its capacity as
the Secured Creditor Representative of the Bondholders) to challenge the
determination of the voting category made by HS1 in a HS1 STID Proposal, and/or
(where the Issuer is an Affected HS1 Secured Creditor) whether a STID Proposal
gives rise to an Entrenched Right;
(c)
any directions required or entitled to be given by Bondholders pursuant to the
Transaction Documents; and
(d)
any other matter which requires the approval of or consent of the Bondholders.
“Voting Period” means the period ending on the Voting Date or, if earlier, the date of the
Voting Notice issued by the HS1 Security Trustee in respect of such Voting Matter (if
applicable).
FORMS OF THE BONDS
Bonds may, subject to all applicable legal and regulatory requirements, be issued in Series comprising
either Bearer Bonds or Registered Bonds, as specified in the relevant Final Terms. The Bonds may
comprise one or more Tranches.
Bearer Bonds
Each Tranche of Bonds initially issued in bearer form will be issued either as a Temporary Global
Bond, without Receipts, Coupons or Talons attached, or a Permanent Global Bond, without Receipts,
Coupons or Talons attached, in each case as specified in the relevant Final Terms. Each Temporary
Global Bond or, as the case may be, Permanent Global Bond (each a “Bearer Global Bond”) which is
not intended to be issued in new global note (“NGN”) form, as specified in the relevant Final Terms,
will be delivered on or prior to the Issue Date of the relevant Tranche of the Bonds to a common
depositary for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system on
or about the Issue Date of the relevant Tranche. Each Bearer Global Bond which is intended to be
issued in NGN form, as specified in the relevant Final Terms, will be delivered on or prior to the Issue
Date of the relevant Tranche of the Bonds to a common safekeeper for Euroclear and/or Clearstream,
Luxembourg.
Where the Bearer Global Bonds issued in respect of any Tranche are in NGN form, Euroclear and
Clearstream, Luxembourg will be notified by or on behalf of the Issuer whether or not such Bearer
Global Bonds are intended to be held in a manner which would allow Eurosystem eligibility. Any
indication that the Bearer Global Bonds are to be so held does not necessarily mean that the Bonds of
the relevant Tranche will be recognised as eligible collateral for Eurosystem monetary policy and intraday credit operations by the Eurosystem either upon issue or at any times during their life as such
recognition depends upon satisfaction of the Eurosystem eligibility criteria. The Common Safekeeper
for NGNs will either be Euroclear or Clearstream, Luxembourg or another entity approved by
Euroclear and Clearstream, Luxembourg.
In the case of each Tranche of Bonds in bearer form the relevant Final Terms will also specify whether
United States Treasury Regulation §1.163-5(c)(2)(i)(C) (or substantially identical successor United
States Treasury Regulation section, including without limitation, substantially identical successor
regulations issued in accordance with Internal Revenue Service Notice 2012-20 or otherwise in
connection with the United States Hiring Incentives to Restore Employment Act of 2010) (the
“TEFRA C Rules”) or United States Treasury Regulation §1.163-5(c)(2)(i)(D) (or substantially
identical successor United States Treasury Regulation section, including without limitation,
substantially identical successor regulations issued in accordance with Internal Revenue Service Notice
2012-20 or otherwise in connection with the United States Hiring Incentives to Restore Employment
Act of 2010) (the “TEFRA D Rules”) are applicable in relation to the Bonds or, if the Bonds do not
have a maturity of more than 1 year, that neither the TEFRA C Rules nor the TEFRA D Rules are
applicable.
Temporary Global Bond exchangeable for Permanent Global Bond
If the relevant Final Terms specify the form of Bonds as being represented by “Temporary Global
Bond exchangeable for a Permanent Global Bond”, then the Bonds will initially be in the form of a
Temporary Global Bond which will be exchangeable, in whole or in part, for interests in a Permanent
Global Bond, without Receipts, Coupons or Talons attached, not earlier than 40 days after the Issue
Date of the relevant Tranche of the Bonds upon certification as to non-U.S. beneficial ownership. No
payments will be made under the Temporary Global Bond unless exchange for interests in the
Permanent Global Bond is improperly withheld or refused. In addition, payments of interest in respect
of the Bonds cannot be collected without such certification of non-U.S. beneficial ownership.
Whenever any interest in a Temporary Global Bond is to be exchanged for an interest in a Permanent
Global Bond, the Issuer shall procure (in the case of first exchange) the prompt delivery (free of charge
to the bearer) of such Permanent Global Bond, duly authenticated, to the bearer of the Temporary
Global Bond or (in the case of any subsequent exchange) an increase in the principal amount of the
Permanent Global Bond in accordance with its terms against:
(i)
presentation and (in the case of final exchange) surrender of the Temporary Global Bond at
the specified office of the Principal Paying Agent; and
(ii)
receipt by the Principal Paying Agent of a certificate or certificates of non-U.S. beneficial
ownership issued by Euroclear and/or Clearstream, Luxembourg and/or any other relevant
clearing system, within seven days of the bearer requesting such exchange.
The principal amount of the Permanent Global Bond shall be equal to the aggregate of the principal
amounts specified in the certificates of non-U.S. beneficial ownership; provided, however, that in no
circumstances shall the principal amount of the Permanent Global Bond exceed the aggregate initial
principal amount of the Temporary Global Bond and any Temporary Global Bond representing a
fungible Tranche of Bonds with the Tranche of Bonds represented by the first Temporary Global Bond.
The Permanent Global Bond will be exchangeable in whole, but not in part, for Bonds in definitive
form (each, a “Definitive Bond”):
(i)
if the Issuer has been notified that both Euroclear and Clearstream, Luxembourg have been
closed for business for a continuous period of 14 days (other than by reason of holiday,
statutory or otherwise) or have announced an intention permanently to cease business or have
in fact done so and no successor clearing system satisfactory to the Bond Trustee is available;
or
(ii)
the Issuer has or will become subject to adverse tax consequences which would not be
suffered were the Bonds in definitive form and a certificate to such effect from two directors
of the Issuer has been given to the Bond Trustee.
Whenever the Permanent Global Bond is to be exchanged for Definitive Bonds, the Issuer shall procure
the prompt delivery (free of charge to the bearer) of such Definitive Bonds, duly authenticated and with
Receipts, Coupons and Talons attached (if so specified in the relevant Final Terms), in an aggregate
principal amount equal to the principal amount of the Permanent Global Bond to the bearer of the
Permanent Global Bond against the surrender of the Permanent Global Bond at the specified office of
the Principal Paying Agent within 30 days of the bearer requesting such exchange but not earlier than
40 days after the Issue Date of such Bonds.
Temporary Global Bond exchangeable for Definitive Bonds
If the relevant Final Terms specify the form of Bonds as being “Temporary Global Bond exchangeable
for Definitive Bonds” and also specifies that the TEFRA C Rules are applicable or that neither the
TEFRA C Rules nor the TEFRA D Rules are applicable, then the Bonds will initially be in the form of
a Temporary Global Bond which will be exchangeable, in whole but not in part, for Definitive Bonds
not earlier than 40 days after the Issue Date of the relevant Tranche of the Bonds.
If the relevant Final Terms specifies the form of Bonds as being “Temporary Global Bond
exchangeable for Definitive Bonds” and also specifies that the TEFRA D Rules are applicable, then the
Bonds will initially be in the form of a Temporary Global Bond which will be exchangeable, in whole
or in part, for Definitive Bonds not earlier than 40 days after the Issue Date of the relevant Tranche of
the Bonds upon certification as to non-U.S. beneficial ownership. Interest payments in respect of the
Bonds cannot be collected without such certification of non-U.S. beneficial ownership.
Whenever the Temporary Global Bond is to be exchanged for Definitive Bonds, the Issuer shall
procure the prompt delivery (free of charge to the bearer) of such Definitive Bonds, duly authenticated
and with Receipts, Coupons and Talons attached (if so specified in the relevant Final Terms), in an
aggregate principal amount equal to the principal amount of the Temporary Global Bond so exchanged
to the bearer of the Temporary Global Bond against the presentation (and in the case of final exchange,
surrender) of the Temporary Global Bond at the specified office of the Principal Paying Agent within
30 days of the bearer requesting such exchange but not earlier than 40 days after the issue of such
Bonds.
If the relevant Final Terms specify the form of Bonds as being “Temporary Global Bond exchangeable
for Definitive Bonds”, such Temporary Global Bonds and such Definitive Bonds may only be issued
and traded in denominations equal to the Specified Denomination and integral multiples thereof.
Permanent Global Bond exchangeable for Definitive Bonds
If the relevant Final Terms specifies the form of Bonds as being “Permanent Global Bond
exchangeable for Definitive Bonds” and also specifies that the TEFRA C Rules are applicable or that
TEFRA does not apply, then the Bonds will initially be in the form of a Permanent Global Bond which
will be exchangeable in whole, but not in part, for Definitive Bonds:
(i)
if the Issuer has been notified that both Euroclear and Clearstream, Luxembourg have been
closed for business for a continuous period of 14 days (other than by reason of holiday,
statutory or otherwise) or have announced an intention permanently to cease business or have
in fact done so and no successor clearing system satisfactory to the Bond Trustee is available;
or
(ii)
the Issuer has or will become subject to adverse tax consequences which would not be
suffered were the Bonds in definitive form and a certificate to such effect from two directors
of the Issuer has been given to the Bond Trustee.
Whenever the Permanent Global Bond is to be exchanged for Definitive Bonds, the Issuer shall procure
the prompt delivery (free of charge to the bearer) of such Definitive Bonds, duly authenticated and with
Receipts, Coupons and Talons attached (if so specified in the relevant Final Terms), in an aggregate
principal amount equal to the principal amount of the Permanent Global Bond to the bearer of the
Permanent Global Bond against the surrender of the Permanent Global Bond at the specified office of
the Principal Paying Agent within 30 days of the bearer requesting such exchange but not earlier than
40 days after the Issue Date of such Bonds.
In the event that a Global Bond is exchanged for Definitive Bonds, such Definitive Bonds shall be
issued in Specified Denominations(s) only. Bondholders who hold Bonds in the relevant clearing
system in amounts that are not integral multiples of a Specified Denomination may need to purchase or
sell, on or before the relevant date of exchange, a principal amount of Bonds such that their holding is
an integral multiple of a Specified Denomination.
Conditions applicable to the Bonds
The Conditions applicable to any Definitive Bond will be endorsed on that Bond and will consist of the
Conditions set out under “Terms and Conditions of the Bonds” above and the provisions of the relevant
Final Terms which complete those Conditions.
The Conditions applicable to any Global Bond will differ from those Conditions which would apply to
the Definitive Bond to the extent described under “Provisions Relating to the Bonds while in Global
Form” below.
Legend concerning United States persons
Global Bonds and Definitive Bonds having a maturity of more than 1 year and any Receipts, Coupons
and Talons appertaining thereto will bear a legend to the following effect unless the relevant Final
Terms specifies that the TEFRA C Rules are applicable or that TEFRA does not apply:
“Any United States person who holds this obligation will be subject to limitations under the United
States income tax laws, including the limitations provided in sections 165(j) and 1287(a) of the Internal
Revenue Code.”
The sections referred to in such legend provide that a United States person who holds a Bond, Receipt,
Coupon or Talon will generally not be allowed to deduct any loss realised on the sale, exchange or
redemption of such Bond, Receipt, Coupon or Talon and any gain (which might otherwise be
characterised as capital gain) recognised on such sale, exchange or redemption will be treated as
ordinary income.
Bonds issued in bearer form will only be transferable in accordance with the procedures of the
Euroclear or Clearstream, Luxembourg and/or any other relevant clearing system (as applicable).
Registered Bonds
Any Registered Bond will be represented on issue by one or more Regulation S Global Bonds of each
Tranche.
Each Regulation S Global Bond will be deposited on or about the Issue Date with either: (a) a common
depositary for Euroclear and Clearstream, Luxembourg and/or any other relevant clearing system, in
the case of a Regulation S Global Bond which will not be held under the new safekeeping structure
(“New Safekeeping Structure” or “NSS”), and registered in the name or a nominee of Euroclear
and/or Clearstream, Luxembourg and/or any other relevant clearing system; or (b) a common
safekeeper for Euroclear and/or Clearstream, Luxembourg, in the case of a Regulation S Global Bond
to be held under the New Safekeeping Structure, and registered in the name of a nominee of the
common safekeeper.
Where the Regulation S Global Bonds issued in respect of any Tranche are held under the NSS,
Euroclear and Clearstream, Luxembourg will be notified by or on behalf of the Issuer whether or not
such Regulation S Global Bonds are intended to be held in a manner which would allow Eurosystem
eligibility. Any indication that the Regulation S Global Bonds are to be so held does not necessarily
mean that the Bonds of the relevant Tranche will be recognised as eligible collateral for Eurosystem
monetary policy and intra-day credit operations by the Eurosystem either upon issue or at any times
during their life as such recognition depends upon satisfaction of the Eurosystem eligibility criteria.
The common safekeeper for NSSs will either be Euroclear or Clearstream, Luxembourg or another
entity approved by Euroclear and Clearstream, Luxembourg.
Beneficial interests in a Regulation S Global Bond may be held only through Euroclear or Clearstream,
Luxembourg or their participants at any time. See “Book-Entry Clearance Procedure”.
Beneficial interests in Regulation S Global Bonds will be subject to certain restrictions on transfer set
out in this Prospectus, in the relevant Final Terms, and in the Agency Agreement, and such Regulation
S Global Bonds will bear the applicable legends regarding the restrictions set out in the relevant Final
Terms.
Except in the limited circumstances described below, owners of beneficial interests in Regulation S
Global Bonds will not be entitled to receive physical delivery of certificated Bonds.
Exchange for Registered Definitive Bonds
Each Regulation S Global Bond will be exchangeable, free of charge to the holder, on or after its
Individual Exchange Date (as defined below), in whole but not in part, for definitive bonds in fully
registered form (“Registered Definitive Bonds”):
(i)
the Issuer has been notified that both Euroclear and Clearstream, Luxembourg have been
closed for business for a continuous period of 14 days (other than by reason of holiday,
statutory or otherwise) or have announced an intention permanently to cease business or have
in fact done so and no successor clearing system satisfactory to the Bond Trustee is available;
and
(ii)
the Issuer has or will become subject to adverse tax consequences which would not be
suffered were the Bonds in definitive form and a certificate to such effect from two directors
of the Issuer has been given to the Bond Trustee.
The Registrar will not register the transfer of, or exchange of interests in, a Regulation S Global Bond
for Registered Definitive Bonds for a period of 15 calendar days ending on the date for any payment of
principal or interest in respect of the relevant Tranche of Bonds.
If only one of the Regulation S Global Bonds (the “Exchanged Regulation S Global Bond”) becomes
exchangeable for Registered Definitive Bonds in accordance with the above paragraphs, transfers of
Bonds may not take place between, on the one hand, persons holding Registered Definitive Bonds
issued in exchange for beneficial interests in the Exchanged Regulation S Global Bond and on the other
hand, persons wishing to purchase beneficial interests in the other Regulation S Global Bond.
“Individual Exchange Date” means a day falling not less than 30 days after that on which the notice
requiring exchange is given and on which banks are open for business in the city in which the specified
office of the Registrar and any Transfer Agent is located.
In such circumstances, the relevant Regulation S Global Bond shall be exchanged in full for Registered
Definitive Bonds and the Issuer will, at the cost of the Issuer (but against such indemnity as the
Registrar or any relevant Transfer Agent may require in respect of any tax or other duty of whatever
nature which may be levied or imposed in connection with such exchange), cause sufficient Registered
Definitive Bonds to be executed and delivered to the Registrar for completion, authentication and
dispatch to the relevant Bondholders. A person having an interest in a Regulation S Global Bond must
provide the Registrar with a written order containing instructions and such other information as the
Issuer and the Registrar may require to complete, execute and deliver such Registered Definitive
Bonds.
Legends and Transfers
The holder of a Registered Definitive Bond may transfer the Bonds represented thereby in whole or in
part in the applicable minimum denomination by surrendering it at the specified office of the Registrar
or any Transfer Agent, together with the completed form of transfer thereon. Upon the transfer,
exchange or replacement of a Registered Definitive Bond or upon specific request for removal of the
legend on a Registered Definitive Bond, the Issuer will deliver only Registered Definitive Bonds that
bear such legend, or will refuse to remove such legend, as the case may be, unless there is delivered to
the Issuer and the Registrar such satisfactory evidence, which may include an opinion of counsel, as
may reasonably be required by the Issuer that neither the legend nor the restrictions on transfer set out
therein are required to ensure compliance with the provisions of the Securities Act and the Investment
Company Act.
Provisions Relating to the Bonds while in Global Form
Global Bonds will contain provisions that apply to the Bonds which they represent, some of which
modify the effect of the Conditions of the Bonds as set out in this Prospectus. The following is a
summary of certain of those provisions:
(i)
Cancellation: Cancellation of any Bond represented by a Global Bond that is required by the
Conditions to be cancelled (other than upon its redemption) will be effected by reduction in
the principal amount of the relevant Global Bond.
(ii)
Notices: So long as any Bonds are represented by a Global Bond and such Global Bond is held
on behalf of Euroclear, Clearstream, Luxembourg or any other relevant clearing system,
notices to the Bondholders may be given, subject always to listing requirements, by delivery
of the relevant notice to Euroclear, Clearstream, Luxembourg or any other relevant clearing
system for communication by it to entitled Accountholders in substitution for publication as
provided in the Conditions. Such notices shall be deemed to have been received by the
Bondholders on the date of delivery to such clearing systems.
(iii)
Record date: Each payment in respect of a Regulation S Global Bond will be made to the
person shown as the Holder in the Register on the Clearing System Business Day before the
due date for such payment (the “Record Date”) where “Clearing System Business Day”
means a day on which each clearing system for which the Regulation S Global Bond is being
held is open for business.
(iv)
Payments: All payments in respect of the Global Bonds which, according to the Conditions,
require presentation and/or surrender of a Bond or Coupon, will be made against presentation
and (in the case of payment of principal in full with all interest accrued thereon) surrender of
the Global Bond to or to the order of any Paying Agent and will be effective to satisfy and
discharge the corresponding liabilities of the Issuer in respect of the Bonds. On each occasion
on which a payment of principal or interest is made in respect of the Global Bonds, the Issuer
shall procure that the payment is noted in a schedule thereto and the payment is entered pro
rata in the records of Euroclear and Clearstream, Luxembourg.
(v)
Payment Business Day: Notwithstanding the definition of “Payment Business Day” in
Condition 22 (Definitions), while all the Bonds are represented by a Permanent Global Bond
(or by a Permanent Global Bond and/or a Temporary Global Bond) or a Regulation S Global
Bond and the Permanent Global Bond is (or the Permanent Global Bond and/or the Temporary
Global Bond are), or the Regulation S Global Bond is deposited with a depositary or a
common depositary or a common safekeeper for Euroclear and/or Clearstream, Luxembourg
and/or any other relevant clearing system, “Payment Business Day” means:
(vi)
(a)
if the currency of payment is euro, any day on which the TARGET2 system is open
and a day on which dealings in foreign currencies may be carried on in each (if any)
Relevant Financial Centre; or
(b)
if the currency of payment is not euro, any day which is a day on which dealings in
foreign currencies may be carried on in the principal financial centre of the currency
of payment and in each (if any) Relevant Financial Centre.
Redemption at the Option of the Issuer: For so long as all of the Bonds are represented by one
or both of the Global Bonds and such Global Bond(s) is/are held on behalf of Euroclear and/or
Clearstream, Luxembourg, no selection of Bonds to be redeemed will be required under
Condition 8(d) (Optional Redemption) in the event that the Issuer exercises its option pursuant
to Condition 8(d) (Optional Redemption) in respect of less than the aggregate principal
amount of the Bonds outstanding at such time. In such event, the partial redemption will be
effected pro rata in accordance with the rules and procedures of Euroclear and/or Clearstream,
Luxembourg.
BOOK-ENTRY CLEARANCE PROCEDURE2
The information set out below has been obtained from Euroclear or Clearstream, Luxembourg
(together, the “Clearing Systems”). The Issuer accepts responsibility for the accurate reproduction of
such information from information published by the Clearing Systems and so far as the Issuer is aware
and is able to ascertain from the information published by the Clearing Systems, no facts have been
omitted which would render the reproduced information inaccurate or misleading. In particular, such
information is subject to any change in or reinterpretation of the rules, regulations and procedures of
the Clearing Systems currently in effect and investors wishing to use the facilities of any of the
Clearing Systems are therefore advised to confirm the continued applicability of the rules, regulations
and procedures of the relevant Clearing System.
Euroclear and Clearstream, Luxembourg
Custodial and depositary links have been established between Euroclear and Clearstream, Luxembourg
to facilitate the initial issue of each Series of the Bonds and cross-market transfers of the Bonds
associated with secondary market trading. Euroclear and Clearstream, Luxembourg each hold securities
for their customers and facilitate the clearance and settlement of securities transactions through
electronic book-entry transfer between their respective accountholders. Indirect access to Euroclear and
Clearstream, Luxembourg is available to other institutions which clear through or maintain a custodial
relationship with an accountholder of either system. Investors may hold their interests in Global Bonds
directly through Euroclear or Clearstream, Luxembourg if they are accountholders (“Direct
Participants”) or indirectly (“Indirect Participants” and together with Direct Participants,
“Participants”) through organisations which are accountholders therein.
Book-entry ownership
Each Bearer Global Bond will have an ISIN and a common code and will be deposited with a common
depositary on behalf of Euroclear and Clearstream, Luxembourg or a common safekeeper on behalf or
Euroclear and Clearstream, Luxembourg (as applicable). Each Regulation S Global Bond will have an
ISIN and a common code and will be registered in the name of a common depositary on behalf of
Euroclear and Clearstream, Luxembourg or a common safekeeper on behalf or Euroclear and
Clearstream, Luxembourg (as applicable).
Payments and relationship of participants with Clearing Systems
Each of the persons shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a
Bond represented by a Global Bond must look solely to Euroclear or Clearstream, Luxembourg (as the
case may be) for his share of each payment made by the Issuer to the holder of such Global Bond and
in relation to all other rights arising under the Global Bond, subject to and in accordance with the
respective rules and procedures of Euroclear or Clearstream, Luxembourg. The Issuer expects that,
upon receipt of any payment in respect of Bonds represented by a Global Bond, the common depositary
by whom such Bond is held, or nominee in whose name it is registered, will immediately credit the
relevant participants’ or accountholders’ accounts in the relevant Clearing System with payments in
amounts proportionate to their respective beneficial interests in the principal amount of the relevant
Global Bond as shown on the records of the relevant Clearing System or its nominee. The Issuer also
expects that payments by Direct Participants in any Clearing System to owners of beneficial interests in
any Global Bond held through such Direct Participants in any Clearing System will be governed by
standing instructions and customary practices. Save as aforesaid, such persons shall have no claim
directly against the Issuer in respect of payments due on the Bonds for so long as the Bonds are
represented by such Global Bond and the obligations of the Issuer will be discharged by payment to the
registered holder, as the case may be, of such Global Bond in respect of each amount so paid.
Settlement and transfer of Bonds
Subject to the rules and procedures of each applicable Clearing System, purchases of Bonds held within
a Clearing System must be made by or through Direct Participants, which will receive a credit for such
2
Applicable to any Tranche of Bonds held by Euroclear and/or Clearstream, Luxembourg.
Bonds on the Clearing System’s records. The ownership interest of each actual purchaser of each such
Bond (the “Beneficial Owner”) will in turn be recorded on the Direct Participant and Indirect
Participant’s records. Transfers of ownership interests in Bonds held within the Clearing System will
be effected by entries made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial owners will not receive certificates representing their ownership interests in such Bonds,
unless and until interests in any Global Bond held within a Clearing System are exchanged for Bearer
Definitive Bonds or Registered Definitive Bonds.
PRO FORMA FINAL TERMS
Final Terms dated [●]
High Speed Rail Finance (1) PLC
Issue of [Tranche [–[●]] [Aggregate Nominal Amount of Tranche] [Fixed Rate][Floating Rate][ZeroCoupon][Index-Linked][Instalment] Bonds
under the Programme
PART A – CONTRACTUAL TERMS
[Terms used herein shall be deemed to be defined as such for the purposes of the conditions set forth in
the prospectus dated 8 April 2015 [as supplemented by the supplement[s] to it dated [date] [and [date]]]
which [together] constitute[s] a base prospectus (the “Base Prospectus”) for the purposes of the
Directive 2003/71/EC as amended (the “Prospectus Directive”). This document constitutes the Final
Terms of the Bonds described herein for the purposes of Article 5.4 of the Prospectus Directive and
must be read in conjunction with the Base Prospectus. Full information on the Issuer and the offer of
the Bonds is only available on the basis of the combination of these Final Terms and the Base
Prospectus. The Base Prospectus [and the supplement[s]] [is] [are] available for viewing at
http://www.londonstockexchange.com/exchange/
news/market-news/market-news-home.html and copies may be obtained from the Specified Office of
the Paying Agents.]
[Terms used herein shall be deemed to be defined as such for the purposes of the conditions (the
“Conditions”) set forth in the prospectus dated 25 January 2013 which are incorporated by reference in
the prospectus dated 8 April 2015. This document constitutes the Final Terms of the Bonds described
herein for the purposes of Article 5.4 of the Prospectus Directive and must be read in conjunction with
the prospectus dated 8 April 2015 [as supplemented by the supplement[s] to it dated [date] [and [date]]]
which [together] constitute[s] a base prospectus (the “Base Prospectus”) for the purposes of the
Directive 2003/71/EC as amended (the “Prospectus Directive”), including the Conditions incorporated
by reference in the Base Prospectus. Full information on the Issuer and the offer of the Bonds is only
available on the basis of the combination of these Final Terms and the Base Prospectus. The Base
Prospectus
[and
the
supplement[s]]
[is]
[are]
available
for
viewing
at
http://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html
and
copies may be obtained from the Specified Office of the Paying Agents.]
1
(i)
Issuer
High Speed Rail Finance (1) PLC
2
(i)
Series Number
[●]
(ii)
Tranche Number
[●]
(iii)
Date on which the Bonds will be
consolidated and form a single
series:
[Not Applicable] [The Bonds shall be
consolidated, form a single series and be
interchangeable for trading purposes with [●] on
[the Issue Date /exchange of the Temporary
Global Bond for interests in the Permanent
Global Bond, as referred to in paragraph 22
below, which is expected to occur on or about
[●]].
3
Specified Currency or Currencies:
4
Aggregate Nominal Amount of Bonds
[●]
admitted to trading:
(i)
Series:
[●]
(ii)
Tranche:
[●]
5
Issue Price:
[●] per cent. of the Aggregate Nominal Amount
[plus accrued interest from [●]]
6
(i)
[●][€100,000 and integral multiples of [€1,000]
in excess thereof up to and including [€199,000].
No Bonds in definitive form will be issued with a
denomination of integral multiples above
[€199,000].]
Specified Denominations
[Bonds which have a maturity of less than one
year must have a minimum redemption value of
£100,000 (or its equivalent in other currencies).]
