REG - SW (Finance) I PLC - EQUITY RAISE: LOCK-UP AGREEMENT SIGNED

MacquarieAnnouncement

Tue 14:00

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RNS Number : 2122Q  SW (Finance) I PLC  08 July 2025

EQUITY RAISE: LOCK-UP AGREEMENT SIGNED WITH FINANCING CREDITORS OF SW GROUP

 

SW (FINANCE) I PLC

Released 8 July 2025

SW (Finance) I PLC

8 July 2025

SW (FINANCE) I PLC (the "Company")

SOUTHERN WATER SERVICES LIMITED ("Southern Water" and together with the
Company, the "SW Group")

 

·    Southern Water today announces an agreement with more than 72% of its
financing creditors and controlling shareholder paving the way for the
previously announced £655m equity injection in November 2025

 

On 1 July, Southern Water announced (the "1 July 2025 RNS") that it had
secured an offer of equity support from a consortium led by funds managed by
Macquarie Asset Management ("MAM") to support its AMP8 investment programme,
comprising a legally binding equity commitment of £655 million (the "Initial
AMP8 Equity Commitment") provided on the terms of an equity commitment letter
("ECL") and confirmation of intent to provide further equity commitments of up
to a further £545 million - and with a minimum of £245 million - by December
2025.

The Initial AMP8 Equity Commitment remains subject to certain conditions,
including the implementation of certain changes and waivers in respect of
certain finance documents of the SW Group, including the removal of the
Ratings EoD (as defined below).

Today, Southern Water is announcing that it has entered into a lock-up
agreement (the "LUA") with financing creditors of the SW Group representing
more than 72% by value of the Class A indebtedness (which percentage by value
includes, 100% of the liquidity facility providers, approximately 98% of
interest rate and inflation-linked hedge providers and approximately 65% of
other Class A creditors), in support of certain proposals including the
Ratings EoD amendment.

LUA and Scheme Amendments

The LUA has been entered into by, among others, Southern Water, the Company,
SWS Group Holdings Limited, SWS Holdings Limited and SW (Finance) II Limited,
Sandstone Bidco Limited (the new ultimate indirect holding company of Southern
Water ("Bidco")), MSCIF Luxembourg C Holdings S.A.R.L (the "Investor"), and
financing creditors of the SW Group representing as at the time of this
announcement c.£5.5 billion of the secured Class A indebtedness of the SW
Group.

The primary amendment to be made to the finance documents of the SW Group is
to remove a specific event of default that would occur if the Company's
underlying senior secured Class A credit rating was to be downgraded below
investment grade by any two of Fitch Ratings, Moody's and S&P Global
Ratings (a "Ratings EoD").

In order to ensure Southern Water is able to satisfy the relevant
conditionality in the ECL and achieve unconditional access to the Initial AMP8
Equity Commitment as quickly as possible, the amendment to the Ratings EoD
will be effected by means of an English law Scheme of Arrangement under Part
26 of the Companies Act 2006 to be proposed by SWS Holdings Limited, the
immediate holding company of Southern Water (the "Scheme"). Once approved by
the requisite majorities, it is anticipated that the Scheme will be sanctioned
in the first-half of October 2025.

Permanent removal of the Ratings EoD is conditional on Southern Water
receiving the full amount of £655m of the Initial AMP8 Equity Commitment in
cash pursuant to the ECL on or before 31 March 2026 (the "Funding Condition").
Prior to receipt of the full amount, the Ratings EoD will be temporarily
waived from the period starting once Southern Water receives £505 million of
the Initial AMP8 Equity Commitment, which is expected to be received by early
November with a long-stop date no later than 28 November 2025 under the LUA,
and ending when the Funding Condition is satisfied. Southern Water is
contractually obliged under the LUA to draw all of the Initial AMP8 Equity
Commitment so as to receive the full amount on or before 31 March 2026. The
amendments contemplated by the Scheme will also be conditional on the
completion of the Holding Company Refinancings (as defined below).

Parties to the LUA will, amongst other things, undertake to support and
facilitate the satisfaction of the conditions in the ECL relating to the
funding of the Initial AMP8 Equity Commitment through the amendments and
waivers to be proposed through the Scheme and the STID Proposals (as defined
below) (the "Transaction").  This includes undertakings from the Investor to
the creditor parties, among others, to comply with its obligations under the
ECL. In addition, consent of the creditor parties will be required to amend or
waive any of the terms of the ECL and related equity commitment documents.

Financing creditors of the SW Group party to the LUA undertake to vote in
favour of the Scheme and, insofar as they are entitled to vote under the STID
Proposals (as defined below), the STID Proposals and to not to take any
enforcement action and forebear in relation to any breaches of the finance
documents which in each case occur as a result of the Transaction.

Financing creditors that are party to or accede to the LUA by the date
specified in the LUA are entitled to a fee of £1,000 each.

The LUA will be made available through the website set-up by Kroll Issuer
Services Limited (the "Lock-Up Agent") at
https://deals.is.kroll.com/southernwater
(https://deals.is.kroll.com/southernwater) .  Financing creditors will need
to contact the Lock-Up Agent at southernwater@is.kroll.com with questions on
how to accede to the LUA.

Preliminary STID Proposal

Southern Water intends to launch and complete a consent request through a STID
Proposal (the "Preliminary STID Proposal") before the Scheme is launched, to
obtain the requisite majority creditor consent required under its financing
documents to certain waivers and other documentary amendments which are needed
to waive certain technical events of default that may otherwise be triggered
under the finance documents of the SW Group by the launch of the Scheme.

