BRITISH ENERGY PLC
('British Energy' or the 'Company')
ANNOUNCEMENT OF FORMAL AGREEMENT ON PROPOSED RESTRUCTURING
INTRODUCTION
The Board of British Energy (the 'Board') announces that it has entered into an
agreement (the 'Creditor Restructuring Agreement') with The Royal Bank of
Scotland plc ('RBS'), Teesside Power Limited ('TPL'), Total Gas & Power Limited('Total') and Enron Capital & Trade Europe Finance LLC ('ECTEF') (TPL, Total andECTEF collectively referred to as the 'Significant Creditors'), British Nuclear
Fuels plc ('BNFL') and the ad hoc committee of holders of the £109,861,000 5.949per cent. guaranteed bonds due 2003, the £163,444,000 6.077 per cent. guaranteed
bonds due 2006 and the £134,586,000 6.202 per cent. bonds due 2016
(collectively, the 'Bonds' and the holders of the Bonds being the 'Bondholders')
(the 'Ad Hoc Committee') relating to the standstill, recognition and compromise
of the claims of the Significant Creditors, RBS, Bondholders and the Eggborough
Banks and the proposed restructuring of the Group (the 'Proposed
Restructuring'). The Ad Hoc Committee represents 25 per cent. of the aggregate
amount of Bonds outstanding.
The steering committee of the lenders and swap providers in the Eggborough bank
syndicate (each lender and swap provider in the syndicate an 'Eggborough Bank')
(representing 35 per cent. of the combined amount owing to the Eggborough Banks)
have agreed to recommend the Proposed Restructuring to their internal credit
committees for approval and execution as well as recommending for approval and
execution by the rest of the Eggborough Bank syndicate with a view to having all
of them sign the Creditor Restructuring Agreement with full credit committee
approvals by 31 October 2003.
If all Eggborough Banks do not sign the Creditor Restructuring Agreement, the
claims of the Eggborough Banks will be compromised pursuant to a scheme of
arrangement (the 'Eggborough Scheme') which would be proposed and implemented at
the same time as the Restructuring Scheme. In this case, the Proposed
Restructuring requires that a majority in number of the Eggborough Banks holding
over 75 per cent. (or such lesser percentage as may be agreed) of the combined
amount owing to the Eggborough Banks sign the Creditor Restructuring Agreement
by 31 October 2003 and thereby agree to vote in favour of the Eggborough Scheme
in due course if a scheme is necessary to restructure the claims of the
Eggborough Banks. Each Eggborough Bank who has signed or later adheres to the
Creditor Restructuring Agreement is referred to in this announcement as a '
Consenting Eggborough Bank'. The claims of the Bondholders and RBS will be
compromised pursuant to a scheme of arrangement (the 'Restructuring Scheme')
which will be proposed and, if approved by Bondholders and RBS and sanctioned by
the court, implemented once all the initial conditions to the Proposed
Restructuring are satisfied. The Board expects this to take place in mid to late
2004. Members of the Ad Hoc Committee have entered into the Creditor
Restructuring Agreement and agreed to vote in favour of the Restructuring
Scheme.
The Proposed Restructuring requires, among other things, that Bondholders and
RBS holding at least 75 per cent. of the combined amount owing to them (or such
lesser percentage as may be agreed) sign the Creditor Restructuring Agreement by
31 October 2003 and thereby agree to vote in favour of the Restructuring Scheme
in due course. Each Bondholder who has signed or later adheres to the Creditor
Restructuring Agreement is referred to in this announcement as a 'Consenting
Bondholder'. The Creditor Restructuring Agreement is also subject to approval
prior to 31 October 2003 by the credit committee of RBS.
British Energy has also entered into an agreement (the 'Government Restructuring
Agreement') with the Secretary of State relating principally to the
restructuring of the nuclear liabilities of the British Energy group (the
'Group'). The Creditor Restructuring Agreement and the Government Restructuring
Agreement are inter-conditional.
CREDITOR RESTRUCTURING AGREEMENT
Summary of the Creditor Restructuring Agreement
The Creditor Restructuring Agreement gives effect to the Heads of Terms signed
on 14 February 2003 by RBS, the Eggborough Banks, Significant Creditors and
certain Bondholders (as at that date).
The Creditor Restructuring Agreement will lapse unless:
- Bondholders and RBS holding at least 75 per cent. of the combined amount owing
to them (or such lesser percentage as may be agreed) sign the Creditor
Restructuring Agreement;
- a majority in number of the Eggborough Banks holding over 75 per cent. by
value of the outstanding amount owed under the Eggborough finance agreements
enter into or sign the Creditor Restructuring Agreement; and
- credit committee approval for RBS is obtained;
in each case by 31 October 2003 (or such later date as may be agreed).
The key terms of the Creditor Restructuring Agreement are as follows:
- the standstill arrangements agreed with RBS, the Eggborough Banks, Significant
Creditors and BNFL pursuant to the Standstill Agreement entered into on 14
February 2003 and with certain Bondholders pursuant to a Bondholder
Restructuring Agreement dated 14 February 2003 will continue on the previous
terms until, inter alia: (a) the Proposed Restructuring becomes effective or (b)
the Creditor Restructuring Agreement terminates or (c) the Standstill Agreement
is terminated in accordance with its terms or (d) the Bondholder Restructuring
Agreement is terminated in accordance with its terms (subject to a long stop
date of the earlier of 31 January 2005 and 120 days from the satisfaction of the
conditions to the Proposed Restructuring);
- under the standstill arrangements, RBS, the Eggborough Banks, Significant
Creditors and Bondholders will continue to be paid interest semi-annually but
not principal in respect of any claims against the Group until the completion of
the Proposed Restructuring. However, if the Creditor Restructuring Agreement
terminates, then the standstill arrangements will terminate and, accordingly,
payments of interest under these standstill arrangements will also cease;.
- the Significant Creditors will compromise their respective claims against the
Group in exchange for new bonds and new ordinary shares in the restructured
Group as set out below;
- the Significant Creditors will be able to transfer their rights under the
Creditor Restructuring Agreement and their claims against the Group after 31
October 2003 provided any transferee agrees to be bound by the Creditor
Restructuring Agreement and subject to certain other conditions;
- all of the Eggborough Banks will compromise their claims against the Group in
exchange for payments under a revised Capacity and Tolling Agreementand an
Amended Credit Agreement, new bonds and new ordinary shares in the restructured
Group as set out below and the option over the Eggborough station described
below. The compromise will be effected by agreement with all the Eggborough
Banks or pursuant to the Eggborough Scheme;
- RBS and the Consenting Bondholders will vote in favour of the Restructuring
Scheme, pursuant to which, if approved, the claims of RBS and all Bondholders
against the Group will be compromised in exchange for new bonds and new ordinary
shares in the restructured Group as set out below;
- the Consenting Bondholders will vote in favour of certain technical amendments
to the terms and conditions of the Bonds which are required to facilitate the
implementation of the Restructuring Scheme; and
- the Consenting Bondholders will be able to transfer any interest in their
respective Bonds provided that the transferee is already a Consenting
Bondholder or agrees to be bound by the Creditor Restructuring Agreement.
Conditions to the Creditor Restructuring Agreement
In addition to the requirement for approvals referred to above and the receipt
of the requisite commitments from Bondholders and the Eggborough Banks, the
Proposed Restructuring is conditional on, among other things: (i) the receipt by
the Secretary of State of a satisfactory notification from the European
Commission (the 'Commission') that, insofar as the proposals involve the grant
of State aid by the UK Government, such aid is compatible with the common market
('EC Approval'); (ii) there being no material adverse change (see below); (iii)receipt of Inland Revenue and regulatory clearances; (iv) admission of the new
bonds and new ordinary shares to listing on the Official List or, in the case of
the new ordinary shares in the event that admission to the Official List is not
possible, the Alternative Investment Market of the London Stock Exchange or, in
the case of the new bonds, the Luxembourg Stock Exchange; (v) the BNFL
arrangements becoming unconditional; (vi) the Government Restructuring Agreement
becoming unconditional; and (vii) the Restructuring Scheme and, if required, the
Eggborough Scheme, becoming effective. EC Approval is required by 30 November
2004 and the Restructuring is required to be completed by 31 January 2005 (or
such later dates as may be agreed).
Material Adverse Change
For the purposes of the Creditor Restructuring Agreement, a material adverse
change is defined as a material adverse change in the current or future business
or operations, the financial or trading position, profits or prospects of the
British Energy Group as a whole or of Eggborough Power Limited ('EPL') or achange in the current or future business or operations, the financial or trading
position, profits or prospects of the Group as a whole which is likely to have a
material adverse effect on the value of the new bonds, the new ordinary shares,
the CTA Bond (see below) or the new Eggborough arrangements.
Creditor Allocations
The Creditor Restructuring Agreement provides for Bondholders, RBS, the
Eggborough Banks and the Significant Creditors to compromise their respective
claims in exchange for new bonds and new ordinary shares as follows:
New bonds to New ordinary
be issued shares to be
issued (1)
£m %
Bondholders 154.1 52.3
RBS 14.2 4.8
Eggborough Banks (2) 170.0 14.0
Total 23.3 7.7
ECTEF 20.0 6.8
TPL 43.5 14.4
£425.0 100.0%
(1) Excludes any retained equity interest for existing shareholders (see below).
(2) Includes £150 million bond-equivalent payments through the Amended Credit
Agreement.
(3) In addition, the NLF will receive £275 million of new bonds and a right to
receive the NLF Cash Sweep Payment together with further amounts payable under
the Contribution Agreement (see below).
Accordingly, the total number of new bonds issued and outstanding under the
Proposed Restructuring will be £700 million.
Continuation of Standstill Arrangements
Subject to the required approvals being obtained, the Significant Creditors, the
Consenting Eggborough Banks, RBS, the Consenting Bondholders and BNFL (together
the 'Consenting Creditors') will be restricted from taking any steps to initiate
insolvency proceedings or demand or accelerate any amounts due and payable by
British Energy during the period of the standstill until the earliest of: (i)
the earlier of 31 January 2005 and 120 days from the satisfaction of the
conditions to the Proposed Restructuring; (ii) termination following the
occurrence of a termination event; or (iii) the completion of the Proposed
Restructuring (the 'Standstill Period').
Under the standstill arrangements, certain Consenting Creditors (including
Bondholders) will be paid interest but not principal in respect of any claims
against the Group. Interest will continue to be paid to Bondholders and the
Eggborough Banks until the completion of the Proposed Restructuring. In respect
of the Significant Creditors and RBS, interest was paid first on 25 March 2003
and is subsequently payable on the last business day of every six month period
thereafter based on the agreed claim amounts (except in the case of RBS where
interest payments will be based on the present value of its claim amount as at
14 February 2003).
The Creditor Restructuring Agreement contains certain covenants by British
Energy for the benefit of the Consenting Creditors that have signed the
agreements, including certain limitations on acquisitions and disposals and a
prohibition on the payment of dividends and on the issuance of equity.
The Company will propose resolutions to Bondholders in the near future to
facilitate these arrangements in relation to the Bonds as a class (see '
Requirement for a Bondholder Meeting' below).
Termination of the Creditor Restructuring Agreement and Standstill Arrangements
Any of the Consenting Creditors may terminate the standstill arrangements
following the occurrence of a termination event. The termination events include
certain insolvency events affecting the Company, British Energy Generation
Limited ('BEG'), British Energy Generation (UK) Limited ('BEGUK'), BritishEnergy Power and Energy Trading Limited ('BEPET') or EPL; acceleration of thecredit facility provided by the Secretary of State on 26 September 2002 as
subsequently amended and restated (the 'Government Facility'); the required
approvals and Bondholder or Eggborough Bank commitments under the Creditor
Restructuring Agreement not being obtained within the timescales envisaged; and
any of the Company, BEG, BEGUK, BEPET or EPL failing to discharge certain
continuing obligations. If the standstill arrangements terminate, the Creditor
Restructuring Agreement will also terminate.
Corporate Governance
The Board has decided to undertake an evaluation of its performance and
functioning, as recommended in the Higgs review, which will consider advice from
stakeholders. The Ad Hoc Committee has indicated its intention to put forward
two additional independent, non-executive directors, who, subject to the Board
agreeing their suitability and experience, will be appointed.
Mechanics for Implementation
The Company will seek to implement the Proposed Restructuring in one of three
ways:
- by the implementation of a scheme of arrangement with the approval of existing
shareholders of British Energy (the 'Members' Scheme') in addition to the
Creditor Restructuring Agreement and the Restructuring Scheme (the 'Members'
Scheme Route'); or, failing which
- if the shareholders do not vote in favour of the Members' Scheme (or if it
otherwise lapses), by the disposal (the 'Disposal' and, together with the
implementation of the Restructuring Scheme, the 'Disposal Route') by the Company
of all of its subsidiaries and other assets to a newly incorporated public
company ('Newco 2') in consideration for Newco 2 agreeing to discharge theCompany's liabilities. The Disposal will require shareholder approval in
accordance with the listing rules (the 'Listing Rules') of the UK Listing
Authority (the 'UKLA'); or, failing which
- if the shareholders do not vote in favour of the Members' Scheme (or if it
otherwise lapses) and shareholder approval in respect of the Disposal is not
obtained, by delisting British Energy from the Official List of the UKLA, in
order for the Disposal to be completed without the requirement of a shareholder
vote, and the implementation of the Creditor Restructuring Agreement and the
Restructuring Scheme (the 'Delisting Route').