7
8
(ii)
Calculation Amount:
[€/£/$][1,000]/[100,000]
(i)
Issue Date:
[●]
(ii)
Interest Commencement Date:
[●] [Issue Date] [Not Applicable]
(i)
Scheduled Redemption Date:
[Not Applicable][●]
(ii)
Final Maturity Date:
[●]
9
Instalment Date:
[Not Applicable][●]
10
Interest Basis:
[[●] per cent. Fixed Rate]
[[●] +/- [●] per cent. Floating Rate]
[Zero Coupon]
[Index-Linked Interest]
11
Redemption/Payment Basis:
[Redemption at par]
[Index-Linked Redemption]
[Instalment]
12
Change of Interest or
Redemption/Payment Basis:
[●] [Not Applicable]
13
Put/Call Options:
Issuer Optional Redemption - Condition 8(d)
applies
14
[Date [Board] approval for issuance of
Bonds obtained:
[●] and [●] respectively]]
PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE
15
Fixed Rate Bond Provisions:
[Applicable/Not Applicable]
(i)
Interest Rate:
[●] per cent. per annum [payable [annually/semiannually/quarterly/monthly] in arrear on each
Interest Payment Date]
(ii)
Manner in which the Rate of
Interest is to be determined after
the Scheduled Redemption Date:
[Screen
Rate
Determination]
(iii)
Screen Rate Determination:
(iv)
–
Relevant Rate:
[●]
–
Interest Determination
Date(s):
[●]
–
Page:
[●]
–
Relevant Time:
[●]
ISDA Determination:
–
Floating Rate Option:
–
Specified Duration (if
other than the relevant Interest Period):
–
16
Determination/ISDA
Reset Date:
[●]
[●]/[Not Applicable]
[●]
(v)
Step-Up Fixed Fee Rate:
[●] per cent. per annum
(vi)
Representative Amount:
[●]
(vii)
Reference Banks:
[●]
(viii)
Interest Determination Date:
[●] in each year
(ix)
Interest Payment Date(s):
[●] [and [●]] in each year
(x)
First Interest Payment Date:
[●]
(xi)
Fixed Coupon Amount[(s)]:
[●] per Calculation Amount
(xii)
Day Count Fraction:
[Actual/Actual (ICMA)] [Actual/365 or Actual/
Actual] [Actual/365 Fixed] [Actual/360] [30/360
or 360/360 or Bond basis] [30E/360 or Eurobond
Basis]
(xiii)
Reference Gilt:
[[●]% Treasury Stock due [●]] [Not Applicable]
(xiv)
Comparable German Bund
Issue:
[[●]%German Bundesanleihe Security due [●]]
[Not Applicable]
(xv)
Comparable United States
Treasury Securities:
[[●]% US Treasury Security due [●]] [Not
Applicable]
Floating Rate Bond Provisions:
[Applicable/Not Applicable]
(i)
Specified Period(s):
[●]
(ii)
Specified Interest Payment
Dates
[●] in each year[, subject to adjustment in
accordance with the Business Day convention set
out in paragraph (iv) below]
(iii)
First Interest Payment Date
[●]
(iv)
Business Day Convention:
[Following Business Day Convention/Modified
Following Business Day Convention/Preceding
Business Day Convention]
(v)
Manner in which the Rate(s) of
Interest is/are to be determined:
[Screen
Rate
Determination]
(vi)
Party responsible for calculating
the Rate(s) of Interest, Interest
Amount(s) and Redemption
Amount (if not the Agent Bank):
[Not Applicable] / [●] as Calculation Agent]
(vii)
Screen Rate Determination:
(viii)
–
Relevant Rate:
[●]
–
Interest Determination
Date(s):
[●]
–
Page:
[●]
–
Relevant Time:
[●]
ISDA Determination:
–
Floating Rate Option:
–
Specified Duration (if
other than the relevant Interest Period):
–
17
18
Determination/ISDA
Reset Date:
[●]
[●]/[Not Applicable]
[●]
(ix)
Margin(s):
[+/-][●] per cent. per annum
(x)
Step-Up Floating Fee Rate:
[●] per cent. per annum
(xi)
Minimum Rate of Interest:
[[●] per cent. per annum] [Not Applicable]
(xii)
Maximum Rate of Interest:
[[●] per cent. per annum] [Not Applicable]
(xiii)
Day Count Fraction:
[Actual/Actual (ICMA)] [Actual/365 or Actual/
Actual] [Actual/365 Fixed] [Actual/360] [30/360
or 360/360 or Bond Basis] [30E/360 or Eurobond
Basis]
(xiv)
Representative Amount:
[●]
(xv)
Reference Banks:
[●]
Zero Coupon Bond Provisions:
[Applicable/Not Applicable]
(i)
Accrual Yield:
[●] per cent. per annum
(ii)
Reference Price:
[●]
(iii)
Day Count Fraction in relation
to Redemption Amounts and late
payment:
[As set out in Condition 8(h)][●]
Index-Linked Bond Provisions:
[Applicable/Not Applicable]
(i)
Interest Rate:
[●]
(ii)
Manner in which the Rate of
Interest is to be determined after
the Scheduled Redemption Date:
[Screen
Rate
Determination]
(iii)
Screen Rate Determination:
–
Relevant Rate:
[●]
–
Interest Determination
Date(s):
[●]
Determination/ISDA
(iv)
–
Page:
[●]
–
Relevant Time:
[●]
ISDA Determination:
–
Floating Rate Option:
–
Specified Duration (if
other than the relevant Interest Period):
–
Reset Date:
[●]
[●]/[Not Applicable]
[●]
(v)
Step-Up Fixed Fee Rate:
[●] per cent. per annum
(vi)
Representative Amount:
[●]
(vii)
Reference Banks:
[●]
(viii)
Party responsible for calculating
the Rate(s) of Interest, Interest
Amount and Redemption
Amount(s) (if not the Agent
Bank):
[Not Applicable] / [[●] as Calculation Agent]
(ix)
Provisions for determining
Interest in the event of changes
in circumstances, disruptions,
cessation of fundamental
changes to the Index
Applicable – Condition 7(c) and 7(e)
(x)
Interest or calculation period(s):
[●]
(xi)
Interest Payment Dates:
[●] in each year[, subject to adjustment in
accordance with the Business Day Convention
set out in paragraph (xiv) below)
(xii)
First Interest Payment Date:
[●]
(xiii)
Business Day Convention:
[Following Business Day Convention/Modified
Following Business Day Convention/Preceding
Business Day Convention]
(xiv)
Minimum Indexation Factor:
[Not Applicable][●]
(xv)
Maximum Indexation Factor:
[Not Applicable][●]
(xvi)
Base Index Figure:
[●]
(xvii)
Limited Indexation Month(s):
[●]
(xviii)
Reference Gilt:
[●]
(xix)
Day Count Fraction:
[Actual/Actual (ICMA)] [Actual/365 or Actual/
Actual] [Actual/365 Fixed] [Actual/360] [30/360
or 360/360 or Bond Basis] [30E/360 or Eurobond
Basis]
PROVISIONS RELATING TO REDEMPTION
19
Issuer Optional Redemption:
[Applicable in accordance with Condition [8(d)]]
[Not Applicable]
(i)
Optional Redemption Date(s):
Any Interest Payment Date [falling on or after
[●] and at a premium of [●].]
(ii)
Redemption Amount(s) of each
Bond:
[●] per Calculation Amount
(iii)
If redeemable in part:
(vi)
20
(a)
Minimum Redemption
Amount:
(b)
Maximum Redemption
Amount:
Notice period:
Redemption Amount of each Bond:
[●] per Calculation Amount
[●]
[●] per Calculation Amount
In cases where the Redemption Amount
is Index-Linked or other variable-linked:
21
(i)
Party responsible for calculating
the Redemption Amount (if not
the Agent Banks):
[Not Applicable] / [[●] as Calculation Agent]
(ii)
Provisions for determining
Redemption Amount where
calculated by reference to Index
and/or Formula and/or other
variable:
The Redemption Amount of each Bond shall be
determined in accordance with Condition 8(d)
(iii)
Determination Date(s):
[●]
(iv)
Provisions for determining
Redemption Amount where
calculation by reference to Index
and/or Formula and/or other
variable is impossible or
impracticable or otherwise
disrupted:
Applicable – Condition 7(c) and 7(e)
(v)
Payment Date:
[●]
(vi)
Minimum Redemption Amount:
[●] per Calculation Amount
(vii)
Maximum Redemption Amount:
[●] per Calculation Amount
Early Redemption Amount(s) per
Calculation Amount payable on
redemption for taxation reasons or on
event of default or other early
redemption:
[●] per Calculation Amount
GENERAL PROVISIONS APPLICABLE TO THE BONDS
22
Form of Bonds:
[Bearer/Registered]
(i)
[Temporary Global Bond exchangeable for a
Permanent Global Bond which is exchangeable
for Definitive Bonds in the limited circumstances
specified in the Permanent Global Bond (TEFRA
C Rules apply).]
If issued in Bearer form:
[Temporary Global Bond exchangeable for a
Permanent Global Bond which is exchangeable
for Definitive Bonds in the limited circumstances
specified in the Permanent Global Bond (TEFRA
D Rules apply).]
[Temporary Global Bond exchangeable for a
Permanent Global Bond which is exchangeable
for Definitive Bonds in the limited circumstances
specified in the Permanent Global Bond (neither
TEFRA C Rules nor TEFRA D Rules apply).]
[Temporary Global Bond exchangeable for
Definitive Bonds on [●] days’ notice (TEFRA C
Rules apply).]
[Temporary Global Bond exchangeable for
Definitive Bonds on [●] days’ notice (TEFRA D
Rules apply).]
[Temporary Global Bond exchangeable for
Definitive Bonds on [●] days’ notice (neither
TEFRA C Rules nor TEFRA D Rules apply).]
[Permanent Global Bond exchangeable for
Definitive Bonds in the limited circumstances
specified in the Permanent Global Bond (TEFRA
C Rules apply).]
[Permanent Global Bond exchangeable for
Definitive Bonds in the limited circumstances
specified in the Permanent Global Bond (TEFRA
D Rules apply).]
[Permanent Global Bond exchangeable for
Definitive Bonds in the limited circumstances
specified in the Permanent Global Bond (Neither
TEFRA C Rules nor TEFRA D Rules apply).]
(ii)
If Registered Bonds:
[Regulation S Global Bond registered in the
name of a nominee for [a common depositary for
Euroclear and Clearstream, Luxembourg/a
common safekeeper for Euroclear and
Clearstream, Luxembourg exchangeable for
Registered Definitive Bonds on [●] days’ notice
in the circumstances specified in the Regulation S
Global Bond]
23
New Global Note:
[Yes][No]
24
Relevant Financial Centre(s):
[Not Applicable][●]
25
Talons for future Coupons or Receipts to
be attached to Definitive Bonds (and
dates on which such Talons mature):
[No][Yes]
26
Details relating to Instalment Bonds:
[Not Applicable]
(i)
Instalment Date:
[●]
(ii)
Instalment Amount:
[●]
THIRD PARTY INFORMATION
[[●] has been extracted from [●]. The Issuer confirms that such information has been accurately
reproduced and that, so far as it is aware, and is able to ascertain from information published by [●], no
facts have been omitted which would render the reproduced information inaccurate or misleading.]
Signed on behalf of the Issuer:
By:
Duly authorised
PART B – OTHER INFORMATION
1
LISTING AND ADMISSION TO
TRADING
(i)
Listing
London
(ii)
Admission to trading:
[Application has been made by the Issuer (or on
its behalf) for the Bonds to be admitted to trading
on the London Stock Exchange’s regulated
market and listing on the Official List of the UK
Listing Authority with effect from [●].]
[Application is expected to be made by the Issuer
(or on its behalf) for the Bonds to be admitted to
trading on the London Stock Exchange’s
regulated market and listing on the Official List of
the UK Listing Authority and this is expected to
be effective from [●].]
(iii)
2
Estimate of total expenses
related to admission to trading:
[●]
RATINGS
Ratings:
The Bonds to be issued [have been] [are expected
to be] rated:
[Fitch Ratings Ltd (“Fitch”): [●]]
[Standard & Poor’s Credit Market Services
Europe Limited (“S&P”): [●]]
3
INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE
ISSUE/OFFER
[●]/[Save as discussed in “Subscription and Sale” in the Base Prospectus, so far as the Issuer is aware,
no person involved in the offer of the Bonds has an interest material to the offer.]
[4
REASONS FOR THE OFFER, ESTIMATED NET PROCEEDS AND TOTAL
EXPENSES
[5
(i)
Reasons for the offer:
[●]
(ii)
Estimated net proceeds:
[●]
(iii)
Estimated total expenses:
[●]]
YIELD (Fixed Rate Bonds only)
Indication of yield:
[●]]
6
[PERFORMANCE OF INDEX/FORMULA/OTHER VARIABLE AND OTHER
INFORMATION CONCERNING THE UNDERLYING
Information about the Index, its
Information on the U.K. Retail Price Index can be found at
volatility and past and future
www.statistics.gov.uk
performance can be obtained from:
7
OPERATIONAL INFORMATION
Any clearing system(s) other than Euroclear Bank
SA/NV and Clearstream Banking Société
Anonyme and the relevant identification
number(s):
[Not Applicable][●]
Delivery:
Delivery [against/free of] payment
Names and addresses of additional Paying
Agent(s) (if any):
[●]
Name and address of Calculation Agent (if any):
[●]
ISIN Code:
[●]
Common Code:
[●]
DESCRIPTION OF INITIAL LIQUIDITY FACILITY PROVIDERS
BNP Paribas, London Branch
Acting through its office at 10 Harewood Avenue, London NW1 6AA.
BNP Paribas, London Branch is a company incorporated in France (company number 662 042 449
RCS Paris) and registered in England and Wales under company number FC13447, whose registered
office is at 10 Harewood Avenue, London NW1 6AA.
National Australia Bank Limited
National Australia Bank Limited (“NAB”) is registered in the State of Victoria with Australian
Business Number (ABN) 12 004 044 937. NAB was incorporated on 23 June 1893.
NAB is a public limited company incorporated in the Commonwealth of Australia and it operates under
Australian legislation including the Corporations Act 2001 of Australia. Its registered office is Level 1,
800 Bourke Street, Docklands, Victoria 3008, Australia (telephone number +61 3 8872 2461).
NAB is an international financial services group that provides a comprehensive and integrated range of
financial products and services, with over 12,700,000 customers and 42,800 people, operating more
than 1,300 stores and Service Centres globally. NAB’s major financial services franchises are in
Australia, but also operates businesses in New Zealand, Asia, the United Kingdom and the United
States.
The Bank of Nova Scotia, London branch
The Bank was granted a charter under the laws of the Province of Nova Scotia in 1832 and commenced
operations in Halifax, Nova Scotia in that year. Since 1871, the Bank has been a chartered bank under
the Bank Act (Canada) (the “Bank Act”). The Bank is a Schedule 1 bank under the Bank Act and the
Bank Act is its charter. The head office of the Bank is located at 1709 Hollis Street, Halifax, Nova
Scotia, B3J 3B7 and its executive offices are at Scotia Plaza, 44 King Street West, Toronto, Ontario,
M5H 1H1. A copy of the Bank’s by-laws is available on www.sedar.com.
The Bank is one of North America’s premier financial institutions and Canada’s most international
bank. Through its team of more than 86,000 employees, the Bank and its affiliates offer a broad range
of products and services, including personal and commercial banking, wealth management, corporate
and investment banking to more than 21 million customers in more than 55 countries around the world.
The Royal Bank of Scotland plc
Acting through its office at 135 Bishopsgate, London EC2M 3UR.
The Royal Bank of Scotland plc (the “Bank”) is a wholly-owned subsidiary of The Royal Bank of
Scotland Group plc (“RBSG” or the “holding company”), a banking and financial services group. The
“Group” comprises the Bank and its subsidiary and associated undertakings. The Group has a
diversified customer base and provides a wide range of products and services to personal, commercial
and large corporate and institutional customers. “RBS Group” comprises the holding company and its
subsidiary and associated undertakings.
RBS Group had total assets of £1,051 billion and owners’ equity of £57 billion as at 31 December
2014. RBS Group’s capital ratios on the end-point CRR basis as at 31 December 2014 were a total
capital ratio of 13.7 per cent., a CET1 capital ratio of 11.2 per cent. and a Tier 1 capital ratio of 11.2 per
cent. RBS Group’s capital ratios on the PRA transitional basis as at 31 December 2014 were a total
capital ratio of 17.1 per cent., a CET1 capital ratio of 11.1 per cent. and a Tier 1 capital ratio of 13.2 per
cent.
The Group had total assets of £1,045 billion and owners’ equity of £47 billion as at 31 December 2014.
The Group’s capital ratios on the end-point CRR basis as at 31 December 2014 were a total capital
ratio of 15.5 per cent., a CET1 capital ratio of 10.0 per cent. and a Tier 1 capital ratio of 10.0 per cent..
TAX CONSIDERATIONS
UNITED KINGDOM TAXATION
The following is a summary of the UK withholding taxation treatment in relation to payments of
principal and interest in respect of the Bonds as at the date of this Prospectus. The comments do not
deal with other UK tax aspects of acquiring, holding or disposing of the Bonds. The comments are
based on current law and HM Revenue & Customs (“HMRC”) practice, which may be subject to
change, sometimes with retrospective effect, and relate only to the position of persons who are absolute
beneficial owners of the Bonds. The summary set out below is a general guide and should be treated
with appropriate caution. Prospective purchasers who are in any doubt as to their tax position or who
may be subject to tax in a jurisdiction other than the UK should consult their professional advisers. In
particular, Bondholders should be aware that they may be liable to taxation under the laws of the UK
(by direct assessment) or other jurisdictions in relation to payments in respect of the Bonds even if such
payments may be made without withholding or deduction for or on account of taxation under the laws
of the UK.
UK Withholding Tax on UK source interest
The Bonds issued by the Issuer will constitute “quoted Eurobonds” within the meaning of section 987
of the Income Tax Act 2007 provided they are and continue to be listed on a recognised stock exchange
within the meaning of section 1005 of the Income Tax Act 2007. The London Stock Exchange has been
designated as a recognised stock exchange for these purposes. The Bonds will be treated as listed on
the London Stock Exchange if they are included in the Official List of the UK Listing Authority and
are admitted to trading on the London Stock Exchange. While the Bonds are and continue to be quoted
Eurobonds, payments of interest on the Bonds may be made without withholding or deduction for or on
account of UK income tax.
In all cases falling outside the exemption described above, payments in respect of interest on the Bonds
will be paid under deduction of UK income tax at the basic rate (currently 20 per cent.) subject to such
relief as may be available under the provisions of any applicable double taxation treaty or, in certain
circumstances, where an exemption referred to in section 930 of the Income Tax Act 2007 applies
(including, in particular, an exemption for payments to certain UK resident companies and certain
partnerships).
However, this obligation to withhold on account of UK income tax will not apply if the relevant
interest is paid on Bonds with a maturity of less than one year from the date of issue and which are not
issued with the intention, or under arrangements the effect of which is, that such Bonds form part of a
borrowing with a total term of a year or more.
If UK withholding tax is imposed, then the Issuer will not pay additional amounts in respect of the
Bonds.
Information Reporting
Information relating to securities may be required to be provided to HMRC in certain circumstances.
This may include the value of the Bonds, details of the holders or beneficial owners of the Bonds (or
the persons for whom the Bonds are held), details of the persons to whom payments derived from the
Bonds are or may be paid and information and documents in connection with transactions relating to
the Bonds. Information may be required to be provided by, amongst others, the holders of the Bonds,
persons by (or via) whom payments derived from the Bonds are made or who receive (or would be
entitled to receive) such payments, persons who effect or are a party to transactions relating to the
Bonds on behalf of others and certain registrars or administrators. In certain circumstances, the
information obtained by HMRC may be provided to tax authorities in other countries.
Other Rules relating to UK Withholding Tax
Bonds may be issued at an issue price of less than 100 per cent. of their principal amount. Any discount
element on any such Bonds will not be subject to any UK withholding tax pursuant to the provisions
mentioned in “UK Withholding Tax on UK source interest” above, but may be subject to reporting
requirements as outlined above.
Where Bonds are issued with a redemption premium, as opposed to being issued at a discount, then any
element of such premium may constitute a payment of interest for these purposes. Payments of interest
are subject to UK withholding tax and reporting requirements as outlined above.
Where interest has been paid under deduction of UK income tax, Bondholders who are not resident in
the UK may be able to recover all or part of the tax deducted if there is an appropriate provision in any
applicable double taxation treaty.
The references to “interest” above mean “interest” as understood in UK tax law. The statements above
do not take any account of any different definitions of “interest” or “principal” which may prevail
under any other law or which may be created by the terms and conditions of the Bonds or any related
documentation.
The above description of the UK withholding tax position assumes that there will be no substitution of
the Issuer pursuant to Condition 15(b) (Passing of resolutions by Bondholders, Modifications and
Waiver) of the Bonds and does not consider the tax consequences of any such substitution.
EU Savings Directive
Under the Savings Directive Member States are required to provide to the tax authorities of another
Member State details of payments of interest and other similar income paid by a person established
within its jurisdiction to (or for the benefit of) an individual resident or certain other types of entity
established in that other Member State. However, for a transitional period Austria is instead required
(unless during such period it elects otherwise) to operate a withholding tax in relation to such payments
(subject to a procedure whereby, on meeting certain conditions, the beneficial owner of the interest or
other income may request that no tax be withheld). The transitional period will end after agreement on
exchange of information is reached between the European Union and certain non-European Union
states. A number of third countries (including Switzerland) have adopted equivalent measures (a
withholding system in the case of Switzerland).
The Council of the European Union has adopted the Amending Directive which amends and broadens
the scope of the requirements of the Savings Directive described above. The Amending Directive
expands the range of payments covered by the Savings Directive, in particular to include additional
types of income payable on securities, and the circumstances in which payments must be reported or
paid subject to withholding. For example, payments made to (or secured for) (i) an entity or legal
arrangement effectively managed in an Member State that is not subject to effective taxation, or (ii) a
person, entity or legal arrangement established or effectively managed outside of the EU (and outside
any third country or territory that has adopted similar measures to the Savings Directive) which
indirectly benefit an individual resident in a Member State, may fall within the scope of the Savings
Directive, as amended. The Amending Directive requires Member States to adopt national legislation
necessary to comply with it by 1 January 2016, which legislation must apply from 1 January 2017.
The Commission has published a proposal to repeal the Savings Directive from 1 January 2016 (subject
to transitional arrangements so that certain obligations under the Savings Directive will continue to
apply until 5 October 2016 and 31 December 2016 (and 30 June 2017 in the case of Austria), or until
those obligations have been fulfilled) to prevent overlap with Council Directive 2011/16/EU on
Administrative Cooperation in the field of Taxation (as amended by Council Directive 2014/107/EU).
Investors who are in any doubt as to their position should consult their professional advisers.
U.S. FOREIGN ACCOUNT TAX COMPLIANCE ACT WITHHOLDING
Certain provisions commonly known as FATCA impose a withholding tax of 30 per cent. on (i) certain
U.S. source payments, (ii) payments of gross proceeds from the disposition of assets that produce U.S.
source interest or dividends and (iii) “foreign passthru payments” (a term not yet defined) made to
persons that fail to meet certain certification or reporting requirements. In order to avoid becoming
subject to this withholding tax, non-U.S. financial institutions must enter into agreements with the IRS
(“IRS Agreements”) (as described below) or otherwise be exempt from the requirements of FATCA.
Non-U.S. financial institutions that enter into IRS Agreements or become subject to provisions of local
law (“IGA legislation”) intended to implement an intergovernmental agreement entered into pursuant
to FATCA (an “IGA”), may be required to identify and report to the government of the United States
or another relevant jurisdiction certain information regarding “financial accounts” held by U.S. persons
or entities with substantial U.S. ownership, as well as accounts of other financial institutions that are
not themselves participating in (or otherwise exempt from) the FATCA reporting regime. In addition,
in order (a) to obtain an exemption from FATCA withholding on payments it receives and/or (b) to
comply with any applicable IGA legislation, a financial institution that enters into an IRS Agreement or
is subject to IGA legislation may be required to withhold 30 per cent. from all, or a portion of, certain
payments made to persons that fail to provide the financial institution information, consents and forms
or other documentation that may be necessary for such financial institution to determine whether such
person is compliant with FATCA or otherwise exempt from FATCA withholding.
Under FATCA, withholding is required with respect to payments to persons that are not compliant with
FATCA or that do not provide the necessary information, consents or documentation made on or after
(i) July 1, 2014, in respect of certain U.S. source payments, (ii) January 1, 2017, in respect of payments
of gross proceeds (including principal repayments) from the disposition of property that can produce
U.S. source interest or dividends and (iii) January 1, 2017 (at the earliest) in respect of “foreign
passthru payments”. FATCA withholding in respect of foreign passthru payments is not required for
“obligations” that are not treated as equity for U.S. federal income tax purposes unless such obligations
are issued or materially modified after the date that is six months after the date on which the final
regulations defining “foreign passthru payments” are filed with the Federal Register.
The application of FATCA to interest, principal or other amounts paid with respect to the Bonds and
the information reporting obligations of the Issuer and other entities in the payment chain is still
developing. In particular, a number of jurisdictions (including the United Kingdom) have entered into,
or have announced their intention to enter into, IGAs (or similar mutual understandings) with the
United States, which modify the way in which FATCA applies in their jurisdictions. The full impact of
such agreements (and the laws implementing such agreements in such jurisdictions) on reporting and
withholding responsibilities under FATCA is unclear. The Issuer and other entities in the payment
chain may be required to report certain information on their U.S. account holders to government
authorities in their respective jurisdictions or the United States in order (i) to obtain an exemption from
FATCA withholding on payments they receive and/or (ii) to comply with applicable law in their
jurisdiction. It is not yet certain how the United States and the jurisdictions which enter into IGAs will
address withholding on “foreign passthru payments” (which may include payments on the Bonds) or if
such withholding will be required at all.
Whilst the Bonds are in global form and held within Euroclear or Clearstream, Luxembourg (together,
the “ICSDs”), it is expected that FATCA will not affect the amount of any payments made under, or in
respect of, the Bonds by the Issuer, any paying agent and the common depositary or Common
Safekeeper, given that each of the entities in the payment chain from (but excluding) the Issuer to (but
including) the ICSDs is a major financial institution whose business is dependent on compliance with
FATCA and that any alternative approach introduced under an IGA will be unlikely to affect the
Bonds. The documentation expressly contemplates the possibility that the Bonds may go into definitive
form and therefore that they may be taken out of the ICSDs. If this were to happen, then a nonFATCA-compliant holder could be subject to withholding.
If an amount in respect of U.S. withholding tax were to be deducted or withheld from interest, principal
or other payments on the Bonds as a result of FATCA, none of the Issuer, any paying agent or any
other person would, pursuant to the Terms and Conditions of the Bonds be required to pay additional
amounts as a result of the deduction or withholding. As a result, investors may receive less interest or
principal than expected.
The application of FATCA to Bonds issued or materially modified after the date that is six months after
the date on which the final regulations applicable to “foreign passthru payments” are filed with the
Federal Register, may be addressed in the relevant Final Terms or a supplement to this Prospectus, as
applicable.
FATCA IS PARTICULARLY COMPLEX AND ITS APPLICATION TO THE ISSUER, THE
BONDS AND THE HOLDERS IS SUBJECT TO CHANGE. EACH HOLDER OF BONDS SHOULD
CONSULT ITS OWN TAX ADVISER TO OBTAIN A MORE DETAILED EXPLANATION OF
FATCA AND TO LEARN HOW FATCA MIGHT AFFECT EACH HOLDER IN ITS PARTICULAR
CIRCUMSTANCE.
SUBSCRIPTION AND SALE
Dealership Agreement
Bonds may be sold from time to time by the Issuer to any one or more of the Dealers and any other
dealer appointed from time to time in each case acting as principal or to subscribers from whom
subscriptions have been procured by the Dealers, in each case pursuant to the dealership agreement
dated 25 January 2013 made between, amongst others, the Issuer and the Dealers (as amended from
time to time, the “Dealership Agreement”). The arrangements under which a particular Tranche of
Bonds may from time to time be agreed to be sold by the Issuer to, and purchased by, Dealers or
subscribers are set out in the Dealership Agreement and the Subscription Agreements relating to each
Tranche of Bonds. Any such agreement will, inter alia, make provision for the price at which such
Bonds will be purchased by the Dealers or subscribers and the commissions or other agreed deductibles
(if any) payable or allowable by the Issuer in respect of such purchase. The Dealership Agreement
makes provision for the resignation or termination of appointment of existing Dealers and for the
appointment of additional or other Dealers either generally in respect of the Programme or in relation to
a particular Series or Tranche of Bonds.
In the Dealership Agreement, the Issuer has agreed to reimburse the Dealers for certain of their
expenses in connection with the establishment and maintenance of the Programme and the issue of
Bonds under the Dealership Agreement and each of the Obligors and the Issuer has agreed to
indemnify the Dealers against certain liabilities incurred by them in connection therewith.
Dealers may, directly or indirectly through affiliates, have provided investment and/or commercial
banking, financial advisory and other services to the Obligors and their affiliates from time to time for
which they have received monetary compensation. The Dealers may from time to time also enter into
swap and other derivative transactions with the Obligors and their affiliates, including in relation to the
Bonds. In addition, the Dealers may engage in the future in investment banking, commercial banking,
financial or other advisory services with the Issuer, the Obligors or their affiliates.
