FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For August 21, 2003
Commission File Number: 333-13096
AES DRAX HOLDINGS LIMITED
Drax Power Station
PO Box 3
Selby
North Yorkshire
Y08 8PQ
England
------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1):
--------
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): --------
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):82-_________
AES DRAX HOLDINGS LIMITED
INDEX
ITEM
1 Press Release dated August 21, 2003, entitled "AES Drax Holdings Ltd seeks
extension to deadlines of existing offers & receives proposal from BHP
Billiton"
2 Copy of the offer letter dated August 21, 2003, from BHP Billiton to the
Directors of AES Drax Holdings Limited, with attachments
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AES DRAX HOLDINGS LIMITED
August 21, 2003 By: /s/ Gordon Horsfield
------------------------
Name: Gordon Horsfield
Title: Director
ITEM 1
PRESS RELEASE
21 August 2003
AES DRAX HOLDINGS LTD SEEKS EXTENSION TO DEADLINES OF EXISTING
OFFERS & RECEIVES PROPOSAL FROM BHP BILLITON
AES Drax Holdings Ltd ("Drax" or "the company") announces that it has received a
proposal from BHP Billiton in respect of the restructuring of the company.
This offer stands alongside existing offers from International Power and Goldman
Sachs International and all other proposals that may be received.
In order for the three offers to be properly considered, the Directors are
looking to extend the deadline for existing offers beyond Friday, 22 August.
Gordon Horsfield, Chairman & Director, AES Drax Holdings Ltd, commented;
"Clearly, we are extending every effort to deal with all parties on a fair and
constructive basis."
The offer letter received from BHP Billiton, as well as the schedules attached
thereto, is attached and will be furnished on a Form 6-K to the U.S. Securities
and Exchange Commission by 22 August.
ENQUIRIES:
Judith Parry/Sophie Morton/Kelly - Ann French Tel: 01943 883990
Buchanan Communications
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FORWARD-LOOKING STATEMENTS
Certain statements included in this document are forward-looking statements as
that term is defined in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements speak only as of the date that they were made.
Forward-looking statements can be identified by the use of forward-looking
terminology such as "believe," "expects," "may," "intends," "will," "should," or
"anticipates," or the negative forms of other variations of these terms of
comparable terminology, or by discussions of strategy. Future results covered by
the forward-looking statements, including the projections, may not be achieved.
Forward-looking statements are subject to risks, uncertainties and other
factors, which could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements.
Under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, we have identified some of these risks, uncertainties and other
important factors herein and you should also review "Item 3. Key Information -
Risk Factors" and "Item 5. Operating and Financial Review and Prospects" in our
Annual Report on Form 20-F for the year ended December 31, 2002.
You should also consider, among others, the following important factors:
o general economic and business conditions in the UK;
o changes in governmental regulations affecting the Drax Power Station and
the UK electric power industry generally, including the impact of the New
Electricity Trading Arrangements ("NETA"). NETA was implemented on March
27, 2001;
o power prices and resource availability and pricing;
o general industry trends;
o changes to the competitive environment;
o changes in business strategy, development plans or vendor relationships
in the market for power in the UK;
o that our principal hedging arrangement relating to power sales has been
terminated and we are currently operating as a fully merchant plant;
o availability, terms and deployment of capital;
o interest rate volatility;
o changes in currency exchange rates, inflation rates and conditions in
financial markets;
o availability of qualified personnel; and
o changes in the interpretation of tax law.
We do not intend to publicly update or revise these forward-looking statements
to reflect events or circumstances after the date hereof, and we do not assume
any responsibility for doing so.
The Directors of AES Drax Holdings Limited
c/o Kempson House
Camomile Street
London EC3A 7AN
21 August 2003
Dear Sirs
DRAX - BHP BILLITON'S OFFER
We are pleased to submit this offer by BHP Billiton plc ("BHP BILLITON") to
provide support to facilitate the restructuring of the senior secured debt and
other contractual arrangements of AES Drax Holdings Ltd (the "Company") and
certain of its affiliates, including AES Drax Power Limited ("DRAX POWER") (the
"BHP BILLITON Offer").
While the BHP Billiton Offer is made by BHP Billiton solely on the terms and
conditions set out in this offer letter (the "BHP BILLITON OFFER LETTER") and
its schedules (the "SCHEDULES"), the BHP Billiton Offer to a large extent
follows the restructuring proposals as laid out in (i) the 30 June 2003 Form 6K
filing to the US Securities and Exchange Commission (SEC File #333-13096) ("30
JUNE 6K") and (ii) the 14 August 2003 Form 6K filing to the US Securities and
Exchange commission (SEC File #333-13096) ("14 AUGUST 6K") with a view to
facilitating the completion of the restructuring of the secured debt of the AES
Drax Companies and the entering into of the commercial agreements as set out in
BHP Billiton Offer Letter (the "RESTRUCTURING").