Subject to the conditions and termination rights and the other terms of the
Creditor Restructuring Agreement described above, British Energy is legally
committed to implement the Proposed Restructuring by one of the implementation
methods set out above with or without the approval of shareholders.
Under the Members' Scheme Route, British Energy will propose the Members' Scheme
to its shareholders whereby British Energy would cancel its existing ordinary
and A shares and issue new shares to a newly-incorporated public company ('Newco1'), the parent of Newco 2. Following the Members' Scheme becoming effective,
British Energy would then be acquired by Newco 2, in exchange for Newco 2
issuing shares to Newco 1. Thereafter, British Energy would be a wholly-owned
subsidiary of Newco 2 which would itself be a wholly-owned subsidiary of Newco
1. Under the Restructuring Scheme and the Creditor Restructuring Agreement, the
unsecured claims of RBS, the Bondholders, the Eggborough Banks and the
Significant Creditors would be discharged in exchange for the issuance of
ordinary shares in Newco 1 (the 'New Shares') and new bonds of Newco 2 (the 'New
Bonds') in the amounts set out above.
The Disposal Route would be implemented where British Energy's shareholders do
not vote in favour of the Members' Scheme or it otherwise does not become
effective. Under the Disposal Route, the entire business of British Energy
(including its subsidiaries) would be acquired by Newco 2 in exchange for the
assumption by Newco 2 of the Group's liabilities. Again, the unsecured claims of
RBS, the Bondholders, the Eggborough Banks and the Significant Creditors would
be discharged in exchange for New Shares and New Bonds. Under the Listing Rules,
the Disposal would require approval by a simple majority vote by the Company's
shareholders.
If shareholders do not vote in favour of either the Members' Scheme or the
Disposal, British Energy would be delisted to allow the Disposal to Newco 2 to
be effected without shareholder approval.
After the Disposal the ordinary and 'A' shares in the capital of the Company
would be of no value and ultimately the Company may be dissolved.
The UK Government will be issued a special share in each of Newco 1 and Newco 2
on terms to be determined but which will be no more extensive than the special
rights redeemable preference share it currently holds in British Energy. This
special share currently allows the Secretary of State to veto certain corporate
actions including any change to the limitations in the Articles of Association
of the Company on any person having an interest in 15 per cent. or more of the
voting share capital of the Company, and prohibiting any disposal by the Group
of its nuclear power stations without consent.
If the Creditor Restructuring Agreement is not signed by all the Eggborough
Banks, EPL will seek to restructure the claims of the Eggborough Banks pursuant
to the Eggborough Scheme.
Shareholder Allocation
The Company has agreed with the Consenting Creditors that the Company's existing
shareholders will be offered a mix of New Shares and warrants in Newco 1 as
follows:
- If shareholders approve the Members' Scheme, they will receive New Shares
representing 2.5 per cent. of the issued share capital of Newco 1 immediately
following implementation of the Proposed Restructuring. In addition,
shareholders would also receive warrants entitling them to subscribe for New
Shares equal to 5.0 per cent. of Newco 1's fully diluted (excluding the impact
of conversion of the NLF Cash Sweep Payment ) share capital immediately
following completion of the Proposed Restructuring;
- If shareholders do not vote in favour of the Members' Scheme (or it otherwise
lapses) but the shareholders pass the resolution required by the Listing Rules
to effect the Disposal Route, then shareholders would not receive any New Shares
but would receive warrants entitling them to subscribe for New Shares equal to
5.0 per cent of Newco 1's fully diluted (excluding the impact of conversion of
the NLF Cash Sweep Payment) share capital immediately following completion of
the Proposed Restructuring; or
- If shareholders do not vote in favour of the Members' Scheme (or it otherwise
lapses), shareholder approval in respect of the Disposal is not obtained and the
Company were to delist in order to complete the restructuring, the shareholders
would receive no New Shares or warrants.
Summary of Warrant Terms
The warrants which shareholders would receive in the circumstances detailed
above would have the following terms:
% of Newco 1's share capital (1) : 5.0 per cent.
Exercise period: 5 years from completion of the
Proposed Restructuring
Subscription price (aggregate)(2): £28.95 million
(1) Fully diluted (excluding the impact of conversion of the NLF Cash Sweep
Payment) immediately following completion of the Proposed Restructuring.
(2) Equivalent to an equity market capitalisation of the Group of £550 million
post-restructuring.
Treatment of Different Classes of Shares
In addition to its 621 million ordinary shares, the Company has 81 million 'A'
shares outstanding, which, in certain circumstances, have preferential rights on
a liquidation over the ordinary shares. Since shareholders would be highly
unlikely to receive any return in a liquidation, the Company believes the
theoretical preferential rights of the 'A' shareholders on a liquidation should
be disregarded for the purposes of allocating consideration between the 'A'
shareholders and the ordinary shareholders.
Accordingly, since each class of shareholder will be required to vote to approve
the Members' Scheme, the Company proposes that any New Shares and/or warrants
offered as consideration should be allocated between 'A' and ordinary
shareholders pro rata to shares outstanding because the votes of each class are
of equal weight. Therefore, the 'A' shareholders would receive approximately
11.5% of the consideration and the ordinary shareholders would receive
approximately 88.5% of the consideration.
If the Members' Scheme lapses but shareholder approval for the Disposal Route is
obtained, the warrants available to shareholders would be allocated between the
'A' and ordinary shareholders on the same basis as under the Members' Scheme.
Requirements for Approval
The Members' Scheme would require approval of a majority in number of holders of
each class who vote representing at least 75 per cent. of the votes cast by that
class at separate meetings of the holders of the ordinary and 'A' Shares of the
Company convened by the court, and would need to be sanctioned by the court.
In order for the Disposal Route to be effected, it would be necessary for only a
simple majority of the ordinary shareholders voting at an extraordinary general
meeting of the Company to vote in favour of the Disposal.
The Proposed Restructuring is not conditional on either the Members' Scheme
becoming effective or shareholders voting in favour of the Disposal. If the
Members' Scheme lapses, the Proposed Restructuring would be effected through the
Disposal Route or, if the necessary shareholder approval for the Disposal is not
obtained, the Delisting Route.
The Proposed Restructuring is, however, conditional on the implementation of the
Restructuring Scheme and, if necessary, the Eggborough Scheme. In order for the
Restructuring Scheme to become effective, it is necessary that at least 75 per
cent. by value and a majority in number of the relevant creditors present and
voting at the meeting convened to approve the Restructuring Scheme vote in
favour of the Restructuring Scheme. Following approval by the requisite
majority, the Restructuring Scheme will also need to be sanctioned by the court.
In order for the Eggborough Scheme to become effective it must be approved by a
simple majority by number of the Eggborough Banks holding at least 75 per cent.
by value of the claims voted at a meeting of Eggborough Banks to approve the
Eggborough Scheme and subsequently sanctioned by the court.
UPDATE ON OTHER RESTRUCTURING ARRANGEMENTS
New Bonds
The aggregate principal amount of the New Bonds to be issued to the Significant
Creditors, Nuclear Generation Decommissioning Fund Limited (to be renamed
Nuclear Liabilities Fund Limited (the 'NLF')) and the Bondholders will be £700
million (of which £150 million will be issued to EPL with bond-equivalent
payments being made by EPL to the Eggborough Banks and constituted as the CTA
Bond). The New Bonds will be denominated in Sterling, pay interest on a
quarterly basis and be listed either in London or Luxembourg. The New Bonds
(including the CTA Bond) will form a single series.
The New Bonds will be issued by Newco 2, and will be guaranteed by Newco 1 and
all of its existing and future material subsidiaries (other than EPL and British
Energy Trading Services Limited ). The New Bonds will carry an interest rate of
7 per cent. per annum and will be repaid in annual instalments between 2005 and
2022 and will have an average life of approximately 8 years. A summary of the
terms of the New Bonds is attached as Schedule A.
The Company has received feedback from Fitch, Moody's and Standard & Poors (the
'Rating Agencies') with regard to an indicative prospective rating for the New
Bonds when issued at the completion of the Proposed Restructuring. The exact
nature of the feedback is governed by confidentiality agreements entered into
between the Company and the Rating Agencies. One Rating Agency has provided an
indicative rating at investment grade and two rating agencies have provided
indicative ratings at non-investment grade. The Company will continue its
discussions with the Rating Agencies and expects to seek public ratings of the
New Bonds when issued after completion of the Proposed Restructuring.
Eggborough CTA
Under the terms of the Proposed Restructuring, the Group will enter into
agreements (the 'CTA Agreements') under which EPL will remain within the Group
and will continue to own and operate the Eggborough power station (the '
Eggborough Station') except that the Eggborough Banks will have an option to
acquire the shares in EPL or the Eggborough Station assets in 2010. The
remaining useful life for accounting purposes of the Eggborough Station is
currently 17 years through to 2020. The CTA Agreements will include:
- a revised capacity and tolling agreement (the 'Revised CTA') to be entered
into by BEPET and EPL under which EPL will make the Eggborough Station available
to BEPET for the generation, transmission and sale of electricity and related
services. In return, BEPET will: (a) pay amounts equal to all operating and
maintenance costs relating to the Eggborough Station as and when they fall due
(including any corporation tax not met directly by British Energy but excluding
depreciation and other non-cash costs); and (b) make payments equal to budgeted
capital expenditure as and when such payments fall due;
- a CTA Bond issued by Newco 2 and to be held by EPL on the same terms as the
New Bonds. This will provide the mechanism by which the Eggborough Banks receive
payments having a maturity and profile (and appropriate related rights)
identical to £150 million of New Bonds. The CTA Bond will benefit from the same
guarantees as the New Bonds;
- the Amended Credit Agreement. The payments under CTA Bond will be made to EPL
and EPL will make analogous payments under the Amended Credit Agreement. The
remainder of the debt under the original Credit Agreement will be released in
consideration for the issue of £20 million of New Bonds and 14 per cent. of New
Shares and the Options described below to the Eggborough Banks; and
- an option to purchase the shares in EPL and an option to purchase the
Eggborough Station assets (the 'Options'). Under the Options, the Eggborough
Banks will be able to take ownership of the shares in EPL or the Station assets
(as the case may be) on 31 March 2010 in consideration for the payment of a
break fee of £104 million and the foregoing of all future payments due under the
Amended Credit Agreement on 31 March 2010. Following exercise of either of the
Options, the Eggborough Banks will have no further claims against the Group.
The Eggborough Banks will continue to have security over the shares in EPL and
the Eggborough Station assets (the 'Station Security') under the Amended Credit
Agreement. In addition, the Eggborough Banks will subject to the payment of
enforcement fees in certain circumstances reflecting the value of the break fee,
have the right to accelerate their Options following a default. This right will
also be secured under the Amended Credit Agreement, through a non-performance
indemnity. In the event of a default under the Amended Credit Agreement, the
Eggborough Banks will have the right either to exercise their security with
respect to the outstandings under the Amended Credit Agreement (together with
any unpaid operating expense and capital expenditure amounts then due under the
Revised CTA) or, in certain cases, to exercise the Options. After 31 March 2010,
the Station Security shall only secure the outstandings under the CTA Bond and
the Amended Credit Agreement.
In the event that the Eggborough Banks exercise the Station Security (other than
following non-performance under an Option exercise), the value of this security
(the 'Security Value') will be calculated. If the Security Value is: (a) greater
than the outstandings under the CTA Bond , the Eggborough Banks will forfeit the
CTA Bond ; or (b) less than the outstandings under the CTA Bond the EPL Lenders
will forfeit the CTA Bond in an amount equal to the Security Value. The
Eggborough Banks' only remaining claims against the Group (not including EPL)
will be under any remaining CTA Bonds .
In the event that the Eggborough Banks accelerate an Option, their claim will be
limited to outstandings under the Amended Credit Agreement plus the value of the
Station post-2010 less certain enforcement fees, provided that in no
circumstances will their recovery exceed the original Credit Agreement
outstandings less the value the Eggborough Banks have received in the
restructuring package.
Summary of the Government Restructuring Agreement
The Government Restructuring Agreement provides for the circumstances in which
the Secretary of State will support the Proposed Restructuring, including
entering into the agreements with the Group and, in certain cases, the NLF which
effect the proposals regarding the manner in which the decommissioning and other
uncontracted liabilities of the Group are to be funded and the agreements
relating to the funding of certain of the contracted nuclear liabilities of the
Group (the 'Nuclear Liabilities Agreements'). It also effects some further
amendments to the Government Facility.