United States of America
The Bonds have not been and will not be registered under the Securities Act or the securities laws of
any other jurisdiction and may not be offered or sold within the United States or to, or for the account
or benefit of, U.S. Persons except in certain transactions exempt from, or not subject to, the registration
requirements of the Securities Act and, in each case, in circumstances that will not require the Issuer to
register under the Investment Company Act 1940 (the “Investment Company Act”). Terms used in
this paragraph have the meaning given to them in Regulation S.
Bearer Bonds are subject to U.S. tax law requirements and may not be offered, sold or delivered within
the United States or to a United States person, except in certain transactions permitted by U.S. Treasury
regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal
Revenue Code of 1986 and Treasury regulations promulgated thereunder.
The Bonds will be offered, sold and delivered only outside the United States, to persons who are not
U.S. Persons, in offshore transactions in reliance on Regulation S.
Each Dealer has agreed that it has offered and sold, and it will offer and sell, Bonds of any Series (i) as
part of their distribution at any time and (ii) otherwise until 40 days after the completion of the
distribution of an identifiable tranche of which such Bonds are a part, as determined and certified to the
Principal Paying Agent by the relevant Dealer (or in the case of a sale of an identifiable tranche of
Bonds to or through more than one relevant Dealer, by each of such relevant Dealers as to the Bonds of
such identifiable tranche purchased by or through it, in which case the Principal Paying Agent shall
notify each such relevant Dealer when all such relevant Dealers have so certified), only in accordance
with Rule 903 of Regulation S. Accordingly, neither it, its affiliates nor any persons acting on its or
their behalf have engaged or will engage in any directed selling efforts in the United States with respect
to Bonds, and it and they have complied and will comply with the offering restrictions requirement of
Regulation S. Each Dealer and its affiliates will also agree that, at or prior to confirmation of sale of
Bonds to a distributor, dealer or person receiving a selling concession, fee or other remuneration that
purchases Bonds from it during the distribution compliance period it will send to such purchaser a
confirmation or notice stating that such purchaser is subject to the foregoing restrictions on offers and
sales. Terms used in this paragraph have the meanings given to them by Regulation S.
Until 40 days after the commencement of the offering of any series of Bonds, any offer or sale of such
Bonds within the United States by any dealer (whether or not participating in the offering) may violate
the registration requirements of the Securities Act if such offer or sale is made otherwise than in
accordance with an available exemption from registration under the Securities Act.
Each issuance of index-linked Bonds shall be subject to such additional U.S. selling restrictions as the
Issuer and the relevant Dealer may agree as a term of the issuance and purchase of such Bonds, which
additional selling restrictions shall be set out in the applicable Subscription Agreement or in a
drawdown prospectus applicable to a particular Tranche of Bonds.
Due to the restrictions set forth above, purchasers of the Bonds are advised to consult legal counsel
prior to making an offer to purchase or to re-sell, pledge or otherwise transfer the Bonds.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the
Prospectus Directive (each, a “Relevant Member State”), each Dealer has represented and agreed, and
each further Dealer appointed under the Programme will be required to represent, warrant and agree,
that with effect from and including the date on which the Prospectus Directive is implemented in that
Relevant Member State (the “Relevant Implementation Date”) it has not made and will not make an
offer of Bonds to the public in that Relevant Member State except that it may, with effect from and
including the Relevant Implementation Date, make an offer of Bonds to the public in that Relevant
Member State:
(a)
Qualified investors: at any time to any legal entity which is a qualified investor as defined in
the Prospectus Directive;
(b)
Fewer than 100 offerees: at any time to fewer than 100 or, if the Relevant Member State has
implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal
persons (other than qualified investors as defined in the Prospectus Directive), subject to
obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any
such offer; or
(c)
Other Exempt offers: at any time in any other circumstances falling within Article 3(2) of the
Prospectus Directive,
provided that no such offer of Bonds referred to in (a) to (c) above shall require the Issuer or any
Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a
prospectus pursuant to Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of Bonds to the public” in relation to any
Bonds in any Relevant Member State means the communication in any form and by any means of
sufficient information on the terms of the offer and the Bonds to be offered so as to enable an investor
to decide to purchase or subscribe the Bonds, as the same may be varied in that Member State by any
measure implementing the Prospectus Directive in that Member State and the expression “Prospectus
Directive” means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and
includes any relevant implementing measure in the Relevant Member State.
United Kingdom
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will
be required to represent and agree, that:
(a)
No deposit-taking: in relation to any Bonds having a maturity of less than one year:
(i)
it is a person whose ordinary activities involve it in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of its business; and
(ii)
it has not offered or sold and will not offer or sell any Bonds other than to persons:
(A)
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses; or
(B)
who it is reasonable to expect will acquire, hold, manage or dispose of
investments (as principal or agent) for the purposes of their businesses,
where the issue of the Bonds would otherwise constitute a contravention of section 19 of the
FSMA by the Issuer;
(b)
Financial Promotion: it has only communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or inducement to engage in
investment activity (within the meaning of section 21 of the FSMA) received by it in
connection with the issue or sale of any Bonds in circumstances in which section 21(1) of the
FSMA does not apply to the Issuer; and
(c)
General Compliance: it has complied and will comply with all applicable provisions of the
FSMA with respect to anything done by it in relation to any Bonds in, from or otherwise
involving the United Kingdom.
General
Each Dealer has acknowledged that no action has been or will be taken in any jurisdiction by the Issuer
or any of the other parties that would permit a public offering of Bonds, or possession or distribution of
the Prospectus or any other offering material, in any jurisdiction where action for that purpose is
required. Each Dealer shall to the best of its knowledge comply with all applicable laws and regulations
in each jurisdiction in or from which they purchase, offer, sell or deliver Bonds or have in their
possession or distribute the Prospectus or any other offering material, in all cases at their own expense.
The Dealership Agreement provides that the Dealers shall not be bound by any of the restrictions
relating to any specific country or jurisdiction (set out above) to the extent that such restrictions shall,
as a result of change(s) in the official interpretation, after the date of the Dealership Agreement, of
applicable laws and regulations, no longer be applicable but without prejudice to the obligations of the
Dealers described in the paragraph above.
Selling restrictions may be supplemented or modified with the agreement of the Issuer. Any such
supplement or modification will be set out in the relevant Subscription Agreement or in a drawdown
prospectus applicable to a particular Tranche of Bonds.
GENERAL INFORMATION
Authorisation
The establishment and update of the Programme, the granting of the Issuer Security and the issue of
Bonds thereunder have been duly authorised by resolutions of the board of directors of the Issuer
passed at a meeting of the board held on 23 January 2013 and 26 March 2015.
The establishment and update of the Programme and the borrowings of HS1 and the security provided
by HS1 in favour of the HS1 Security Trustee, the Issuer and the other HS1 Secured Creditors have
been duly authorised by resolutions of the board of directors of HS1 at meetings of the board held on
23 January 2013 and 26 March 2015.
The establishment and update of the Programme and the borrowings of HSRF and the security
provided by HSRF in favour of the HS1 Security Trustee, the Issuer and the other HS1 Secured
Creditors have been duly authorised by resolutions of the board of directors of HSRF at meetings of the
board held on 23 January 2013 and 26 March 2015.
The establishment and update of the Programme and the provision of the guarantee by the Holdco in
favour of the HS1 Security Trustee, the Issuer and the other HS1 Secured Creditors have been duly
authorised by resolutions of the board of directors of the Holdco at a meeting of the board held on 23
January 2013 and 26 March 2015.
The Issuer has obtained or will obtain from time to time all necessary consents, approvals and
authorisations in connection with the issue and performance of the Bonds.
Clearing and settlement
The Bonds have been accepted for clearing through Clearstream, Luxembourg and Euroclear. The
appropriate Common Code and ISIN for each Tranche of Bonds allocated by Euroclear and
Clearstream, Luxembourg will be specified in the applicable Final Terms. If the Bonds are to clear
through an additional or alternative clearing system the appropriate information will be specified in the
applicable Final Terms.
The address of Euroclear is 1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium and the address of
Clearstream, Luxembourg is 42 Avenue JF Kennedy, L-1855 Luxembourg. The address of any
alternative clearing system will be specified in the applicable Final Terms.
Yield
The yield for any particular Tranche of Bonds will be specified in the applicable Final Terms and will
be calculated at the Issue Date on the basis of the issue price. The applicable Final Terms in respect of
any Floating Rate Bonds will not include any indication of yield. The yield specified in the applicable
Final Terms in respect of a Tranche of Bonds will not be an indication of future yield.
Litigation
There are no governmental, legal or arbitration proceedings (including any such proceedings which are
pending or threatened of which the Issuer is aware) within a period of 12 months preceding the date of
this Prospectus which may have, or have had in the recent past, significant effects upon the Issuer’s or
the Security Group’s financial position or profitability.
There are no governmental, legal or arbitration proceedings (including any such proceedings which are
pending or threatened of which HS1 is aware) within a period of 12 months preceding the date of this
Prospectus which may have, or have had in the recent past, a significant effect on HS1’s financial
position or profitability.
There are no governmental, legal or arbitration proceedings (including any such proceedings which are
pending or threatened of which HSRF is aware) within a period of 12 months preceding the date of this
Prospectus which may have, or have had in the recent past, a significant effect on HSRF’s financial
position or profitability.
There are no governmental, legal or arbitration proceedings (including any such proceedings which are
pending or threatened of which Holdco is aware) within a period of 12 months preceding the date of
this Prospectus which may have, or have had in the recent past, a significant effect on Holdco’s
financial position or profitability.
Significant or Material Change
Since the date of its incorporation, the Issuer has not entered into any contract or arrangement not being
in the ordinary course of business other than the Issuer Transaction Documents.
There has been (a) no material adverse change in the financial position or prospects of the Issuer and
(b) no significant change in the financial or trading position of the Issuer, that has occurred since 31
March 2014 (the end of the last period for which audited financial information has been published).
There has been (a) no material adverse change in the financial position or prospects of HSRF and (b)
no significant change in the financial or trading position of HSRF, that has occurred since 31 March
2014 (the end of the last period for which audited financial information has been published).
There has been (a) no significant change in the financial or trading position of HS1 and (b) no material
adverse change in the prospects of HS1, that has occurred since 31 March 2014 (the end of the last
period for which audited financial information has been published).
There has been (a) no significant change in the financial or trading position of Holdco and (b) no
material adverse change in the prospects of Holdco, that has occurred since 30 September 2014 (the
end of the last period for which unaudited consolidated financial information of Holdco has been
published).
Underlying Assets
The IBLAs have characteristics that demonstrate capacity to produce funds to service any payments
due and payable under the Bonds.
Documents Available
For so long as the Programme remains in effect or any Bonds shall be outstanding, copies of the
following documents may (when published) be inspected during normal business hours at the specified
offices of the Issuer at 12th Floor, One Euston Square, 40 Melton Street, London NW1 2FD and at the
offices of the Principal Paying Agent during usual business hours:
(a)
the memorandum and articles of association of the Issuer, HS1, HSRF and Holdco;
(b)
a copy of the Prospectus dated 25 January 2013 and this Prospectus;
(c)
each Final Terms relating to Bonds in issue which are admitted to listing, trading and/or
quotation by any listing authority, stock exchange and/or quotation system;
(d)
each Investor Report;
(e)
copies of the following documents (in each case, as amended):
(i)
the CTA;
(ii)
the STID;
(f)
(iii)
the Initial Authorised Credit Facilities Agreement;
(iv)
each IBLA;
(v)
the HS1 Security Agreement;
(viii)
the Bond Trust Deed;
(ix)
the Issuer Deed of Charge;
(x)
the Agency Agreement;
(xi)
the Account Bank Agreement;
(xii)
the Issuer Hedging Agreements;
(xiii)
the Liquidity Facility Agreement;
(xiv)
the Master Definitions Agreement;
(xv)
the Issuer Corporate Services Agreement; and
(xvi)
the Tax Deed of Covenant; and
the following financial statements:
(i)
the Issuer’s audited Directors’ Report and Accounts for the period from 3 January
2013 (being the date of its incorporation) to 31 March 2014;
(ii)
Holdco’s audited consolidated Directors’ Report and Accounts for the Financial
Years ended 31 March 2014 and 31 March 2013;
(iii)
Holdco’s unaudited consolidated interim financial statements for the six month
period ended 30 September 2014;
(iv)
HS1’s audited Directors’ Report and Accounts for the Financial Years ended 31
March 2014 and 31 March 2013; and
(v)
HSRF’s audited Directors’ Report and Accounts for the Financial Years ended 31
March 2014 and 31 March 2013.
Material Contracts
None of the Issuer, HS1, Holdco or HSRF has entered into any contracts outside the ordinary course of
its business, which could result in any of the Issuer, HS1, Holdco or HSRF being under an obligation or
entitlement that is material to the Issuer’s, HS1’s, Holdco’s or HSRF’s, respectively, ability to meet its
obligations to all secured creditors in respect of the Bonds being issued.
Third party information
Third party information referred to in the sections entitled “Risk Factors”, “Business of HS1”, “BookEntry Clearance Procedure” and “Regulatory Framework and the Project Documents” has been
accurately reproduced and as far as the Issuer is aware and is able to ascertain from information
published by that third party, no facts have been omitted which would render the reproduced
information inaccurate or misleading.
The ILFP Information has been accurately reproduced from information provided to the Issuer by the
Initial Liquidity Facility Providers but the Issuer has not independently verified such information. So
far as the Issuer is aware and is able to ascertain from information published by the Initial Liquidity
Facility Providers, no facts have been omitted which would render the ILFP Information inaccurate or
misleading.
Information in respect of the Bonds and the underlying collateral
The issue price and the amount of the relevant Bonds will be determined, before filing of the relevant
Final Terms of each Tranche, based on then prevailing market conditions. The Issuer does not intend to
provide any post-issuance information in relation to any issues of Bonds admitted to trading or the
performance of the underlying collateral except for the Investor Report which will be prepared by HS1
on a semi-annual basis and published on the designated website of HS1, being http://highspeed1.co.uk
and which will also be made available at the specified office of the Principal Paying Agent.
Other Activities of the Dealers
The Dealers and their respective affiliates (i) have provided, and may in the future provide, investment
banking, commercial lending, consulting and financial advisory services to, (ii) have entered into and
may, in the future enter into, other related transactions with, and (iii) have made or assisted or advised
any party to make, and may in the future make or assist or advise any party to make, acquisitions and
investments in or related to, the Issuer or the Obligors and their respective subsidiaries and affiliates or
other parties that may be involved in or related to the transactions contemplated in this Prospectus, in
each case in the ordinary course of business. Certain of the Dealers and their respective affiliates may
have positions, deal or make markets in the Bonds issued under the Programme, related derivatives and
reference obligations, including (but not limited to) entering into hedging strategies on behalf of the
Issuer or the Obligors and their respective affiliates, investor clients, or as principal in order to manage
their exposure, their general market risk, or other trading activities. In addition, in the ordinary course
of their business activities, the Dealers and their respective affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for the accounts of their customers. Such
investments and securities activities may involve securities and/or instruments of the Issuer or the
Obligors and their respective affiliates. Certain of the Dealers or their respective affiliates that have a
lending relationship with the Issuer or the Obligors and their respective affiliates routinely hedge their
credit exposure to the Issuer or the Obligors and their respective affiliates consistent with their
customary risk management policies. Typically, such Dealers and their respective affiliates would
hedge such exposure by entering into transactions which consist of either the purchase of credit default
swaps or the creation of short positions in securities, including potentially the Bonds issued under the
Programme. Any such positions could adversely affect future trading prices of Bonds issued under the
Programme. The Dealers and their respective affiliates may also make investment recommendations
and/or publish or express independent research views in respect of such securities or financial
instruments and may hold, or recommend to clients that they acquire, long and/or short positions in
such securities and instruments. Specifically, and among others, BNP Paribas, London Branch,
National Australia Bank Limited, The Bank of Nova Scotia, London Branch and The Royal Bank of
Scotland plc act as Liquidity Facility Providers in respect of the Liquidity Facility made available to the
Issuer, HS1 and HSRF under the Liquidity Facility Agreement. Among others, certain of the Dealers
and/or their respective affiliates are, and may, in the future, act as Hedge Counterparties.
REGULATORY FRAMEWORK AND THE PROJECT DOCUMENTS
OVERVIEW OF THE REGULATORY FRAMEWORK
This Section sets out the regulatory framework that applies to High Speed 1. It does not cite all aspects
of the legislation that is relevant to High Speed 1, focusing instead on the key provisions of the key
instruments, but it does set out all material considerations, when read with other relevant sections of
this Prospectus, for the purpose of making an investment decision.
Introduction
The regulatory regime applicable to High Speed 1 is effected through a combination of statutory duties
(through primary and secondary legislation) and contractual rights that are in each case conferred on
the ORR and/or the Secretary of State. This section of the Prospectus is concerned with the statutory
framework within which High Speed 1 is operated. See “Overview of the Project Documents” for an
overview of the contractual framework within which High Speed 1 is operated.
The key legislative instruments are:
(a)
the Railways Act 1993 (the “Railways Act”);
(b)
the Channel Tunnel Rail Link Act 1996 as amended by the Channel Tunnel Rail Link
(Supplemental Provisions) Act 2008 (the “CTRL Acts”);
(c)
the Railways Infrastructure (Access and Management) Regulations 2005, as amended by the
Railways Infrastructure (Access and Management) (Amendment) Regulations 2009 (the
“Access Regulations”), which implement for the purposes of High Speed 1:
(i)
Directive 91/440/EC, as amended by Directives 2001/12, 2004/51 and 2007/58, on
the development of the European Community’s railways; and
(ii)
Directive 2001/14/EC, as amended by Directives 2004/49 and 2005/58, on the
allocation of railway infrastructure capacity and the levying of charges for the use of
railway infrastructure,
(together, the “Directives”)3; and
(d)
the Railways (Interoperability) Regulations 2011 (the “Interoperability Regulations”), which
implement Directive 2008/57/EC on the interoperability of the trans-European rail system.
The Railways Act, passed in order to bring about the privatisation of the railways in Great Britain,
continues to regulate much of the operation and management of those railways. But much of it has
been disapplied for the purposes of High Speed 1 by specific legislation – the CTRL Acts. The relevant
provisions of the Railways Act have been mentioned in this Prospectus because:
(a)
those provisions will apply to both the domestic TOCs which use High Speed 1 and to NRIL
in relation to the licensing, the granting of access and the operation of the domestic railway
that interfaces with High Speed 1, as well as Ashford International; and
(b)
it is considered helpful to set out both the similarities and differences between the ordinary
regulatory regime and the regulatory regime that applies to High Speed 1.
3
Directive 2012/34/EU of the European Parliament and of the Council on 21 November 2012 establishing a single
European railway area (recast) must be implemented in domestic UK law by June 2015 and ultimately replaces Directive
91/440/EC and Directive 2001/14/EC. The Department for Transport is consulting on this during April and May 2015 and
will be seeking to implement shortly thereafter.
ORR’s Regulatory Functions and Duties
ORR’s statutory functions
The ORR has a number of functions under the Railways Act, for example:
(a)
to grant licences in relation to the operation of railway assets;
(b)
to enforce the conditions to those licences;
(c)
to regulate access to those assets; and
(d)
to regulate the financial and operational performance of NRIL in its capacity as the monopoly
infrastructure operator of the railway infrastructure in Great Britain, excluding High Speed 1
(the “Classic Network”).
The ORR has some similar functions under the Access Regulations specifically in relation to High
Speed 1, namely, to regulate access to High Speed 1 and to regulate the operational performance of the
monopoly infrastructure operator of High Speed 1, HS1.
ORR’s general statutory duties
The Access Regulations provide that the Railways Act is to be construed as if the ORR’s functions
under the Access Regulations were also set out therein, to the extent doing so is relevant and consistent
with the Directives. Consequently, many but not all of the duties set out in the Railways Act are
applicable to the exercise by the ORR of its functions with respect to High Speed 1.
The general duties of most relevance in the context of High Speed 1 require the ORR to exercise its
functions in the manner which it considers best calculated:
(a)
to protect the interests of users of railways services;
(b)
to promote the use of the railway network in Great Britain for passenger and freight services
and the development of that network to the greatest extent that is considered economically
practicable;
(c)
to promote efficiency and economy on the part of persons providing railway services;
(d)
to promote competition in the provision of railway services;
(e)
to promote measures designed to facilitate the making by passengers of journeys which
involve use of the services of more than one passenger service operator; and
(f)
to enable persons providing railway services to plan the future of the businesses with a
reasonable degree of assurance.
But the ORR’s duty under the Railways Act to: “act in a manner which it considers will not render it
unduly difficult for persons who are holders of network licences to finance any activities or proposed
activities of theirs in relation to which the ORR has functions”, does not apply to High Speed 1 because
HS1 is not a holder of a network licence in relation to High Speed 1 for the purpose of the Railways
Act. This is because the CTRL Acts provide that the licensing regime, which the ORR regulates under
the Railways Act, does not apply to High Speed 1.
The Railways Act licensing regime does continue to apply to Ashford International as it is on the
Classic Network.
ORR’s duty in relation to the Concession Agreement
Overriding duty
The CTRL Acts provide that the ORR has an overriding duty to exercise its functions under the
Railways Act (see “ORR’s statutory functions” above) in such a manner as not to impede the
performance of any “development agreement”, as defined in the CTRL Acts as:
“an agreement (including one entered into before the passing of this Act) to which the
Secretary of State is a party and under which another party has responsibilities in relation to
the design, construction, financing, maintenance or operation of the rail link”.
The underlined words were added by the Channel Tunnel Rail Link (Supplementary Provisions) Act
2008.
As the Concession Agreement concerns, amongst other things, the maintenance and operation of High
Speed 1 (as the rail link), it is considered to be a development agreement for the purpose of the CTRL
Acts. However, significantly, the ORR does not consider itself subject to the overriding duty not to
impede the performance of any development agreement referred to above when exercising its functions
under the Access Regulations, because the overriding duty is limited to the ORR’s economic regulation
functions under the Railways Act that relate to the Classic Network and not High Speed 1. If correct,
this means that the ORR is not obliged to exercise its Railways Act functions in relation to High Speed
1 in a way that avoids impeding the performance of the Concession Agreement. See “Risk Factors –
Regulatory Risks – Other regulatory risk – Lack of regulatory duty not to impede performance”.
Duty to incentivise the infrastructure manager
The Access Regulations place a duty on the ORR to ensure that the infrastructure manager of a “rail
link facility” (meaning a railway facility which is used wholly or partly for the purposes of or in
connection with the provision of services for the carriage of passengers or goods on the rail link – High
Speed 1), with due regard to safety and maintaining and improving the quality of infrastructure service,
is provided with “incentives to reduce the costs of provision of infrastructure and the level of access
charges”. An “infrastructure manager” is the body or undertaking that is responsible for “the
establishment and maintenance of railway infrastructure and the provision of network services in
relation to that infrastructure”. In the context of this Prospectus, the infrastructure in question are the
rail link facilities on High Speed 1.
The ORR must provide those incentives by virtue of exercising its rights and responsibilities in relation
to the performance by HS1 of its obligations under the Concession Agreement. See “Overview of the
Project Documents – The Concession Agreement” below for details of how the ORR provides those
incentives through the Concession Agreement.
Memorandum of Understanding
On an unspecified date, the ORR and the Secretary of State entered into a Memorandum of
Understanding (the “MoU”) in relation to the ORR’s duty under the Access Regulations to incentivise
the infrastructure manager.
Amongst other things, the MoU establishes that the ORR will provide the Secretary of State with “all
the information, assistance and advice” that the Secretary of State reasonably requires in order that he
may:
(a)
decide whether to require HS1 to provide certain infrastructure capability where HS1 has
failed to do so for three or more consecutive days (the trigger for the Secretary of State being
entitled to use this emergency step in power to ensure continuity of service. See “Risk Factors
– Regulatory Risks – Secretary of State step-in and enforcement”);
(b)
respond to any challenge by HS1 to any regulatory decision, Final Order or Provisional Order;
and
(c)
bring proceedings against HS1 where it has failed or refuses to comply with a regulatory
decision, Final Order or Provisional Order or the Enforcement Procedure.
ORR’s Regulatory Statement
On 30 October 2009, the ORR published a Regulatory Statement in respect of the regulation of High
Speed 1 (the “Regulatory Statement”). The Regulatory Statement sets out key elements of the ORR’s
expected approach to its function under the Access Regulations to regulate the economic performance
of High Speed 1.
The Regulatory Statement provides that:
(a)
the ORR recognises that the Regulatory Statement may be relied upon by HS1, the Secretary
of State, prospective purchasers of HS1 and any new future owner and its equity and debt
providers; but
(b)
the Regulatory Statement sets out the ORR’s current intentions as to its approach to the
regulation of High Speed 1, and that that statement cannot fetter its discretion in relation to the
future exercise of its functions.
The Regulatory Statement is over five years old and it continues to refer to the regulatory and
contractual matrix that existed at that time. In particular, references are made to ongoing or anticipated
reviews of the charging proposed by HS1.
The ORR’s updated views were included in a consultation document produced for PR14 and the
subsequent ‘Approach Document’. This included a reminder of the ORR’s powers and duties, and the
timetable to apply for PR14. It also stated the areas that the submission to ORR (the 5YAMS) was
expected to cover under each of the main headings:
Outputs – ORR set out an expectation that HS1 define the network outputs across the Control
Period, incorporating operator input;
Regulatory framework – this included issues on the performance and possessions regime as
well as the structure of charges. It was noted that at the time of writing that there was limited operator
appetite for fundamental change to the regulatory framework;
Asset management strategy – ORR expected ongoing evolvement of the asset management
approach;
Efficient costs – that HS1 should demonstrate that the costs of implementing the asset strategy
to deliver agreed outputs should be efficient. One of the key pieces of information was to be the
benchmarking work.
The
consultation
document
can
be
found
at
the
following
link:
http://orr.gov.uk/__data/assets/pdf_file/0012/5016/pr14-hs1-consultation-feb2013.pdf. The Approach
document can be found at this link: http://orr.gov.uk/__data/assets/pdf_file/0011/5015/pr14-hs1conclusions-jun2013.pdf.
General Approach
The regulatory regime came into effect on 1 October 2009.
The ORR confirms in the Regulatory Statement that it expects to regulate High Speed 1 as far as
possible in the way in which it regulates the Classic Network, whilst recognising there are differences
between High Speed 1 and the Classic Network, and differences between HS1 and NRIL. In general,
the ORR expects to apply its general published policies and principles of regulation having regard to
these differences to the extent relevant.
The ORR recognises, however, the government’s objective of recovering, over the term of the HS1
Concession, a proportion of the very significant investment it has made in High Speed 1. In the light of
this, the ORR considers that the HS1 business model is different from that of NRIL. The ORR
acknowledges that HS1 will be seeking:
(a)
to raise revenues through increased usage of High Speed 1; and
(b)
to finance these activities through the charging regime described in the Regulatory Statement.
Consequently, the ORR expects to have regard to the different characteristics and economics of High
Speed 1 and the differences in HS1’s business model, where relevant, when approaching the regulation
of High Speed 1.
The ORR recognises that NR(HS) is responsible for operating, maintaining and renewing High Speed 1
under the Operator Agreement (see “Overview of the Project Documents – The Operator Agreement”
below) and that the Operator Agreement flows-down the relevant provisions of the Concession
Agreement, including those relating to Periodic Reviews and Interim Reviews of OMRC.
The flow-down of relevant Concession Agreement provisions has been reflected in the amended and
restated Operator Agreement of 2010 and 2012 – see “Overview of the Project Documents – The
Operator Agreement” below – and market testing has been included in the Secretary of State Operator
Agreement Direct Agreement – (see “Overview of the Project Documents – Direct Agreements –
Secretary of State Operator Direct Agreement Specific Terms – Market testing” below).
The ORR’s published statement and subsequent confirmation of its position on specific matters (for
example, its acceptance of HS1’s discounts policy) are important markers of how High Speed 1 has
been and will be regulated. However, in the period during which High Speed 1 has been fully
regulated, there have been no decided cases, so there is little precedence as to how that regime will be
regulated in practice.
Charging Framework
The ORR notes in the Regulatory Statement the establishment of a charging framework for High
Speed 1 through the Concession Agreement.
See “Overview of the Project Documents – The Concession Agreement – Economic regulation” below.