The BHP Billiton Offer includes a number of key commercial and economic terms,
which we believe substantially enhance the terms of the Restructuring and as
such maximise the ultimate recoveries for the Senior Banks, the Senior
Bondholders and the Hedging Banks, whether or not they intend to exercise the
Cash-Out Option. We strongly believe that an integrated financial and commercial
partnership between BHP Billiton and/or certain of its affiliates and the
Company and its relevant affiliates under which BHP Billiton (or an affiliate)
provides coal supply and energy trading services, together with O&M expertise
from Eskom Enterprises (Pty) Ltd, a wholly owned subsidiary of Eskom Holdings
(Pty) Ltd ("ESKOM"), adds significant value to the restructuring by increasing
the certainty of operating cashflows and mitigating key commodity and
operational risks.
BHP Billiton is the world's largest diversified resources company with a market
capitalisation of (pound)26.2 billion and a strong balance sheet and credit
rating. We are a major provider of both coal and natural gas to the power
generation industry. In particular, BHP Billiton Energy Coal is the world's
largest producer and marketer of sea-borne thermal coal. Our focus is on
providing competitive energy solutions for our world-wide portfolio of power
generation customers. The business is structured around a portfolio of
world-class producing assets, which provide a unique multi-sourcing capability
to service the major power markets of Europe and the United Kingdom in
particular. We have a proven track record and are a respected partner in joint
ventures worldwide.
Eskom, the South African electricity utility company, operates 42,000 MW of
power generation capacity, of which 37,000 MW comprises large coal-fired plants
including seven power stations with capacity in
1
excess of 3,000 MW. Eskom is a key business partner of BHP Billiton in South
Africa and the two companies have a strong relationship extending over many
years.
We recognise the dual needs of the Senior Creditors to meet the short-term
financial objectives of the Restructuring, while at the same time ensuring the
long-term viability of the Company. We believe that the BHP Billiton Offer
demonstrates a clear differentiation in value from the other proposals received
by the Company and provides for increased long-term security for the Senior
Creditors through a unique and distinctive set of capabilities and service
offerings.
The main points of the BHP Billiton Offer are as follows:
o BHP Billiton will provide substantial funding for the Cash-Out Option
with a significant premium to other offers based on a similar financial
structure.
o BHP Billiton offers to provide a unique suite of value-added fuel,
finance, O&M and commodity services that creates substantial value for
the Principal Drax Assets and does not diminish commercial control or
reduce flexibility for Senior Creditors.
o The BHP Billiton Offer is an integrated solution that provides clarity of
outcome through the creation of a stable, on-going and viable entity with
improved credit profile, lower cost base and reduced risk profile.
o A partnership with BHP Billiton will bring to the AES Drax Companies all
the credentials and capabilities of a world leading energy company with
an excellent credit rating. This partnership will help the AES Drax
Companies address the key challenges they face in their transition to
consuming imported coal.
o BHP Billiton is willing to arrange, at the Company's option, a
(pound)100,000,000 Trading Guarantee Facility to facilitate Drax Power's
ability to trade electricity.
o BHP Billiton's Offer is not subject to or contingent on third party
financing and does not result in any underwriting or other fees and
charges being paid to BHP Billiton. BHP Billiton is willing to discuss
placing amounts in escrow once a timetable for the overall Restructuring
is agreed between BHP Billiton and the Senior Creditors.
o BHP Billiton is able to work closely with the directors and Senior
Creditors to meet the timetable of the Restructuring and address
governance issues through discussion and negotiation.
The summary terms of the BHP Billiton Offer are as follows1:
1 BHP Billiton offers to increase the price for creditors who decide to
tender their A-2 Debt, C Debt (which will be renamed under the BHP
Billiton Offer "A-3 DEBT"), and Equity (the "CASH-OUT OPTION") to 70 per
cent. of the A-2 principal amount, a substantial improvement to the
prices proposed by The AES Corporation ("AES"), International Power plc
("IP") and Goldman Sachs International ("GS"). BHP Billiton would also
pay 1% for the A-3 Debt. BHP Billiton (or an affiliate) will provide up
to (pound)95,000,000 of cash to support the funding of the Cash-Out
Option ("BHP BILLITON FUNDS"). If demand for the Cash-Out Option is so
strong that additional funds are required, BHP Billiton reserves the
right to increase its participation and, if necessary, will endeavour to
obtain additional funding from third parties wishing to purchase the A-2
Debt. To the extent that such
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1 Additional detailed information is contained in the various Schedules
attached to the BHP Billiton Offer Letter. Any capitalised term used but
not otherwise defined in this BHP Billiton Offer Letter shall have the
meaning given to it in Schedule 4 of this Offer Letter. To the extent
there is any inconsistency between the BHP Billiton Offer Letter and the
Schedules, the terms of the BHP Billiton Offer Letter will prevail.