Under the Government Restructuring Agreement, the obligations of the Secretary
of State to support the Proposed Restructuring (including as the holder of a
number of special shares) and of the parties to the Nuclear Liabilities
Agreements to enter into them are conditional on, inter alia:
- the Creditor Restructuring Agreement becoming effective (save for the
extension of the standstill arrangements which is immediately effective) by 31
October 2003;
- the Creditor Restructuring Agreement becoming unconditional in all respects by
31 January 2005 or such later date as the Secretary of State may agree;
- the Secretary of State not having determined and notified British Energy in
writing that, in her opinion, the Group (including Newco 1 and Newco 2) will not
be viable in all reasonably foreseeable conditions without access to additional
financing (other than financing which the Secretary of State is satisfied has
been committed and will continue to be available when required);
- there being no continuing event of default under the Government Facility;
- the representations and warranties given by the British Energy parties in the
Government Restructuring Agreement being true, accurate and not misleading when
given and if repeated at the effective date of the Proposed Restructuring; and
- there being no breach of any undertaking given by any British Energy party
under the Government Restructuring Agreement which, in the opinion of the
Secretary of State, is or is likely to be material in the context of the
Proposed Restructuring.
If any of the conditions are not fulfilled or waived by the Secretary of State
on or before 31 January 2005 (or such later date as the Secretary of State may
agree) or a material adverse change (as defined in the Creditor Restructuring
Agreement) occurs at any time before the order sanctioning the Restructuring
Scheme is filed with the registrar of companies in Scotland, the Secretary of
State may give written notice to British Energy to terminate the Government
Restructuring Agreement.
The Government Facility will terminate (unless previously extended) at the
earlier of 30 September 2004 and either (i) if there are no drawing outstanding,
the date of a Commission decision on State aid, at that date, or (ii) to the
extent that drawdowns are outstanding, the Restructuring Effective Date.
FINANCIAL POSITION OF BRITISH ENERGY
Current Trading
For the period from 1 April 2003 to 31 August 2003, as per the Group's unaudited
management accounts, the total output of the Group was in line with management
projections, amounting to 29.4TWh, of which 27.6TWh was derived from its nuclear
fleet and 1.8TWh from the Eggborough Station. The average achieved selling price
per MWh over this period was £15.50, reflecting the contracted prices for
delivered output in this period as well as the seasonal nature of electricity
prices. For these five months, the Group's operating loss was £40 million (based
on the pre-restructuring contractual arrangements) reflecting the low achieved
prices in the period. Operating cash outflow in this period was £14 million,
reflecting the benefit of the standstill arrangements, these lower achieved
prices and the costs of the Proposed Restructuring.
Pro Forma Cost Information Relating to the Restructured Entity
In recent years, the Company has taken a number of steps to reduce the cost
structure of the business. The terms of the Proposed Restructuring, and in
particular the changes to the BNFL agreements and the Nuclear Liabilities
Agreements, will result in a significant reduction in British Energy's nuclear
unit cash operating costs (including maintenance, capital expenditures and
overheads (including corporate overheads) and excluding the impact of the NLF
Cash Sweep Payment). On a pro forma basis (assuming the Proposed Restructuring
had been completed on 31 March 2003), the projected average cash costs for the
three financial years ending 31 March 2006, are expected to fall from an average
of £17.80 per MWh to an average of £14.50 per MWh, assuming an annual nuclear
output level of 67TWh and an assumed wholesale electricity price of £16 per MWh.
This represents a reduction of approximately 19 per cent. At other prices, the
equivalent cash cost is estimated to be as follows:
Reference price per MWh of nuclear output Equivalent cash cost per MWh
£14 £13.8
£15 £13.9
£16 £14.5
£17 £15.0
£18 £15.5
£19 £15.9
£20 £16.2
£21 £16.4
£22 £16.4
Programmes are being put in place by the Company that are expected to generate
annual margin improvements of £25 million in the 2003/4 financial period rising
to £50 million in both the 2004/5 and 2005/6 financial periods, decreasing
thereafter as stations close. A significant portion of these margin gains are
expected to be generated from improved reliability within the nuclear fleet and
the resulting increases in output.
However, as stated in the Group's annual report and accounts, under FRS17, the
net deficit of the pension schemes amounted to £352 million as at 31 March 2003.
The next formal actuarial valuation of the Group's pension schemes is to be
performed as at 31 March 2004, which will estimate the funding requirement of
the Group's pension schemes and any additional cash payments required of the
Group..
In addition, the future capital expenditures of the Group are projected to be
lower than recent levels due to the scheduled completion in September 2004 of
the flue gas desulphurisation plant project at the Eggborough Station and the
past investment in work management and fleet enhancement programmes. For the
financial year to 31 March 2004, capital expenditures of approximately £125
million are projected. British Energy expects that this will fall to
approximately £100 million in the financial year to 31 March 2005. The Company
believes that annual capital expenditures will be in the range of £85 million to
£90 million for the following three years.
Liquidity Position
The terms of the Proposed Restructuring are designed to secure the long-term
financial viability of the Group and to enhance its liquidity position.
Under the terms of the Proposed Restructuring, British Energy is required to
establish and maintain cash reserves to provide collateral for trading and
operations, cover lost revenue and costs resulting from plant outages and to
meet other working capital requirements (the 'Cash Reserve'). The initial target
amount for the Cash Reserve is £490 million plus the amount by which cash
employed as collateral exceeds £200 million (the 'Target Amount').
As at 31 March 2003, the Group had cash and liquid investments totalling £333
million, of which £209 million was deposited as collateral in support of the
Group's trading activities and operational requirements. As at 26 September
2003, collateral requirements had increased to £306 million due to the sharp
increase in electricity prices over the summer period and the Group's contracted
position,. In the medium term, on the basis of the Group's current trading
strategy, its current financial position and assuming no significant variation
in price from its contracted prices, the Company would expect that the level of
collateral required to support the business would be in the region of £200
million to £250 million, implying a Target Amount of between £490 million to
£540 million.
On 26 September 2003 the Group had cash and liquid investments of £326 million
(excluding amounts held in certain reserve accounts under the standstill
arrangements) after drawing down approximately £61 million under the Government
Facility. On 29 September 2003, the Company drew down a further £36 million
under the Government Facility, bringing total borrowings under this facility to
approximately £97 million. The proceeds from the disposal of AmerGen (subject to
completion), when received, will be used to repay drawings under the facility
and to fund the Cash Reserves for working capital and collateral. The Government
Facility will cease to be available (unless previously extended) to the Group
from the earlier of 30 September 2004 and the date of a Commission decision on
State aid if no drawdowns are outstanding at that date or to the extent that
drawdowns are outstanding, the Restructuring Effective Date.
The restructured arrangements with the NLF will reduce the Group's exposure to
the uncertainty and long term risks associated with its nuclear liabilities. The
substantial historical uncontracted nuclear liabilities and decommissioning
costs will be replaced by the New Bonds issued to the NLF, the ongoing fixed
decommissioning contributions, the payments for PWR fuel and the NLF Cash Sweep
Payment (see below). The operational structure of the business has also been
changed to reduce the Group's exposure to fluctuations in wholesale electricity
prices. As an example, the terms of the new BNFL contracts mean that British
Energy's obligations to BNFL under these agreements are reduced to offset low
electricity prices by an amount equal to the price differential calculated on
34TWh per annum being approximately 50 per cent. of the Group's expected annual
nuclear output of 67TWh. Also, British Energy's electricity sales contracting
policy is such that a significant amount of the Group's future output has been
sold (see below), providing a stable income flow over the near term. These
factors are designed to enhance the robustness of the Group's finances going
forward.
The Company's proposed post-restructuring capital structure has been determined,
in consultation with Secretary of State, with the objective of the Company being
able to meet its debt service obligations taking into account: (i) rigorous
downside sensitivities in respect of wholesale electricity prices and output
(e.g. through unplanned outages), and (ii) the profile of the scheduled closure
of the nuclear power stations.
A pro forma net asset statement prepared on the basis that the Restructuring had
been effected on 31 March 2003 is set out in Schedule C to this announcement.
BRITISH ENERGY STRATEGY AND OUTLOOK
The Board is confident that, if the Proposed Restructuring is successfully
implemented, the Company will be in a position to operate safely for the long
term with a reduced cost base.
British Energy's nuclear output is projected to be approximately 67TWh in the
current financial year and the Company believes that, subject to planned
outages, this is sustainable for the existing fleet. While the Company is
targeting annual output from its nuclear power stations of approximately 69TWh
(82 per cent. load factor), the Board considers that a prudent judgement of the
normal level of the output from these plants on an annual basis should be 67TWh
(80 per cent. load factor). Going forward, British Energy will look for
improvement in safety performance, increasing the level of plant reliability and
raising overall productivity within its operations. The Group intends to
implement a series of measures designed to improve reliability within the
nuclear fleet towards levels achieved by a number of US top quartile operators
(after adjusting for relevant design differences versus the Group's stations).
These measures are intended to reduce planned and unplanned outages leading to
improved output and higher efficiency.
The revised front-end and back-end fuel contracts that have been agreed with
BNFL provide a partial hedge against market price movement on approximately 50
per cent. (currently 34TWh) of the Company's total nuclear output. Further risk
mitigation has been (and will continue to be) delivered through the Group's
trading strategy. The Board believes that short-term and medium-term risk
reduction will continue to be achieved through a trading mix that includes
medium-term direct sales to industrial and commercial customers as well as
contracting in the wholesale electricity markets. For example, British Energy
has agreed an electricity sales contract with Centrica covering 38TWh over four
years, over half of which is at a fixed price.
In September 2002, in view of the Group's financial position, the Board decided
to revise the Group's wholesale contracting policy. Following this, the decision
was taken to fix a greater proportion of the Group's income to minimise risks
and reduce the Group's exposure to volatility in the wholesale price of
electricity. As a result, the Group is fully-contracted for the current
financial year with limited price exposure for the rest of the year and a
current forecast for average achieved price of £17.15 per MWh. For future years,
the Group has less forward cover. For Summer 2004 and Winter 2004/2005, the
Group has in total contracted to sell approximately 90 per cent. of its planned
output and has fixed price sales contracts in respect of approximately 50 per
cent. of its output. The fixed price contracts for next year are at an average
price of £18.30 per MWh. When taken together with the hedge provided by the
revised BNFL contracts, the exposure of the Group to the market price for
electricity in the financial year ending March 2005 is only 8 per cent of its
total output or approximately 6TWh.
The Company will continue to assess and adjust its sales and trading strategy
with the objective of achieving maximum commercial value at acceptable risk
within the cash and other constraints that exist for the Group.
The Group has also begun to reduce costs throughout the business, particularly
corporate costs and other overheads. Consultation is already underway with staff
regarding the planned closure of the Company's headquarters and related staffing
reductions and consolidation of some functions.
The Group will also continue to play its part in the evolution of the UK energy
market. In particular, it will seek to ensure that the importance of nuclear
generation is reflected in the way that the detailed regulations regarding
generation, transmission and environmental performance are enacted. The Group
will act to ensure that the commercial impact and possibilities of these
regulations are understood and reflected in ongoing generation and trading
strategies.
DIVIDEND POLICY
The Board intends to distribute to shareholders as much of the Company's
available cash flow as prudently possible, consistent with the long term
development of the business. However, under the terms of the Proposed
Restructuring, there are certain restrictions on the Board's ability to pay
dividends, as follows:
- Under the terms of the Nuclear Liabilities Agreements, British Energy is
required to fund a cash reserve out of the Company's post-debt service cash flow
in order to support British Energy's collateral and liquidity requirements
post-restructuring. The Company cannot make distributions to its shareholders or
to the NLF until the level of this reserve is at least equal to the Target
Amount. It is expected that, when the Proposed Restructuring is completed, the
level of the cash reserve will be below the Target Amount and therefore there
will be no distributions to shareholders until such time as the cash reserve is
at the required level. As a result of the requirement to fund the cash reserves,
the Board does not expect to pay a dividend in respect of the financial year
ending 31 March 2005;
- The terms of the Nuclear Liabilities Agreements also require that once the
cash reserve is funded to the level of the Target Amount, British Energy must
pay the NLF Cash Sweep Payment to the NLF. The NLF Cash Sweep Payment is
initially defined as 65 per cent. of the movement in cash, cash equivalents and
other liquid assets during the year after adjusting for, among other things,
certain payments made to the NLF or dividends paid in the year. The requirement
to make the NLF Cash Sweep Payment will greatly reduce the amount of cash that
would otherwise be available for distribution to shareholders; and
- The terms of the New Bonds contain certain covenants, including a restriction
that allows British Energy to pay a dividend only if no event of default has
occurred.
NUCLEAR LIABILITIES ARRANGEMENTS
Overview of Nuclear Liabilities
BEG and BEGUK have an obligation under their nuclear site licences to
decommission their stations at the end of their useful life. Certain of the
decommissioning liabilities are covered by the existing arrangements with
Nuclear Generation Decommissioning Fund Limited to which BEG and BEGUK currently
make contributions pursuant to the terms of the Nuclear Decommissioning
Agreement (the 'NDA Agreement'), which was entered into on 29 March 1996. BEG
and BEGUK's obligations under the NDA Agreement are guaranteed by British
Energy. However, there is no certainty that the existing fund (the 'NDF') will
be sufficient to cover all of the liabilities to which it relates. In addition,
other substantial decommissioning liabilities are not covered by the NDF.