In addition, Southern Water intends to seek the requisite majority creditor
consent under its financing documents to the following:

-     amendments to the cash management provisions that would defer the
appointment of a third-party cash manager in respect of all of the bank
accounts of the SW Group that would otherwise occur automatically and
immediately upon the occurrence of a standstill period following the
occurrence of an event of default. Southern Water will remain the cash manager
until the earlier of the date which is (a) 20 Business Days following the date
on which the Security Trustee notifies the company that it has received a
direction in writing for such third party appointment to commence from
representatives of one or more providers of its qualifying Class A
indebtedness representing at least 66 2/3% of the outstanding principal amount
of the qualifying Class A indebtedness of the SW Group and (b) 18 months from
the commencement of the standstill period; and

-     the inclusion of certain technical provisions reflecting provisions
customarily included in finance documentation as policy requirements of UK,
European and US regulated banks and financial institutions in relation to
bail-in legislation and qualifying financial contracts.

Ancillary Amendments STID Proposal

Southern Water also intends, prior to or concurrent with the launch of the
Scheme, to launch a consent request through a further STID Proposal (the
"Ancillary Amendments STID Proposal" and together with the Preliminary STID
Proposal, the "STID Proposals") to obtain the requisite majority creditor
consent (for which the requisite support has been provided under the terms of
the LUA) under its financing documents to the following additional documentary
amendments which will take effect concurrently with the Ratings EoD amendment:

-     the deletion of the words "to the reasonable satisfaction of the
Security Trustee" in paragraph 7 paragraph 7(b) (Compliance with laws and
Instrument of Appointment) of Part 3 of Schedule 5 (Covenants) to the CTA,
which requires Southern Water to comply in all material respects with the
terms and conditions of the Instrument of Appointment "save to the extent
Ofwat has waived or approved such non-compliance to the reasonable
satisfaction of the Security Trustee";

-     the deletion of the condition precedent in paragraph 4 (Rating
Agencies) of Schedule 2 (Conditions Precedent to Future Bond Issues or Wrapped
Debt) to the CTA that the Security Trustee receives a confirmation from the
Rating Agencies that any Class A Wrapped Bonds, when issued, will be rated AAA
by S&P, Aaa by Moody's and AAA by Fitch and that any Class A Unwrapped
Bonds, when issued, will be rated A- by S&P, A3 by Moody's and A- by
Fitch; and

-     the inclusion of certain additional provisions in the CTA (or the
amendment documents relating thereto) that are required to reflect the terms
of the Transaction, including the inclusion of the following provisions in the
CTA relating to the ECL:

 

o  a new undertaking from Southern Water (a) to exercise and diligently
enforce its rights under the ECL; (b) to issue a funding request to ensure the
full remaining balance of the Initial AMP8 Equity Commitment is funded no
later than 31 March 2026; and (c) not to agree to any amendment or waiver of
the terms of the ECL without the consent of the Security Trustee (acting on
the instructions of the requisite percentage of providers of Class A
indebtedness to be set out in the CTA); and

 

o  a new event of default for breach of any of the above undertakings to the
extent (if capable of remedy) such breach has not been remedied within the
specified remedy period.

 

The financing creditors of the SW Group party to the LUA as at the date of
this announcement and who are entitled to vote on the STID Proposals represent
qualifying Class A indebtedness in excess of the threshold percentage required
to approve the waivers and amendments to be requested to approve the STID
Proposals.

Holding Company Refinancings

As disclosed in the 1 July 2025 RNS, the transaction contemplated by the OpCo
Scheme and Ancillary Amendments STID Proposal is part of a broader
recapitalisation transaction, which will reduce holding company debt quantum
by over 50 per cent, introduce a material maturity extension of residual
holding company debt to September 2030 at the earliest and with interest
capitalised (the "Holdco Refinancings").

The first stage of this process occurred on 4 July 2025 when Bidco acquired
all of the shares in Greensands Junior Finance Limited and Southern Water
(Greensands) Financing plc through a sale, with the full support of their
creditors. Bidco is currently 100% owned by the Investor. At completion of the
Holdco Refinancings, it is expected that certain creditors will become
indirect minority shareholders of the SWS Group, but that the Investor will
retain an ordinary shareholding of c.90%.

 

For further information, please contact Stuart Ledger (Group CFO) at:

Address:          Southern House, Yeoman Road, Worthing, BN13 3NX,
United Kingdom

Tel:                  01903 272 611

Email:              stuart.ledger@southernwater.co.uk

 

DISCLAIMER - INTENDED ADDRESSEES

This announcement is released by Southern Water Services Limited and contains
inside information for the purposes of Article 7 of the Market Abuse
Regulation (EU) 596/2014 as it forms part of United Kingdom assimilated
domestic law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR"),
encompassing information relating to the Proposals described above. For the
purposes of UK MAR and Article 2 of Commission Implementing Regulation (EU)
2016/1055 as it forms part of United Kingdom domestic law by virtue of the
European Union (Withdrawal) Act 2018, this announcement is made by Richard
Manning (Company Secretary) at Southern Water Services Limited.

This announcement is a communication to the market. Nothing in this
announcement constitutes an offer of securities for sale in the United States
or any other jurisdiction. This announcement does not constitute a prospectus
or a prospectus equivalent document.

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