2
funding is not available, there would be a "scale back" as provided under
section 1.3.3 of Schedule 4 of this BHP Billiton Offer Letter. To the
extent that the Cash-Out Option is funded by BHP Billiton Funds, BHP
Billiton will purchase pro-rata holdings of the A-2 Debt and the A-3 Debt
and will have the option to become the owner of the Equity corresponding
to the amount of the A-3 Debt purchased by BHP Billiton.
2 BHP Billiton will leave it to the option of the Company and the Senior
Creditors whether they elect to use (pound)30,000,000 (the minimum
required by BHP Billiton) of cash currently held by the Company or such
higher amounts as may be deemed by the directors of the Company to be
available in order to fund the Cash-Out Option. To the extent that the
Company and the Senior Creditors elect to use more than (pound)30,000,000
of Project Funds, the Cash-Out Option will be funded as follows: first,
(pound)30,000,000 of Project Funds will be used; second, the amount of
incremental Project Funds in excess of the (pound)30,000,000 that the
Company and the Senior Creditors elect to use, and finally any additional
amounts that are required will be funded from BHP Billiton Funds until
BHP Billiton Funds are exhausted.
3 The BHP Billiton Offer increases the margin on the A-2 Debt to 400bps. In
addition, the terms and ranking of the B Debt and the A-3 Debt would be
as follows: the A-3 Debt will rank behind the A-2 Debt but ahead of the B
Debt, both in the Cash Flow Waterfall and with respect to its security
over the Principal Drax Assets. The A-3 Debt will have fourth ranking
security over the Principal Drax Assets and will accrue interest at a
rate of Libor + 500bp, with the potential of having interest deferred if
no funds are available under the Cash Flow Waterfall (similar to the A-2
Debt). The B Debt will accrue interest at the rate of Libor + 200bp with
the potential of having interest deferred if no funds are available under
the Cash Flow Waterfall (similar to the A-2 Debt and the A-3 Debt). The B
Debt will have first ranking security over the claims against TXU Europe
Energy Trading Limited and TXU Europe Group plc (the "TXU Claim"), as
well as a fifth ranking security over the Principal Drax Assets. The
holders of the B Debt however will not have any voting rights with
respect to the release of their security over the Principal Drax Assets,
the sale of the Company, or a recapitalisation of the balance sheet. The
B Debt holders may (by a 75 per cent. majority) agree to compromise the
TXU Claim or vote the interest of the AES Drax Companies in any
insolvency in respect of the TXU Claim. The A-3 Debt holders shall have
the first right of refusal to purchase all (or materially all) but not
part of the Drax Principal Assets if the A-1 Debt holders and/or A-2 Debt
holders have resolved to sell such assets.
4 It is a condition of BHP Billiton's Offer that BHP Billiton (or an
affiliate) will enter an agreement for the supply of coal to the Drax
power station for 15 years from January 2004. The agreement would be
structured to ensure supply security for Drax Power, allowing it to
retain maximum operational flexibility and mitigate risks in relation to
Drax Power's most significant cost item. It would allow significant
volume flexibility on coal supply which will be essential in ensuring an
efficient transition to sourcing more imported coal as local domestic
coal production declines. Subject to existing coal supply contracts, BHP
Billiton (or an affiliate) would supply 100% of Drax's coal requirements
on an exclusive basis from January 2006 to December 2010, and would
thereafter continue to supply 80% of the plant's total requirements to
2018. The remaining 20% during this period would be subject to a
competitive tender in which BHP Billiton (or an affiliate) would be
entitled to participate. The price for coal supplied by BHP Billiton (or
its affiliate) would be based on a competitive market index with a
fixed-price adjustment for UK-based logistics. BHP Billiton (or an
affiliate) will also assume management of the entire logistics chain of
its coal supply to Drax Power, including sea freight, port facilities and
rail transportation. BHP Billiton's position as a major coal supplier
would enable it to minimise stockpile requirements and thereby reduce
working capital requirements for
3
Drax Power, manage the blending of coals to ensure plant specifications
are met and cover risks associated with delivery to the plant. (Further
details are set out in Schedule 5).