Decommissioning liabilities are long term in nature and therefore subject to
uncertainty. There is no guarantee that the Group will generate sufficient funds
to satisfy these liabilities.
In addition, the operations of BEG and BEGUK generate liabilities in respect of
nuclear fuel and waste. Some of these liabilities are covered by long term
contracts with BNFL, with the balance being uncontracted. These uncontracted
liabilities are long term in nature and therefore subject to uncertainty. There
is no guarantee that the Group will generate sufficient funds to cover these
liabilities.
As at 31 March 2003, British Energy's consolidated audited accounts contained,
on a discounted basis, an accrual of approximately £2.2 billion for liabilities
in respect of BEG and BEGUK's spent fuel management contracts with BNFL, which
extend to 2086, and provisions of approximately £0.7 billion for uncontracted
liabilities and approximately £1.0 billion for costs of decommissioning which
may take eighty years or more from the start of defuelling to complete. A more
detailed description of these liabilities can be found in British Energy's 20-F
report which is available on the Company's website (
).
As at 31 March 2003, the market value of the NDF's investments, as shown in
British Energy's consolidated annual report and accounts, was £0.3 billion.
Pending implementation of the Proposed Restructuring, payments to the NDF will
continue on the existing basis.
Under the terms of the Proposed Restructuring, the existing NDF will be enlarged
into the NLF which, subject to certain exceptions (see below), will fund BEG and
BEGUK's uncontracted nuclear liabilities and the costs of decommissioning BEG
and BEGUK's nuclear power stations. The NLF will be funded by contributions from
BEG and BEGUK and the Secretary of State has agreed to assume financial
responsibility for the qualifying decommissioning costs and qualifying
uncontracted liabilities to the extent that they exceed the assets of the NLF.
To the extent that there is any surplus in the NLF, this amount will be paid to
Secretary of State. The Secretary of State has also agreed, again subject to
certain exceptions, to assume financial responsibility for contracted
liabilities for historic spent fuel.
The Secretary of State has agreed to enter into these arrangements subject,
inter alia, to: (i) her not having determined and notified British Energy in
writing that, in her opinion, the Group (including Newco 1 and Newco 2) will not
be viable in all reasonably foreseeable conditions without access to additional
financing (other than financing which the Secretary of State is satisfied has
been committed and will continue to be available when required); (ii) there
being no material adverse change in the position of the Group; (iii) the other
conditions of the Government Restructuring Agreement described above; and (iv)
all other aspects of the Proposed Restructuring otherwise becoming
unconditional.
The obligations of BEG and BEGUK under these arrangements with the Secretary of
State will be guaranteed by each material Group company (except for BETS, EPL
and BEIL).
Nuclear Liabilities Agreements
The arrangements relating to the NLF described herein will be effected through
the implementation of five primary agreements, the Nuclear Liabilities Funding
Agreement, the Historic Liabilities Funding Agreement, the Contribution
Agreement and two Government Option Agreements, as well as a number of related
agreements.
Nuclear Liabilities Funding Agreement
Under the Nuclear Liabilities Funding Agreement, BEG and BEGUK may make
applications to the NLF for payment in respect of costs of discharging
qualifying liabilities. The NLF undertakes to make payments to meet the costs of
discharging qualifying liabilities. The Secretary of State is obliged to fund
the NLF if its assets are insufficient.
Before liabilities and costs are funded by the NLF, the new Nuclear
Decommissioning Authority (the 'NDA') will be required to confirm that the
liabilities are qualifying liabilities. The NDA is a body, to be established if
and when the current draft Nuclear Sites and Radioactive Substances Bill becomes
law, which the Secretary of State may designate as her agent to perform certain
obligations under the Nuclear Liabilities Agreements. Pending such designation
the Secretary of State will perform these obligations.
BEG and BEGUK will have ongoing reporting obligations to the NLF, the Secretary
of State and the NDA and will also be obliged to obtain NDA approval for their
decommissioning plans, contracting strategy and other relevant plans,
assessments and other documents relating to the management of uncontracted
nuclear liabilities and decommissioning costs.
BEG and BEGUK have agreed with the NLF and the Secretary of State to operate
their nuclear power stations in accordance with the 'Minimum Performance
Standard', being defined as the application of practices, methods and activities
in relation to the operation of nuclear power stations in good faith and in
compliance with applicable law and the practices and procedures considered by
and acceptable to the Health and Safety Executive, the Environment Agency and
the Scottish Environment Protection Agency (the 'Accepted Standards').
Changes in nuclear power station operations must be approved by the NDA if the
change will result in or can reasonably be expected to result in an increase in
the costs of discharging qualifying liabilities in excess of certain specified
materiality thresholds (i.e. an increase in the costs of discharging liabilities
in excess of (i) £10 million on a net present value basis, (ii) £25 million on
an undiscounted basis or (iii) payments having to be made in the following five
years of £5 million or more on an undiscounted basis). Changes required to meet
current or reasonably anticipated legal or regulatory requirements or to comply
with the Accepted Standards will be permitted provided that in the case of such
an anticipatory change which has an economic benefit for BEG and BEGUK, the
company would still implement the change even if there was no economic benefit.
Otherwise BEG and BEGUK are required to compensate the NLF for the incremental
liabilities produced by the change. On the other hand, the Secretary of State
may require BEG or BEGUK to implement, or BEG or BEGUK may offer to implement,
operational changes expected to materially reduce uncontracted liabilities or
decommissioning costs, subject to the NLF compensating BEG and BEGUK for any
associated economic disbenefit and, if the proposal was made by BEG or BEGUK, an
agreed incentivisation margin being paid to them by the NLF.
BEG and BEGUK will be responsible for funding certain excluded or disqualified
liabilities and are required to compensate or indemnify the NLF and the
Secretary of State in relation to such liabilities. The list of excluded
liabilities includes, inter alia, employment and redundancy costs, certain
environmental expenses, liabilities other than nuclear liabilities and
liabilities arising from a breach by BEG or BEGUK of the Nuclear Installations
Act 1965. Disqualified liabilities include the increases in the net present
value of costs of discharging liabilities of £100,000 or more arising out of (a)
failures by BEG or BEGUK to comply with the Minimum Performance Standard or (b)
the implementation of unapproved operational changes where pre-approval is
required or (c) the implementation of 'licensee changes' (being operational
changes made by BEG or BEGUK other than to meet current or reasonably
anticipated legal or regulatory requirements or to comply with Accepted
Standards which do not meet the economic benefit test described above).
It is intended that the obligations of the NLF and the Secretary of State under
the Nuclear Liabilities Funding Agreement will continue notwithstanding formal
insolvency of BEG, BEGUK or any other relevant member of the Group. Where any of
BEG or BEGUK's nuclear power stations are transferred to a third party, it is
intended that the Secretary of State will continue to fund the NLF (where
necessary) and for the NLF to continue to fund the costs of discharging
liabilities so far as practicable. To that end, such a third party may, at the
discretion of the Secretary of State, become a party to the Nuclear Liabilities
Agreements with the same rights and obligations as BEG and BEGUK. In exercising
her discretion, the Secretary of State shall have due regard to whether the
third party has the financial and technical competence to carry out its
obligations under the nuclear liabilities documents and is a fit and proper
transferee of the relevant asset.
BEG and BEGUK are liable to reimburse the NLF, NDA and the Secretary of State
for certain administration costs incurred in relation to the Nuclear Liabilities
Funding Agreement and the Historic Liabilities Funding Agreement up to £1
million per annum in aggregate. This cap does not apply where such costs arise
as a result of a breach by BEG or BEGUK of the nuclear liability arrangements or
an event of default thereunder.
Government Option Agreements
The Secretary of State (or her nominee) will have the option to acquire for £1
each nuclear power station and the related station assets (excluding any
unloaded fuel at the station which the Secretary of State may elect to purchase
and also excluding strategic spares which are subject to different
arrangements) either to decommission the station or to continue the operation of
such station beyond the date of closure chosen by BEG and BEGUK. The option to
continue operating a station allows the NDA and/or Secretary of State to defer
or partially offset the costs of decommissioning those stations, as such costs
would otherwise be borne by the NLF. An option to decommission a station is
exercisable at any time (whether before or after that station's closure date).
An option to continue to operate a station may (unless BEG or BEGUK has given
notice that it will close the station early) only be exercised at any time up to
and including the date which is two years before the scheduled closure date but
cannot take effect before the closure date at the earliest. Unless otherwise
agreed by the station purchaser and the selling BEG entity, on the exercise of
an option to decommission, the date of completion of the transfer will be the
later of 36 months after the exercise of the station option and the scheduled or
early closure date of that station. On the exercise of an option to operate, the
date of completion of the transfer will be on the scheduled or early closure
date (if this is more than 30 months after the early closure date notice) and in
all other circumstances, not later than 36 months after the exercise of the
option.
The Secretary of State will also have the option to acquire for £1 BEG and
BEGUK's shareholdings in United Kingdom Nirex Limited ('Nirex'), a company ownedby BEG, BEGUK and other owners of nuclear facilities in the UK, established to
research into and develop a facility for the disposal of intermediate level
waste. The benefit of shareholder loans made by BEG and BEGUK to Nirex and BEG
and BEGUK's ongoing funding obligations to Nirex will also be transferred to the
Secretary of State (or her nominee) should the option be exercised. In the event
that the option is not exercised and BEG and BEGUK's costs to Nirex materially
increase above the current level, such costs will be met by the NLF under the
Nuclear Liabilities Funding Agreement.
Contribution Agreement
Under a Contribution Agreement to be entered into between the NLF, the Secretary
of State and certain Group companies, the following ongoing contributions will
be made to the NLF by the Group:
- fixed decommissioning contributions totalling £20 million per annum (indexed
to RPI and tapering as stations are scheduled to close) (the 'Decommissioning
Payments');
- £150,000 (indexed to RPI) for every tonne of PWR fuel loaded into the Sizewell
B reactor after completion of the Proposed Restructuring; and
- an annual payment amounting (initially) to 65 per cent. (the 'Payment
Percentage') of the Group's consolidated adjusted net cash flow (calculated on
the basis set out in Schedule B (the 'NLF Cash Sweep Payment').
In addition, Newco 2 will issue £275 million of New Bonds to the NLF.
The Decommissioning Payments will be accelerated on a net present value basis
(discounted at a rate of 6.8 per cent. per annum as adjusted for inflation) and
become immediately due and payable on various insolvency events relating to BEG,
BEGUK, Newco 1 or Newco 2. The accelerated payment will be guaranteed by all
principal Group companies and secured by first ranking fixed and floating
security over their assets. In addition, prepayments or purchases of the New
Bonds will only be permitted if, prior to such prepayment or purchase, Newco 1
prepays on a pro rata basis the net present value of the Decommissioning
Payments for the immediately following five year period at or prior to the time
on which the prepayment or purchase of the New Bonds is to be effected.
The trustees of the NLF will have the right from time to time to convert all or
part of the NLF Cash Sweep Payment into convertible ordinary shares in Newco 1.
Such shares will be convertible into ordinary shares in Newco 1 at the option of
the NLF and will automatically convert into ordinary shares on transfer to a
third party (other than the NLF's successors and permitted assignees). If all of
the NLF's entitlement to the NLF Cash Sweep Payments were converted into shares,
the NLF would receive shares such that its post-conversion equity holding in
Newco 1 would equal the Payment Percentage applying immediately prior to the
conversion. In the case of a partial conversion by the NLF, the Payment
Percentage would be reduced on a pro rata basis based on the level of partial
conversion. Under the terms of the Contribution Agreement, any convertible
ordinary shares issued to the NLF will be subject to certain voting
restrictions, including a limitation that for so long as those shares are held
by the NLF they would be non-voting to the extent that they would otherwise
carry more than 29.9 per cent. of the voting rights of Newco 1. A disposal of
such shares by the NLF representing 10 per cent. or more of Newco 1's issued
share capital would be subject to a notice period of the lesser of three months
and the time required to obtain a listing of the shares. The Secretary of State
will determine the NLF's investment policy, in consultation with the NLF
trustees before completion of the Proposed Restructuring. Subject to acceptance
by the NLF trustees, the Secretary of State envisages that the investment policy
of the NLF will include the following guidelines: (a) an initial period of at
least 6 months following completion of the Proposed Restructuring, during which
no conversion of NLF Cash Sweep Payment or disposal of New Shares will be made;
and (b) thereafter, the avoidance of the 'drip feeding' of small numbers of
shares into the market in a manner that unduly depresses the market. These
guidelines would not prevent NLF from exercising its conversion rights or
selling shares where it considered that conversion or sale was required in order
to protect its interests against corporate actions in relation to British
Energy, or in other exceptional circumstances.
The Payment Percentage is adjustable so that shareholders benefit from retained
free cash flow and the proceeds of new subscriptions and so that the NLF is not
adversely affected by corporate actions. These adjustments are described in
further detail in Schedule B.
