Exhibit 10(f)-3
EASTERN
To: Barclays Bank Plc, as Agent under the Guarantee and
Indemnity referred to below.
Copied The Banks and the Participants referred to below and,
where applicable, their respective successors and permitted
assigns.
11 March 1999
Dear Sirs
EASTERN MERCHANT PROPERTIES LIMITED ("EMPL")
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RENT FACTORING TRANSACTION (THE "RFI") DATED 28TH OCTOBER 1996
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1. INTRODUCTION
We refer to the Consent Letter dated 17th July 1998 addressed by us to
Barclays Bank Plc in relation to the Guarantee and Indemnity dated 28th
October 1996 (as amended and restated) relating to the RFT, in which the
consent of the Banks (as defined in the Guarantee and Indemnity) and the
Participants (as defined in the Deed of Assignment of Rents dated 28th
October 1996 relating to the RFT) to certain changes to the terms of the
Guarantee and Indemnity was requested. As used in this letter, the
expression "Guarantee and Indemnity" means the above Guarantee and
Indemnity as amended and restated to date, including by the above Consent
Letter.
By this letter, we request certain amendments to be made to the Guarantee
and Indemnity.
2. BACKGROUND
(a) The Consent Letter, as approved by the Banks and the Participants,
made certain amendments to the Guarantee and Indemnity, including the
insertion of two new financial covenants, a minimum net worth covenant
and a gearing limit. For the purposes of both covenants, a new
definition - "Adjusted Consolidated Tangible Net Worth" - was introduced
and for the purposes of the gearing limit a new definition of "Total
Consolidated Net Borrowings" was also introduced. Unfortunately, in
this process two errors were made:
(i) Paragraph (g) of the definition of Adjusted Consolidated Tangible
Net Worth should have given rise to a deduction in respect of
"any indebtedness OWED by (i) The Energy Group PLC (now called
Energy Holdings (Number 3) Limited), (ii) a TU Company (as
defined) or (iii) Texas Utilities Company or any company,
partnership or person of which a TU Company is a diret or
indirect Subsidiary Undertaking [as defined] or any other direct
or indirect Subsidiary Undertaking of any such company,
partnership or person, in each case to any member of the Group
(as defined)". A typgraphical error was made by using the word
"owned" instead of the word "owed" highlighted above.
(ii) For the purposes of the gearing limit, the expression "Total
Consolidated Net Borrowings" was introduced, defined as the
aggregate principal amount of all Borrowings (as already defined)
of the Group less Cash (as defined). This new definition thus
worked in part off an existing definition (Borrowings) but erred
in doing so without qualification.
This is because Borrowings as already defined included, as a deemed
Borrowing under paragraph (g) of the definition, all premium payable
by EMPL to National Power Plc under the National Power headlease.
Whilst this was appropriate where the expression Borrowings was used
in the cross default clause (Clause 17.1(f)), it was not appropriate
in the context of the new gearing covenant, given in particular the
nature of the National Power headlease as an operating lease. The
inclusion of lease premium as a deemed Borrowing was also
inappropriate where that term was used in the context of the original
borrowing restrictions (Clauses 4.1(t) and 5(d), which have now been
deleted by the above Consent Letter) and the definition of
Consolidated Interest, used in the interest cover covenant in Clause
4.1(q), particularly as that covenant already made specific provision
for a portion of the rents payable by Eastern Merchant Generation
Limited to EMPL under the Lease to be treated as interest.
(b) In the past 12 months, Eastern has taken a number of significant steps
towards its objective of creating an integrated pan-European energy
porfolio.
. Purchase of 5% shareholding in Hidroelectrica del Cantabrico
(fourth largest electricity company in Spain), and establishing
of a joint venture energy trading and risk management company
with them to operate in the deregulating Iberian market.
. Purchase of the rights to output from two hydro power stations
in Norway over a 55 year period, and formation of joint venture
energy retail and trading company to operate in the Nord Pool
area (Norway, Sweden and Finland). Eastern's JV partner is
Lunds Energi, one of the top ten energy retailers in Sweden.
. Formation of Compass Energy, a joint venture with Energie Noord
West of Holland to retail gas in the deregulating Dutch market.