Investment Recovery Charge
The ORR recognises in the Regulatory Statement that the charging framework established by
government provides that charges levied by HS1 may include an investment recovery charge for the
use of High Speed 1 up to a maximum level set by the Secretary of State as a maximum value per
minute of train service.
The Regulatory Statement notes that the intention:
(a)
of government is to recover through this charge, a significant part of the long term capital
costs of High Speed 1 over the life of HS1 Concession (until 2047, although pursuant to the
terms of the Concession Agreement, HS1 Concession ends in 2040); and
(b)
of HS1 is to levy an investment recovery charge at the maximum level on all passenger TOCs
except when it elects to apply a discount in accordance with the Access Regulations.
The ORR observes in the Regulatory Statement that the result of the imposition of a cap on what may
be levied, as directed by the Secretary of State, is that HS1 is likely to recover only a part of the amount
of the long-term capital cost of High Speed 1 at current values over the life of its concession. The
Regulatory Statement records that government envisages a second concession being let in relation to
the period from the end of the current concession, 2040 to 2086, over which additional long-term
capital costs will be recovered.
The ORR states in the Regulatory Statement that it would not expect, in considering any appeals
concerning the investment recovery charge, to change the arrangements for it, as set out in the charging
framework.
Discounts
The charging and discount provisions of the Access Regulations are relatively untested. HS1 is not
aware of any detailed guidance setting out how the discounting principles should be applied – whether
under EU Directive 2001/14 or the Access Regulations which transposed the Directive into UK law.
However, the ORR confirmed in October 2011 that HS1 has established a decision process for the
granting of discounts that complies with the Access Regulations.
Operations, Maintenance and Renewal Charge
The Regulatory Statement notes that under the Concession Agreement, the operational, maintenance
and renewal element of track access charges to be levied by HS1 is subject to Periodic Review by the
ORR. The ORR states in the Regulatory Statement that it would expect to either approve or determine
the level of operation, maintenance and renewal cost that would be incurred by an efficient operator,
and set a level of charge consistent with that.
The Regulatory Statement goes on to say that for passenger TOCs, the ORR expects that the
operational, maintenance and renewal charges will continue to comprise:
(a)
charges for costs directly incurred as a result of operating train services; and
(b)
charges for fixed and common costs, recovered as long-term costs of providing for railway
services on High Speed 1,
and that charges relating to renewals will be calculated as an annuity based on the long term cost, with
a fund, held in escrow, being built up to cover the costs of future renewals.
The ORR states in the Regulatory Statement that it expects to determine operational, maintenance and
renewal charges by reference to an efficient level of operation, maintenance and renewal. Consistent
with the Concession Agreement, the ORR will not take into account the actual or expected income that
HS1 receives from property, retail, car parking and other activities, or from the investment recovery
charge. Thus the level of operational, maintenance and renewal charges is not established using the
“single till” model adopted for NRIL in relation to the Classic Network.
The approach to charging the OMRC set out above has been implemented through PR14. The PR14 is
described in more detail below.
Freight Charge
The ORR acknowledges in the Regulatory Statement HS1’s plans to levy freight charges based on the
efficient costs directly incurred as a result of operating freight train services. The freight charges that
will be levied by HS1 for the costs directly incurred comprise a “variable” element to recover wear and
tear costs and an element to cover the additional “avoidable” costs of operating freight train services.
The ORR notes that HS1 may seek to recover higher charges from specific freight market segments but
that any such mark-up would need to be reflected in the Track Access Agreement and would be subject
to ORR approval.
Freight charges have been determined on this basis as part of PR14 described in more detail below.
Periodic Reviews
The Concession Agreement sets out the purpose and, in general terms, the process of the Periodic
Reviews that are conducted by ORR every five years, the first of which (being PR14) has taken place
(described in greater detail below) and is effective from 1 April 2015. The ORR considers that
establishing OMRC that is fixed in real terms for the duration of the Control Period provides certainty
to TOCs and also provides an incentive to HS1 to outperform the decisions made at a Periodic Review.
Any benefits of outperformance and efficiency of renewal and replacement will be available for sharing
between HS1 and TOCs by way of allocating a percentage (set at a 70/30 split in favour of train
operators in the Concession Agreement, but subject to possible change by the ORR at Periodic
Reviews) to a reduction of the renewal and replacement element of future OMRC payable by TOCs on
High Speed 1. Any benefits of outperformance in efficiency in respect of the operations and
maintenance elements would be retained by HS1 for the relevant Control Period.
The approach of the ORR throughout the ‘Approach Document’ and PR14 was that robust information
(including benchmarking) needed to be provided to justify costs as efficient. The ‘Approach
Document’ states that: “ORR will require robust evidence from HS1 Ltd that the figures in its
submission are challenging but achievable, and will challenge strongly if we consider that the target
set is not sufficiently demanding of HS1 Ltd”.
The ORR notes that in setting operational, maintenance and renewal charges, it expects to have regard
to the terms of the Operator Agreement and the UKPN Agreements (see “Overview of the Project
Documents – The Power Supply Agreements” below), but it also expects HS1 to use the rights it has
under the UKPN Agreements to secure efficiency improvements.
Periodic Review 2014
Periodic Review is the process by which the ORR sets the level of OMRC that HS1 is able to recover
from the TOCs in the next Control Period. In addition, the Periodic Review sets a number of elements
of HS1’s regulatory framework governing how the industry interacts with HS1.
PR14 was the first Periodic Review for HS1 and covers the Control Period 2. The purpose of the
Periodic Review is detailed in Schedule 10 of the Concession Agreement. In December 2013 HS1
submitted the final Five Year Asset Management Statement for Control Period 2 to the ORR. The core
document along with a number of supporting documents provided the necessary information, including
in relation to:

Control Period 1 out-turn;

outputs to be delivered in Control Period 2 to meet customer needs;

safety plans;

asset management plans, including the underlying whole-life cost modelling and the asset specific
policies;

cost plans for Control Period 2, with efficiency plans drawn from internal initiatives and external
top-down and bottom-up benchmarking exercises; and

regulatory framework arrangements, including in relation to charging.
This is available via the following link:
http://highspeed1.co.uk/media/1915/hs1-ltd-five-year-asset-management-statement.pdf
The ORR issued its final approval on the Five Year Asset Management Statement on 9 May 2014. This
is available via the following link:
http://orr.gov.uk/__data/assets/pdf_file/0006/12102/hs1-periodic-review-2014-approval.pdf
As a result of PR14, the expectation of costs, and consequently, the OMRC charges to operators, have
reduced by more than 10 per cent.
Interim Reviews
The Regulatory Statement notes that the Concession Agreement makes provision for Interim Reviews
of OMRC in the event of material changes between Periodic Reviews. HS1 (but not the ORR) may
seek an Interim Review. In seeking an Interim Review, the ORR expects HS1 to provide strong
evidence as to why such a review is required and why the situation cannot be resolved at the next
Periodic Review.
The Regulatory Statement also notes that the Concession Agreement provides the ORR with discretion
to decide that it is not appropriate to increase OMRC as a consequence of a material change and that
the costs of such a change can instead be taken account of when setting OMRC for future Control
Periods.
Self regulating mechanics
The Regulatory Statement points out that if FTAAs contained self-modifying provisions, for example,
the TAA Review Event mechanism, the ORR would not need to approve changes to either the level or
structure of track access charges for High Speed 1. As it stands, HS1 is not able to make changes to
charges payable under an FTAA by amending the tariffs published in the network statement, although
it is expected that the network statement would be updated to reflect any changes that have been
approved.
HS1’s Stewardship duty
ORR’s enforcement powers
The Regulatory Statement confirms that the Enforcement Procedure gives the ORR responsibility for
monitoring HS1’s compliance with certain obligations under the Concession Agreement and taking
appropriate enforcement action, including preventative action in respect of likely breaches.
The Concession Agreement obligations that are the subject of ORR regulation under the Enforcement
Procedure include:
(a)
HS1’s asset stewardship duty (including its duty to operate, maintain, renew and replace and
to plan and carry out upgrades of, including any Specified Upgrades, High Speed 1, and to do
so as if HS1 were responsible for the stewardship of High Speed 1 for the period of 40 years
following the date that any such activities are planned or carried out); and
(b)
HS1’s duty to provide minimum operational standards in relation to infrastructure capability,
performance and stations (see “Overview of the Project Documents – The Concession
Agreement – Minimum Operational Standards”).
The ORR notes that its enforcement powers under the Enforcement Procedure have been modelled on
its enforcement powers under the Railways Act, with powers to make enforcement orders (Final Orders
and Provisional Orders) and require compliance with an order through seeking an injunction or other
relief or remedy, though without the ability to levy financial penalties. It notes that HS1’s failure to
comply with an enforcement order which has not been appealed is an event of default under the
Concession Agreement which may lead to termination of the Concession Agreement by the Secretary
of State.
ORR’s expectations
The Regulatory Statement sets out the key general stewardship duty in the Concession Agreement on
HS1 in relation to High Speed 1 railway infrastructure. It points to other specific obligations relating to
asset stewardship, but it is noted that all of these are subject to the general duty. The ORR expects:
(a)
to take a proportionate and timely approach to monitoring and enforcement consistent with its
approach to the Classic Network and recognising the processes set out in the Concession
Agreement; and
(b)
to have regard to:
(i)
the terms of the Operator Agreement and the UKPN Agreements in relevant cases as
“relevant circumstances” for the purposes of HS1’s general stewardship duty; and
(ii)
whether HS1 has taken actions that would be expected of an efficient infrastructure
manager complying with that general duty to address any constraints created by the
contracts, and to any other relevant circumstances.
The Regulatory Statement sets out the ORR’s expectation that HS1’s compliance with the general
stewardship duty will result in levels of operational performance meeting the reasonable requirements
of TOCs using High Speed 1 and better than the minimum performance levels specified in the
Concession Agreement. In considering what these reasonable requirements are, regard will be had to
the performance provisions in FTAAs.
The ORR also expects, as with the Classic Network, that the standard of operation required by the
general stewardship duty in the Concession Agreement will require the infrastructure manager to take
actions within its power to minimise delays resulting from all causes, not just those for which it is
directly responsible. The important role of TOCs is also noted in this regard. The ORR is looking to
HS1 to develop effective partnerships with TOCs, contractors and adjacent infrastructure managers to
this end.
Enhancements
The ORR notes in the Regulatory Statement that the Concession Agreement and the HS1 Network
Code set out HS1’s obligations regarding enhancements. The ORR notes that it would not expect the
“best practice” requirements in the asset stewardship purpose to be used to lead to unnecessary overspecification or as a means of securing unfunded enhancements to High Speed 1 infrastructure.
FTAAs and other Track Access Agreements
The ORR notes in the Regulatory Statement that simultaneously with entering into the Concession
Agreement, HS1 has entered into FTAAs with EIL and LSER. The ORR notes that it was asked to
review these agreements and the HS1 Network Code (which states key terms for the agreements) in
draft. Following this review, the draft agreements and HS1 Network Code were amended and the ORR
has told the parties that, had its pre-approval powers under the Access Regulations (that is, its
requirement to approve the terms of any FTAA before the parties enter into it) been in effect at that
time, it would have been prepared to approve the agreements as entered into.
The ORR states in the Regulatory Statement that when asked to pre-approve FTAAs and in dealing
with appeals, it expects, subject to its statutory duties, to have appropriate regard to the commercial
judgements of the parties and the nature of the HS1 business model. The ORR notes that High Speed 1
railway infrastructure has been designated as specialised infrastructure for the purposes of the Access
Regulations. It further notes that it was consulted before this designation was made and, beyond
suggesting a wider consultation of industry parties, it made no objection to it.
The Regulatory Statement refers to the ORR’s intention to consult on the criteria and procedures for
approving FTAAs. That consultation has subsequently been completed and the latest published
versions of the criteria and procedures was published in January 2015 (see “Access – Published criteria
and procedures for the approval of track access contracts” below).
Stations
The Regulatory Statement notes that the Concession Agreement gives the ORR a limited role in
monitoring, and if necessary, taking enforcement action in respect of the provision of certain minimum
levels of HS1 Station facilities (such as numbers and lengths of platforms).
The Regulatory Statement records that the main stewardship obligations for HS1 Stations are contained
in leases granted by the Secretary of State to HS1, and enforced by the Secretary of State. Separate
from this, the ORR has an appeal role under the Access Regulations in respect of the terms of access to
HS1 Stations by TOCs.
Secretary of State’s Regulatory Functions and Duties
Following the entry into force of the Access Regulations, many of the Secretary of State’s functions
under the Access Regulations were transferred to the ORR.
The following functions under the Access Regulations continue to reside with the Secretary of State:
(a)
the Secretary of State has a duty to establish a charging framework for access to High Speed 1.
The charging framework that the Secretary of State has established is set out in the Concession
Agreement (see “Overview of the Project Documents – The Concession Agreement –
Economic regulation – Charging Framework”);
(b)
the Secretary of State, through the development agreement (that is, the Concession
Agreement), must lay down conditions, including where appropriate advance payments, to
ensure that, under normal business conditions and over a reasonable time period, the accounts
of an infrastructure manager shall at least balance:
(i)
income from infrastructure charges;
(ii)
surpluses from other commercial activities; and
(iii)
public funds,
with infrastructure expenditure;
(c)
the Secretary of State is entitled to establish a capacity allocation framework for granting
access to High Speed 1;
(d)
the Secretary of State’s consent is required for the continued levying of a congestion charge in
circumstances where the infrastructure manager fails to make progress with the
implementation of an action plan included as part of a capacity enhancement plan produced
pursuant to the Access Regulations; and
(e)
the Secretary of State has a right to be consulted in relation to certain of the ORR’s decisions
under the Access Regulations that affect High Speed 1. This includes, for example, the
ORR’s decisions:
(i)
as an appellate body; and
(ii)
with respect to international passenger services.
The Secretary of State has various rights and functions by virtue of being a party to the Concession
Agreement (see “Overview of the Project Documents – The Concession Agreement”).
Licensing
The Railways Act
The ORR is responsible under the Railways Act for the licensing of railway activities on the Classic
Network.
The Railways Act provides for the licensing of “railway assets” (which includes any train, network,
station or light maintenance depot).
Both the ORR and the Secretary of State may grant licences authorising any person to be the operator
of railway assets and it is prohibited to operate a railway asset unless authorised by a licence or
exempted (see the following paragraph). This prohibition does not apply to a person who acts as the
operator of a railway asset to the extent that the asset is operated for the purposes of providing services
for which a European licence is required.
The Railways Act also provides that the Secretary of State may by order grant exemption from the
requirement to be authorised by licence to be the operator of a railway asset. None of the six
exemption orders made thus far by the Secretary of State under the Railways Act has any application to
High Speed 1. The ORR may also grant an exemption on an application by any person.
The CTRL Acts
As mentioned above (see “ORR’s Regulatory Functions and Duties – ORR’s general statutory duties”),
the CTRL Acts provide that the Railways Act licensing regime does not apply to the network
comprising High Speed 1. Consequently, HS1 is not required to hold any statutory licence equivalent
to a Railways Act network licence in respect of its operation of High Speed 1. As the Concession
Agreement is the sole means by which HS1 is entitled to operate and maintain High Speed 1, it may be
that the Concession Agreement should be regarded in this context as having the same function as a
Railways Act licence.
The CTRL Acts disapply the Railways Act licensing regime in respect of services operated through the
Channel Tunnel and those freight services that operate only on High Speed 1. Consequently, the
Railways Act continues to apply to the TOCs that operate domestic passenger services running on High
Speed 1, as well as those freight services that operate on both High Speed 1 and the Classic Network.
The Railways Act licensing regime, however, does continue to apply to Ashford International. Mitie
has a licence from the ORR to operate Ashford International. That licence is personal to Mitie. Under
current arrangements, Mitie is and will remain the operator of Ashford International until 2018 with an
option for a three year extension until March 2021, at which point the existing station management
agreement will expire. EIL has a European Passenger Licence under the Railway (Licensing of
Railway Undertakings) Regulations 2005.
Nominated undertaker
The CTRL Acts authorise the nominated undertaker to construct and maintain High Speed 1 and
provides that the Secretary of State may identify a nominated undertaker for such purpose by issuing an
order.
The Channel Tunnel Rail Link (Nomination) Order 2008 provided that HS1 was the nominated
undertaker for the purposes of the maintenance of High Speed 1. The Concession Agreement
constrains the Secretary of State’s ability to further nominate anyone else to be the nominated
undertaker in relation to High Speed 1. (See “Overview of the Project Documents – The Concession
Agreement – Certain other provisions – Liability” below in relation to the way in which the Concession
Agreement provides for any further nomination).
Access
General
The ORR is responsible under the Railways Act for regulating the granting of access to railway
facilities on the Classic Network. A “railway facility” is defined to mean any track, station or light
maintenance depot. But specific access arrangements have been made in relation to High Speed 1 and
the Railways Act regime does not therefore apply in that regard. In broad terms however, the specific
regime is similar to the general one. The following is a brief summary of the two regimes.
The Railways Act
Access to a railway facility is secured under the Railways Act by way of entering into an access
contract with the relevant facility owner. In the case of the track, the facility owner will invariably be
NRIL. In the case of stations or depots, the facility owner will be the person that operates that facility.
The person that operates a railway facility will, in the case of stations, usually be a passenger TOC and
in relation to the largest stations, NRIL itself; in the case of a light maintenance depot, usually a TOC.
An operator of a railway facility will operate that facility under the terms of a lease from NRIL (except
where NRIL operates that facility directly or that facility is owned by another third party).
All access contracts must be approved by the ORR as must all amendments to them. The ORR can also
require a facility owner to enter into an access contract with an applicant for the use of that facility
owner’s railway facilities and require amendment to an existing access contract, including an
amendment that permits more extensive use of the relevant railway facility than hitherto offered.
As part of its right to approve the terms of any access contract, the ORR can review the level of access
charges to be levied under the terms of that access contract. The ORR’s regulation of access charges is
discussed in more detail below (see “Economic Regulation” below).
The Secretary of State may exempt railway facilities from the ORR’s regulation of access under the
Railways Act. There have been five exemption orders made under the Railways Act. Of particular
relevance, Ashford International is exempt by virtue of the Railways (Class and Miscellaneous
Exemptions) Order 1994.
The CTRL Acts
The CTRL Acts disapply the Railways Act access regime. Specifically, they provide that the ORR may
not:
(a)
direct a facility owner to enter into an access contract where that facility owner is a rail link
undertaker (see “ORR’s Regulatory Functions and Duties – ORR’s duty in relation to the
Concession Agreement – Memorandum of Understanding” above) and the railway facility in
question is a rail link facility;
(b)
approve an access contract agreed between a facility owner and an applicant for access to a
railway facility where that facility owner is a rail link undertaker and the railway facility in
question is a rail link facility (but see below (“The Access Regulations”) with respect to the
requirements of the Access Regulations which give the ORR a pre-approval role with respect
to framework agreements); or
(c)
direct an installation owner to enter into a contract for the use of its network installation where
that installation owner is a rail link undertaker and network installation comprises part of the
rail link.
The CTRL Acts do not apply to Ashford International as it is not a rail link facility. (In this regard, see
“The Railways Act” above).
The Access Regulations
The Access Regulations replicate aspects of the ORR’s right set out in the Railways Act to pre-approve
access contracts, with the ORR’s prior approval being required before any person enters into or amends
a framework agreement (see “Framework agreements” below) in relation to High Speed 1.
The key differences between the access arrangements in the Access Regulations and the Railways Act
are:
(a)
the ORR cannot direct HS1 to enter into a framework agreement (other than potentially
pursuant to an appeal– see “Economic Regulation – Secretary of State duty” and “Economic
Regulation – Appeals” below – or under competition law);
(b)
the ORR’s right of pre-approval applies only to framework agreements, including
amendments thereto, being for a period in excess of one working timetable (Track Access
Agreements of shorter duration not being framework agreements for the purposes of the
Access Regulations); and
(c)
the ORR’s right of pre-approval does not apply to Station Access Agreements (see
“Framework agreements” immediately below).
Framework agreements
A “framework agreement” is defined as a track access contract which applies for a period in excess of
one working timetable (a “FTAA”). The ORR does not consider a Station Access Agreement to be a
framework agreement under the Access Regulations since a Station Access Agreement does not relate
to “infrastructure capacity” – a term that is defined by reference to “the potential to schedule train
paths”.
Whilst the infrastructure manager cannot be compelled to enter into an FTAA with an applicant for
access, except perhaps on appeal (see “Economic Regulation – Appeals” below), it has obligations
under the Access Regulations to:
(a)
as far as possible, meet all requests for infrastructure capacity, including those requests for
train paths that cross more than one network, and in so doing, take account of all constraints
on applicants, including the economic effect on their business; and
(b)
make sure that infrastructure capacity is allocated on a fair and non-discriminatory basis and
ensure that access contracts are non-discriminatory, transparent and in accordance with the
requirements of the Access Regulations.
Where the infrastructure manager is faced with competing demands for capacity, it must do its best to
ensure the best possible match of those demands, consulting with the applicants in the process.
An FTAA must allow for the amendment or limitation of that FTAA’s terms where such amendment or
limitation would enable better use to be made of the railway infrastructure.
FTAAs are expected to be coterminous with franchise agreements in relation to domestic passenger
services. Otherwise, the term will depend on the particular access requirements and other
circumstances, including where there are commercial contracts, specialised investments or risks, and
may be for a period in excess of fifteen years in exceptional circumstances, where there is large scale
and long term investment.
Framework and rules for the allocation of capacity
Framework
As mentioned above (see “Secretary of State’s Regulatory Functions and Duties”), under the Access
Regulations, the Secretary of State is entitled to establish a framework for the allocation of
infrastructure capacity with respect to High Speed 1. The Secretary of State has not elected to establish
such a framework. The Access Regulations provide that the infrastructure manager is responsible for
the establishment of specific capacity allocation rules and for the processes of allocating infrastructure
capacity in respect of infrastructure for which it has responsibility (which have been addressed in the
HS1 Network Code).
The Access Regulations provide that an applicant wishing to apply for infrastructure capacity must
submit an application to the infrastructure manager in accordance with a predetermined timetable. This
applies both in relation to applications for capacity to operate services and to maintain the
infrastructure. In reserving infrastructure capacity for the latter purpose, the infrastructure manager
must take into account the effect of that reservation on applicants.
Specialised infrastructure
There are provisions under the Access Regulations that allow the infrastructure manager to declare
parts of the relevant infrastructure as “specialised” for the purpose of using those designated parts for
the operation of specified rail services. The effect of such designations is to allow the infrastructure
manager to prioritise different rail services without falling foul of the competition rules of the EC
Treaty.
All of High Speed 1 has been declared specialised infrastructure, allowing HS1 (as the infrastructure
manager) to give priority to specified types of rail service as follows (listed in order of the highest
priority to the lowest):
(a)
high speed international passenger trains;
(b)
high speed domestic passenger trains;
(c)
high speed freight trains; and
(d)
other trains.
Congested infrastructure
There are also provisions under the Access Regulations that provide for what the infrastructure
manager must do where the infrastructure for which it is responsible is congested. Infrastructure that is
declared congested can lead to:
(a)
the requirement to perform a capacity study;
(b)
a prioritisation of capacity allocation; and
(c)
the levy by the infrastructure manager of a congestion charge.
Regulatory decisions concerning international passenger services
Railway undertakings operating international passenger services have a right of access and the right to
pick up passengers at any station located on the international route and set them down at another,
including stations located in the same Member State (i.e. a right of cabotage). These rights are subject
to the ORR’s determination as to whether:
(a)
the service concerned is an international passenger service; and
(b)
the exercise of those rights would compromise the economic equilibrium of a relevant public
service contract. The South Eastern Franchise is a relevant public service contract.
Published criteria and procedures for the approval of track access contracts
General
On 14 October 2010, the ORR published its Criteria and Procedures for the approval of FTAAs (the
“Criteria and Procedures”). The latest iteration – Criteria and Procedures for the approval of
framework agreements for HS1 – is dated January 2015. The Criteria and Procedures describe the
criteria and procedures that the ORR expects to follow in processing applications for access to High
Speed 1. The procedures set out in the Criteria and Procedures are not summarised for the purposes of
this Prospectus.
Access
The Criteria and Procedures state that the focus of the ORR’s approach to its regulatory involvement is
to oversee the fair and efficient allocation of capacity on High Speed 1 in accordance with the Access
Regulations and as set out in the relevant parts of the Regulatory Statement. That entails making
judgements about:
(a)
a realistic extent of spare capacity and the allocation of limited capacity between different
requirements;
(b)
the operational integrity of the services in a proposed contract and their wider implications for
network performance; and
(c)
the appropriate balance between certainty (for a TOC) and flexibility (for HS1 to
accommodate the needs of all other passenger and freight TOCs, bearing in mind the terms of
the declaration of specialised infrastructure).
As noted above (see “Framework and rules for the allocation of capacity – specialised
infrastructure”), all of High Speed 1 has been declared “specialised” infrastructure. The ORR notes in
the Criteria and Procedures that it must have regard to that declaration in considering applications for
access to High Speed 1.
The ORR notes in the Criteria and Procedures that it expects to take a proportionate response in
determining whether, and on what terms, to approve applications for access, focusing on:
(a)
the implications of contracts submitted for the efficient consumption of railway network
capacity over time;
(b)
actual and potential impacts on third parties;
(c)
any areas of disagreement; and
(d)
the fairness of their terms and their consistency with the Access Regulations, the ORR’s
published policies, its decisions in any periodic or interim review of access charges, and any
other relevant considerations which may include HS1’s obligations and responsibilities under
the Concession Agreement, the charging framework published by the Secretary of State and
the Regulatory Statement.
The ORR also states in the Criteria and Procedures that in carrying out its function of pre-approving
FTAAs, it will want to ensure that it facilitates a “public interest outcome”.
The Criteria and Procedures also set out the ORR’s thinking on track access charges, performance
regimes, possession regimes and the liability framework for access contracts.
Track Access Charges
The Criteria and Procedures state in relation to track access charges:
(a)
that one of the ORR’s key roles is to protect TOCs from being charged unduly high prices for
access to High Speed 1, but the ORR must also ensure that the access charges paid by TOCs
are sufficient to enable HS1 to recover the costs of operating, maintaining and renewing High
Speed 1; and
(b)
the requirement to pre-pay access charges is not a barrier to entry for new small TOCs. The
ORR is therefore continuing to monitor this requirement and its impact (if any) on new
entrants and indicates that it is willing to consider applications for access payments to be made
to HS1 in arrears.
Infrastructure management
Infrastructure managers, responsibility and planning
The Access Regulations set out provisions for the management by infrastructure managers of the
infrastructure that they are responsible for (this includes High Speed 1). The Access Regulations
provides that an infrastructure manager must be responsible for its own management, administration
and internal control.
The Access Regulations requires the infrastructure manager to draw up a business plan which is
designed for the purpose of ensuring:
(a)
optimal and efficient use and development of the infrastructure; and
(b)
financial balance,
and the ORR has regular oversight of that plan.
Network Statements
The infrastructure manager must develop and regularly update and publish a “network statement”. A
network statement must detail:
(a)
the nature of the railway infrastructure which is available to applicants and the conditions of
access to it;
(b)
where further information may be obtained about the nature of the track access to, and supply
of services in, any of the terminals, ports and service facilities to which access may be
obtained under the Access Regulations;
(c)
the charging principles and tariffs, including details of the charging methodology, exceptions
to the charging principles, and discounts;
(d)
the charges for the supply of services listed in the Access Regulations which are provided by
only one supplier;
(e)
the principles and criteria for the allocation of infrastructure capacity, setting out the general
capacity characteristics of the infrastructure available and the restrictions on its use, including
likely capacity requirements for maintenance;
(f)
the procedures and deadlines in the capacity allocation process and specific criteria employed
in that process; and
(g)
the measures taken by the infrastructure manager to ensure fair treatment of freight services
and international services, and in responding to ad hoc requests for infrastructure capacity.
Economic Regulation
ORR duty
The Access Regulations represent the primary piece of legislation that deals with the economic
regulation of High Speed 1. The ORR is under a duty to ensure that the charges that are levied for
access to High Speed 1 are consistent with the requirements of those regulations. These requirements
provide that:
(a)
the infrastructure manager’s charges for equivalent uses of its infrastructure must be
comparable and comparable services in the same market segment must be subject to the same
charges; and
(b)
the network statement that the infrastructure manager produces (see “Infrastructure
Management – Network Statements” above) must result in equivalent and non-discriminatory
charges for different railway undertakings that perform services of an equivalent nature in a
similar part of the market (to the extent this can be done without breaching confidentiality).