The cash reserves which the Group is entitled to accumulate before making the
NLF Cash Sweep Payment are intended to be used for a number of purposes,
including providing collateral for trading and operations, covering lost revenue
and costs from outages, paying principal and interest on the New Bonds and
meeting other working capital requirements. On the date that the Proposed
Restructuring is implemented, the Target Amount for the cash reserves will be
equal to £490 million plus the amount from time to time the amount of cash being
employed by the Group as collateral exceeds £200 million (being the amount
notionally allocated to collateral as at 28 November 2002). Based on the
collateral level as at 26 September 2003 of £306 million, the initial Target
Amount would be £596 million. The reasons for this increase in collateral are
described in further detail below. Newco 1 may reduce the Target Amount below
£490 million if, and for so long as, the Group achieves an investment grade
rating or to the extent committed loan facilities are available to the Group and
are intended and expected to be used for the same purposes as the cash reserves
(so long as these facilities do not breach certain financial covenants under the
terms of the new Bonds). Following the closure of four or more of the Group's
nuclear power stations, there will be a review of the Target Amount to determine
whether an adjustment in the Target Amount would be appropriate.
In addition, Newco 1 is entitled to allocate cash in excess of the Target Amount
to a forecast expenditure reserve (and thereby reduce the amount of any NLF Cash
Sweep Payment in respect of the previous financial period) to meet capital
expenditure anticipated to be due in the current financial period or to make an
acquisition, to finance a fixed asset or to preserve cash raised for general
purposes through an issue of securities listed on a recognised stock exchange or
securities traded on a recognised stock exchange.
The Group will also undertake to comply with certain covenants. These covenants
are intended, amongst other things, to protect the NLF's entitlement to the NLF
Cash Sweep Payment, its conversion rights and to ensure that the cash reserves
are utilised in accordance with the Nuclear Liabilities Agreements. In
particular, these companies will be entitled to post collateral for trading and
operations and incur expenditure in relation to outage costs, working capital
requirements, debt service and repayment of borrowings and costs of operating
and maintaining its stations, but will otherwise agree not to declare or pay
dividends, make or commit to make any acquisition or incur any expenditure
unless: (a) cash reserves at the end of the immediately preceding financial year
exceeded the Target Amount plus the NLF payment, amounts included in the
forecast expenditure reserve and the amount required for the distribution,
acquisition or expenditure; and (b) taking into account the intended
expenditure, cash reserves at the end of the subsequent financial year would, or
would be likely to, exceed the then Target Amount.
More information about the NLF Cash Sweep Payment and adjustments to the Payment
Percentage is set out in Schedule B to this announcement.
Historic Liabilities Funding Agreement
The Secretary of State has agreed to assume financial responsibility for
contracted liabilities for historic spent fuel (i.e. fuel loaded into BEG and
BEGUK's reactors prior to the restructuring becoming effective). The relevant
contracts are with BNFL (the 'BNFL Historic Contracts') and expire in 2086, or
earlier (i.e. 2020 with an option to extend to 2038) in respect of some
categories of waste.
The Secretary of State will meet the fixed monthly payments as well as, subject
to the exceptions described below, incremental liabilities that arise under the
BNFL Historic Contracts. In most cases, BNFL will be paid directly by the
Secretary of State.
The Secretary of State will not be responsible for certain incremental
liabilities under the BNFL Historic Contracts including, inter alia, incremental
liabilities arising out of: failures by BEG or BEGUK to act in accordance with
the Minimum Performance Standard, breaches by BEG or BEGUK of the BNFL Historic
Contracts or operational changes made by BEG or BEGUK other than to meet current
or reasonably anticipated legal or regulatory requirements or to comply with the
Accepted Standards.
In addition, BEG and BEGUK have agreed with the Secretary of State to exercise
their rights under the BNFL Historic Contracts with reasonable care, in
compliance with the Minimum Performance Standard and in a similar manner as if
they were bearing these contracted liabilities and all other nuclear-related
liabilities arising in connection with the operation of their nuclear power
generating plant, such as decommissioning and uncontracted liabilities,
themselves (the 'minimum contracting standard').
Certain exercises of rights under the BNFL Historic Contracts must be approved
by the Secretary of State. These include all exercises of rights that relate to
the long term strategic management of the historic spent fuel, together with
other non-strategic exercises of rights that are reasonably expected to give
rise to incremental liabilities under the BNFL Historic Contracts above a
certain materiality threshold ( £15,000 (undiscounted) for an individual
exercise or £50,000 (undiscounted) on an aggregate annual basis). Alternatively,
in relation to the non-strategic category only, BEG or BEGUK may elect to meet
such liabilities by paying BNFL directly and seeking reimbursement from the
Secretary of State. If a required approval in respect of the non-strategic
exercise of rights is not received because it fails the minimum contracting
standard, British Energy will pay for the resulting incremental liability.
Incremental liabilities arising out of a failure by BEG or BEGUK to exercise a
non-strategic exercise of rights in accordance with the minimum contracting
standard will also be paid for by British Energy. The Secretary of State may
require BEG or BEGUK to exercise, or BEG or BEGUK may offer to exercise, rights
under the BNFL Historic Contracts which are expected to materially reduce
liabilities under those contracts, subject to the Secretary of State
compensating BEG and BEGUK for any associated economic disbenefit and, if the
proposal was made by BEG or BEGUK, an agreed incentivisation margin payable to
them by the Secretary of State.
It is intended that the obligations of the Secretary of State under the Historic
Liabilities Funding Agreement will continue notwithstanding formal insolvency of
BEG, BEGUK or any other relevant member of the Group, except that on a
winding-up of BEG or BEGUK or the appointment of a liquidator in respect of BEG
or BEGUK, the relevant BNFL Historic Contracts will terminate and BEG or BEGUK
's previously contracted liabilities with BNFL will then be covered by the NLF
as uncontracted liabilities.
BNFL AGREEMENTS
As announced on 16 May 2003, amendments to the existing contracts and new
contracts consistent with the terms announced on 28 November 2002 between
British Energy and BNFL for front-end (relating to the supply of advanced
gas-cooled reactor ('AGR') fuel) and back-end (relating to the disposal of spentAGR fuel) fuel services have been agreed.
The amendments to the existing front-end contracts became effective on 1 April
2003, although the amendments will automatically terminate (except in relation
to the uranics supply arrangements with BEG) if, inter alia, the Proposed
Restructuring is not completed. The new front-end contracts will also terminate
in those circumstances.
The back-end contracts are conditional on, inter alia, completion of the
Proposed Restructuring but, under the terms of the Standstill Agreement,
payments to BNFL are being made as if the revised back-end contracts had become
effective on 1 April 2003.
The principal payment terms of the new front-end and back-end fuel services
contracts with BNFL are as follows:
With respect to the front-end AGR fuel fabrication services:
- a fixed payment of £28.5 million per annum until 2006, but subject to
discounts on a variable basis in accordance with wholesale baseload electricity
prices to a minimum payment of £13.5 million per annum at a market price of £15
per MWh. The fixed annual price falls to £25.5 million thereafter and is also
subject to the discounting mechanism; and
- a payment of £191,000 per tonne of AGR fuel delivered
With respect to the back-end fuel services (for fuel loaded into British
Energy's AGR reactors on or after the date on which the restructuring has become
effective - i.e. new spent fuel):
- a payment of £150,000 per tonne of AGR fuel, payable on loading of such new
spent fuel into one of British Energy's AGR reactors;
- a rebate or surcharge against the payment equivalent to 50 per cent. of the
difference between the market baseload price in a year and £16.00 per MWh
multiplied by the MWh produced by the AGR fleet in that year. The market
baseload price used in the calculation will not be less than £14.80 and not more
than £19.00 per MWh; and
- if the market baseload price exceeds £19.00 per MWh, a surcharge against that
payment equivalent to 25 per cent. of the difference between the market baseload
price in a year and £19.00 per MWh multiplied by the MWh produced in the AGR
fleet in that year. The market baseload price used in that calculation will not
be less than £19.00 and not more than £21.00 per MWh.
All of the above monetary amounts are indexed to RPI.
The market reference price as noted above is an outturn electricity price and is
calculated by reference to a range of publicly quoted market indices.
Under the new back-end fuel services agreements BNFL takes title to and hence
assumes responsibility for the ultimate disposal of new spent fuel.
On 16 May 2003, British Energy also announced that it had sold the majority of
its uranics stocks on 31 March 2003 for approximately £50 million to BNFL, which
has contracted to provide British Energy with a full uranics supply service in
the future. The cost of any uranics supplied to British Energy is based on the
cost incurred by BNFL. British Energy also pays a fee for additional services
provided by BNFL in respect of the uranics contained in the fuel supplied. On 9
July 2003, British Energy announced the sale of most of its remaining uranics
stocks to BNFL for a cash consideration of £7.8 million. The sale of the
residual stock, amounting to about £2.3 million, is expected to be completed by
the end of October 2003.
In addition, British Energy has contracted to provide computer implementation
support services to BNFL for a fee of £10 million per annum plus certain
incremental costs. The contract terminates on 31 March 2005.
AMERGEN DISPOSAL
On 11 September 2003, the Board announced that British Energy and certain of its
subsidiaries had entered into an agreement to dispose of British Energy's entire
50 per cent. interest in AmerGen Energy Company, LLC ('AmerGen') to FPL Energy,LLC ('FPL Energy'), which is a wholly-owned subsidiary of FPL Group, forapproximately $277 million. The disposal of British Energy's interest in AmerGen
will be effected through the sale of its subsidiary, British Energy U.S.
Holdings Inc. ('BEUSH'), to an affiliate of FPL Energy.AmerGen is engaged in the ownership and operation of nuclear power generation
plants in the United States of America.
The proposed transaction is subject to a right of first refusal (the 'ROFR')
held by Exelon Generation Company, LLC ('Exelon'), British Energy's partner inAmerGen. Under the limited liability company agreement (the 'LLC Agreement')
relating to AmerGen, Exelon has the right to purchase British Energy's 50 per
cent. interest in AmerGen on the same terms as those offered by FPL Energy by
giving notice of its intention to do so within 30 days of receiving notice of
FPL Energy's agreement to purchase British Energy's interest in AmerGen.
Exelon's ROFR will terminate on 11 October 2003. In certain circumstances, break
fees of up to US$8.295 million will be payable by British Energy to FPL Energy
in the event that the transaction with FPL Energy is not completed, including as
a result of Exelon exercising its ROFR to acquire AmerGen.
Under the LLC Agreement, in lieu of exercising its ROFR, Exelon has the right to
elect to participate in the sale of British Energy's interest in AmerGen (the '
Tag-along Right') on the same timetable as the ROFR. If Exelon were to exercise
its Tag-along Right, the consideration offered by FPL Energy for a 50 per cent.
interest in AmerGen would be applied pro rata to the interests of British Energy
and Exelon, leaving each with a 25 per cent. interest in AmerGen.
Closing of the proposed transaction with FPL Energy is subject to approvals from
the Secretary of State, the Nuclear Regulatory Commission, the Federal Energy
Regulatory Commission and the Federal Communications Commission and requires
clearance under the Hart-Scott-Rodino Antitrust Improvements Act and the New
Jersey Industrial Site Recovery Act. In addition, the parties will not be
obliged to complete the transaction if a material adverse effect (as defined in
the agreement) on AmerGen or BEUSH or certain other specified adverse effects
occur prior to closing. Completion of the transaction is also subject to
approval of the disposal of British Energy's interest in AmerGen by the
shareholders of British Energy, where required.
The Board expects that it will require approximately six months to obtain the
necessary regulatory approvals for a disposal of British Energy's interest in
AmerGen to FPL Energy.
If the sale to FPL Energy is completed, British Energy expects to receive cash
consideration of approximately US$277 million, subject to adjustments relating
to working capital levels, unspent nuclear fuel, capital expenditures and
low-level waste disposal costs at the time of closing. The proceeds of the
transaction are expected in the first instance to be used to repay drawings
under the Government Facility and the remainder will be retained to fund the
cash reserves.
As at 31 March 2003, British Energy had recorded its 50 per cent. interest in
AmerGen in its accounts, where it is classified as an 'Interest in joint venture
', at a net asset value of £71 million. AmerGen's loss before tax
(post-exceptionals) in the year ended 31 March 2003 was £5 million. Taking
account of parent company funding and working capital in AmerGen's US holding
company that is being disposed of as part of the transaction, the total net
asset value of assets as at 31 March 2003 subject to the transaction was £67
million with an attributable loss before tax (post-exceptionals) for the year
ended 31 March 2003 of £7 million.
BRUCE DISPOSAL
The disposal of British Energy's entire 82.4% interest in Bruce Power Limited
Partnership ('Bruce Power') was completed on 14 February 2003. At closing,British Energy received initial consideration of approximately C$627 million
after minor closing adjustments and a payment of C$51 million in recognition of
the capital contribution paid by British Energy to Bruce Power in December 2002.
An additional C$100 million of consideration was withheld pending a successful
restart of Unit 4 and Unit 3 by 15 June 2003 and 1 August 2003 respectively.
Delays leading to an inability to meet these restart dates (other than those due
to certain causes) result in a C$5 million per unit reduction from the C$100
million aggregate amount with a further C$5 million reduction per unit if a unit
is not restarted on or before the first day of each successive calendar month.