5 Drax Power will require substantial credit support to continue its
electricity trading activities following the Restructuring. If Drax Power
is no longer required to provide cash collateral as credit support this
will enhance the liquidity of the Drax power station and provide cash for
other purposes, including working capital and funding the Cash-Out
Option. BHP Billiton is willing to arrange, subject to agreement of
satisfactory commercial terms by 30 September 2003, a (pound)100,000,000
Trading Guarantee Facility to facilitate Drax Power's ability to trade
electricity. BHP Billiton believes this will generate significant cost
savings in relation to the costs of credit support facilities
contemplated in other proposals.
6 There are a number of important commercial services which are necessary
for the ongoing operation of the Drax power station. It is a condition of
BHP Billiton's Offer that restructured commercial arrangements are put in
place in the three key areas of O&M (by 30 March 2004), trading services
(by 30 March 2004) and trading guarantee facilities (by the Effective
Date).
BHP Billiton believes it can add significant value through the provision
of a number of commercial services and, if the Company so requires, would
be happy to assist in the following respects:
6.1 BHP Billiton believes that it is desirable to enter into long-term
offtake agreements on up to two of the six Drax units in order to
ensure a minimum level of stable cash flows and reduce the
operational risk of trading all six units as a merchant plant. BHP
Billiton (through one of its affiliates) will be happy to assist
in structuring such contracts.
6.2 BHP Billiton believes that it can offer significant cost savings
to the Company in relation to its trading activities by offering
certain management services to Drax Power, including confirmation,
24-hour operation contract and risk management services,
accounting, settlements and invoicing services. At the option of
Senior Creditors and the Company, BHP Billiton (or an affiliate)
will make available trading facilities, systems and resources at
BHP Billiton (or its affiliates) offices enabling relevant
personnel to access BHP Billiton's (or its affiliate's) trading
systems and in particular its coal, power and CO2 trading
expertise. An agency fee would be payable in respect of the
provision of these services that BHP Billiton believes would
provide substantial ongoing cost savings to the Company.
6.3 BHP Billiton believes that the Company could make substantial
savings in relation to O&M services compared with the AES and IP
proposals, which include significant management fees for O&M
services. In addition, both AES and IP have proposed a long-term
O&M contract that can only be cancelled under very limited
circumstances. BHP Billiton believes that it can add considerable
value to the restructuring by procuring specialist O&M personnel
from Eskom.
6.4 BHP Billiton (or an affiliate) would also provide coal price
hedging services allowing Drax the option to fix forward coal
prices for up to three years, enhancing its control over cash
flows, timing of pricing and spark spreads.
7 Additional information on the terms of this BHP Billiton Offer are set
out in the various Schedules attached to this BHP Billiton Offer Letter.
8 The BHP Billiton Offer will lapse at 5.00 p.m. (London time) on 29 August
2003 unless the Company and the Senior Creditors Committees have by then
entered into an exclusive relationship with BHP Billiton by
countersigning this letter and returning it to us, thereby confirming
that they will not enter
4
into or continue any negotiations or discussions with any person other
than BHP Billiton with respect to the Cash-Out Options and the other
matters contemplated by this BHP Billiton Offer Letter, provided that
such exclusivity shall cease on 31 December 2003 or, if earlier, (i) the
date on which this offer lapses or is otherwise terminated, or (ii) the
date of execution of mutually acceptable documentation required for the
Restructuring (including the coal supply agreement and shareholders
agreement) and satisfaction of all conditions precedent thereto (the
"EFFECTIVE DATE").
On behalf of BHP Billiton, we very much appreciate your consideration of this
offer and look forward to your response. BHP Billiton believes that its offer
proposes a financial and commercial restructuring of the Company to the benefit
of the Senior Creditors. BHP Billiton sees this offer as forming the basis of a
long-term mutually beneficial relationship with the Company. In addition, we
believe that along with Eskom, we offer a package that lowers the risk and
enhances value to the Senior Creditors.
Please feel free to contact Rowen Bainbridge (on 0207 802 4015) or Paul Adair
(0207 802 4036) to discuss any questions or issues that you may have with
respect to this letter.
Yours faithfully,
Michael M.C. Oppenheimer
President, BHP Billiton Energy Coal
cc: Shaun Holmes, Royal Bank of Scotland
Martin Gudgeon, Close Brothers Corporate Finance Limited
Mark Dixson, Deutsche Bank A.G.