. Establishment of development offices in Madrid, Frankfurt,
Stockholm, Prague and Warsaw, to be followed by Paris and Milan.
The purchases in Spain and Norway have added some L180 million of
additional borrowing to the balance sheet of Eastern Group, although the
process to replace a significant portion of this amount with non recourse
borrowing is well advanced. At the same time, Eastern's Net Assets have
been depleted by the upstreaming of dividends to service the debt
introduced by the acquisition of Eastern by Texas Utilities Company.
The combination of additional borrowing and reduced cash reserves has
pushed Eastern close to the existing 150% gearing ceiling, which will
constrain Eastern's ability to make further significant investments until
non recourse refinancing creates further headroom.
Additional headroom for expansion is included in the revised and
restructured facility for Eastern's UK parent TXU Eastern Holdings Limited,
that is currently in syndication. The proposed amendment is intended to
create a similar effect under this Facility.
An increase in the maximum permitted gearing limit to 200%, would enable
Eastern to provide the initial finance for new investments, either from
cash or short term borrowings, and create time for the arrangement of
longer term non recourse refinancing.
To address the concern of lenders towards fruther depletion of Net Assets,
Eastern offers to increase the minimum Net Worth requirement to
L1,000,000,000.
3. AMENDMENTS REQUESTED
We request your consent to the amendment of the terms of the Guarantee and
Indemnity by:
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(a) the substitution of "owed" for "owned" to paragraph (g) of the
definition of "Adjusted Consolidated Tangible Net Worth";
(b) and by the inclusion, at the beginning of paragraph (g) of the
definition of "Borrowings", of the words "(for the purposes only of
Clause 17.1(f))"; and
(c) the deletion of existing Clause 4.1(t) to be replaced with:
"procure that:
(i) the adjusted Consolidated Tangible Net Worth is not, at any time,
less than L1,000,000,000; and
(ii) Total Consolidated net Borrowings do not, at any time, exceed
200% of Adjusted Consolidated Tangible Net Worth".
4. EFFECTIVE DATE
The amendments set out above will take effect on and from the date on which
the Agent confirms to each Bank and to The Royal Bank of Scotland plc, as
Participation Agent for the Participants and to EMPL that all of the Banks
and an Instructing Group have agreed to the matters referred to in this
letter (the "Effective Date") and that all costs and expenses and the
relevant fee for considering the amendments have been paid to the Agent and
the Participant Agent (for the Banks and the Participants, as appropriate).
5. SUPPLEMENTAL EFFECT
This letter is supplemental to the Guarantee and Indemnity and, on and from
the Effective Date, the terms of this letter and the terms of the Guarantee
and Indemnity shall be read and construed as one document. Except as
expressly amended by this letter, the Guarantee and Indemnity shall
continue in full force and effect.
6. INCORPORATION OF PROVISIONS
The provisions of Clauses 29, 35, 37 and 41 of the Guarantee of Indemnity
shall apply to this letter as if set out in full in this letter (mutatis
mutandis) but as if references in those provisions to any Transaction
Document were references to this letter. Capitalised terms not otherwise
defined in this letter shall, where the context so permits, have the
meanings given to them in the Guarantee and Indemnity.
7. DELIVERY TO CUSTODIAN
EMPL undertakes to deliver the executed original of this letter and its
counterparts to the Custodian for retention in accordance with the terms of
the Custody Deed.
8. COUNTERPARTS
This letter may be executed in any number of counterparts and this shall
have the same effect as if all of the signatures were on a single copy of
this letter.
9. LAW
This letter is governed by English law.
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If you agree to the above, please sign this letter and return a copy of it
to us.
Yours faithfully
/s/ E.J. Lean
........................................
Eastern Group plc
/s/ E.J. Lean
........................................
Eastern Merchant Properties Limited
/s/ E.J. Lean
........................................
Eastern Generation Limited
/s/ E.J. Lean
........................................
Eastern Electricity plc
We agree to the amendment requested in this letter and confirm that,
having received the requisite approvals from an Instructing Group and all
of the Banks in accordance with Clause 31.1. of the Guarantee and Indemnity,
we are authorised to sign this letter as Agent on behalf of the Banks.
/s/ L.J. Kenworthy
........................................ Duly Authorized
Barclays Bank PLC as Agent
Date: 30 March 1999
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