As the timing of the restarts of Unit 4 and Unit 3 is substantially outside the
control of the Company, the Board is not currently able to provide an indication
as to when these restarts can be expected to take place. The units are not
expected to restart until after 1 October 2003 and therefore there is likely to
be a reduction in the aggregate amount payable to British Energy of at least
C$35 million.
In addition to these amounts, a further C$20 million of the consideration for
the disposal is being withheld to cover any successful breach of warranty
claims. Subject to there being no such successful claims, this amount will be
paid to British Energy in full on 14 February 2005. A further withholding of
C$20 million in respect of potential adjustments for pension deficits was paid
to British Energy in full on 28 April 2003.
The proceeds received in respect of the disposal of Bruce Power have been used
to repay or collateralise amounts drawn under the Government Facility and to
fund working capital requirements.
REQUIREMENT FOR A BONDHOLDER MEETING
The Company intends to propose amendments to the trust deed constituting the
Bonds (as supplemented, the 'Trust Deed') to facilitate the implementation of
the Restructuring Scheme. As the Bonds are held in permanent global form at
present, the bond trustee is the only legal creditor in relation to such Bonds
and only the bond trustee is entitled to vote at the scheme meeting. The
proposed amendments will allow British Energy to issue bonds in definitive form
('Definitives') so that each holder can attend and vote directly at the schememeeting. This will be an option available to British Energy and, if exercised,
will only be exercised after consultation with the Ad Hoc Committee.
The terms of the Bonds currently allow them to be exchanged for Definitives only
in certain circumstances and the Trust Deed must therefore be amended to enable
the Company to issue Definitives at its option. This amendment would need to be
authorised at a meeting of the holders of each series of Bonds and would require
a 75 per cent. majority of votes cast.
In addition, a resolution will be proposed to the holders of each series of
Bonds to extend the final standstill termination date under the Trust Deed from
30 September 2003 to 31 January 2005 and to agree the amendments to the
standstill arrangements on terms consistent with the Creditor Restructuring
Agreement.
The Proposed Restructuring is not conditional on these resolutions being passed.
STATE AID NOTIFICATION TO THE EUROPEAN COMMISSION
The Proposed Restructuring contains certain measures (the 'Aid Package') which
may fall within the relevant European Community rules on State aids and in
particular Article 87 of the EC Treaty. Accordingly, the UK Government filed on
7 March 2003 a Restructuring Plan under Article 87(3) of the EC Treaty notifying
the Commission of its proposed restructuring aid. The relevant Community rules
on State aids provide that any state aid measures which may favour an
undertaking and affect intra-Community trade shall not be put into effect unless
they are notified to and authorised by the Commission.
The Proposed Restructuring therefore cannot be implemented until the Commission
approves it.
On 31 July 2003, the Commission published a notice in the Official Journal of
the European Communities (the 'Notice') setting out its preliminary assessment
of the Proposed Restructuring and the Aid Package. The Notice initiated a Formal
Investigation Procedure (the 'procedure') and invited interested third parties
to submit to the Commission their comments on the Proposed Restructuring and the
Aid Package within one month (unless extended) from the publication of the
Notice. The Commission subsequently granted extensions to some respondents up to
15 September 2003. British Energy qualified as an interested party for the
purposes of the procedure and submitted its comments to the Commission on 6
September 2003. The Commission will send to the UK Government all interested
parties' comments (or a summary where the respondent requests to remain
anonymous) and will ask the UK Government to respond to them within one month.
Following receipt of the interested parties' comments and the UK Government's
response, the Commission will continue the procedure. British Energy is
co-operating fully with the UK Government in this process.
The formal investigation process is entirely between the EC and the UK
Government. British Energy is not directly involved in these discussions and
therefore cannot comment on the likelihood of success or the likely timetable
for completion of the approval process.
It is possible that the Commission will approve the restructuring plan and the
Aid Package subject to conditions that may include requiring British Energy to
take certain measures to compensate its competitors by limiting the Company's
presence in the relevant electricity markets after the completion of the
Proposed Restructuring. The Board estimates that any discussion with the
Commission in relation to potential conditions and/or compensatory measures will
commence around the end of 2003. British Energy considers any conditions and/or
compensatory measures unnecessary and will strongly resist their imposition.
If Commission approval of the restructuring plan is conditional on British
Energy making compensatory measures or on other conditions then the Proposed
Restructuring will only proceed if compliance with such conditions will not, in
the aggregate, amount to a material adverse change (as described above) or
render it impossible to carry out the Proposed Restructuring as contemplated in
the Creditor Restructuring Agreement.
If State aid approval is not received from the Commission, then the Proposed
Restructuring will not be capable of being implemented. In these circumstances,
it is likely that British Energy will be forced to consider insolvency
proceedings.
RESCUE AID
The decision of the Commission of 28 November 2002 to authorise the rescue aid
granted by the UK Government to British Energy was appealed against by AES Drax
and Greenpeace/Ecotricity in the Court of First Instance of the European
Communities (the 'CFI') in April 2003. British Energy has duly applied for leave
to intervene in both cases to support the Commission in defending the
authorisation of the rescue aid decision. The CFI, after hearing the parties to
the main applications against the Commission decision, will decide whether to
award British Energy leave to intervene later in this year or early next year.
In the meantime, British Energy has learnt informally that AES Drax has
withdrawn its application. If the CFI finds the Greenpeace/Ecotricity
application admissible, it will proceed to examine the substance of the case;
however, it is not expected to deliver its final judgment before mid 2005.
British Energy believes that the applications against the rescue aid decisions
of the Commission are likely to be dismissed by the CFI.
IMPLICATIONS IF RESTRUCTURING FAILS TO COMPLETE
The Proposed Restructuring remains subject to a large number of significant
uncertainties. If the required approvals are not forthcoming or the conditions
to the Proposed Restructuring are not satisfied or waived within the timescales
envisaged, the companies within the Group may be unable to meet their financial
obligations as they fall due and may have to take appropriate insolvency
proceedings. In this case, the distributions to the unsecured creditors
(including Bondholders, RBS, the Significant Creditors and BNFL) may represent
only a small fraction of their unsecured liabilities and there is highly
unlikely to be any return to shareholders. The reasons for this view are as
follows:
- much of the cash in the Group is in the form of collateral (£306 million as at
26 September 2003) which has been pledged to support its trading and other
operations. In the event of insolvency much of this collateral may be taken by
the contractual counterparties and therefore it may not be available for other
creditors;
- the Group's accrued nuclear liabilities for uncontracted back-end fuel and
future decommissioning costs as at 31 March 2003 were recorded at £1.7 billion
in the consolidated audited report and accounts after discounting at 3 per cent.
real per annum to reflect the expected payment profile. The size of these
liabilities, in comparison with the Group's other obligations, and the
likelihood that in a liquidation they would have effective priority over other
creditors, will mean that unsecured creditors (including Bondholders, RBS and
the Significant Creditors) will be entitled to only a very small proportion of
the proceeds received through the insolvency process;
- the new BNFL fuel services contracts are conditional on successful
implementation of the Proposed Restructuring. If the Proposed Restructuring were
not implemented, the standstill of the existing contracts for back-end fuel
services, which as at 31 March 2003 were recorded at £2.2 billion in the Group's
consolidated annual report and accounts, would lapse. The amendments to the
existing front-end contracts (other than the uranics arrangements) will
terminate if the Proposed Restructuring does not become effective (in which case
the more expensive previous front-end agreements would resume effect; and
- given the nature and complexity of the nuclear power stations and the related
nuclear liabilities it is unlikely that a purchaser for these assets would be
found.
BONDHOLDER CONFERENCE CALL
Close Brothers Corporate Finance Limited ('Close Brothers') and Cadwalader,Wickersham & Taft LLP ('Cadwalader'), who have given financial and legal advicerespectively to the Ad Hoc Committee in connection with the Proposed
Restructuring, have arranged a conference call for Bondholders to be held on
Monday, 6 October at 4.00 p.m. London time. Bondholders who wish to obtain dial
in details should identify themselves to Close Brothers or Cadwalader.
Bondholders who have questions or who wish to sign the Creditor Restructuring
Agreement are requested to contact either Martin Gudgeon
(martin.gudgeon@cbcf.com)
or John Nener (john.nener@cbcf.com)
at Close Brothers
on +44 (0) 20 7655 3100 or Andrew Wilkinson (andrew.wilkinson@cwt-uk.com)
or
Stephen Phillips (stephen.phillips@cwt-uk.com)
at Cadwalader on +44 (0) 20 7170
8700.
IMPORTANT NOTICES
The Proposed Restructuring remains subject to a large number of conditions and
significant uncertainties:
-although the principal terms of the Proposed Restructuring have been agreed,
definitive documentation relating to the terms of the New Bonds and the warrants
remain to be finalised based on the agreed term sheets and various ancillary
documents have not yet been prepared or agreed;
- the Creditor Restructuring Agreement is conditional on, among other things:
(i) State aid approval; (ii) there being no material adverse change; (iii)
Inland Revenue and regulatory clearances; (iv) the BNFL arrangements becoming
unconditional; and (v) the Government Restructuring Agreement becoming
unconditional. The Creditor Restructuring Agreement will automatically terminate
if these conditions are not satisfied by 30 November 2004;
- the Commission may not approve the Proposed Restructuring as proposed or it
may impose conditions to its approval that would materially affect the financial
terms or even the viability of the Proposed Restructuring;
- the Government Restructuring Agreement will not become unconditional if, inter
alia, the Secretary of State determines that, in her opinion, the Group
(including Newco 1 and Newco 2) will not be viable in all reasonably foreseeable
conditions without access to additional financing (other than financing which
the Secretary of State is satisfied has been committed and will continue to be
available when required);
- in order for the Restructuring Scheme and the Eggborough Scheme to become
effective, it is necessary that at least 75 per cent. by value and a majority in
number of the relevant creditors present and voting at the meeting convened to
approve the relevant scheme vote in favour of such scheme. Following approval by
the requisite majority, the Restructuring Scheme and the Eggborough Scheme will
also need to be sanctioned by the court. The Proposed Restructuring will lapse
if the Restructuring Scheme does not become effective by the earlier of 31
January 2005 and the date falling 120 days after the Creditor Restructuring
Agreement becomes unconditional.
In addition, any of the Consenting Creditors may terminate the Creditor
Restructuring Agreement following the occurrence of a termination event. If the
Creditor Restructuring Agreement terminates, the standstill arrangements will
also terminate.
If the required approvals are not forthcoming within the timescales envisaged,
or if the assumptions underlying the Proposed Restructuring are not fulfilled,
the conditions to the Creditor Restructuring Agreement are not satisfied or
waived, or the standstill arrangements are terminated then the Company may be
unable to meet its financial obligations as they fall due and therefore the
Company may have to take appropriate insolvency proceedings. The Board considers
that, in the event of insolvency, distributions, if any, to unsecured creditors
may represent only a small fraction of their unsecured liabilities and there is
unlikely to be any return to shareholders.
Shareholders are strongly advised to take note of the potential dilution of
their equity holdings referred to in the above announcement.
This announcement contains certain pro forma and forward-looking financial
information, which is not necessarily indicative of the actual results of
operation or financial position that would have occurred or will occur nor are
they necessarily indicative of future operating results or the financial
position of the Company.
On 24 September 2003, British Energy filed a 20-F report for the 2003 financial
year with the Securities and Exchange Commission of the United States of America
(the 'SEC'). This report contains additional information which readers of this
announcement may find useful. This document can be viewed at British Energy's
website (
www.british-energy.com
).
SCHEDULE A
SUMMARY OF TERMS OF NEW BONDS
Issuer: Newco 2
Guarantors: Newco 1 and each Material Subsidiary (defined below) other than
British Energy Trading Services Limited ('BETS') shall guarantee the
New Bonds. The Material Subsidiaries on the date of issue are expected
to include: British Energy plc, British Energy Generation Limited,
British Energy Generation (UK) Limited, British Energy International
Holdings Limited, British Energy Power and Energy Trading Limited,
District Energy Limited, Finco and Newco 1. Other companies that become
Material Subsidiaries after the date of issue of the New Bonds will
also become Guarantors.
Material Subsidiaries: Material Subsidiary is to be defined as a member of the Group other
than Eggborough Power Limited (Holdings) Ltd. ('EPHL'), Eggborough
Power Limited ('EPL') and Newco 3 (EPHL, EPL, and Newco 3 together the
'Eggborough Subsidiaries') whose consolidated gross assets, turnover or
EBIT constitute 5 per cent. or more of the consolidated gross assets
turnover or EBIT of the Group (excluding all assets relating to amounts
receivable under the Nuclear Liabilities Agreements).
Restricted Subsidiaries: Each subsidiary of Newco 1 which is not an Unrestricted Subsidiary:
Unrestricted Subsidiaries: The Eggborough subsidiaries and any subsidiary of Issuer that may be
designated as such.
Principal Amount: £700 million
Maturity: The New Bonds will have a final maturity of 31 March 2022.
The New Bonds will amortise in accordance with the attached schedule or
otherwise be redeemed on or prior to 31 March 2022.
Interest: Bonds will bear a fixed coupon of 7 per cent. per annum. Interest to be
payable quarterly in arrear.