I confirm that I have been authorised by AES Drax Holdings Limited to accept the
BHP Billiton Offer and to confirm that (a) AES Drax Holdings Limited has the
right and power, and has taken or will take all action necessary to accept the
BHP Billiton Offer and execute and perform the matters and transactions
contemplated by it and (b) by accepting the BHP Billiton Offer and performing
such matters and transactions AES Drax Holdings Limited is not and will not be
in breach of any law, regulation or obligation whatsoever owed to any other
person.
Agreed and accepted on 2003 for and on behalf of AES Drax Holdings Limited
By: -----------------------------
Name: ---------------------------
Title: --------------------------
5
I confirm that I have been authorised by the Bank Steering Committee to accept
the BHP Billiton Offer and to confirm that (a) the Bank Steering Committee has
the right and power, and has taken or will take all action necessary to accept
the BHP Billiton Offer and execute and perform the matters and transactions
contemplated by it and (b) by accepting the BHP Billiton Offer and performing
such matters and transactions the Bank Steering Committee is not and will not be
in breach of any law, regulation or obligation whatsoever owed to any other
person.
Agreed and accepted on 2003 for and on behalf of the Bank Steering Committee
By: -----------------------------
Name: ---------------------------
Title: --------------------------
I confirm that I have been authorised by the Senior Bondholder Committee to
accept the BHP Billiton Offer and to confirm that (a) the Senior Bondholder
Committee has the right and power, and has taken or will take all action
necessary to accept the BHP Billiton Offer and execute and perform the matters
and transactions contemplated by it and (b) by accepting the BHP Billiton Offer
and performing such matters and transactions the Senior Bondholder Committee is
not and will not be in breach of any law, regulation or obligation whatsoever
owed to any other person.
Agreed and accepted on 2003 for and on behalf
of the Senior Bondholder Committee
By: -----------------------------
Name: ---------------------------
Title: --------------------------
6
SCHEDULE 1
FURTHER TERMS AND CONDITIONS RELATING TO THE BHP BILLITON OFFER
1
1.1 BHP Billiton requires the holders of Equity to enter into a
shareholders' agreement. The detailed terms and conditions,
including the right to appoint directors, rights and
restrictions on the transfer of shares and voting rights will be
agreed with the Senior Creditors Committees. BHP Billiton (or
its affiliate) would not have the right to block a sale by the
Senior Creditors of their Equity. If, following completion of
the Restructuring, the Senior Creditors receive an offer, or
enter into any process or negotiations for the sale of the
Equity or the Principal Drax Assets, BHP Billiton requires
notice of such offer, process or negotiations and the right to
submit an offer for such Equity or the Principal Drax Assets for
consideration by the relevant Senior Creditors. Certain other
reserved matters such as changes to the coal supply arrangements
will require unanimity.
1.2 BHP Billiton requires to appoint such number of directors as is
proportionate to its overall shareholding interest. Such
director(s) would have veto rights over certain reserved
matters, including the appointment of identified key
individuals, such as the station manager and the implementation
of a commodity price risk management policy.
1.3 BHP Billiton is supportive of the proposal to provide a period
of stability following the Restructuring within which the Drax
power station may operate, by linking the A-2 Debt, A-3 Debt and
Equity (including any option to hold Equity) for an initial
period on terms to be agreed with the Senior Creditors
Committees.
2 The BHP Billiton Offer is subject to:
2.1 prior to the Effective Date there being, in BHP Billiton's
opinion, no material adverse change in the assets, operations or
liabilities (but excluding any such change arising out of a
change in commodity prices in the UK market) of the Company and
its affiliates or in the forecasts with regard to capital and
operating expenditure and taxes compared to the information: (i)
contained within the Form 6K filing dated 16 July 2003 (SEC file
#:333-13096) and/or (ii) as disclosed to BHP Billiton during the
due diligence referred to in paragraph 2.4 below;
2.2 satisfactory legal and regulatory approvals and clearances that
are necessary or desirable to effect the Restructuring having
been obtained by the time necessary or desirable;
2.3 BHP Billiton board approval of the final Restructuring
documentation; and
2.4 BHP Billiton finalising to its satisfaction its confirmatory
technical and commercial due diligence process; which it expects
to do by 15 September 2003.