The Access Regulations provides that negotiations between an applicant and the infrastructure manager
about the level of infrastructure charges must take place under the supervision of the ORR. If such
negotiations are likely to contravene the requirements of the Access Regulations (see the paragraph
immediately above), the ORR has a duty to intervene.
Secretary of State duty
The Access Regulations place a duty on the Secretary of State to establish a charging framework for
High Speed 1. The Secretary of State has fulfilled this duty by including the charging framework in the
Concession Agreement.
Appeals
An applicant has a right of appeal to the ORR if it believes that it has been unfairly treated,
discriminated against or is in any other way aggrieved.
This wide-ranging right of appeal lies in particular against decisions of the infrastructure manager
concerning the following matters:
(a)
the network statement (including the information that must be included therein);
(b)
the capacity allocation process and its results;
(c)
the charging scheme and charging system;
(d)
the level or structure of infrastructure fees which the applicant is required to pay; and
(e)
the arrangements in connection with entitlement to access.
The ORR has a duty to make a decision on an appeal within two months of receipt of all relevant
information and, where appropriate, issue a direction to remedy the situation arising out of it.
Access charges
The Access Regulations provide that the infrastructure manager must be able to justify that the charges
invoiced to each railway undertaking for access to the infrastructure, comply with the methodology,
rules and, where applicable, scales laid down in the network statement (see “Infrastructure
management – Network Statements” above).
As referred to above (see “ORR’s Regulatory Functions and Duties – ORR’s duty in relation to the
Concession Agreement – Overriding duty”), the Concession Agreement is a development agreement for
the purposes of the Access Regulations. The ORR performs its economic regulatory function under the
terms of the Concession Agreement (see “Overview of the Project Documents – The Concession
Agreement – Economic regulation” below).
Performance
The Access Regulations require the infrastructure manager to establish a performance regime as part of
the charging system to encourage railway undertakings and the infrastructure manager to minimise
disruption and improve the performance of the relevant infrastructure. Such a performance scheme
may include:
(a)
penalties for actions which disrupt the operation of the rail network;
(b)
compensation for undertakings which suffer from disruption; and
(c)
bonuses that reward better than planned performance.
The basic principles of the performance scheme must apply in a non-discriminatory manner throughout
the network to which the scheme relates.
FTAAs and other Track Access Agreements establish the performance regime that operates between
HS1 and the TOCs that use High Speed 1 (see “Overview of the Project Documents – Framework
Agreements and other Track Access Agreements” below).
Enforcement
Under the Railways Act:
(a)
the Secretary of State has the power to make enforcement orders and impose financial
penalties for contravention of franchise agreements; and
(b)
the ORR has the power to make enforcement orders and impose financial penalties for
contravention of railway licence conditions.
The Secretary of State’s enforcement powers are not considered for the purpose of this Prospectus and
the ORR’s enforcement powers are not relevant because, as discussed, the licensing provisions of the
Railways Act have been disapplied in respect of High Speed 1. The ORR does however have powers
of enforcement under the Concession Agreement which replicate many aspects of the Railways Act
regime (see “Overview of the Project Documents – The Concession Agreement – Enforcement and
termination” below).
Interoperability
Purpose and application of the Interoperability Regulations
The Interoperability Regulations seek to remove technical barriers to the supply of railway equipment
and the through-running of trains across the EU Member States, whilst ensuring safe operation.
The Interoperability Regulations apply to certain railway systems including high-speed rail systems
such as High Speed 1. Absent a derogation granted by the Secretary of State (see “Derogations from
TSIs” below), HS1 must therefore ensure that High Speed 1 complies with the Interoperability
Regulations.
Requirement for authorisation
The Interoperability Regulations prohibit any person from placing into use any new, upgraded or
renewed structural subsystems (including infrastructure, energy, control command and signalling, and
rolling stock) unless:
(a)
an authorisation has been granted by the ORR; or
(b)
the Secretary of State has decided that an authorisation is not required.
In order to obtain an authorisation, a subsystem must meet the “essential requirements” for
interoperability which are set out in the Interoperability Regulations. The essential requirements are
met through conformity with applicable EU-wide technical standards for interoperability (each a
“TSI”) and national technical rules.
Applications may be made to the Secretary of State for a decision as to whether an authorisation is
required for the renewal or upgrading of an existing structural subsystem. The Secretary of State must
require an authorisation if he considers that there may be an adverse effect on overall safety.
The Interoperability Regulations oblige the operator of an authorised subsystem that has been placed in
service to continue to meet the essential requirements, and any applicable TSIs and national technical
rules.
Derogations from TSIs
The Interoperability Regulations provide for the Secretary of State to grant derogations from
conformity with TSIs in specified circumstances. The Secretary of State has granted, with respect to
High Speed 1, derogations from the requirement to comply with some of the applicable TSIs (the “TSI
Derogations”). These TSI Derogations are contained in the CTRL Section 1 Infrastructure Register
and the CTRL Section 2 Infrastructure Register and relate to the physical constraints of high speed
operation, energy consumption and command, control and signalling.
OVERVIEW OF THE PROJECT DOCUMENTS
This Section sets out a summary of certain provisions of the Project Documents relating to HS1. It
does not describe all of the provisions contained in those documents, but it does set out all material
considerations, when read with other relevant sections of this Prospectus, for the purpose of making an
investment decision.
HS1’s key contractual relationships are discussed in this section of the Prospectus.
The Concession Agreement
Parties and term
The Concession Agreement is expressed to set out the terms on which certain rights and obligations
originally contained in an agreement dated 28 September 2003 (known as the S1 Agreement) and an
agreement dated 6 August 2008 (known as the S2 Agreement) continue to remain in force and effect or
are amended. It is an agreement between the Secretary of State and HS1 dated 14 August 2009, as
amended on 16 July 2010 and 27 August 2010, pursuant to which, amongst other things, the Secretary
of State grants HS1 a concession to operate, maintain and renew High Speed 1 for a fixed period of
time.
The ORR is not a party to the Concession Agreement, but in accordance with the Access Regulations,
the ORR is expressed to be responsible for carrying out functions which certain clauses and schedules
of the Concession Agreement indicate it is to carry out – see “Role of the ORR” below. The ORR has
the right to enforce such rights as have been granted to it under the Concession Agreement.
The Concession Agreement grants to HS1 the HS1 Concession on terms that it will expire on 31
December 2040 unless terminated earlier pursuant to its terms or by agreement between the parties.
HS1 has certain responsibilities in respect of licences, consents and undertakings which were given
with respect to the construction of High Speed 1. It also contains an undertaking from the Secretary of
State not to support any application for financial or other assistance in relation to an existing railway in
the area between the M25 and the Channel Tunnel which might allow for line speeds of more than
200km an hour.
Minimum Operational Standards
HS1 is to comply with minimum operational standards (the “Minimum Operational Standards”).
The Minimum Operational Standards require that HS1 provides or procures the provision of sufficient
infrastructure capability and line speeds on High Speed 1 for international, domestic and freight
services to allow certain train service objectives to be met. These objectives include providing or
procuring the provision of:
(a)
(b)
sufficient infrastructure capability and line speeds on High Speed 1:
(i)
for a total of at least 20 trains per hour in each direction travelling between St
Pancras International and the Channel Tunnel without stopping at three minute
headways at a maximum speed of 300 kilometres per hour for international services;
(ii)
for a total of at least 16 trains per hour in each direction travelling between St
Pancras International and Ashford International without stopping at three minute
headways at a maximum speed of 225 kilometres per hour for domestic services; and
(iii)
trains of up to 1,600 tonnes each to travel at a maximum speed of 140 kilometres per
hour between the Channel Tunnel “boundary” and the point on High Speed 1 at
which the freight chords leave the mainline at Ripple Lane; and
the station facilities at the HS1 Stations and Ashford International (unless otherwise agreed
between the Secretary of State and HS1).
The Minimum Operational Standards do not require HS1 to provide or procure the provision of
infrastructure capacity for international and domestic services to run simultaneously.
The Minimum Operational Standards specify that sufficient infrastructure capacity and line speeds is
provided such that specified performance levels can be achieved. These performance levels are the
“Three Month Performance Floor” and the “Annual Performance Floor”. The Three Month
Performance Floor is no more than 15 per cent. in aggregate of the timetabled train services for the
three months in question being delayed where wholly or mainly attributable to HS1. The Annual
Performance Floor is no more than 13 per cent. of train services in a given year are delayed in that year
where wholly or mainly attributable to HS1 or due to a certain number of unidentified events.
These performance floors do not relate to the availability of the HS1 Stations or Ashford International.
The unavailability of any of these stations for any reason - see “Risk Factors – Commercial and
Business Risks – Risk of High Speed 1 being unavailable to train operators” - would not be factored
into HS1's performance for comparison against these performance floors.
The table below shows the actual performances against the relevant performance floors:
Actual Performance
Floor
3 Month
Performance
Annual
Performance
Source: HS1
Q1’12
Q2’12
Q3’12
Q4’12
Q1’13
Q2’13
Q3’13
Q4’13
Q1’14
Q2’14
Q3’14
Q4’14
15%
0.37%
0.38%
0.53%
0.28%
0.21%
0.54%
0.32%
0.29%
0.12%
0.09%
0.24%
0.11%
13%
0.52%
0.38%
0.38%
0.38%
0.38%
0.30%
0.30%
0.30%
0.30%
n/a
n/a
n/a
HS1 is required to monitor the performance of train services in accordance with the terms of relevant
Track Access Agreements and to determine whether it has achieved the Three Month Performance
Floor and Annual Performance Floor. HS1 must provide certain written performance reports to the
Secretary of State and ORR. There are also provisions for cooperation with any audit by the ORR. If
HS1 has failed to provide or procure sufficient infrastructure capability for High Speed 1 to meet either
the Three Month Performance Floor or Annual Performance Floor, then the ORR must implement the
Enforcement Procedure.
Asset Stewardship
Asset Stewardship Duty
HS1 is to operate, repair and maintain the High Speed 1 assets in accordance with best practice, in a
timely, efficient and economical manner, and keep them in good condition and so as to meet all
relevant safety standards so that:
(a)
HS1 can meet its obligations under the Concession Agreement; and
(b)
on termination or expiry of the Concession Agreement, a successor can take over the business
of providing the operation, maintenance and renewal at any time, and as a going concern,
(the “HS1 General Duty”).
Key elements of the asset stewardship obligations include the production of:
(a)
an asset management strategy describing HS1’s general operation, maintenance and renewals
principles and procedures (the “Asset Management Strategy”);
(b)
an Asset Management Annual Statement that sets out details of the operational, maintenance
and renewal costs incurred and upgrades carried out in the relevant year and such costs to be
incurred and upgrades to be carried out in the next (the “Asset Management Annual
Statement”); and
(c)
a five-year asset management statement that sets out, amongst other things, HS1’s proposals
for the next Control Period (the “Five Year Asset Management Statement”).
The ORR will use the Five Year Asset Management Statement submitted to it in conducting the
relevant Periodic Review – see “Economic regulation – Periodic Reviews” below. Each such statement
is capable of being iterated three times at the requirement of the ORR. The objective during any ORR
review of any such statement and its possible iteration is for the ORR to be able to conclude that each
such statement “is consistent with the HS1 General Duty”. Where the ORR does conclude that a Five
Year Asset Management Statement is consistent with the HS1 General Duty, it must approve that
statement and HS1 must thereafter comply with its terms. This appears to turn the obligations set out
in the Five Year Asset Management Statement into contractual obligations, and to constrain HS1 to
deliver those obligations throughout the next Control Period only in the manner it contemplated at the
time of the preceding Periodic Review.
Where the ORR is unable to approve any statement, it is to provide HS1 with reasons and details of
deficiencies. Where a statement has been fully iterated, or where HS1 fails to produce any such
statement or respond to the ORR’s requirements in a timely manner, the ORR may have recourse to the
Enforcement Procedure – see “Enforcement and termination – Enforcement Procedure” below.
The only contemplated outcomes of the ORR’s review of any Five Year Asset Management Statement
are the ORR approval of that statement (as originally submitted or as revised by HS1) and ORR
enforcement where it is not approved for any reason.
Role of the ORR
The most significant of the ORR’s functions under the Concession Agreement are:
(a)
its oversight of the economic regulation of the operational, maintenance and renewal charges
that HS1 may levy on TOCs under Track Access Agreements for access to High Speed 1
through the carrying out of Periodic Reviews and other reviews; the ORR has no power under
the Concession Agreement to regulate the level of IRC that HS1 may levy on TOCs (although
see “Upgrades” below in relation to the charging of any additional IRC); and
(b)
its implementation of the Enforcement Procedure – see “Enforcement and termination –
Enforcement Procedure” below to ensure that HS1 complies with certain obligations under the
Concession Agreement, the most significant of which are:
(i)
HS1’s asset stewardship duty (including its duty to operate, maintain, renew and
replace and to plan and carry out upgrades of, including any Specified Upgrades,
High Speed 1, and to do so as if HS1 were responsible for the stewardship of High
Speed 1 for the period of 40 years following the date that any such activities are
planned or carried out); and
(ii)
HS1’s duty to provide minimum operational standards in relation to infrastructure
capability, performance and stations (see “Minimum Operational Standards” above).
Economic regulation
Charging framework
The Concession Agreement sets out the charging framework that the Secretary of State is required to
introduce for the purposes of the Access Regulations – see “Regulatory Framework – ORR’s
Regulatory Statement – Charging Framework” above. HS1 may only levy charges on TOCs for access
to High Speed 1 in accordance with that charging framework. Those charges are payable by TOCs
under the terms of their Track Access Agreements. Charges include the IRC and the OMRC (a charge
relating to operational, maintenance and renewal costs). The OMRC may cover, amongst other costs,
costs relating to meeting the performance standards, asset condition and handback condition of High
Speed 1 required by the Concession Agreement.
HS1 may apply discounts and mark ups but only in accordance with the requirements of the Access
Regulations.
An additional investment recovery charge may be levied by HS1 if, over the life of the Concession
Agreement and subject to its terms, further investment in relation to High Speed 1 is approved or
required. In the event of such further investment, HS1 may, subject to ORR approval, take into
account the long term costs associated with that investment in calculating any IRC.
The OMRC is divided into a separate:
(a)
operating and maintenance element; and
(b)
renewal and replacement element for the purpose of funding the substitution or replacement of
any route asset comprising High Speed 1 with an asset or part of the same type or equivalent
(“Renewals and Replacements”).
The funds to be applied for carrying out Renewals and Replacements are to be segregated into the
Renewals Escrow Account until those funds are required by HS1.
Management arrangements in relation to the Renewals Escrow Account include powers for HS1 in
respect of how account balances may be invested during periods when they are not required to fund
Renewal and Replacement activities. The proceeds of investment are returned to the account on
maturity, and the earnings credited to the account are taken into account at a review when considering
future levels of OMRC. There is no express provision which places HS1 at risk over whether interest
and earnings on the account fall short of an assumed level, nor express provision for HS1 to benefit
from any outperformance there may be of expectations.
The Renewals Escrow Account is funded on an annuity basis with a 40-year look forward period, with
the intent that it will always be in sufficient funds to meet Renewals and Replacements requirements.
During each Periodic Review, the amount standing to the credit of the Renewals Escrow Account is
taken account of in the agreement or determination of the Aggregate OMRC.
Any monies in the Renewals Escrow Account at the end of the Control Period that HS1 believes will
not be required in order to carry out Renewals and Replacements after the end of that Control Period
are, subject to the ORR’s reasonable consent, classified as “Costs Savings” and are to be shared
between TOCs and HS1 on a 70:30 basis. The TOC’s share is allocated by HS1 by way of a reduction
of the Renewal and Replacement element of future OMRC. HS1’s share (the “Performance Incentive
Share”) is made only at the end of the Control Period after the Control Period in which the Costs
Savings are realised. Any Performance Incentive Share is only made on HS1 providing satisfactory
evidence and the ORR determining that:
(a)
HS1 has complied with its HS1 General Duty, the Asset Management Strategy and “in
particular the Five Year Asset Management Statement”;
(b)
the Costs Savings were achieved accordingly; and
(c)
the Renewals Escrow Account balance (allowing for funding in the next Control Period and
withdrawals for incentive shares to HS1) is consistent with enabling HS1 to comply with its
HS1 General Duty in relation to Renewal and Replacements.
There is broadly equivalent provision for HS1 to share in prospective Costs Savings that are to be
realised after the HS1 Concession where activities which have been carried out before the end of the
HS1 Concession would, in the reasonable opinion of the ORR, be expected to result in efficiencies or
Costs Savings that arise after the end of the HS1 Concession.
Incentivisation of the infrastructure manager
The incentives to reduce the costs of provision of infrastructure and the level of access charges that
HS1 must be provided with by the ORR (see “Regulatory Framework – ORR’s Regulatory Functions
and Duties – Duty to incentivise the infrastructure manager” above) are achieved through a
combination of HS1’s obligations under the Concession Agreement and by virtue of the ORR
exercising its rights and responsibilities in relation to those obligations under the Concession
Agreement including its rights in relation to Periodic Reviews.
Periodic Reviews
The Periodic Review provisions in the Concession Agreement are binding as between the Secretary of
State and HS1, but they do not bind the ORR contractually, nor confer contractual rights on HS1 in
respect of the ORR. They do however place the Secretary of State and HS1 under obligations (in
accordance with their terms) to the ORR.
The purpose of any Periodic Review is stated to be for the ORR to approve HS1’s proposals for, or for
the ORR to determine, the OMR Costs that would be incurred by an efficient operator of High Speed 1
(excluding stations) in the next Control Period and agree or determine an amount consistent with this
level (the “Aggregate OMRC”) that HS1 may levy in aggregate on TOCs under the terms of their
Track Access Agreements. See “Regulatory Framework – Published criteria and procedures for the
approval of track access contracts” above in relation to the ORR’s stated objective regarding the level
of HS1’s revenue for the purposes of operating, maintaining and renewing High Speed 1.
The principal input to any Periodic Review is expected to be HS1’s Five Year Asset Management
Statement. The scope of each such statement appears to constitute the list of relevant matters which the
ORR is expected to approve or determine as part of the relevant Periodic Review.
Aggregate OMRC is to be set at the level needed to provide for OMR Costs:
(a)
(b)
taking into account:
(i)
Renewals Escrow Account balances that are available for the purpose of carrying out
Renewals and Replacements;
(ii)
any financial support made or to be made by the Secretary of State for the purpose of
meeting any costs associated with a Paragraph 2 Change (see “Government’s
Financial Support for Changes in Circumstances” below);
(iii)
the OMRC payable under Track Access Agreement; and
(iv)
any warranty, insurance or negligence claims in respect of High Speed 1; but
not taking into account any other revenue or capital receipt whatsoever.
Interim Reviews
HS1 may apply to the ORR for an interim review of the level of Aggregate OMRC that HS1 may levy
(an “Interim Review”) where:
(a)
due to circumstances outside HS1’s control, there has been a material and significant change
to the circumstances on the basis of which Aggregate OMRC was set; and/or
(b)
there has been a Paragraph 2 Change (see “Government’s financial support for Changes in
Circumstances” below) with a 30 per cent. or greater increase in Aggregate OMRC,
such that in either/both cases, Aggregate OMRC for the current Control Period is materially
insufficient to enable HS1 to comply with its HS1 General Duty.
HS1’s application for an Interim Review must be supported by details of the relevant change, the
activity and cost impact of the change, and either:
(a)
a proposed Aggregate OMRC level for the remainder of the Control Period; or
(b)
a proposal to reset the Control Period so that a new five-year period commences upon the
conclusion of that Interim Review, supported by a new Five Year Asset Management
Statement.
There is provision for several levels of iteration between HS1 and the ORR about the submission made
by HS1. The objective is for the ORR either to declare itself satisfied with the submission or to provide
reasons why it is not. Where it is satisfied, then HS1 proceeds on the basis of the submission. Where
the ORR is not satisfied, HS1 may resubmit in amended form on up to two more occasions. The
process concludes with one of the following: ORR satisfaction and permission for HS1 to charge TOCs
a higher amount of OMRC, acceptance by HS1 that it cannot raise the level of OMRC it charges TOCs
or HS1 challenging the ORR’s decision to refuse it permission to charge such a raise. Any challenge is
brought on judicial review grounds, which include challenging errors of law, failure to follow due
process and/or taking unreasonable decisions.
Government’s financial support for Changes in Circumstances
The Concession Agreement entitles HS1 to limited financial support from the Secretary of State in the
context of certain changes in circumstances, each called a “Paragraph 2 Change”. Paragraph 2
Changes include:
(a)
relevant changes in law or taxation;
(b)
hostilities or civil disorder;
(c)
certain force majeure events which directly cause HS1 to be unable to comply with all or a
material part of its Concession Agreement obligations;
(d)
increased safety obligations;
(e)
partial sequestration; and
(f)
any determination by the Secretary of State under the Interoperability Regulations that the
whole or part of any of the TSI Derogations shall not apply to High Speed 1.
The support that is available in relation to a Paragraph 2 Change comprises:
(a)
any estimated change in operating, repairs and maintenance costs of the “HS1 Assets” (which
comprise the track signalling and other equipment that constitutes High Speed 1, HS1 Stations
and the HS1 Land and subsequent assets used by HS1 to perform the Concession Agreement,
less the aggregate of any estimated reduction in operating, repairs and maintenance costs of
the HS1 Assets and net of any increases in revenue (“Estimated Change in Operating
Costs”);
(b)
any capital expenditure (as determined in accordance with UK GAAP) (“Capital
Expenditure”) which directly results from a Paragraph 2 Change; and/or
(c)
any future loss of revenue arising in respect of the remaining term of the Concession
Agreement arising from a Paragraph 2 Change or a Government’s Change (including any
reduction in the IRC element, car parking revenues, retail revenues and advertising revenues)
net of any related reduction in costs arising from the same Paragraph 2 Change or (as the case
may be) Government’s Change (“Loss of Revenue”). See “Government’s Change” below for
an explanation of a Government’s Change.
Financial support for any Estimated Change in Operating Costs is only available to the extent that the
ORR determines that:
(a)
it is not OMRC;
(b)
it is OMRC but is not likely to be capable of being borne by TOCs using High Speed 1; or
(c)
it is OMRC (in whole or part) and is likely to be capable of being borne by TOCs using High
Speed 1, but is also likely to represent more than 30 per cent. of OMRC for the Control
Periods in question.
Financial support for any Capital Expenditure is only available to the extent that the ORR determines
that:
(a)
it is not OMRC; and
(b)
it is not off-set by any Capital Expenditure no longer required as a result of the Paragraph 2
Change.
Where the ORR determines that financial support is available from the Secretary of State because the
Estimated Change in Operating Costs arising from a Paragraph 2 Change is OMRC (in whole or part),
is likely to be capable of being borne by TOCs using High Speed 1, but is also likely to represent more
than 30 per cent. of OMRC for the Control Periods in question, then the Secretary of State will share
responsibility for the additional operating costs with HS1. HS1’s share in these circumstances is (i) 30
per cent. of the OMRC for the Control Periods in question plus (ii) 20 per cent. of the amount by which
the Estimated Change in Operating Costs would exceed this threshold, excluding the consequences of
the relevant Paragraph 2 Change.
Where the ORR determines that financial support is available from the Secretary of State for any other
reason, then HS1’s share is 20 per cent. of the Estimated Change in Operating Costs, Capital
Expenditure or Loss of Revenue, except HS1’s share is zero where the Paragraph 2 Change in question
is partial sequestration or the loss of a TSI Derogation.
HS1’s liability in relation to a Paragraph 2 Change is subject to an overall limit of £6 million
(expressed in month 4, 2009 prices) per Control Period.
Where financial support is available it is payable in such instalments and at such times as the parties
may agree acting reasonably, on the basis that HS1 shall be in no better and no worse a position in
respect of the costs concerned than it would have been had the Paragraph 2 Change not occurred.
Where the parties are unable to agree, the dispute resolution procedure set out in the Concession
Agreement is to apply.
Government’s Change
The Secretary of State has the right to require changes to the subject matter of the Concession
Agreement which is not a Paragraph 2 Change or a Paragraph 3 Change (see “Enforcement and
termination – Grounds of termination” below) (a “Government’s Change”). Provisions relating to
Government’s Change and payment are brief and general.
The Secretary of State may “for any reason” give notice proposing a Government’s Change. There is
closed list of circumstances entitling HS1 to object to a Government’s Change. These relate to:
(a)
infringement of law or best practice;
(b)
requiring an unobtainable consent or involving the loss of an existing consent;
(c)
any material and adverse impact on HS1’s ability to perform in accordance with the
Concession Agreement;
(d)
any material and adverse impact of health and safety;
(e)
any requirement to implement the change in an unreasonable period of time; and
(f)
any material and adverse change in the nature of the concession (including its risk profile), or
HS1’s business and activities.
Any dispute as to the existence of one or more of these grounds may be referred to the dispute
resolution procedure specified in the Concession Agreement. Where in relation to a Government’s
Change notified by the Secretary of State, none of these grounds apply HS1 must proceed with that
Government’s Change. Where HS1 is required to proceed then:
(a)
the parties must discuss and agree any Estimated Change in Operating Costs, Loss of
Revenue, Capital Expenditure and ways of mitigating these effects;
(b)
the Secretary of State must pay such amounts in such instalments and at such times as the
parties may agree acting reasonably on the basis that HS1 shall be in no better and no worse
position than it would have been had the Government’s Change not occurred in respect of
Estimated Change in Operating Costs, Loss of Revenue and Capital Expenditure;
(c)
where the parties cannot agree to the instalments and/or times for payment, such
disagreements shall be determined under the dispute resolution procedure; and
(d)
where these matters have been agreed or it has been determined following referral under the
dispute resolution procedure, then HS1 must implement the Government’s Change as soon as
reasonably possible.
Upgrades
HS1 may levy an additional investment recovery charge from TOCs in relation to further investment in
High Speed 1 or related facilities.
Such investment may relate to “Specified Upgrades” (which include major upgrades to the signalling
system, control systems or trackform of High Speed 1 and/or the wider Network Rail infrastructure) or
any other upgrade to High Speed 1, whether requested by the Secretary of State as a Government’s
Change, or planned by HS1 (or NR(HS)) pursuant to its HS1 General Duty.
The Concession Agreement sets out a process for HS1 to seek ORR approval for the implementation of
the relevant upgrade and the levying of an additional investment recovery charge (unless, in the case of
a Government’s Change, the cost of the relevant upgrade is borne directly by the Secretary of State).
An upgrade may be proposed at any time, either independently from, or as part of the Periodic Review
process.
Enforcement and termination
Enforcement Procedure
The Concession Agreement sets out a procedure under which the ORR can take action against HS1 to
require HS1’s compliance with certain terms of the Concession Agreement (the “Enforcement
Procedure”). Under the Enforcement Procedure, the ORR is entitled to issue:
(a)
a final order (a “Final Order”) where it is satisfied that HS1 is contravening, or is likely to
contravene, any of the provisions of the Concession Agreement to which the Enforcement
Procedure applies; or
(b)
a provisional order (as an interim measure) (a “Provisional Order”) where it appears to the
ORR that such contravention is occurring or is likely to occur and that urgent action is
required having regard in particular to the extent to which any person is likely to sustain loss
or damage as a consequence of the contravening actions before a Final Order can be made.
A Provisional Order may be issued without any necessary preparatory action and is binding for its
duration, but cannot have effect for more than three months (or such shorter period as the order may
specify) without being confirmed in a Final Order.
Before issuing a Final Order (or confirming a Provisional Order), the ORR must provide notice to HS1
of its proposal to take such action. HS1 is entitled to reply within that notice period, making
representations in relation to the proposed order, and the ORR is required to take those representations
into account before:
(a)
proposing modifications to the order (to which HS1 must be given a further opportunity to
respond);
(b)
deciding not to issue the order; or
(c)
if it believes HS1 is not taking all appropriate steps to secure compliance with the relevant
provisions, making or confirming the relevant order.