Rating: The Issuer will apply for the New Bonds to be rated by the Rating
Agencies at the time of issue, and the Issuer shall use reasonable
endeavours to obtain ratings on as favourable a basis as is reasonably
available but achieving such ratings is not a condition of the
transaction proceeding.
Ranking: Senior, direct, unconditional and unsecured guaranteed New Bonds.
Guarantee: Payment and performance of the New Bonds will be guaranteed on a joint
and several basis by the Guarantors on an unsecured and unsubordinated
basis.
Listing: The Issuer will use all reasonable endeavours to obtain and maintain
the admission of the New Bonds to listing with the UKLA and to trading
on the London Stock Exchange or, if this is not practicable, to obtain
and maintain a listing on the Luxembourg Stock Exchange.
Secondary Offering: The Issuer agrees to use all reasonable efforts to produce and
distribute a prospectus in relation to, and premarket, a possible
secondary market offering by the holders of the New Bonds of some or
all of the New Bonds to institutional investors in Europe and in
certain circumstances to institutional investors in the US.
Covenants: The terms and conditions of the New Bonds will include the following
covenants:
- Limitations on financial indebtedness in excess of £75 million,
subject to customary exceptions;
- Negative Pledge, subject to customary exceptions;
- Limitation on Restricted Payments, subject to customary
exceptions. Restricted Payments to be defined as (a) dividends or
distributions on equity of Newco 1 ('Dividends'), and (b) (i)
repurchases of equity of Newco 1, the Issuer or affiliate, (ii)
subordinated debt repurchases or early repayment by Newco 1, the
Issuer, or any Restricted Subsidiary or (iii) investments in any person
or entity, subject to certain exceptions by Newco 1, the Issuer or any
Restricted Subsidiary (each of (b)(i), (ii) and (iii) being a
'Non-Dividend Restricted Payment', together with Dividends, 'Restricted
Payments');
- The Issuer and the Restricted Subsidiaries will limit their
activities to (i) the supply, sale and purchase of products and
services supporting the generation and sale of the output of the
Group's plants, or relating to renewable obligation certificates,
emissions (in relation to the Eggborough Plant) or other similar or
related permits, obligations or entitlements; (ii) the sale and
purchase of electricity consolidation services; (iii) entry into
Trading Arrangements; (iv) the supply of fuel through BEPET; (v)
nuclear and renewable generation, together with Eggborough, in the UK;
(vi) the supply, sale and purchase of electricity in the UK and through
interconnectors with the UK and within Europe and Scandinavia; (vii)
defuelling and decommissioning of Group owned plants, (viii) activities
which are reasonably necessary in connection therewith or ancillary or
incidental to any of the activities described in (i) to (vii)
(inclusive) above (including the provision of other defuelling and
decommissioning operation and maintenance services and consultancy
services related to any of the activities described above, provided
that such provision shall account for no more than £60 million of
turnover; and (ix) making investments or acquisitions that fall within
the limitations set out in (i) to (viii) (inclusive) above and
otherwise are in compliance with the terms of the New Bonds. Trading
Arrangement is to be defined as a transaction entered into in the
ordinary course of business on arms length terms relating to energy
which is a commodity option, a commodity forward or future, or other
commodity transaction, including any grid trade or contract for
differences.
- Transactions with affiliates are required to be on terms no less
favourable to the Issuer, Newco 1 or the Restricted Subsidiaries than
those that would be available in a comparable transaction in arm's
length dealings with an unrelated party with various certification
requirements triggered in respect of transactions in excess of £2
million, respectively, £5 million or £25 million, subject to certain
exceptions;
- Transactions with British Nuclear Fuels plc are required to be on
arms-length terms and determined by the board of directors to be on
such terms in the case of transactions over £2 million;
- Transactions with the NLF are required to be on fair and
reasonable terms with certification of corporate benefit in the case of
transactions exceeding £5 million and provision of an opinion from an
investment banking firm stating that the transaction is on fair and
reasonable terms (from a financial point of view) in the case of
transactions in excess of £25 million;
- Limitation on sale of certain assets, subject to certain
exceptions;
- Limitation on sale/lease back transactions except where the
transaction is treated as an asset sale;
- Limitation on the issue, sale or transfer of the equity of the
Issuer, Newco 1 or the Restricted Subsidiaries subject to certain
exceptions;
- Limitations on guarantees of Financial Indebtedness by a
Restricted Subsidiary;
- Limitations on Restricted Subsidiaries entering into arrangements
which limit their ability to make distributions, subject to certain
exceptions;
- Limitation on the consolidation, merger or sale of assets of the
Issuer, Newco 1 or the Restricted Subsidiaries, subject to certain
exceptions;
- The Issuer will file with or furnish to the SEC and provide to the
Trustee for the benefit of the Bondholders, annual reports and audited
financial statements and unaudited quarterly financial statements
prepared in accordance with UK GAAP transitioning over time to US GAAP
and, and, from 31 December 2004, reports on Form 10-K, Form 10-Q and
8-K, including consolidated income statements, consolidated balance
sheets and consolidated statements of cash flows, in each case prepared
in accordance with US GAAP;
- Standard affirmative covenants, including: maintenance of
corporate existence, compliance with the terms of statutory and
licensing requirements relating to insurance; payment of taxes;
provision of financial information; maintenance of properties;
compliance with law and customary compliance certificates.
All New Bond covenants will apply to Newco 1, the Issuer and each of
the Restricted Subsidiaries. In the event that the New Bonds achieve
investment grade rating, from any two Rating Agencies, one of which
must be Moody's, the application of certain of the above covenants will
be suspended.
Put Option: Each holder of New Bonds has the option to require the Issuer to
repurchase its New Bonds at the higher of (i) a Make Whole Amount
determined by reference to comparable treasury stock and (ii) 101 per
cent together with accrued interest (without duplication) upon the
occurrence of certain events, to include inter alia, (a) a change of
control, (b) the lapsing, revocation, surrender or termination of any
nuclear generation, site or disposal licence or authorisation in
certain circumstances, and (c) an independent financial adviser has
been appointed by the Issuer and approved by the Trustee, or if
appointed, fails to certify that the event referred to in (b) is
materially prejudicial to the Issuer, Newco 1 or any Restricted
Subsidiary, and (d) the event referred to in (b) above results in the
New Bonds being downgraded below investment grade by 2 of the 3 Rating
Agencies or, if already rated below investment grade, the rating is
lowered by one full rating category by 2 of the 3 Rating Agencies.
Optional Early Redemption in Whole The Issuer will have the option to redeem the New Bonds at the higher
or in Part: of (i) a Make Whole Amount determined by reference to comparable
treasury stock and (ii) 101 per cent. of the principal amount
outstanding together with accrued interest (without duplication).
Mandatory Repurchase Offers In the event the Target Amount is reduced or the Eggborough Break
Option is exercised and cash (as defined in the Contribution Agreement)
as at the last financial year end is equal to or in excess of the
Target Amount, the Issuer must offer to apply any funds in excess of
£10 million in making a prepayment of New Bonds (in whole or in part)
on the next succeeding Interest Payment Date at 101 per cent. of their
principal amount outstanding, together with accrued interest
(Bondholders are not required to accept the offer).
To the extent that any such offer is not accepted by Bondholders, the
Issuer must apply its excess funds in (i) paying the NLF Payment
Percentage and (ii) paying the balance to the holders of New Shares by
way of a Dividend.
Accelerated Decommissioning With the exception of (a) an early redemption or market purchase as
Payment: part of a contemporaneous refinancing of the whole or part of the New
Bonds or (b) any cancellation of the entitlement of the Eggborough
Lenders to any proportion of the CTA Global Bond it shall be a
condition of any early redemption of the New Bonds (whether in whole or
in part) or (b) any cancellation that an accelerated payment is made to
the NLF (pursuant to the Contribution Agreement).
Purchase: The Issuer, Newco 1 or any Subsidiary may purchase New Bonds in the
open market in Newco 1, subject to certain conditions and limitations.
Taxation: All payments of principal and interest shall be made free and clear of,
and without withholding or deduction for, any taxes imposed by the UK,
unless such withholding or deduction is required by law.
Redemption for Taxation Reasons: If the Issuer or a Guarantor becomes obliged to pay additional amounts,
as a result of the imposition of withholding taxes or deductions, the
Issuer may, subject to satisfaction of usual conditions, redeem all of
the New Bonds at any time (subject to notice) at their principal amount
with accrued interest to the date fixed for redemption.
Events of Default: (a) Non-Payment: of principal or interest on the New Bonds when due
and such failure continues for 14 days; or
(b) Breach of Other Obligations: in the New Bonds or the Trust Deed
which is unremedied, if capable of remedy, within 45 days; or
(c) Cross-default: Financial Indebtedness of Newco 1, the Issuer or a
Restricted Subsidiary becomes payable before its stated maturity or is
not paid when due/within any originally applicable grace period; Newco
1, the Issuer or any Restricted Subsidiary fails to pay any amount
falling due under a Trading Arrangement (within any applicable grace
period); Newco 1, the Issuer or a Restricted Subsidiary defaults under
a Trading Arrangement and such default leads to a liquidation,
acceleration or termination by the counterparty of such transaction
where the aggregate value of the claims so existing exceeds £25 million
(index linked by reference to RPI) or exceeds £35 million (index linked
to RPI) in the case of defaults under a Trading Agreement;
(d) Enforcement Proceedings: a receiver, administrative receiver,
administrator or similar official is appointed in relation to the
Issuer or any Guarantor; or
(e) Insolvency: the Issuer,or any guarantor is declared insolvent or
is unable (or admits inability) to pay its debts as they fall due;
(f) Winding-up: an order is made by a competent court or an
effective resolution is passed for the winding-up or administration of
the Issuer, Newco 1 or any Restricted Subsidiary, save for the purposes
of merger, consolidation, reorganisation, reconstruction etc.;
(g) Cease to Carry on the Whole of its Business: the Issuer, Newco 1
or any Restricted Subsidiary ceases to carry on the whole or
substantially the whole of its business, save for the purposes of
merger, consolidation, reorganisation, reconstruction etc.; or
(h) Judgment Default: any judgment or decree in excess of £25 million
entered against Newco 1, the Issuer or any material subsidiary;
(i) Cessation of Guarantee: any Guarantee shall for any reason
cease to be, in full force and effect and the Guarantors are unable to
replace the Guarantee, within 14 days;
Bondholder Meetings: A Bondholder meeting may be called by 10 per cent. of Bondholders of
the principal amount of New Bonds outstanding. Until the occurrence of
certain events, the holders of the CTA Global Bonds will not be
entitled to participate in any vote of Bondholders for the purposes of
directing the Trustee to accelerate the Bonds or to vote to change the
amount of principal or interest payable in respect of the New Bonds or
any date for such payment.
Overriding Provision: The Issuer, Newco 1 and any Restricted Subsidiary, shall comply with
any undertakings made to, and directions of, any of:
(a) H.M. Nuclear Installations Inspectorate;
(b) the Environment Agency;
(c) the Office for Civil Nuclear Security;
(d) the Health and Safety Inspectorate;
(e) the Scottish Environment Protection Agency; and
(f) the Office of Gas and Electricity Markets,
and with any other mandatory provisions of law, notwithstanding any
other provision hereof, provided that any payment default under the New
Bonds shall be an Event of Default regardless of this provision.
Amendments: As per existing Trust Deed.
Governing Law: English
Amortisation Schedule
Principal Payment Date(1) Amount of Principal Due Per cent. outstanding
31 March 2005 £ 24,070,285 96.6
31 March 2006 £ 49,825,490 89.4
31 March 2007 £ 53,313,274 81.8
31 March 2008 £ 57,045,203 73.7
31 March 2009 £ 61,038,368 65.0
31 March 2010 £ 65,311,053 55.6
31 March 2011 £ 69,882,827 45.6
31 March 2012 £ 40,382,973 39.9
31 March 2013 £ 43,209,781 33.7
31 March 2014 £ 46,234,466 27.1
31 March 2015 £ 18,488,297 24.5
31 March 2016 £ 19,782,478 21.6
31 March 2017 £ 21,167,252 18.6
31 March 2018 £ 22,648,959 15.4
31 March 2019 £ 24,234,386 11.9
31 March 2020 £ 25,930,793 8.2
31 March 2021 £ 27,745,949 4.2
31 March 2022 £ 29,688,166 0.0
(1) Principal will be repaid annually on 31 March, with the first principal
payment being made on 31 March 2005, and the final principal payment being made
on the final maturity date in 2022.
SCHEDULE B
SUMMARY OF THE NLF CASH SWEEP PAYMENT PROVISIONS
CASH SWEEP PAYMENTS
The NLF Cash Sweep Payment for any year is equal to the adjusted net cash flow
of the Group (if positive) multiplied by the Payment Percentage for that year.
The Payment Percentage will initially be set at 65 per cent. and will be subject
to adjustment in certain circumstances, described in further detail below.