3 In addition to the matters described in the BHP Billiton Offer Letter,
it is a condition of BHP Billiton's Offer that, in accordance with the
timeline set out in Schedule 3:
3.1 heads of terms for the coal supply agreement with BHP Billiton
(or an affiliate) are agreed by 15 September 2003;
3.2 a financial term sheet for the Restructuring and heads of terms
for the shareholders' agreement and Trading Guarantee Facility
are agreed by 30 September 2003;
7
3.3 from the date on which your acceptance of this offer is received
(the "ACCEPTANCE DATE") until the Effective Date, the Company
(and in the case of paragraph 3.3.1 below, the Senior Creditors
Committees) will not:
3.3.1 enter into or continue any negotiations or discussions
with any person other than BHP Billiton with respect to
the Cash-Out Options and the other matters relating to
the Restructuring contemplated by this BHP Billiton
Offer Letter; or
3.3.2 enter into any agreement with any person other than BHP
Billiton (or any of its affiliates) with respect to the
supply of coal to the Drax power station except with the
prior consent of BHP Billiton, which shall not be
unreasonably withheld or delayed; and
3.4 the Restructuring is completed (including the satisfaction of
any conditions relating thereto) by no later than 31 December
2003 on the basis of documentation in a form mutually acceptable
to BHP Billiton and the Senior Creditors.
4 BHP Billiton will (prior to completion of the Restructuring) be
consulted with respect to (but subject to paragraph 3.3.2 above shall
not have a veto right in relation to) major business decisions,
including the appointment of the plant manager and head of trading,
entry into material contracts, any long-term hedging agreements and the
level of minimum required working capital.
5 BHP Billiton will be entitled, from the Acceptance Date to the Effective
Date, to receive the same information, analyses, reports and advice in
relation to the Restructuring and the business as is provided to the
Senior Creditors, unless there is a clear conflict of interest in BHP
Billiton receiving the same.
6 Only BHP Billiton and a person who has duly accepted this offer will be
entitled to rely on or enforce its terms.
8
SCHEDULE 2
AMENDED CASH FLOW WATERFALL
The Cash Flow Waterfall in respect of the A-1 Debt, A-2 Debt, A-3 Debt and B
Debt, all as defined in Schedule 4 of this BHP Billiton Offer Letter (the
"RESTRUCTURED DEBT"), will be as follows:
1 On any interest payment date, the order of payments in respect of the
Restructured Debt from cash available for debt service, after any payment
required to be made in relation to the Trading Guarantee Facility and
taking into account working capital requirements restructuring costs and
expenses (including reasonable costs and expenses of the Senior Creditors
Committees to the extent not paid at the closing of the Restructuring but
excluding the costs and expenses of BHP Billiton and its advisers) and
tax, is:
(a) first, to make payments of interest on the A-1 Debt and hedging of
A-1 Debt interest2;
(b) second, to make scheduled repayments of principal on the A-1 Debt;
(c) third, to make a deposit to the DSRA of the amount required so
that funds standing to the credit of the DSRA are equal to the
interest on A-1 Debt falling due on the next two interest payment
dates;
(d) fourth, to make payments of interest on the A-2 Debt (including
deferred interest and hedging of A-2 Debt interest);
(e) fifth, to fund the A-2 Debt Interest Reserve to the required
amount;
(f) sixth, to make a deposit to the DSRA of an amount so that the
balance on the DSRA is equal to the scheduled amortisation of
principal on A-1 Debt falling due on the next two interest payment
dates;
(g) seventh, to make payments of interest on the A-3 Debt;
(h) eighth, to fund the A-3 Debt Interest Reserve to the required
amount;
(i) ninth, to pay interest on the B Debt;
(j) tenth, to fund the B Debt Interest Reserve to the required amount;
(k) eleventh, to make prepayments and repayments as follows:
(i) at any time after the principal amount outstanding of the
A-1 Debt is (pound)200,000,000 or more, to prepay the A-1
Debt, with prepayments of A-1 Debt being applied to the
amortisation profile of the A-1 Debt in inverse order of
maturity; and
(ii) at any time after the principal amount outstanding of the
A-1 Debt is less than (pound)200,000,000, to prepay A-1
Debt and prepay A-2 Debt on a pro rata basis as to the
outstanding principal amount of A-1 Debt and A-2 Debt
immediately prior to the prepayment. Prepayments of the A-1
Debt will be applied to the amortisation profile of the A-1
Debt in inverse order of maturity;
(l) twelfth, if the A-1 Debt and the A-2 Debt have been repaid in
full, to pay A-3 Debt deferred interest;
- -------------
2 Structuring of hedging facilities and ranking in Cash Flow Waterfall to
be discussed between the Senior Creditors Committees and BHP Billiton.
9
(m) thirteenth, if the A-1 Debt and the A-2 Debt have been repaid in
full, to prepay principal on the A-3 Debt;
(n) fourteenth, if the A-1 Debt, the A-2 Debt and the A-3 Debt have
been repaid in full, to pay B Debt deferred interest; and
(o) fifteenth, if the A-1 Debt, the A-2 Debt and the A-3 Debt have
been repaid in full, to prepay principal on the B Debt.