The ORR (and HS1) must provide the Secretary of State with a copy of any Provisional Order or Final
Order that may be issued. The Secretary of State may then provide written representation to the ORR
in respect of the same. Further, the Secretary of State and HS1 are each expressly granted a right to
refer the matter to judicial review at any time within three months of issue of the relevant order.
Grounds of termination
The Concession Agreement may be terminated by HS1 as a result of certain changes in circumstances
known as “Paragraph 3 Changes”, or by the Secretary of State pursuant to certain HS1 events of
default, each an “HS1 Event of Default”.
Paragraph 3 Changes comprise (i) repudiatory breach by the Secretary of State (ii) total sequestration
of the whole or a material part of certain specified key assets (iii) adverse relevant change in law (iv) a
declaration of state aid (v) the setting aside of any of the Concession Documents by the Secretary of
State due to a finding of the European Court of Justice or the parties agreeing that such an outcome is
likely (vi) any action by the European Commission or national competition authority that would
prevent the operation of any Concession Document or the parties agree that such an outcome is likely
and (vii) unavailability of insurances and the Secretary of State refuses to insure against the risks those
insurances would have covered.
HS1 Events of Default comprise: (i) typical insolvency-type events, but including the appointment of a
special railway administrator (ii) HS1 selling, transferring, leasing or otherwise disposing of the whole
or any material part of its respective undertakings, rights, or assets (iii) a non-permitted change in
ownership (iv) a “particularly serious” default in relation to HS1’s obligations under the Concession
Agreement (subject to certain carve-outs) or the other Concession Documents (which is sufficiently
serious in the context of the totality of the specific agreement) (v) unavailability of insurance in respect
of a material risk to Ashford International and all other assets at Ashford International used in the
performance of the Concession Agreements, or to carrying out the requirements of the HS1 Concession
where caused by HS1 or others for whom HS1 is responsible (vi) failure by HS1 to comply with a Final
Order or Provisional Order (see “Termination without compensation” below) subject to certain caveats
and within specified timeframes.
Compensation payable on termination
Termination pursuant to a Paragraph 3 Change entitles HS1 to compensation, the level of which varies
according to the particular Paragraph 3 Change. Compensation levels are as follows:
(a)
where the Paragraph 3 Change is any of:
(i)
a repudiatory breach by the Secretary of State;
(ii)
the total sequestration of the whole or a material part of certain specified key assets;
(iii)
certain specified materially adverse changes in law; or
(iv)
financial assistance or other aid provided to HS1 is considered state aid,
then the Secretary of State must pay to HS1 the “Default Compensation Termination
Amount”; or
(b)
where the Paragraph 3 Change is any of:
(i)
the Secretary of State being required to set aside any Concession Documents by
reason of a finding of the European Court of Justice;
(ii)
the European Commission or a national competition authority taking action which
prevents or is likely to prevent the operation of any of the Concession Documents; or
(iii)
the unavailability of certain specified material insurances, where such unavailability
is not caused by HS1 or any party for which it is responsible (including
subcontractors),
then the Secretary of State must pay to HS1 the “Non-Default Compensation Termination
Amount” (see the next-but-one paragraph below).
The Default Compensation Termination Amount comprises:
(a)
the “Base Senior Debt Termination Amount”;
(b)
redundancy payments and “Sub-Contractor Breakage Costs” (meaning losses properly and
reasonably incurred by HS1 that directly result from termination of the Concession Agreement
and include sums placed under sub-contracts that cannot be cancelled or terminated and
expenditure incurred in anticipation of future performance of the Concession Agreement); and
(c)
the “Equity Amount”, which is defined as being the discounted sum of the forecast annual
cash flows of HS1, less annual interest and principal payments due on senior debt.
The Non-Default Compensation Termination Amount comprises:
(a)
the Base Senior Debt Termination Amount;
(b)
all amounts paid in respect of the acquisition of shares in HS1 less dividends and other
distributions; and
(c)
redundancy payments and Sub-Contractor Breakage Costs.
The Base Senior Debt Termination Amount comprises:
(a)
all debt amounts outstanding from HS1 to its senior lenders, including interest; and
(b)
subject to a duty to mitigate, all amounts payable by HS1 to those senior lenders as a result of
prepayment of that debt, including costs of early termination of any interest rate hedging
arrangements and other breakage costs where reasonably incurred, on commercial terms and
payable on prepayment or early termination (as appropriate),
less (where (c) to (e) inclusive are positive) the aggregate of:
(c)
all credit balances held by or on behalf of HS1;
(d)
all amounts payable by those senior lenders to HS1 as a result of prepayment of that debt,
including costs of early termination of any interest rate hedging arrangements and other
breakage costs where reasonably incurred, on commercial terms and payable on prepayment
or early termination (as appropriate); and
(e)
all other amounts received by those senior lenders as a result of enforcing any other right they
have.
Termination without compensation
Where the Secretary of State duly terminates the Concession Agreement upon the occurrence of any
HS1 Event of Default, he is not obliged to pay compensation to HS1. In addition, HS1 shall be liable
to pay damages to the Secretary of State (but shall be entitled to have set against those damages, the
value of those assets of HS1 that the Secretary of State has acquired on termination).
In the circumstances of the occurrence of a HS1 Event of Default, HS1’s ability to remedy the breach
that gives rise to the right of termination varies by ground for termination, as follows:
(a)
termination for insolvency or asset disposal: no right of remediation is provided and
termination may be exercised with immediate effect; HS1 has the right within 10 business
days of receipt of the relevant notice of termination to refer the question of whether the
Secretary of State was entitled to issue such notice for resolution as a dispute; in such
circumstances, termination does not occur until such dispute has been finally resolved; HS1
also has the right to seek injunctive or declaratory relief in relation to such purported
termination;
(b)
termination for failure to comply with a Provisional Order or Final Order; no right of
remediation is provided and termination may be exercised with immediate effect; in this
circumstance, however, HS1 will effectively already have enjoyed a remediation period by
reason of the operation of the Provisional Order and Final Order procedures – see
“Enforcement Procedure” above;
(c)
termination due to a failure to comply with a Provisional Order or Final Order where that
failure is caused by a breach by NR(HS); a breach in this context is a breach or non
performance by NR(HS) of its obligations under the Operator Agreement which gives rise to a
breach by HS1 of the Concession Agreement and in turn, the issue of that Provisional Order or
Final Order; where the terms of such order require HS1 to terminate the Operator Agreement
and enter into a new one with a replacement Operator, the Secretary of State will be entitled to
terminate the Concession Agreement in these circumstances if HS1 has failed to comply with
that order; and
(d)
all other grounds of termination; for all other grounds, HS1 is entitled to attempt remediation;
in these circumstances, HS1 is entitled to 65 business days in which to remedy, or to put
forward a “reasonable programme” for remedying, the relevant breach; where HS1 proposes a
remediation programme, the Secretary of State has 20 business days in which to accept or
reject it. If he should reject it, there is a further period of five business days in which the
parties seek to agree amendments to the programme to render it acceptable, failing which the
question of whether or not the programme is capable of remedying the breach is determined
via the dispute resolution procedure.
Handover on termination
HS1 has obligations to operate, maintain and repair High Speed 1 as a going concern in order that its
business can be transferred on the expiry or termination of the HS1 Concession and continued
immediately thereafter. In order to effect such a transfer, HS1 has to cooperate with the Secretary of
State and take such steps as he may reasonably request (both before and after expiry or termination) to
ensure continuity and the orderly handover of control.
Part of complying with the going concern obligation involves the ongoing obligation on HS1 to
operate, maintain, renew and replace High Speed 1 on the basis that it is responsible for the
stewardship of High Speed 1 for the period of 40 years. HS1 must do this even where, at the time of
consideration, there is less than 40 years left of the HS1 Concession for HS1 to operate, maintain,
renew and replace High Speed 1. HS1 also makes payments into and withdrawals from the Renewals
Escrow Account in order to fund the costs of ongoing Renewals and Replacements. That account is
reviewed every five years to ensure funds are sufficient for that purpose in order, amongst other things,
to avoid any dilapidations-type risks materialising at expiry/termination. On expiry or termination, the
funds in the Renewals Escrow Account are released to the Secretary of State, subject to any share that
HS1 might be entitled to (e.g. the Performance Incentive Share). The Secretary of State will then be
able to deploy those funds in a new escrow account for use by the successor concessionaire to operate
High Speed 1.
There are also specific obligations at the end of the HS1 Concession to, amongst other things: (i)
maintain or deliver up records (ii) to terminate or novate to the Secretary of State the HS1 Lease and
the various station leases and (iii) to use all reasonable endeavours to make available to the Secretary of
State, HS1 staff at no less favourable terms than those on which such staff were employed prior to
expiry / termination.
Secretary of State step in
The Secretary of State has his own emergency rights to step in under the terms of the Concession
Agreement (irrespective of whether HS1 is in default) to ensure continuity of service where HS1 fails
(and such failure is caused wholly or mainly by an act or omission of HS1) to provide the relevant
infrastructure capability comprised in the Minimum Operational Standards for a period of three
consecutive days or more, and where the Secretary of State considers it necessary for reasons of safety,
security, defence, emergency, illegality or the inability of TOCs to use High Speed 1.
The ability of the Secretary of State to step in arises only from a loss of infrastructure capability caused
by performance which is within HS1’s, albeit indirect, control. Where the Secretary of State has
stepped in, HS1 has the opportunity to propose the resumption of operation where HS1 reasonably
believes that it can effect infrastructure capability that will enable 50% (or a lower agreed percentage)
of timetabled train services to run. The Secretary of State must act reasonably in considering whether
HS1 could indeed resume operations as proposed.
Where the Secretary of State has exercised his emergency rights to step in for an aggregated period of
two months in any rolling two year period (excluding any period of Secretary of State step in), then the
ORR is obliged to implement the Enforcement Procedure under the Concession Agreement.
Subject to an HS1 duty to mitigate, the Secretary of State reimburses HS1 for any additional costs HS1
incurs as a consequence of the Secretary of State’s step in that are over and above what HS1 would
otherwise have incurred.
Certain other provisions
Liability
Subject to express contrary provision, neither party is to have liability to the other in respect of any
indirect or consequential loss or damage. HS1 also indemnifies the Secretary of State in respect of loss
or damage arising out of any breach by HS1 of its obligations under the Concession Agreement and
related documents.
Insurance
HS1 is obliged to take out and maintain certain insurance cover (business interruption, public and
products liability, employer’s liability and motor), and to maintain the Secretary of State, his
employees and agents as additional named insureds.
The obligations of HS1 to put in place the required insurances are only to the extent that any such
required insurance is available to infrastructure operators at a commercial price and on commercial
terms. HS1 will not be in default of the Concession Agreement (entitling the Secretary of State to
terminate) where the required insurances are not available at such price and on such terms, except
where that unavailability (i) concerns a material risk to High Speed 1, the HS1 Concession or the
relevant assets and (ii) is caused by any act or omission of HS1 or related parties. There is an
opportunity where HS1 considers that a required insurance is not available at a commercial price and
on commercial terms and this is not due to its act or omission, for the Secretary of State to insure
instead until commercial insurance is available. If the Secretary of State refuses to insure, it is a
Paragraph 3 Change. The occurrence of a Paragraph 3 Change will entitle HS1 to terminate the
Concession Agreement subject to conditions, upon which compensation will be payable – see
“Enforcement and termination – Compensation payable on termination” above.
The Domestic Underpinning Agreement
Purpose
The Secretary of State and HS1 entered into a supplemental agreement to the Concession Agreement
on 27 August 2010 (the “Domestic Underpinning Agreement”). The Domestic Underpinning
Agreement sets out a collateral undertaking from the Secretary of State in favour of HS1 for the
purpose of underpinning the payment of track and station access charges for domestic railway
passenger services on High Speed 1.
Domestic underpinning
The undertaking given by the Secretary of State in the Domestic Underpinning Agreement provides, in
broad terms, that the Secretary of State will pay HS1 sums (“Underpinning Payments”) where the
level of domestic passenger services being operated on High Speed 1 is not at least equivalent to a
specified baseline level of domestic passenger services, expressed in terms of service frequency and
pattern (the “Baseline Domestic Services”).
Specifically, the Secretary of State will pay HS1 Underpinning Payments if during any Advance
Period:
(a)
the Secretary of State specifies that a lower level of domestic passenger services will utilise
High Speed 1 than the Baseline Domestic Services;
(b)
the Secretary of State specifies that a level of domestic passenger services will utilise High
Speed 1 at a level that is equivalent to the level of the Baseline Domestic Services, but TOCs
have not committed to provide a level of domestic passenger services at the level of the
Baseline Domestic Services; or
(c)
the Secretary of State specifies that a level of domestic passenger services will utilise High
Speed 1 at a level that is equivalent to the level of the Baseline Domestic Services and TOCs
have committed to provide a level of domestic passenger services at the level of the Baseline
Domestic Services, but those TOCs are in default of those commitments and the Secretary of
State has not taken reasonable steps to require that default to be remedied.
An “Advance Period” in the context of the Domestic Underpinning Agreement comprises any of the
first three railway periods, the second three railway periods, the third three railway periods or the last
four railway periods of any rail year before the expiry or earlier termination of the Concession
Agreement. A railway period is usually 28 days in duration (a “Railway Period”).
The Underpinning Payments are equivalent to those track access charges and station access charges
that would have been payable to HS1 in the relevant Advance Period had the Baseline Domestic
Services been provided on High Speed 1 by a TOC, less the track access charges that were payable to
HS1 in the same period in relation to High Speed 1 (whether or not they are actually paid). There are
special provisions affecting the level paid by the Secretary of State to deal with:
(a)
services between St Pancras International and Ashford West Junction and St Pancras
International and Springhead Road Junction; and
(b)
the unavailability of High Speed 1.
HS1 must pay the Secretary of State a rebate on any Underpinning Payments made where during an
Advance Period, the level of international services is such that there is insufficient capacity available to
operate the level of Baseline Domestic Services in full. The rebate is calculated by reference to certain
components that make up the overall access charges. HS1 has an obligation to use reasonable
endeavours to sell capacity on High Speed 1 so as to maximise the amount of rebate payments payable
to the Secretary of State.
Subject to requests for further information or disputes, the Secretary of State must pay the sums
requested by HS1 prior to the start of each Advance Period. Rebates are payable by HS1 after the end
of each Advance Period.
Duration
The domestic underpinning undertaking given by the Secretary of State in the Domestic Underpinning
Agreement ceases to have effect on the expiry or earlier termination of the Concession Agreement.
The LSER Side Letter
By a letter of comfort to HS1 dated 14 July 2010 (the “LSER Side Letter”), the Department for
Transport had confirmed that the Secretary of State would not agree to a reduction in the level of
domestic services below the level of the Baseline Domestic Services in the period from the date of that
letter until the termination of the LSER FTAA which was entered into in 2009. Since then, the LSER
FTAA which was entered into in 2009 has terminated and subsequent LSER FTAAs have been entered
into on 11 December 2014 and 8 January 2015. The LSER Side Letter has therefore ceased to have
effect.
The Operator Agreement
Parties and term
HS1 entered into an agreement with NR(HS) dated 27 June 2002, as amended and restated on 28
September 2003, 14 May 2010, 12 December 2010 and 3 April 2012 (the “Operator Agreement”)
under which HS1 sub-contracted the Concession Agreement obligations to operate, maintain, renew
and replace High Speed 1 (the “Operator Services”) to NR(HS) as “Operator”. The Operator
Agreement expires on 31 December 2047, which is longer than the term of the Concession Agreement.
To deal with this overlap, under the Financiers’ Operator Agreement Direct Agreement and the
Operator Agreement, if the Secretary of State or the HS1 Security Trustee fails to step into, or novate,
the Operator Agreement immediately following expiry of the Concession Agreement, HS1 will not
have any future rights or obligations under the Operator Agreement following the expiry of the
Concession Agreement.
Operator’s obligations
Obligations
In performing its obligations under the Operator Agreement, NR(HS) commits under its terms to:
(a)
act in accordance with best practice, or where best practice is not established, in an efficient,
diligent and prudent matter;
(b)
act in accordance with law;
(c)
put HS1 in a position so that it is able to comply with and discharge it obligations under the
Concession Agreement (excluding Concession Agreement payment obligations); and
(d)
put HS1 in a position so that it is able to comply with and discharge its obligations:
(i)
as an infrastructure manager;
(ii)
under the Interoperability Regulations; and
(iii)
the HS1 Network Code.
NR(HS) is charged under the Operator Agreement with performing HS1’s obligations under certain
delegated agreements and documents, for example, the LSER FTAA, the EIL FTAA, the HS1 Network
Code and the NR Operation and Maintenance Agreement between NRIL and HS1, with certain key
rights (see below) reserved for HS1.
NR(HS) is obliged to comply with any Final Order or Provisional Order issued by the ORR to HS1 as
if such order was issued to NR(HS).
NR(HS) is also obliged to cooperate with HS1’s reasonable requests in relation to each Periodic
Review. This includes the requirement to attend any relevant meetings and provide information and
analysis that will assist the ORR in its deliberations. Special provision is made for the Periodic
Reviews that are conducted up to the end of Control Period 3. Whilst HS1 retains responsibility for
conducting all Periodic Reviews with the ORR, under the terms of the Concession Agreement, during
those Periodic Reviews conducted in respect of Control Periods 2 and 3, HS1 has committed in the
Operator Agreement to:
(a)
comply with NR(HS)’s instructions in relation to the setting of the O&M Price; and
(b)
following consultation, during which NR(HS) must have due regard to HS1’s representations,
submit NR(HS)’s proposal in relation to the setting of the O&M Price without amendment.
If the ORR indicates in any such Periodic Review how much of the change in OMRC should be
allocated to the O&M Price, then HS1 must determine the O&M Price for the next Control Period in
accordance with that indication. If the ORR does not provide this indication, HS1 must increase or
decrease (as applicable) the O&M Price for the next Control Period consistently with the increase or
decrease (as applicable) in OMRC determined by the ORR. NR(HS) is only able to challenge the
determination of the ORR though HS1, provided NR(HS) has supporting evidence from a reputable
Queens Counsel.
This allocation of responsibility is part of the agreement to discount the O&M Price, and the
arrangements during Control Periods 2 and 3 providing for NR(HS) to pay HS1 an Outperformance
Share, as well as restrict NR(HS)’s termination rights in relation to the setting of the O&M Price. See
“Payments – Discount” and “Payments – Outperformance Share” below.
HS1 reserves the performance of certain activities, which include the marketing of High Speed 1,
approving and entering into new track access agreements, publishing network statements in relation to
High Speed 1 and leading and managing the relationships with the ORR, the Secretary of State and
other UK and European regulatory bodies (“Front Office Activities”). The Operator is obliged to
cooperate with HS1 in the performance of the Front Office Activities.
Capital expenditure could be required as a result of determinations made by NR(HS) as the holder of
the safety authorisation under the Railways and Other Guided Transport Systems (Safety) Regulations
2006 (as amended) (the “ROGS”). In such capacity, NR(HS) has responsibility for the safe operation
of High Speed 1, including day-to-day operations and maintenance requirements for the renewal and
replacement of the infrastructure, and whether any additional infrastructure may be necessary.
NR(HS)’s duties as the holder of the safety authorisation under the ROGS are underpinned by the
Health and Safety at Work Act 1974, which uses the principle “so far as is reasonably practicable” in
relation to ensuring that health and safety risks are reduced or averted. This principle is also reflected
in the safety related obligations in the Operator Agreement. Judicial determinations have previously
indicated that sacrifice in terms of cost, time and trouble are relevant in considering what constitutes
“so far as reasonably practicable”. The Operator Agreement also contemplates NR(HS) producing a
safety plan which should take account of High Speed 1 stakeholders’ requirements. Further, if
additional expenditure is required as a result of legislation which increases the safety requirements
above the level expected when the price was agreed, such amounts might qualify for the risk-sharing
regime in the Concession Agreement (see “The Concession Agreement – Government’s financial
support for Changes in Circumstance” above).
Standard of performance
In performing the Operator Services, NR(HS) commits under the terms of the Operator Agreement to
carry out or procure the Operator Services are carried out in a manner which:
(a)
complies with its safety obligations (see the two immediately preceding paragraphs in relation
to NR(HS)’s safety obligations in respect of High Speed 1);
(b)
is consistent with the HS1 Network Statement;
(c)
recognises the prestigious nature of High Speed 1 and its importance as part of the Trans
European Network and maintains high quality in relation to its performance and maintenance;
(d)
is consistent with the operation of High Speed 1 with a high degree of reliability as a high
speed railway with priority for passenger services and having due regard to the interests of
HS1; and
(e)
is consistent with the declaration of HS1 as specialised infrastructure under the Access
Regulations.
Payments
Fixed price
HS1 pays an annual fixed price to NR(HS) in relation to the performance of the Operator Services,
payable quarterly in advance (the “O&M Price”). In the ordinary course, HS1 must propose the O&M
Price and terms for each year in the next Control Period no later than 40 business days prior to the end
of the current Control Period, however in Control Periods 2 and 3, NR(HS) is the determinant of the
O&M Price – see “Operator’s obligations – Obligations” above.
Where HS1 is responsible for proposing the O&M Price, if NR(HS) accepts the proposed O&M Price
and terms then, subject to ORR approval, the relevant O&M Price for each year of the next Control
Period will be paid by HS1 to NR(HS) as described above. If NR(HS) ultimately rejects the proposed
O&M Price no later than 20 business days prior to the end of the Control Period in which that O&M
Price is proposed, then NR(HS) is entitled to terminate the Operator Agreement on notice – see “Early
termination – Operator rights to terminate” below.
If the ORR determines that any Five Year Asset Management Statement submitted by HS1:
(a)
is not consistent with the HS1 General Duty, then NR(HS) must submit a new or amended
statement which takes into account the ORR’s relevant comments; or
(b)
is deficient in relation to High Speed 1, then NR(HS) must submit an amended statement
which remedies the relevant deficiencies.
If the ORR approves any Five Year Asset Management Statement submitted by HS1, then any former
inconsistencies or deficiencies shall be deemed to be agreed. HS1 has the ability under the Concession
Agreement to challenge the determination of the ORR in relation to any Five Year Asset Management
Statement.
Once established, the fixed price cannot be changed by HS1 except upon request following the
occurrence of a pre-specified reduction in the scope of the services that NR(HS) is required to provide.
Specifically, a review of the price is possible where, due to circumstances outside HS1’s control, there
is a material and significant reduction in the scope of the services NR(HS) is required to provide on the
basis of which HS1 agreed the fixed price. That reduction in scope must involve a material reduction
in the assets comprising High Speed 1 and/or a material reduction in the number of trains running
(which for the first Control Period is a reduction of 4% or more) and materially reduces the cost to
NR(HS) of performing its obligations under the Operator Agreement (an “Operator Agreement
Review Event”).
The trigger for an Operator Agreement Review Event under the Operator Agreement is similar to, but
not entirely consistent with the trigger for a TAA Review Event under FTAAs or other track access
agreements. See “Framework Agreements and other track access agreements – Changes in volume
impacting access charges” below and “Risk Factors – Regulatory Risks – Insufficient operations,
maintenance and renewals income to recover costs – Mismatch between right to adjust OMRC in track
access agreements and right to reduce fixed price under the Operator Agreement”. It is the case that
the mechanics for change in Track Access Agreements and the Operator Agreement are themselves
different, with any financial adjustment being automatic under Track Access Agreements and subject to
request, debate and possible dispute resolution under the Operator Agreement.
The occurrence of an Operator Agreement Review Event and the impact on the fixed price are both
capable of challenge and where this occurs, disputes must be resolved under the specified dispute
resolution procedure.
Once established, the fixed price cannot be changed by NR(HS) except upon request upon the
occurrence of certain specified events (each a “Re-Opener Event”). The most material of Re-Opener
Events comprise:
(a)
insolvency type events suffered by a sub-contractor of HS1 whose services support the
delivery of NR(HS)’s obligations and whose sub-contract has been novated to NR(HS),
subject to the Operator mitigating;
(b)
the continuation of a force majeure event for more than 3 calendar months;
(c)
any limitation / interruption / cessation of electricity supply to the infrastructure not caused by
NR(HS);
(d)
any increase in the cost of providing the Operator Services or performing its obligations in any
year in excess of £600,000 due to the emergence of a latent defect (that is, a defect or
deficiency in most aspects of the design, the construction or commissioning of High Speed 1);
(e)
due to circumstances outside NR(HS)’s control and the control of related entities, a material
and significant change in circumstances from the circumstances that prevailed when the then
current annual fixed price was agreed occurs;
(f)
a change to the infrastructure which is not a Renewal and Replacement; and
(g)
NR(HS) is obliged to carry out works / perform services which affect its safety obligations
which it was not aware of and/or ought not reasonably to have been aware.
NR(HS) cannot serve a notice on HS1 seeking to re-open the O&M Price unless the occurrence of any
Re-Opener Event has given rise to or will give rise to an increase in costs to NR(HS) of performing its
obligations under the Operator Agreement by £50,000 (indexed) or more in relation to the relevant ReOpener Event (with special provision made for any Re-Opener Event relating to any latent defect), or
where a Re-Opener Event occurs and those costs have already increased by £150,000 (indexed) in any
Control Period because of Re-Opener Events.
The occurrence of a Re-Opener Event and the impact on NR(HS)’s costs and the associated adjustment
to the fixed price are both capable of challenge and where this occurs, disputes must be resolved under
the specified dispute resolution procedure.
Outperformance Share
During each of the last three years of Control Periods 2 and 3 (2015 to 2020 and 2020 to 2025
respectively), NR(HS) must rebate HS1 a share of the O&M Price (the “Outperformance Share”).
The Outperformance Share represents the difference between the O&M Price HS1 has been charged
over a given year and the costs that NR(HS) has incurred over the course of that year, including its
mark up (which for these purposes must be no less than 10%).
NR(HS) notifies HS1 of the proposed Outperformance Share at the end of each year. HS1 may agree
that amount or dispute it by escalating the matter within HS1 and NR(HS), before ultimately referring
the matter to the industry standard dispute resolution process. NR(HS) must then pay HS1 50% of the
agreed or determined Outperformance Share, HS1 being obliged to pass on 30% of the Outperformance
Share to the TOCs in proportion to the OMRC paid by each such TOC under its Track Access
Agreement.
Price for Renewals and Replacements
If a Renewal and Replacement is listed (or to be listed) in a Five Year Asset Management Statement or
Asset Management Annual Statement, then NR(HS) must submit a proposal in relation to the carrying
out of that Renewal and Replacement, including its price for doing so. If HS1 and NR(HS) are able to
agree on a price for a Renewal and Replacement, HS1 is required to include NR(HS)’s position in the
Five Year Asset Management Statement or Asset Management Annual Statement that it submits to the
ORR for approval. If the ORR accepts the terms and price submitted in relation to a Renewal and
Replacement, NR(HS) will be required to carry such Renewal and Replacement out on those terms and
for that price.
If HS1 and NR(HS) cannot agree on the terms for NR(HS) carrying out any such Renewal and
Replacement, then they must first try to agree alternative terms and failing that, either party may refer
the dispute to the contractual dispute resolution mechanism. If such a dispute has not been resolved
when HS1 is to submit its Five Year Asset Management Statement or Asset Management Annual
Statement, then HS1 must include NR(HS)’s position in the relevant statement when it submits that
statement to the ORR for approval. If the ORR approves that part of the relevant statement, then
NR(HS) must implement the relevant Renewal and Replacement as provided for in the relevant
statement. If the ORR requires changes to the relevant statement, then HS1 and NR(HS) must try to
agree a solution (e.g. an adjustment to planned maintenance) and failing such agreement, HS1 is
entitled to ask a third party to carry out the relevant Renewal and Replacement, or to choose not to
carry it out. Where HS1 elects not to carry out a particular Renewal and Replacement (and additional
maintenance is not provided for or is not possible) NR(HS) is afforded certain relief in respect of the
relevant asset.
Performance payments and indemnity
NR(HS) pays HS1 sums for periods where the use of High Speed 1 is restricted or services are delayed
(except where caused by HS1 itself, the UKPN Parties or as a result of a “Track Access Force
Majeure Event”, which comprise natural phenomena such as extreme weather or environmental
conditions) and, in either case, HS1 is obliged as a consequence to pay a TOC sums under that TOC’s
Track Access Agreement. HS1 pays NR(HS) sums for periods where the performance of High Speed 1
is above a specified benchmark and HS1 receives payment from a TOC under that TOC’s Track Access
Agreement as a consequence. See “Framework Agreements and other Track Access Agreements –
Common terms of framework track access agreements – Performance Payments” below.