The adjusted net cash flow is calculated based on net cash flow for the relevant
period generated by the Group adjusted to add back (i) payments made during the
period to the NLF and shareholders, (ii) amounts allocated to the forecast
expenditure reserve in the prior period, and (iii) the amount of cash deemed
released from cash reserves by a reduction in the Target Amount during the
period and to deduct (i) proceeds from the issue or sale by Newco of ordinary
shares, (ii) amounts allocated to forecast expenditure reserve in the relevant
period, and (iii) the amount of cash required to be retained in order to meet
the Target Amount.
ADJUSTMENTS TO THE PAYMENT PERCENTAGE
Introduction
The Payment Percentage will be subject to upward or downward adjustment in
certain circumstances so that shareholders benefit from any retained free cash
flow and equity subscriptions and the NLF is not adversely affected by certain
corporate actions. For example, if the Board were not to distribute all surplus
free cash flow to ordinary shareholders after the NLF Cash Sweep Payment but
were to retain some for investment in the business a compensating adjustment is
required. If, in any year, all surplus cash is distributed and no new equity is
issued, no adjustment to the Payment Percentage in that year would be required.
Adjustment for the Issue of Ordinary Shares
If British Energy issues ordinary shares (a 'Share Issue') for cash, then the
Payment Percentage will be reduced to reflect the fact that, following the Share
Issue, the NLF will have a smaller pro rata claim over the equity of Newco 1, as
enlarged by the proceeds of the Share Issue. The level of the dilution will be
determined based on the size of the Share Issue in terms of the overall number
of shares outstanding in Newco 1 and the applicable Payment Percentage at the
time of the Share Issue.
Adjustment for the Payment of Cash Distributions and NLF Cash Sweep Payments
The agreement also provides for an adjustment to the Payment Percentage each
time that there is a cash distribution to shareholders or an NLF Cash Sweep
Payment is made to the NLF. On a distribution to shareholders, the Payment
Percentage is increased as if shares with an aggregate market value equal to the
distribution were acquired from the shareholders for cancellation. When an NLF
Cash Sweep Payment is made, the Payment Percentage is reduced so that the number
of shares the NLF would receive above 65 per cent. (or the lower percentage in
effect as a result of any conversion of the NLF Cash Sweep Payment entitlement)
on a conversion is reduced by reference to the number of shares which have an
aggregate market value equal to the amount of the payment.
Other Adjustments to the Payment Percentage
The Payment Percentage is also subject to further anti-dilution adjustments
which are customary for convertible securities.
Waivers
The NLF may waive its right to an NLF Cash Sweep Payment if such payment would
result in a reduction of the Payment Percentage. However, the NLF cannot,
through the waiving of the NLF Cash Sweep Payment for any period, increase the
Payment Percentage above 65 per cent.
SCHEDULE C
POST-RESTRUCTURING UNAUDITED PRO FORMA NET ASSET STATEMENT
AS AT 31 MARCH 2003
The unaudited pro forma information has been prepared in accordance with
accounting principles accepted in the United Kingdom ('UK GAAP'). UK GAAP variesin certain significant respects from accounting principles generally accepted in
the United States of America ('US GAAP'). No pro forma financial information hasbeen presented on a US GAAP basis. The unaudited pro forma financial information
has been prepared in accordance with the Listing Rules of the UKLA and does not
comply with the SEC requirements for pro forma information as set out in Article
11 of Regulation S-X. The unaudited pro forma financial information is not
necessarily indicative of the financial position that would have occurred had
the Proposed Restructuring occurred on the dates indicated or on the terms
proposed nor are they necessarily indicative of the future financial position of
the Company or the impact of applying US GAAP.
BASIS OF PREPARATION
The audited consolidated Group balance sheet drawn up at 31 March 2003 does not
reflect the terms of the Proposed Restructuring as the restructuring had not
been finalised.
The unaudited pro forma consolidated net asset statement for the Group as at 31
March 2003, set out below, has been prepared on the assumption that the terms of
the Proposed Restructuring were effected on 31 March 2003. Because of the nature
of pro forma financial information, it does not give a true or complete picture
of the financial position of the Group and has been prepared for illustrative
purposes only.
The unaudited pro forma consolidated net asset statement as at 31 March 2003 has
been based on the audited consolidated balance sheet as at that date, after
making the adjustments required in respect of steps 1 to 5 (see below). The pro
forma information does not take any account of trading results or movements in
working capital and cash flows of the Group and its subsidiaries between 31
March 2003 and the ultimate date of the implementation of restructuring.
THE EFFECTS OF PROPOSED RESTRUCTURING
General
The accounting for the Proposed Restructuring is expected to follow the
principles of acquisition accounting owing to the significance of the change in
ownership of the Group. This will result in significant changes to the share
capital and reserves structure of the Group as well as the need to fair value
the assets and liabilities.
As stated in note 25 to the financial statements included with the Group's 2003
audited annual report and accounts, the most recent formal triennial actuarial
valuations of the Group's pension schemes were carried out as at 31 March 2001.
The next formal actuarial valuation is due to be carried out as at 31 March
2004. Accordingly, in the absence of a formal actuarial valuation as at 31 March
2003 the pro forma net asset statement does not include any adjustment to
reflect the fair value of the pension scheme assets and liabilities as at that
date. The balance sheet on restructuring is expected to include the fair value
of the pension scheme assets and liabilities following the next formal actuarial
valuation.
The Directors have assumed that the market value of the New Shares is equal to
the fair value of the net assets and, therefore, no goodwill arises. If that
market value is different to fair value, however, then positive or negative
goodwill will arise when restructuring is effected. In any event the market
value of the new shares and the fair value of net assets on completion of the
restructuring may be different from the pro forma net assets as at 31 March
2003.
Step 1 - Revaluation of Fixed Assets
Fixed assets employed across the fleet of UK nuclear power stations have been
fair valued based on continued operation assuming a discount rate of 10 per
cent. applied to projected cash flows, taking account of the new BNFL contract
and the NLF funding arrangements including the cash sweep mechanism described
below. The carrying value of fixed assets has been reduced by £138 million
following these steps as the cash sweep mechanism is expected to have a negative
impact on cash flows.
There is no deferred tax liability as at 31 March 2003 following the asset write
down. No deferred tax asset is recognised as its recoverability in the
foreseeable future is considered by management to be uncertain.
Step 2 - New BNFL Contracts
The provision for nuclear liabilities will be based on the revised contractual
arrangements. Creditors have been adjusted to reflect amounts compromised under
the standstill and restructuring agreements, together with a rescheduling of the
payment terms under the historic BNFL contracts.
A consequence of the new arrangement is that British Energy now recognises
liabilities under historic contracts for spent fuel services costs related to
all fuel loaded before the effective restructuring date. Accordingly nuclear
liabilities have been increased as British Energy previously provided for these
liabilities as the fuel was consumed. Adjustment has, therefore, been made in
respect of contracted and uncontracted liabilities for the cost of spent fuel
services for unburnt fuel in the reactor as at 31 March 2003.
Under the proposed new BNFL contracts, ownership of the AGR fuel loaded after
the restructuring date reverts to BNFL and so British Energy no longer bears
storage, reprocessing and disposal costs. Going forward, British Energy's AGR
back-end fuel costs for these services will be £150,000 (adjusted for RPI) per
tonne of AGR fuel loaded. In addition, British Energy will make further annual
payments which include a rebate and surcharge mechanism based on the out-turn of
output and electricity market prices in that year.
Step 3 - NLF and Secretary of State Funding Arrangements
The Secretary of State has provided undertakings to fund services for spent AGR
fuel loaded pre-restructuring and any future shortfall on NLF funding of
uncontracted liabilities (including PWR spent fuel services) and decommissioning
costs. For accounting purposes, this shortfall will represent the difference
between the discounted provision for nuclear liabilities less the market value
of the NLF at the balance sheet date.
The adjustment to the NLF/Secretary of State undertaking of £3.9 billion
represents the shortfall as at 31 March 2003. The NLF will initially be
comprised of the assets in the current decommissioning fund together with £275
million of New Bonds issued to the fund on restructuring. Following completion
of the Proposed Restructuring, the Group will contribute £20 million per annum
(adjusted for RPI) tapering off as stations are scheduled to close (the '
Decommissioning Payments'), £150,000 per tonne (adjusted for RPI) of PWR fuel
loaded as well as the NLF Cash Sweep Payment.
The NLF Cash Sweep Payment is initially defined as 65 per cent. of the movement
in cash and cash equivalents during the year after adjusting for, among other
things, any payments made to the NLF or dividends paid in the year. In
restricted circumstances British Energy is permitted to carry forward cash from
one year to the next (thereby reducing the NLF Cash Sweep Payment for the first
year) where certain significant committed future cash outflows are expected.
Following completion of the Proposed Restructuring, the Group will be entitled
to retain a minimum amount of cash in reserve, initially set at a target of £490
million, which can be adjusted for any incremental collateral requirements,
prior to the proposed NLF Cash Sweep Payment taking effect, to support
collateral and liquidity requirements post restructuring. A provision of £216
million has been created for cash reserves due to the NLF, representing 65 per
cent of the Group's cash and liquid funds balance at 31 March 2003. An
additional provision of £17 million has been created for net working capital
balances as at 31 March 2003. The cash sweep mechanism will have an impact on
future dividend policy.
Furthermore, the discounted future payments of the Decommissioning Payment,
amounting to £225 million (assuming a discount rate of 5 per cent.), have been
accounted for as a liability under the Proposed Restructuring, with a
corresponding asset recognised in tangible fixed assets. The liability will be
discharged through the payment of Decommissioning Payment to the NLF. The
corresponding asset will be amortised over the remaining lives of the Group's
nuclear power stations.
New legislation, the Electricity (Miscellaneous Provisions) Act, was enacted on
8 May 2003. One of the objectives of the legislation was to avoid British Energy
incurring a tax charge as a result of the new Secretary of State undertaking;
otherwise the level of State aid would require to be correspondingly higher.
Step 4 - New Bonds Issued
The £700 million balance for bonds and loans upon restructuring represents £550
million of New Bonds together with £150 million due through the planned revision
to the Capacity and Tolling Agreement between BEPET and EPL to fund repayments
under the Eggborough bank loans. The adjustments represent the difference
between the carrying value of liabilities pre-restructuring and the amounts for
which they are compromised by the significant creditors under the terms of the
restructuring, which is assumed to have no tax consequences. The New Bonds will
be issued, together with the New Shares, in return for the significant creditors
and BNFL agreeing to compromise the amounts owing to them.
Step 5 - Disposal of Interest in AmerGen
British Energy has agreed the disposal of its 50 per cent. interest in AmerGen
to FPL Energy for approximately US$277 million. The disposal is still subject to
the right of first refusal and tag-along right of Exelon, British Energy's
partner in AmerGen, as well as certain regulatory approvals and consents.
As at 31 March 2003, British Energy recorded its interest in AmerGen as an
interest in joint venture with a net book value of £71 million. It also recorded
a liability of £4 million in respect of BEUSH and its subsidiaries. The
unaudited pro forma net asset statement adjusts for the disposal of these net
assets of the disposed entities and reflects the pro forma cash receivable on
the disposal (less transaction costs).
Step 5 of the pro forma balance sheet adjustments reflects the pro forma
financial impact of the Group's entire 50 per cent. interest in AmerGen Energy
Company LLC as announced on 11 September 2003. The analysis as set out is for
illustration purposes only, and has been calculated to show the impact on the
Group's balance sheet as if the transaction were effected on 31 March 2003. The
calculations are based upon estimated consideration after deducting anticipated
transaction costs and has been translated into pounds sterling based on the
closing exchange rates of 31 March 2003.
No allowance has been made for potential adjustments to consideration to reflect
movements in working capital, unspent nuclear fuels, capital expenditures and
low level waste disposal costs at the time of closing as set out in the terms of
the purchase and sale agreement.
Unaudited Pro Forma Group Net Asset Statement as at 31 March 2003
Pre-restructuring Post-restructuring
£m £m
Step 1 Step 2 Step 3 Step 4 Step 5
£m £m £m £m £m
Tangible fixed assets 686 (138) - 225 - - 773
Investments 77 - - - - (71) 6
Goodwill - - - - - - -
Fixed Assets 763 (138) - 225 - (71) 779
Current Assets
Decommissioning Fund/ 334 - - 3,865 - - 4,199
Secretary of State
undertakings
Stocks 360 - - - - - 360
Debtors 387 - - - - (1) 386
Investments 246 - - - - - 246
Cash at bank/cash reserve 87 - - - - 161 248
1,414 - - 3,865 - 160 5,439
Creditors <1 year (1,033) - 179 316 5 (533)
Bonds and bank loans (152) - - - 152 - -
(1,185) - 179 - 468 5 (533)
Net Current Assets 229 - 179 3,865 468 165 4,906
Nuclear liabilities - (1,909) - (360) - - - (2,269)
creditors >1 year
Bonds and bank loans (731) - - (275) 306 - (700)
Cash reserves due to NLF - - - (216) - (105) (321)
Working capital due to - - - (17) - (3) (20)
NLF
Other long term creditors - - - (225) - - (225)
(2,640) - (360) (733) 306 (108) (3,535)
Provisions (1,735) - (81) - - - (1,816)
Net (Liabilities)/Assets (3,383) (138) (262) 3,357 774 (14) 334