Proceeds received in respect of the TXU Claim will be excluded from the
Cash Flow Waterfall. If any amount is paid in respect of the TXU Claim,
such amount (net of related VAT and a withholding on account of UK
corporation tax) will be applied to prepay the principal of the B Debt.
The amount withheld on account of UK corporation tax from TXU Claim
proceeds will be equal to 30% (or, if different, the prevailing UK
corporation tax rate in the tax year such payment in respect of the TXU
Claim is received). The amount withheld will be paid into an escrow
account. If payment had been received in respect of the TXU Claim, and
the relevant company in the Drax group has a liability in respect of UK
corporation tax, an amount shall be applied to pay such tax amount when
such amount falls due for payment. If, having paid the full UK
corporation tax liability of the relevant company, there remains a
positive balance in the escrow account, such positive balance shall be
applied to prepay the principal of the B Debt.
BHP Billiton is prepared to discuss any appropriate structure which may
achieve a mutually beneficial result for the parties.
10
SCHEDULE 3
TIMELINE OF THE BHP BILLITON OFFER
29 AUG 2003: Last date for acceptance of BHP Billiton Offer. The Company and the
Senior Creditors Committees enter into exclusive negotiations with BHP Billiton
as the preferred counterparty.
15 SEP 2003: Agreed heads of terms for coal supply agreement.
30 SEP 2003: Financial Term Sheet agreed for the Restructuring and agreed heads
of terms for the shareholders agreement and Trading Guarantee Facility.
31 DEC 2003: Deadline for the completion of the Restructuring including the
satisfaction of any conditions relating thereto and signature of the coal supply
agreement, shareholders agreement and the Trading Guarantee Facility
documentation.
31 MARCH 2004: Agreed O&M agreement and trading services agreement.
11
SCHEDULE 4:
AES DRAX HOLDINGS LIMITED:
Our restructuring proposal follows, in general, the key structural terms of the
14 August 6K. However, following consultation with Senior Creditors and their
advisors, it includes a number of specific structural differences from that
proposal that we believe add value to the terms of the Restructuring. The
principal differences are:
(i) flexibility to consider any proposals which have been developed on the
treatment of the Hedge Termination Payments and any reinstated interest
rate hedges (see section 1.2.1);
(ii) no cash-out option for the B Debt. We also do not propose the option to
eliminate the B tranche's claim on the Principal Drax Assets (see section
2.1);
(iii) arrangement by BHP Billiton of the Trading Guarantee Facility at the
Company's option (see section 1.5);
(iv) willingness to enter into discussions with third parties to provide
Cash-Out funding on the same terms as our proposal, should the BHP
Billiton funds not be sufficient to satisfy all demand for the Cash-Out
Option (see section 1.3.3); and
(v) flexibility to discuss issues further with the Senior Creditors, on the
basis of the proposal set out in the 30 June 6K.
PROPOSED RESTRUCTURING TERMS FOR SENIOR CREDITORS UNDER THE BHP BILLITON OFFER
GLOSSARY
"AES" means the AES Corporation
"AES DRAX COMPANIES" means Drax Holdings, Drax Power, AES Drax Acquisition
Limited, AES Drax Financing Limited and other subsidiaries of Drax Holdings
"BANK LOANS" means the loans provided by the Senior Banks to InPower
"BANK STEERING COMMITTEE" means the steering committee representing the Senior
Banks
"BHP BILLITON OFFER" means the offer being made by BHP Billiton and/or certain
of its affiliates on 21 August 2003 to facilitate the restructuring of the
senior secured debt and other contractual arrangements of Drax Holdings, Drax
Power, and/or certain of their affiliates
"CURRENCY HEDGING BANKS" means the banks providing currency hedging facilities
to Drax Holdings
"DRAX HOLDINGS" means AES Drax Holdings Limited
"DRAX POWER" means AES Drax Power Limited
"EUROBONDS" means the(pound)1,725 million secured bonds due 2015 issued by Drax
Holdings
"HARICH" Harich Investment B.V.