As a general principle, NR(HS) is not liable to HS1 for latent defects (that is, those defects or
deficiencies in most aspects of the design, the construction or commissioning of High Speed 1).
NR(HS) is however responsible for repairing any such defect, as well as liable to HS1 for the
consequent payments HS1 must make to TOCs for the poor performance or unavailability of High
Speed 1, where the aggregate cost of those repairs and those payments is less than £600,000 per annum.
HS1 is liable where the aggregate costs of those repairs and those payments is equal to or exceeds
£600,000 per annum.
In other cases where High Speed 1 is unavailable or performs poorly and as a result NR(HS) is required
to make performance payments to HS1 of £1 million or more in any quarter and/or the rolling annual
aggregate of such payments is £2.5 million or more, then HS1 can call for NR(HS) to produce a plan to
improve performance (a “Performance Recovery Plan”) with the reasonable expectation of reducing
HS1’s liability to TOCs for performance payments under Track Access Agreements to or below £3
million per annum. NR(HS) must implement any settled Performance Recovery Plan, provided
implementation does not cut across its safety obligations or put it in breach of the Operator Agreement.
NR(HS) is responsible for the costs of implementing any Performance Recovery Plan up to £500,000
(indexed). HS1 is responsible for the costs in excess of this amount, subject to certain exceptions.
The requirement for NR(HS) to reimburse HS1 for performance payments is subject to the general cap
on NR(HS)’s liability under the Operator Agreement of £10 million per annum (indexed) and, in the
case of performance payments, a sub-cap to the lower of £3 million per annum (indexed) and HS1’s
aggregate liability to the TOCs in respect of such payments.
In addition, NR(HS) is required to reimburse HS1 for payments that HS1 makes to TOCs under the
indemnity contained in the HS1 Passenger Access Terms for, amongst other things, breach of contract
to the extent HS1’s liability to make the relevant payment is caused by NR(HS)’s breach of the
Operator Agreement.
Early termination
HS1 rights to terminate
As set out in the Secretary of State Operator Agreement Direct Agreement, HS1 may terminate the
Operator Agreement on not less than three years’ notice which may be given at any time after 1 April
2020 (or the end of the Control Period 2 if later) with such termination being effective at the earliest on
31 March 2025 (or the last day of the Control Period 3 if later). Immediately before such termination,
HS1 is obliged to pay the Operator a specified break payment.
HS1 also has a right pursuant to the Secretary of State Operator Agreement Direct Agreement to
partially terminate the Operator Agreement in relation to the provision by the Operator of the Operator
Services (or certain thereof) following the carrying out of a market testing exercise. See “Direct
Agreements – Secretary of State Operator Agreement Direct Agreement Specific Terms” below.
HS1 may also terminate the Operator Agreement (subject in certain cases to the expiry of a remedy
period) following the occurrence of any “Operator Event of Default”. These comprise:
(a)
a material breach by NR(HS) of its Operator Agreement obligations;
(b)
the Operator failing to pay HS1 any amount due that is in excess of £100,000 (indexed) within
three calendar months of notice requiring payment;
(c)
insolvency-type events relating to the Operator;
(d)
termination of the guarantee granted by NRIL in relation to NR(HS)’s performance of its
obligations under the Operator Agreement; and
(e)
NRIL is relieved from liability under the guarantee as a result of any of the specified
circumstances described in the guarantee.
Where the Operator Event of Default is the subject of a Provisional Order or Final Order and NR(HS)
fails to take any action required in order to enable HS1 to comply with that Provisional Order or Final
Order (as appropriate) with the result that the Secretary of State is entitled to terminate the Concession
Agreement for HS1’s default of its terms, then HS1 shall be entitled to serve a notice of termination,
terminating the Operator Agreement immediately and no period of remedy will be available to
NR(HS).
Operator rights to terminate
In the ordinary course, NR(HS) has the right to terminate the Operator Agreement where it rejects the
O&M Price proposed by HS1 – see “Payments – Fixed price” above. However, special provision is
made in the Operator Agreement up to the end of Control Periods 2 and 3, where instead of the O&M
Price being proposed to NR(HS) by HS1, NR(HS) has the primary role in determining the O&M Price
– see “Operator’s obligations – Obligations” above. In these circumstances, following representations,
HS1 is obliged to submit the O&M Price that NR(HS) has proposed to the ORR as part of the Periodic
Reviews at the start of Control Periods 2 and 3 and consequently, NR(HS) does not have the right to
reject the O&M Price submitted to the ORR.
Unless otherwise agreed in respect of Control Period 4 and beyond, HS1 has the right to propose the
O&M Price and NR(HS) the right to reject that proposal. In these circumstances, if NR(HS) rejects
HS1’s proposal, NR(HS) may terminate the Operator Agreement after the later of 31 March 2025 and
the end of Control Period 3. NR(HS) does this by serving a notice on HS1 (a “Periodic Review
Termination Notice”).
Any Periodic Review Termination Notice must be served no later than 20 business days before the end
of the Control Period in which the O&M Price was proposed. If a Periodic Review Termination Notice
is served, then the Operator Agreement will end on the date of that Control Period unless HS1 serves a
counter notice before the end of that Control Period requiring the Operator Agreement to continue for a
further 18 months on the basis of the previous O&M Price for the first 12 months and then on the basis
of HS1 meeting the NR(HS)’s actual costs, plus a specified mark up for the remaining six months.
After this 18 month period, it will be for HS1 to either operate High Speed 1 itself or procure that a
third party does so.
NR(HS) may also terminate the Operator Agreement (subject in certain cases to the expiry of a remedy
period) following the occurrence of any “HS1 Event of Default”. These comprise:
(a)
termination of the Concession Agreement other than in circumstances where an Operator
Event of Default constitutes or gives rise to HS1’s default under the Concession Agreement or
where the Concession Agreement expires;
(b)
a material breach by HS1 of its Operator Agreement obligations;
(c)
HS1 failing to pay NR(HS) any amount due that is in excess of £100,000 (indexed) within
three calendar months of notice requiring payment; and
(d)
insolvency-type events relating to HS1.
Where NR(HS) terminates the Operator Agreement upon the occurrence of an HS1 Event of Default,
NR(HS) shall be entitled to receive payment from HS1 for NR(HS)’s documented costs of termination
reasonably incurred (including costs in respect of materials, equipment, services and works procured or
committed to by NR(HS) prior to the termination date and the unpaid portion of any sums due to
NR(HS) under the Operator Agreement that had accrued prior to the termination date, less any sums
due to HS1 from NR(HS)).
The Financiers’ Operator Agreement Direct Agreement also regulates NR(HS)’s ability to terminate
the Operator Agreement for HS1 default. See “Direct Agreements – Financiers’ Operator Agreement
Direct Agreement Specific Terms” below.
HS1’s ability to perform operation and maintenance services on termination
Whilst HS1 is not equipped in the immediate term to fulfil the role performed by NR(HS) should the
Operator Agreement be terminated, given the managed exit/timing under the Operator Agreement,
there is an opportunity for HS1 to either obtain the requisite expertise directly through recruitment
(most likely through transfers from NR(HS) under the Transfer of Undertakings (Protection of
Employment) Regulations 2006 (SI 2006/246)) or identify a third party to become the replacement
operator, in each case before actual termination can occur. Pursuant to the market testing regime
within the Secretary of State Operator Agreement Direct Agreement, HS1 has the option after the end
of the Control Period 2 (2020) to seek to provide the services currently delegated to NR(HS) itself,
which if exercised would, over time, allow HS1 to build up its own internal expertise. See “Direct
Agreements – Secretary of State Operator Agreement Direct Agreement Specific Terms – Market
testing” below.
NRIL Guarantee
The NRIL Guarantee sets out the terms of a guarantee granted by Network Rail Infrastructure Limited
(“NRIL”) in favour of HS1 in respect of the payment and performance obligations of NR(HS) under
the Operator Agreement.
Notable terms provide for the total amount recoverable under the NRIL Guarantee to be capped at
£5,000,000 (indexed) in respect of any incident and at £10,000,000 (indexed) in respect of any calendar
year. In addition, it shall be a “Termination Event” (permitting NRIL to terminate the NRIL
Guarantee on prior written notice to HS1) if NRIL pays an aggregate amount under the NRIL
Guarantee of at least £15,000,000 (indexed) during any Control Period. This means that, subject to
notice requirements and an obligation to continue to perform up to that termination threshold, upon
reaching that threshold, NRIL will not be required to incur any further liability. This is so, even where
NRIL is in the process of meeting HS1’s latest demand under the NRIL Guarantee.
Amounts properly and reasonably incurred (and evidenced) by NRIL in performing any such
obligations of NR(HS) under the Operator Agreement in accordance with the actions of a skilled and
experienced operator are included for the purpose of the aggregate amounts described above.
HS1 acknowledges that NR(HS) may sub-contract to NRIL the performance of obligations under the
Operator Agreement that are the subject of the NRIL Guarantee and agrees to accept proper
performance of such obligations by NRIL as discharge of the obligations of NRIL under the NRIL
Guarantee.
Network Interface Agreement
The Network Interface Agreement defines the operational interfaces between the Classic Network and
High Speed 1, identifies relevant interface assets and their ownership and establishes maintenance and
renewal responsibility and allocates related costs in respect of those assets, in each case between NRIL
and HS1.
Under the terms of the Network Interface Agreement, payments pass between NRIL and HS1 where
one of them incurs costs in maintaining or renewing any interface asset despite the fact that the
responsibility for the maintenance or renewal of that asset falls to the other. NRIL and HS1
periodically seek to agree the net maintenance charges that will apply between them in each Control
Period and year within each such Control Period and there are provisions for reconciling payments to
actual work undertaken.
The Network Interface Agreement also provides that HS1 must establish an escrow account (the
“Operator Escrow Account”). The Network Interface Agreement was amended in 2011 to provide
that the Operator Escrow Account need not be funded for so long as OTPP and OMERS (individually
or jointly) have “control” of HS1 (that is, the power to ensure that the affairs of HS1 are conducted in
accordance with its wishes) but must be funded where any of the following occur:
(a)
OTPP and OMERS (individually or jointly) cease to have “control” of HS1;
(b)
there is a notified “material adverse change” (a material adverse deterioration (over a period
specified by NRIL) in the business, assets, financial condition or prospects of HS1 that occurs
prior to obtaining a long-term, unsecured, unsubordinated debt rating with S&P, Moody’s or
Fitch);
(c)
should HS1 obtain such a rating, it is downgraded below that original rating;
(d)
where HS1 fails to make a payment under the amended Network Interface Agreement, the
Operator Agreement or any other agreement NRIL (or its affiliates) is a party to where such
payment is due and payable under the terms of any such agreement;
(e)
the Operator Agreement is terminated or expires; or
(f)
any enforcement action against HS1 in respect of an amount outstanding under any loan
agreement which HS1 is party to.
Where HS1 is obliged to fund the Operator Escrow Account, it must contain an amount that is no less
than the greater of £2 million (indexed by reference to RPI) and the aggregate of agreed net
maintenance charges which HS1 or its successor is obliged to pay in a given contract year of the
Network Interface Agreement. NRIL can issue notice to the escrow agent calling for funds to be paid
to it from the Operator Escrow Account where HS1 or its successor (as the case may be) has failed to
pay sums owing to NRIL when due and payable. Excess monies at the end of each year the Operator
Escrow Account is extant are repaid to HS1.
Framework Agreements and other Track Access Agreements
Existing framework agreements and other track access agreements
An FTAA is a framework agreement for the purposes of the Access Regulations, pursuant to which
HS1 grants access to TOCs to provide passenger services over High Speed 1. HS1 has entered into two
FTAAs with each of EIL and LSER on 14 August 2009 and 13 March 2014 respectively, as amended.
These FTAAs set out the terms on which HS1 has granted the TOCs access to High Speed 1.
HS1 has also entered into track access agreements with DB Schenker and GB Railfreight, each dated 1
April 2015 in relation to the operation of freight services over High Speed 1. As this agreement is for
six months only, it does not qualify as an FTAA for the purposes of the Access Regulations. See “DB
Schenker Track and GB Railfreight Track Access Agreement” below.
Common terms of framework track access agreements
Incorporation of terms and codes
FTAAs are short-form agreements under which the infrastructure manager – HS1 – grants the TOC
access to the relevant infrastructure – High Speed 1 – in return for the payment of access charges. The
HS1 Passenger Access Terms (a common set of terms that govern, amongst other things, the rules for
the allocation of access by HS1, the performance regime that operates between HS1 and each TOC)
payments and termination (the “HS1 Passenger Access Terms”), the HS1 Network Code (see “The
HS1 Network Code” below) and other codes are incorporated by reference into the terms of each
FTAA.
Access Charges
Access charges for each Railway Period are calculated on the basis of a formula comprising a number
of components. The main charges are described below.
IRC
The IRC is calculated by multiplying the train per minute figure of £69.57 specified in the Concession
Agreement by the agreed chargeable journey time (irrespective of actual performance or stopping
patterns) for the respective service groups of the TOC’s services, a discount factor and an indexation
factor (semi-annual RPI indexation). The resulting figure will be multiplied by the number of
timetabled trains to be operated by that TOC on High Speed 1 in each of its respective service groups
to arrive at the IRC to be paid by that TOC.
OMRC
The OMRC is calculated by multiplying the aggregate of the three components of the operational,
maintenance and renewal costs: costs that are directly incurred as a result of operating train services on
High Speed 1 (“DI Costs”), long term operational phase project costs that are recoverable (“LTOP
Costs”) and pass through costs (“Pass Through Costs”), each expressed as train per minute figures) by
the agreed journey time (irrespective of actual performance or stopping patterns) for the respective
service groups of the TOC’s services and an indexation factor (annual RPI). The resulting figure will
be multiplied by the number of timetabled trains to be operated by that TOC on High Speed 1 in each
of its respective service groups to arrive at the OMRC to be paid by that TOC.
The Pass Through Costs, such as insurance, rates and non-traction electricity charges are recovered
from the TOC in the calculation described above on the basis of estimated charges. There is then an
annual reconciliation to actual charges.
Traction Electricity Charge
A charge is levied for the amount of traction electricity consumed by the TOC in operating rolling
stock (the “Traction Electricity Charge”). The Traction Electricity Charge is calculated by
multiplying a modelled electricity consumption rate for the relevant rolling stock, by the rate of traction
current published by HS1 (including an uplift of 8 – 12 per cent to take account of transmission losses
and specific charges levied by the UK national grid provider) and the usage measured in vehicle
kilometres. There is a reconciliation annually to adjust for the actual cost of traction electricity. The
intention is that HS1 should recover the full cost of traction electricity but nothing more than that.
Capacity Reservation Charge
The “Capacity Reservation Charge” is a flat charge for the capacity that a TOC has reserved but not
timetabled in the timetabling process set out in the HS1 Network Code (other than capacity which that
TOC has bid for, but not been allocated by HS1). It does not vary by time or day of the week. The
reservation charge per passenger train is 25 per cent. of the full IRC per train path (ignoring discounts).
Where a TOC has reserved capacity which is used by another TOC, then the first TOC is entitled to a
rebate on its Capacity Reservation Charge of 75 per cent of the lower of:
(a)
the Capacity Reservation Charge; and
(b)
where the second TOC is a passenger TOC, the amount of the IRC paid by that second TOC;
and
(c)
where the second TOC is a freight TOC, 75 per cent. of the freight OMRC paid by that second
TOC.
Other charges
The following may also be payable under the terms of any FTAA:
(a)
a congestion tariff: the Access Regulations allow for a tariff to be charged where
High Speed 1 is congested;
(b)
freight supplement which is payable by franchised domestic TOCs (so is payable by LSER
and not EIL) in relation to those freight related costs that are not recoverable by HS1 under the
freight charging arrangements under the Access Regulations;
(c)
a carbon cost charge, which is a fair and equitable proportion (as determined by the ORR) of
all costs, expenses and any other financial liabilities relating to the carbon reduction
commitment incurred by HS1; and
(d)
other service charges: these are payable for bespoke services performed by HS1.
Discounts
Under the existing FTAAs, the IRC is currently levied at the maximum level permitted by the Secretary
of State’s charging framework set out in the Concession Agreement. Under the Access Regulations,
HS1 is permitted to give time-limited discounts on the charges it levies on TOCs where the discounts
relate to administrative cost savings or where, in the case of discount schemes available to all TOCs
with reference to specified flows, they encourage the development of new rail services or encourage the
use of considerably underutilised lines.
HS1 has agreed with EIL that it will apply discounts to the IRC for services on the route to and from
Brussels. The discount for Brussels is 60% of IRC for the two consecutive timetable years commencing
December 2012 and then 40% of IRC for the two subsequent timetable years. The amendments to the
EIL FTAA required to give effect to the Brussels discount were approved by the ORR in December
2012.
HS1 has agreed with EIL subject to final contract execution to apply a discount to support London to
Provence (Marseille) services. The discount for this route is 60% of IRC for the two consecutive
timetable years commencing December 2014 (services commencing May 2015) and then 55% of IRC
for the timetable year commencing December 2016 and 50% for the timetable year commencing
December 2017.
HS1 published a discount policy in February 2012. The ORR has confirmed that it considered the
proposed process set out in the discount policy to be consistent with the Access Regulations.
Payments
The HS1 Passenger Access Terms set out the basis on which each TOC that enters into an FTAA or
other track access agreement pays access charges to HS1. Certain elements of the overall access
charge are paid in advance. This is in contrast to the position in relation to track access contracts in
respect of the Classic Network.
Each of the IRC, OMRC and Capacity Reservation Charge are payable in advance of the
commencement of each Advance Period. All other charges are payable in arrears following the end of
each Railway Period. The charges that are payable in advance are nevertheless calculated on the basis
of each Railway Period (with the aggregate of all relevant Railway Periods within an Advance Period
being payable before that Advance Period).
Each TOC must pay or procure payment of, all sums invoiced within 15 working days of the relevant
invoice date, free and clear of any deduction, withholding or set off except only as may be required by
law or as expressly provided for in the relevant FTAA or track access agreement or the HS1 Network
Code.
Changes in volume impacting access charges
Generally speaking, applications for capacity must be submitted to HS1 a year in advance of the
timetable period (usually a year from December to December) (a “Timetable Period”) in which that
capacity is to be utilised. TOCs have the right to cancel reserved capacity once reserved. Where they
do so, this will result in the loss by that cancelling TOC of the Capacity Reservation Charge it is liable
for, or a proportion thereof where HS1 can find another TOC to use the cancelled capacity.
There are also provisions that affect the level of access charges payable where there is a material
change in the level of services operated by TOCs. Specifically, this occurs where there is an increase
or decrease of not less than 4% in the number of timetabled trains on High Speed 1 in any timetable
year (a “TAA Review Event”). The question of whether a TAA Review Event has occurred is
assessed on the date in a year when the timetable changes and a new timetable begins (a “Passenger
Change Date”). Passenger Change Dates occur in December each year and on any such date, HS1 will
assess whether there has been an increase or decrease of not less than 4% in either the number of
anticipated timetabled trains by all TOCs or the same by an individual TOC in relation to the services it
operates, in each case, in the 12 months from that December, compared to the relevant trains actually
operated in the 12 months following the last Periodic Review, Interim Review or TAA Review Event.
Where a TAA Review Event does occur, then two elements of the OMRC that each TOC pays –
avoidable DI Costs and LTOP Costs – are reapportioned to remain reflective of the level of services
that each operates and the costs that HS1 will incur after the TAA Review Event.
Any such reapportionment of both DI Costs and LTOP Costs ordinarily anticipates that they will be
split between domestic and international TOCs on the basis of expected train minutes spent on High
Speed 1, both in total and on shared parts of the route. The relevant wording in the HS1 Passenger
Access Terms is not clear, but it is understood that on any reapportionment, this means each TOC pays
DI Costs and LTOP Costs on the basis of the minutes it expects to spend on High Speed 1.
Because TOCs are required to reserve capacity in advance for a Timetable Period, and to pay most of
the access charges quarterly in advance for the timetabled capacity, HS1’s revenues would not be
immediately impacted by the unavailability of or impossibility to access High Speed 1 and/or related
infrastructure. Notice periods for cancelling capacity on a long term basis are also relatively long,
potentially giving HS1 the opportunity to book the use of the cancelled capacity by other TOCs.
In addition, HS1’s exposure to reductions in train numbers below the TAA Review Event threshold
(see “Risk Factors – Regulatory Risks – Insufficient operations, maintenance and renewals income to
cover costs – Recovering operations, maintenance and renewals charge” is potentially further
mitigated in relation to reductions in levels of domestic passenger services below the level of Baseline
Domestic Services – see “The Domestic Underpinning Agreement – Domestic Underpinning” above.
See also “Operator Agreement – Payments – Fixed price” in relation to a similar, but not entirely
consistent, arrangement that allows HS1 to seek a review of the O&M Price that it pays the Operator
under the Operator Agreement upon a material reduction in the volume of traffic.
Restriction of Use payments
Restrictions of Use
HS1 is liable to TOCs for certain defined restrictions of use to High Speed 1 (each an “HS1
Restriction of Use”). A “Restriction of Use” means on any day, any restriction of use of all or any
part of the main or diversionary routes of High Speed 1 which results in a difference between the
planned timetable and the actual timetable of that day. An “HS1 Restriction of Use” is any Restriction
of Use that is not:
(a)
(b)
an “Operator Restriction of Use”, in broad terms, being a Restriction of Use:
(i)
due to damage to High Speed 1 or environmental damage arising wholly or mainly
from the operations of the TOC;
(ii)
that the TOC requests (other than for stated purposes) or requires (for changes to
High Speed 1); or
(iii)
that is part of a pre-specified allowance to restrict use); or
a “Competent Authority Restriction of Use”, in broad terms, being a Restriction of Use
required by a change in law or the direction of a “Competent Authority”, (a Competent
Authority being a body (other than the ORR) that has authority to make decisions that impact
HS1’s and the TOC’s respective abilities to provide access to the track and to operate train
services).
HS1 is liable to each TOC for certain costs (“Direct Costs”) incurred by the relevant TOC due to the
occurrence of an HS1 Restriction of Use (although if the HS1 Restriction of Use is not reflected in the
planned timetable, the amount of compensation payable is calculated in accordance with the FTAA
Performance Regime instead. See “Performance Payments” below). Direct Costs comprise the
aggregate demonstrable amount of (i) bus and taxi costs (ii) publicity costs (iii) train planning and
diagramming costs (iv) other costs directly related to the organisation and management of the TOC’s
response to the relevant HS1 Restriction of Use, in each case reasonably incurred by the TOC as a
result of the HS1 Restriction of Use, adjusted by adding any increased mileage costs and by deducting
any reduced mileage costs. The amount is subject to a duty on the part of the TOC to mitigate and it
excludes loss of profit, revenue and consequential loss.
HS1 is liable to each TOC at a specified rate for any Competent Authority Restriction of Use, which
can involve a proportional payment where the overall level of compensation paid to it for that
Competent Authority Restriction of Use is insufficient to cover HS1’s and all TOC’s costs (including
profit, revenue and consequential loss).
Compensation payable by HS1 for any HS1 Restriction of Use in any given year is capped at one per
cent. of the aggregate IRC/OMRC for that year.
The unavailability of, or inability to access, HS1 as a result of circumstances affecting an interface to
HS1 (such as the closure of the Channel Tunnel, an incident on the French or Belgian railways or an
incident on the Classic Network south of the Kent connections to HS1), would not generally lead to the
imposition of a restriction of use, and therefore HS1 would not be required to make rebate payments in
those circumstances.
Under the HS1 Passenger Access Terms, a rebate in respect of the IRC which HS1 is obliged to pay as
part of the wash-up of track access charges is only paid where HS1 is actually directly responsible for a
Restriction of Use which has been imposed or for a Competent Authority Restriction of Use (but it
would no longer be paid where a third party TOC is responsible for the imposition of a Restriction of
Use).
Signalling improvements at Stratford International make it possible for trains to be turned round where
an incident requires the closure of St Pancras International. This improves HS1’s ability to manage any
disruption to High Speed 1.
Payments
All payments for Restrictions of Use are payable in arrears periodically following the receipt by the
TOC of a “Possessions Statement” which describes the Restrictions of Use that took place in the
preceding Railway Period.
Performance Payments
Payments
The HS1 Passenger Access Terms sets out the basis on which performance sums are due and payable
by each TOC to HS1 and by HS1 to each TOC (when those terms are incorporated into an FTAA, each
an “FTAA Performance Regime”). Performance sums are payable in arrears.
HS1’s liability to pay performance sums to a TOC may be set off against any performance sums that
such TOC owes to HS1 and the balance shall be payable by the relevant party within 35 days of the
Railway Period to which the payment relates. No performance sums due and payable by HS1 to any
TOC may be set off by that TOC against the track access charges due and payable to HS1. If any party
wishes to dispute the amount of any performance sum, it shall only be obliged to pay or set off the
undisputed amount of the performance sum.
The performance of High Speed 1
The HS1 Passenger Access Terms contain a performance regime that provides for financial payments
to be made each Railway Period by HS1 or by the relevant TOC depending on the performance of High
Speed 1 relative to pre-determined thresholds. In broad terms, if the performance of High Speed 1 is
below a ‘poor’ threshold, HS1 will pay the TOC for that poor performance and where High Speed 1 is
above a ‘good’ threshold, the TOC will pay HS1 for that good performance. Where High Speed 1 is
performing between these two thresholds, no payment will be made by either party. See “Risk Factors
– Regulatory Risks – Performance regime liability caps” for the ORR’s opinion of the caps that relate
to the performance regime liability under the HS1 Passenger Access Terms.
Payments for poor performance are determined by calculating the average minutes delay per train
caused by the performance of High Speed 1 and deducting the poor performance threshold from this. If
the answer is positive, HS1 will pay the relevant TOC an amount that is calculated by multiplying that
number by a payment rate and the number of trains scheduled to be operated in the relevant period.
Payments for good performance are determined in a similar way, calculating the average minutes delay
per train caused by the performance of High Speed 1 and deducting this average from the good
performance threshold. If the answer is positive, the relevant TOC will pay HS1 an amount that is
calculated by multiplying that number by a payment rate and the number by a payment rate and the
number of trains scheduled to be operated in the relevant period.
Both payments for poor performance and good performance are capped:
(a)
(b)
poor performance payments are capped at the lower of:
(i)
an overall cap for the relevant year, being 3% of the aggregate IRC/OMRC for the
Financial Year ended 31 March 2013 and for each subsequent year thereafter; and
(ii)
in the first three Railway Periods of a year, the cap is 25% of the aggregate
IRC/OMRC for that year, in the next three Railway Periods, 50%, in the next three
Railway Periods, 75% and in the remaining Railway Periods, 100%; and
good performance payments are capped at the lower of:
(i)
an overall cap for the relevant year, being 0.3% of the aggregate IRC/OMRC for the
Financial Year ended 31 March 2013 and for each subsequent year; and
(ii)
in the first three Railway Periods of a year, the cap is 0.075% of the aggregate
IRC/OMRC for that year, in the next three Railway Periods, 0.15%, in the next three
Railway Periods, 0.225% and in the remaining Railway Periods, 0.3%.
The performance of TOCs
Separately, the TOC is liable to HS1 each Railway Period for its poor performance and the poor
performance of its trains that in each case impact on the performance of other TOCs using
High Speed 1. The payment is determined by calculating the minutes delay per train that each affected
TOC suffers that are caused by the relevant TOC or its fleet and multiplying this by a payment rate.
However, all minutes delay attributed to an affected TOC in a Railway Period are ignored (so the
potential payment from the relevant TOC is reduced) where that affected TOC’s performance is better
than the “TOC on TOC Receipt Benchmark” – a benchmark average delay per train expressed in
minutes for a given TOC. The affected TOC’s performance is calculated by dividing the aggregate
minutes delay to that TOC’s services that are attributable to HS1 and other TOCs and dividing that by
the scheduled number of trains to be operated by that affected TOC.
The regime is designed to ensure that HS1 is not out of pocket for the poor performance of a TOC –
payments HS1 is required to make to a TOC under its FTAA for the poor performance of another TOC
are consistent with the payments that HS1 will receive from the poor performing TOC under that poorperforming TOC’s FTAA and only made to the extent received from that poor performing TOC.
Payments from a TOC to HS1 are capped at the lower of:
(a)
an overall cap for the relevant year, being 3% of the aggregate IRC/OMRC for the Financial
Year ended 31 March 2013 and for each subsequent year thereafter; and
(b)
in the next three Railway Periods, 50%, less the aggregate of any performance payment made
by the TOC earlier in the year, in the next three Railway Periods, 75%, less the aggregate of
any performance payment made by the TOC earlier in the year.
Rights of termination and default risk
Rights of termination
The following are the TOC events of default which will entitle HS1 to terminate that TOC’s FTAA:
(a)
the TOC ceases to be authorised to be an operator of trains by an appropriate licence;
(b)
a TOC insolvency event;
(c)
breach of any safety obligations;
(d)
any amount due from the TOC to HS1 remains unpaid for more than 28 working days, except
where liability to pay such sum is contested in good faith and with timely recourse to
appropriate means of redress; and
(e)
breach of that FTAA or other collateral contracts by the TOC resulting in material financial
loss to HS1 or in material disruption to operations of other TOCs (see LSER FTAA below
which specifies a further default event in relation to LSER).
The following are the HS1 events of default which will entitle the TOC to terminate that TOC’s FTAA
(subject in the case of the LSER FTAA or EIL FTAA, to the terms of the relevant Direct Agreement:
(a)
the termination of the Concession Agreement;
(b)
an HS1 insolvency event;
(c)
breach of any safety obligations;
(d)
any amount due from HS1 to the TOC remains unpaid for more than 28 working days, except
where liability to pay such sum is contested in good faith and with timely recourse to
appropriate means of redress; and
(e)
breach of that FTAA or other collateral contracts by HS1 resulting in material financial loss to
that TOC.
Default risk
It is HS1’s business to provide access to TOCs to High Speed 1 in order that those TOCs can deliver
passenger and freight services. This creates an unavoidable dependency. There are however a number
of safeguards against exposure to TOC credit risk.
Whilst HS1 has no say over the choice of domestic operator (compared with international operators),
that choice being exercised by the Secretary of State, at the time of applying for a domestic franchise,
part of the “fit and proper” test for operating a franchise involves an assessment of financial capabilities
by the Secretary of State.
In the event of a TOC payment default, HS1 can serve a suspension notice on the TOC 28 working
days after the date of the payment default. TOC access to High Speed 1 can then be suspended
following a further 7-day notice period. Ultimately, the FTAA or other track access agreement can be
terminated by HS1 three months after the suspension notice is served.
The financial downsides of TOC non-payment are mitigated by TOC payments under FTAAs and other
track access agreements being made quarterly in advance.
In addition, in the case of existing domestic train services, the Domestic Underpinning Agreement
would be applicable in the circumstances described in “The Domestic Underpinning Agreement –
Domestic Underpinning” above. This provides that HS1’s track access revenues from domestic
passenger rail services on High Speed 1 may be protected by the Secretary of State. Indeed, in the
absence of both a domestic (whether due to insolvency or otherwise) and international TOC, the
Underpinning Payments would, once triggered, include the amount of OMRC payable by a notional
domestic TOC and would therefore extend to cover the entirety of the Aggregate OMRC agreed or
determined by the ORR.
Some reliance can also be placed on the Railways Act of the Secretary of State to provide, or secure the
provision of, passenger rail services when a passenger rail franchise comes to an end and no further
franchise agreement has been entered into (the Secretary of State’s so-called, “Operator of Last Resort”
duty). It is true that that duty is subject to exceptions including where, in the opinion of the Secretary
of State, adequate alternative railway passenger services are available. And so there can be no
regulatory assurance that a further franchise will be granted after the expiry of the current franchise
agreement or that LSER or any other TOC will seek to operate high speed domestic rail services on
High Speed 1 after the expiry of the current franchise. However, it is considered highly unlikely that
the Secretary of State would no longer franchise services after the end of the current South Eastern
Franchise on the basis that there were adequate alternative domestic railway passenger services
available to the domestic services currently operated on High Speed 1.
The HS1 Network Code
The “HS1 Network Code” is a common set of contractual provisions contained in every track access
agreement (including FTAAs) between HS1 and an access beneficiary. The HS1 Network Code
concerns areas where common processes are necessary or desirable, such as delay attribution, timetable
change, vehicle and network change, operational disruption, changes to access rights and performance.
The HS1 Network Code does not create direct contractual relationships between TOCs; any such
relationships (obligations, remedies and liabilities) flow through HS1, although certain third parties
have directly enforceable rights by virtue of the Contracts (Rights of Third Parties) Act 1999:
(a)
the ORR has the right to directly enforce its rights under any track access agreement;
(b)
the Secretary of State has the right to directly enforce its rights under provisions of the HS1
Passenger Access Terms that relate to novation of track access agreements on termination and
default events and suspension of such an agreement before its termination; and
(c)
other TOCs have the right to directly enforce payments due to them under other FTAA
Performance Regimes.
LSER FTAA
Term
The LSER FTAA, dated 13 March 2014, commenced on 31 December 2014 and, unless terminated
earlier, expires on 31 December 2024.
Special terms
The LSER FTAA modifies the HS1 Passenger Access Terms, replacing paragraph 1.2 of Section 5
(Liability) with the following:
“Subject to paragraph 2 and the other provisions of the Contract, HS1 Ltd shall indemnify the
Train Operator against all Relevant Losses resulting from:
(a)
a failure by HS1 Ltd to comply with its Safety Obligations;
(b)
any Environmental Damage to HS1 Ltd arising:
(i)
directly from any acts or omissions of HS1 Ltd;
(ii)
from any Environmental Condition known to have existed prior to 24 June
2009;
(c)
any damage to the Specified Equipment or other vehicles or things brought onto HS1
Ltd in accordance with the permission to use granted by the Contract arising directly
from HS1 Ltd’s wilful default, negligence or failure to comply with its obligations
under the Contract; and
(d)
a breach by HS1 Ltd of the Contract.”
This special term adds HS1 liability for Environmental Damage caused by any Environmental
Condition known to have existed prior to 24 June 2009. “Environmental Condition” means (i) any
Environmental Damage or (ii) any event, circumstance, condition, operation or activity which it is
reasonably foreseeable is likely to result in Environmental Damage, which (in either case) in HS1’s
reasonable opinion could result in HS1 incurring any material liability or being subject to the direction
of any Competent Authority. “Environmental Damage” means any material injury or damage to
persons, living organisms or property (including offence to man's senses) or any pollution or
impairment of the environment resulting from the discharge, emission, escape or migration of any
substance, energy, noise or vibration.
It is a default event under the LSER FTAA, entitling HS1 to terminate, where LSER’s franchise
agreement with the Secretary of State to operate passenger services on High Speed 1 and other routes is
terminated.
EIL FTAA
The EIL FTAA commenced on 14 August 2009 and, unless terminated earlier, expires on 16 August
2019.
DB Schenker Track Access Agreement
The DB Schenker track access agreement commenced on 1 April 2015 and, unless terminated earlier,
expires on 30 September 2015.
GB Railfreight Track Access Agreement
The GB Railfreight track access agreement commenced on 1 April 2015 and, unless terminated earlier,
expires on 30 September 2015.
Station Access Agreements and other station arrangements
Granting of access and conditions
HS1 is the “Station Facility Owner” at the HS1 Stations by virtue of the leases of the HS1 Stations
granted to HS1 by the Secretary of State (see “Property Leases – HS1 Land” below). As such, HS1 is
responsible for granting access to those HS1 Stations to TOCs under the terms of certain Station
Access Agreements. Station Access Agreements are not subject to pre-approval by the ORR.
Existing Station Access Agreements
HS1 has entered into a number of Station Access Agreements to date:
(a)
Station Access Agreements with LSER dated 18 December 2014 in relation to access to each
of the HS1 Stations (see “Business of HS1 – History & Business – Overview” for the definition
of HS1 Stations which does not include Ashford International);
(b)
Station Access Agreements with EIL dated 14 August 2009 in relation to St Pancras
International, Ebbsfleet International and Ashford International;
(c)
a Station Access Agreement by way of diversionary access with Govia Thameslink Railway
Limited dated 11 September 2014 in relation to St Pancras International; and
(d)
a Station Access Agreement with East Midlands Trains Limited dated 9 November 2007 in
relation to St Pancras International.
HS1 Station Access Conditions
A common set of conditions (the “HS1 Station Access Conditions”) are incorporated by reference into
the terms of Station Access Agreements.
The HS1 Station Access Conditions set out the terms on which the TOCs have access to the HS1
Stations, prescribing a number of aspects of the relationship between HS1 as Station Facility Owner
and access beneficiaries, including provisions dealing with:
(a)
the extent of the Station Facility Owner’s maintenance obligations and the access
beneficiary’s responsibilities in relation station common and exclusive areas;
(b)
the management of change to the station fabric;
(c)
insurance;
(d)
keeping a register of station assets;
(e)
a performance regime upon which certain performance bonuses and rebates are payable
against a benchmarked level of station service/amenity; and
(f)
environmental protection.
The HS1 Station Access Conditions have recently been amended to introduce, among other things:
(a)
modifications to the existing mechanisms for implementing changes to the station access
arrangements in order to facilitate the entry of new TOCs at one or more HS1 Stations,
including pursuant to the SPI Commitment given by HS1 to the European Commission;
(b)
an operational performance regime which is intended to assess and incentivise the provision
by HS1 of certain station services and station amenities to the TOCs; and
(c)
a financial cap on the liability of HS1 to the TOCs arising under the applicable Station Access
Agreement.
Access charges
The access charges charged by HS1 under the Station Access Agreements with LSER, EIL, EMT and
GTR (the latter by way of diversionary access) are subject to certain contractual constraints (including
under the HS1 Leases), but charges are not regulated by the ORR in the same manner as the ORR
regulates the OMRC. There is however, for Qx, a right of appeal to the ORR in relation to the level of
charges levied. The LTC charges are regulated by the Department for Transport.
Station Concession Agreements
Under certain station concession agreements, HS1 has appointed NR(HS) to be the operator of the HS1
Stations until 31 December 2086 (the “Station Concession Agreements”).
Station management arrangements at Ashford International
HS1 has appointed Mitie as operator of Ashford International under the Ashford International Station
Management Agreement with responsibility for maintenance, repair, renewal of the station in
accordance with any Station Access Agreement that HS1 enters into to permit TOC services to call at
Ashford International, the HS1 Station Access Conditions and the Concession Agreement, management
of the station and its staff, and for safety. Responsibility for border control services remains with EIL.
The most significant income stream in relation to the Ashford International arrangements – the station
access charges – are payable by TOCs calling at the station direct to HS1 and are not channelled
through Mitie.
Commitments / obligations in relation to St Pancras International Station
HS1 has provided a 10-year commitment (from the date of the European Commission’s decision to
approve the EIL joint venture, which was 17 June 2010) (the “SPI Commitment”) to the European
Commission which obliges HS1 to provide international passenger TOCs with access to specified
services at St Pancras International on a non-discriminatory basis. Services to be provided in or
adjacent to the international zone include facilities and services for ticket purchase and retrieval, and
access to check-in, security, customs and border control infrastructure. If there is no or insufficient
space or capacity, HS1’s obligation to provide services in or adjacent to the international zone of St
Pancras International extends to making space or capacity available, if necessary by amending existing
occupancies in the station to the extent reasonably required.
The SPI Commitment provides for the appointment of a monitoring trustee whose role extends to the
giving of a binding expert opinion in the event that a TOC claims that HS1 has failed to comply with its
requirements under the SPI Commitment. Chris Bolt, the former chairman of the ORR, has been
appointed as the monitoring trustee. The European Commission may participate in the binding expert
opinion procedure. If HS1 does not accept the expert opinion, it may submit the matter to an appeal
authority. The European Commission will be the appeal authority until such time as the ORR confirms
in writing that it is willing and entitled and has set up the appropriate procedures to assume the role of
appeal authority.
Direct Agreements
General
HS1 has entered a series of direct agreements with various parties to the High Speed 1 project to
regulate the way in which certain rights may be exercised and obligations performed in relation to
termination of the underlying suite of Project Documents (the “Direct Agreements”). All of the Direct
Agreements work in broadly similar ways, but they do vary as amongst themselves both in relation to
the underlying project documents they are concerned with and the precise mechanics of regulating
termination as well as in other non-material respects. The differences in mechanics are not mentioned
in this Prospectus as the overriding principle is that each Direct Agreement is intended to work in
concert with other relevant Direct Agreements to ensure that termination or avoidance of termination of
a Project Document is coordinated with, as appropriate, termination or avoidance of termination of
other Project Documents.
Termination is regulated under the Direct Agreements by first imposing advance notice obligations on
the HS1 counterparty to the relevant underlying project document and then a right of step in to prevent
termination, or novation where a third party has been identified to carry on HS1’s role.
The following is a list of the Direct Agreements, the parties to them and their purpose:
(a)
“Funders’ Direct Agreement” – HS1, the Secretary of State and the HS1 Security Trustee –
the purpose of the Funders’ Direct Agreement is to regulate the Secretary of State’s rights
under the Concession Agreement to terminate that agreement for HS1’s default and thereby
also bring about the termination of certain real estate agreements which include underleases at
Ashford International and Ebbsfleet International and to create step in rights for the HS1
Security Trustee to try to cure any such default. The Funders’ Direct Agreement also creates
certainty as to the amount of the debt portion of the termination sum that may be payable if the
Concession Agreement is terminated;
(b)
“Financiers’ Operator Agreement Direct Agreement” – HS1, the Secretary of State, the
HS1 Security Trustee, NR(HS) and NRIL – the purpose of the Financiers’ Operator
Agreement Direct Agreement is to regulate NR(HS)’s rights under the Operator Agreement
and NRIL’s rights under an agreement (the “NR Operation and Maintenance Agreement”)
with HS1 and the Secretary of State dated 25 May 2010 (together, the “Operations
Agreements”), in each case to terminate the relevant Operations Agreement for HS1’s
default. The Financiers’ Operator Agreement Direct Agreement creates step in rights for the
HS1 Security Trustee to try to cure any such default;
(c)
“Secretary of State Operator Agreement Direct Agreement” – HS1, the Secretary of State,
NR(HS) and NRIL – the purpose of the Secretary of State Operator Agreement Direct
Agreement is to regulate NR(HS)’s rights under the Operator Agreement to terminate it for
HS1’s default. The Secretary of State Operator Agreement Direct Agreement creates step in
rights for the Secretary of State in relation to the Operator Agreement upon termination or
expiry of the Concession Agreement. The Secretary of State Operator Agreement Direct
Agreement also introduces a market testing regime that allows HS1 to market test certain of
the services provided by NR(HS) under the Operator Agreement;
(d)
“LSER Track and Station Access Direct Agreement” – HS1, the Secretary of State, the
HS1 Security Trustee and LSER – the purpose of the LSER Track and Station Access Direct
Agreement is to regulate LSER’s rights under the LSER FTAA and the Station Access
Agreements with LSER (the “LSER Access Agreements”) to terminate any of those LSER
Access Agreements for HS1 default. The LSER Track and Station Access Direct Agreement
creates a right in favour of the HS1 Security Trustee to novate the LSER Access Agreements
upon novation by the HS1 Security Trustee of the Concession Agreement;
(e)
“EIL Track and Station Access Direct Agreement” – HS1, the Secretary of State, the HS1
Security Trustee and EIL – the purpose of the EIL Track and Station Access Direct Agreement
is to regulate EIL’s rights under the EIL FTAA and the Station Access Agreements with EIL
(the “EIL Access Agreements”) to terminate any of those EIL Access Agreements for HS1
default. The EIL Track and Station Access Direct Agreement creates a right in favour of the
HS1 Security Trustee to novate the EIL Access Agreements upon novation by the HS1
Security Trustee of the Concession Agreement; and
(f)
“UKPN Parties Direct Agreement” – HS1, the Secretary of State, the HS1 Security Trustee,
the UKPN Parties and CTRL – the purpose of the UKPN Parties Direct Agreement is to
regulate the UKPN Parties’ rights under the UKPN Agreements to terminate any of those
agreements for HS1 default and other termination events. The UKPN Parties Direct
Agreement creates step in rights for the HS1 Security Trustee in relation to the UKPN
Agreements upon cure of such a default or termination event.
Some of the key terms of each of these direct agreements are set out in this section.
Common Direct Agreement Terms
Step in and step out arrangements
Under each of the Funders’ Direct Agreement, the Financiers’ Operator Agreement Direct Agreement
and the UKPN Parties Direct Agreement, the counterparty to the relevant underlying Project Document
(that is, the Secretary of State, NR(HS), NRIL and the UKPN Parties) is prevented from terminating
that underlying Project Document where HS1 is in default of it without first giving the HS1 Security
Trustee not less than 90 days’ prior notice. During this time and during a subsisting HS1 default, the
HS1 Security Trustee has the right to procure that a representative (the “Representative”) assumes,
jointly and severally with HS1, all of HS1’s rights under the underlying Project Document (a “Step-in
Period”). During any Step-in Period, the Representative will have the same rights to remedy any HS1
default as would ordinarily be available to HS1 and the relevant counterparty must deal with the
Representative and not with HS1.
Generally speaking, the relevant counterparty cannot terminate the underlying Project Document
during any Step-in Period, but, depending on the Direct Agreement, it may do so where (i) the
Representative or HS1 fails to use reasonable endeavours to remedy the default that gave rise to the
step in where that default is capable of remedy and it is continuing, (ii) the relevant counterparty is not
duly paid (including for liabilities he might have incurred during any Step-in Period) or (iii) a
subsequent default arises.
The Step-in Period ends on the Representative or the HS1 Security Trustee (as appropriate) stepping
out. Step out is effected by notice, or broadly speaking, termination/expiry of the Concession
Agreement. Upon stepping out, the Representative or HS1 Security Trustee (as appropriate) is released
from its undertaking to assume the rights and obligations of HS1 under the underlying Project
Document.
The Secretary of State Operator Agreement Direct Agreement also contains a right in favour of the
Secretary of State to step into the Operator Agreement, but this right is subordinate to the rights of step
in/novation set out in the Financiers’ Operator Agreement Direct Agreement. Where the rights under
the Financiers’ Operator Agreement Direct Agreement no longer apply, NR(HS) is prevented from
terminating the Operator Agreement where HS1 is in default of it without giving the Secretary of State
not less than 15 business days’ prior notice. The Secretary of State’s right to step into the Operator
Agreement lasts up to the expiry of the Concession Agreement – 31 December 2040.
The Secretary of State can step out at any time on 30 days’ prior notice and must step out after a year,
unless discussions are ongoing or contracts have been exchanged, in each case with a substitute
operator. The Operator Agreement ends at the end of any step in by the Secretary of State, unless it has
been novated.
Novation/transfer of HS1’s rights and obligations under the Project Documents
Under each of the Direct Agreements (other than the Secretary of State Operator Agreement Direct
Agreement), where HS1 has defaulted on an underlying Project Document, the HS1 Security Trustee or
the Representative can notify of the requirement to transfer HS1’s rights and obligations under that
Project Document, or effect a change in ownership, in each case to a person who would satisfy the
requirements for ownership of HS1 set out in the Concession Agreement (which include requirements
for sufficient financial resources and expertise). Novations are also permitted under the Financiers’
Operator Agreement Direct Agreement, the LSER Track and Station Access Direct Agreement and the
EIL Track and Station Access Direct Agreement where the HS1 Security Trustee effects a novation of
the rights and obligations of HS1 under the Concession Agreement by virtue of its rights under the
Funders’ Direct Agreement. Novations of any of the LSER Access Agreements and the EIL Access
Agreements require the consent of the ORR.
The Secretary of State Operator Agreement Direct Agreement also contains a right in favour of the
Secretary of State to transfer HS1’s rights and obligations under the Operator Agreement to himself or
his nominee in place of stepping in – see “Step in and step out arrangements” above. As is the case
with the Secretary of State’s rights to step in, his right to transfer is subordinate to the rights of step
in/novation set out in the Financiers’ Operator Agreement Direct Agreement.
Administrative receivership of HS1
The Direct Agreements each provide that the counterparty to the relevant underlying Project Document
cannot terminate that Project Document due solely to the appointment by the HS1 Security Trustee of
an administrative receiver in respect of HS1. In the case of the Funders’ Direct Agreement and such an
appointment, the Secretary of State can also not take any action to wind up, appoint or consent to the
appointment of an administrator or sanction a voluntary arrangement (or similar) in relation to HS1.
Funders’ Direct Agreement Specific Terms
The Funders’ Direct Agreement also contains a specific acknowledgement from the Secretary of State
that states that, for the purposes of the Concession Agreement, any hedging provider under any hedging
arrangement HS1 enters into will be treated as a “Senior Lender” and such hedging arrangement will
be treated as though it constituted “Third Party Borrowing” (each for the purposes of, and as defined
in, the Concession Agreement) See “The Concession Agreement – Enforcement and termination –
Compensation payable on termination” above. Any hedging arrangement must be entered into in
accordance with a hedging policy approved by the Secretary of State. Such policy is set out in a letter
dated 18 November 2010 between the parties to the Funders’ Direct Agreement as amended on 26
October 2012 (the “Hedging Policy Letter”). The Hedging Policy Letter sets out HS1’s agreement
only to enter into hedging arrangements which are for normal prudent treasury management and nonspeculative purposes and are intended to protect HS1 against exposure to interest applicable to financial
indebtedness, inflation, foreign exchange and commodity prices. The Hedging Policy Letter goes on to
detail those agreements that constitute a hedging arrangement for the purposes of the Concession
Agreement, namely those agreements that hedge HS1’s exposure to debt interest, inflation risk and
currency risk.
Financiers’ Operator Agreement Direct Agreement Specific Terms
The Financiers’ Operator Agreement Direct Agreement also contains a number of specific provisions.
Controlled revenues
The HS1 Security Trustee must notify NR(HS) and NRIL following any enforcement action by the
secured creditors of any debt HS1 has secured in relation to the HS1 Concession (including any
exercise by the HS1 Security Trustee under any High Speed 1 direct agreement). Where this occurs,
(unless the HS1 Security Trustee has assumed with HS1, HS1’s rights and obligations under the
Operator Agreement), at the election of NR(HS) and NRIL, HS1 must open and maintain an account
(the “Revenues Account”) into which must be paid, all future track access charges received by HS1 or
the HS1 Security Trustee. The balance of the Revenues Account shall be applied according to a
waterfall specified in the Financiers’ Operator Agreement Direct Agreement (which ranks NR(HS) and
NRIL first in respect of the monies owed to those parties).
Security
HS1 has previously entered into the NRIL Guarantee (see “NRIL Guarantee” above) and the NR(HS)
Security Agreement (see “Other agreements and requirements – NR(HS) Security Agreement” below).
The Financiers’ Operator Agreement Direct Agreement provides that, in respect of:
(a)
the NR(HS) Secured Assets – the subject of the NR(HS) Security Agreement – the NR(HS)
Security Agreement ranks in priority to the Financiers’ Security Documents and other
subsequent security; and
(b)
the Operations Agreements, HS1 has granted a first ranking security in favour of the HS1
Security Trustee pursuant to the Financiers’ Security Documents.
Network Rail and NR(HS) each consents to this security.
Precedence of the Financiers’ Operator Agreement Direct Agreement
The Financiers’ Operator Agreement Direct Agreement is to take precedence over the Secretary of
State Operator Agreement Direct Agreement (see “Secretary of State Operator Agreement Direct
Agreement Specific Terms” below).
Secretary of State Operator Agreement Direct Agreement Specific Terms
The Secretary of State Operator Agreement Direct Agreement also contains a number of specific
provisions.
Restriction on Secretary of State’s right to terminate the Concession Agreement
The Secretary of State Operator Agreement Direct Agreement provides an assurance that where HS1 is
in breach of the Concession Agreement as a consequence of a breach or non-performance by NR(HS)
of its obligations under the Operator Agreement, the Secretary of State cannot exercise his rights of
termination or other remedies under the Concession Agreement for so long as HS1 takes steps to
procure the remedy of the default by NR(HS) (or, where the default is not capable of remedy, to
terminate the Operator Agreement and appoint a substitute operator).
Market testing
The Secretary of State Operator Agreement Direct Agreement provides for a market testing regime in
favour of HS1, whereby HS1 may after 1 April 2020 (or if later, the end of the Control Period 2, serve
notice on NR(HS) that it wishes to undertake a market testing of either the whole or part of the “OA
OMR” (meaning the operation, maintenance renewal and replacement of High Speed 1 and other
services performed by NR(HS) under the Operator Agreement), in each case with a view to awarding
one or more replacement operator agreements (each a “Replacement Operator Agreement”) in place
of all or the relevant part (as applicable) of the Operator Agreement. HS1 may only serve such a
market testing notice once during the term of the Operator Agreement and if and when it does, it must
do so no less than three years before the end of the Control Period in which it is served. Any market
testing exercise may only commence from 1 April 2020 (or, if later, the commencement of the next
Control Period) with a new operator capable of being replaced after such an exercise from 31 March
2025.
HS1 is not be obliged to enter into any Replacement Operator Agreement and is permitted to carry out
some or all of the OA OMR itself, or engage an affiliate to do so. Where following a market testing
exercise, HS1 does enter into a Replacement Operator Agreement or carries out some or all of the OA
OMR itself it must pay NR(HS) a break payment (up to £10 million plus VAT).
Where following a market testing exercise, HS1 elects not to terminate any provision by the Operator
of the Operator Services, HS1 may instead give notice to NR(HS) at least one calendar year before the
end of the then current Control Period that it wishes NR(HS) to continue to carry out the whole or that
part of the OA OMR that was the subject of a market testing exercise, whereupon the Operator
Agreement shall continue.
Where entering into a Replacement Operator Agreement would result in OA OMR being split between
NR(HS) and another service provider, the Operator Agreement is amended to reflect the revised risk
profile and to HS1 paying the reasonable costs of NR(HS) incurred in relation to such OA OMR, plus
the mark-up of 10% of such costs during the Control Period 1 and an objective market percentage
thereafter.
HS1 right to voluntarily terminate
HS1 has a right under the Operator Agreement to terminate the Operator Agreement voluntarily,
subject to the terms of the Secretary of State Operator Agreement Direct Agreement. These terms
provide that HS1 must give at least three years’ notice to NR(HS) (copied to the Secretary of State), the
date of such termination must not be before 31 March 2025 and HS1 must make a break payment to
NR(HS).
The Power Supply Agreements
General
HS1 is party to a variety of agreements with the UKPN Parties relating to the supply of electrical power
to High Speed 1. These agreements (the “UKPN Agreements”) consist of an umbrella agreement
relating to the variation and novation of agreements for the construction and operation of the electricity
distribution systems for High Speed 1 (the “Umbrella Agreement”), distribution agreements relating
to Sections 1 and 2 of High Speed 1 (each a “Distribution Agreement” and separately, the “Section 1
Distribution Agreement” and the “Section 2 Distribution Agreement”) and master agreements
relating to Sections 1 and 2 of High Speed 1 (each a “Master Agreement” and separately, the
“Section 1 Master Agreement” and the “Section 2 Master Agreement”).
HS1 is also party (as landlord) with the UKPN Parties to a variety of standalone electricity and internal
substation leases.
UKPN Agreements
Predating the Concession Agreement
Although the UKPN Agreements were entered into before the Concession Agreement, HS1 believes
that the terms of the UKPN Agreements are consistent with delivering HS1’s obligations under the
Concession Agreement.
Performance regime
The UKPN Agreements contain a performance regime under which the UKPN Parties are liable to HS1
for power outages affecting assets that are directly required for the commercial operation of trains on
High Speed 1. Liability is capped and where the cap is exceeded, HS1 may terminate the UKPN
Agreements. Liability in respect of other types of outage and voltage degradations is not capped,
although all types of outage and voltage degradation are subject to certain exclusions of liability.
Grant of Leases
The Umbrella Agreement obliges the Secretary of State to consent to the grant by HS1 of certain subleases in favour of the UKPN Parties to enable the relevant UKPN Party to perform its construction,
commissioning and distribution obligations under the Section 1 Distribution Agreement. The
equivalent obligation on HS1 to grant these sub-leases is set out in the Section 1 Master Agreement.
Title to the assets and premises over which HS1 grants the sub-leases is conferred on HS1 under the