"HARICH SWAPS" means the swaps between Harich and InPower, and between Harich
and Drax Power
"HEDGE TERMINATION PAYMENTS" means amounts payable to the Hedging Banks upon
termination of any interest rate or currency swaps to which the Hedging Banks
are a party, which will be converted into Restructured Debt on a pro-rata basis
12
"HEDGING BANKS" means the Currency Hedging Banks and the Interest Rate Hedging
Banks
"INPOWER" means InPower Limited
"INTEREST RATE HEDGING BANKS" means the banks providing interest rate hedging
facilities to Drax Power
"RESTRUCTURED DEBT" means A-1 Debt, A-2 Debt, A-3 Debt and B Debt, all as
defined in section 1.2 of this Schedule
"RESTRUCTURING" means the restructuring reflected in this proposal
"SENIOR BANKS" means the syndicate of banks which financed (through a loan to
InPower) the acquisition of the Eurobonds by InPower
"SENIOR BONDHOLDER COMMITTEE" means the committee representing the holders of
the Senior Bonds
"SENIOR BONDHOLDERS" means the holders of the Senior Bonds
"SENIOR BONDS" means the 9.07% Senior Secured Bonds due 2025 and 10.4% Senior
Secured Bonds due 2020 issued by Drax Holdings
"SENIOR CREDITORS" means the Senior Banks, the Senior Bondholders and the
Hedging Banks
"SENIOR CREDITORS COMMITTEES" means the Bank Steering Committee and the Senior
Bondholder Committee
"TRADING GUARANTEE FACILITY" means the facility that may be provided by BHP
Billiton (or its affiliate) to support the electricity trading of Drax Power
following the Restructuring or a third party, at the discretion of the Company
"TXU CLAIM" means the claim by Drax Power against TXU Europe Energy Trading
Limited and TXU Europe Group plc in connection with defaults under certain power
purchase arrangements.
1 SECTION 1 - THE RESTRUCTURING PROPOSAL
1.1 CURRENT DEBT STRUCTURE
The current senior secured indebtedness owed by Drax Holdings
to the Senior Creditors is summarised in the table below.
------------------------------------- -------------------------- ---------------- ------------------
DEBT PRINCIPAL AMOUNT FINAL MATURITY INTEREST RATE
------------------------------------- -------------------------- ---------------- ------------------
Bank Loans owed to Senior Banks (pound)842,555,000 2015 Libor plus 3.0%(3)
(serviced through interest coupons
under the Eurobonds and the Harich
Swaps)
------------------------------------- -------------------------- ---------------- ------------------
Senior Secured Bonds due 2020 U.S.$302,400,000 2020 10.41%
------------------------------------- -------------------------- ---------------- ------------------
- -------------
3 We understand that the margin of 3% above Libor is the margin to which
the Senior Banks are entitled under the Bank Loans given the current
credit rating of the AES Drax Companies. However interest with a margin
of 2.2% was paid to the Senior Banks on 31 December 2002 and on 30 June
2003.
13
------------------------------------- -------------------------- ---------------- -----------------
DEBT PRINCIPAL AMOUNT FINAL MATURITY INTEREST RATE
------------------------------------- -------------------------- ---------------- -----------------
Senior Secured Bonds due 2025 (pound)200,000,000 2025 9.07%
------------------------------------- -------------------------- ---------------- -----------------
Hedge Termination Payments Up to approx Not Not
(pound)91,400,0004 applicable applicable
------------------------------------- -------------------------- ---------------- -----------------
1.2 PROPOSED DEBT STRUCTURE
1.2.1 PROPOSED DEBT STRUCTURE
The Restructuring reflected in this proposal involves
replacing the existing senior secured debt with new
secured debt, as well as providing the Senior
Creditors with Equity, as summarised below.
- ----------------------- ------------------------ -------------- ---------------
FINAL
DEBT STERLING EQUIVALENT MATURITY INTEREST RATE
- ----------------------- ------------------------ -------------- ---------------
A-1 Debt (pound)400,000,000 2015 Libor plus
2.5%
- ----------------------- ------------------------ -------------- ---------------
A-2 Debt Up to(pound) 2015 Libor plus
460,000,000(5) 4.0%
- ----------------------- ------------------------ -------------- ---------------
A-3 Debt Up to(pound) 2020 Libor plus
135,455,000(6) 5.0%
- ----------------------- ------------------------ -------------- ---------------
B Debt (pound)338,400,000(7) 2025 Libor plus
2.0%
- ----------------------- ------------------------ -------------- ---------------
Total Debt Up to(pound)
1,333,855,000
- ----------------------- ------------------------ -------------- ---------------
- -------------
4 The amount of (pound)91,400,000 for Hedge Termination Payments is based
upon the most recent indicative valuation of the termination sum
payable by Drax Holdings or Drax Power (as supplied by AES in its
restructuring proposal). The indicative termination payments, if all
positions were to be terminated, are included in the above table. The
termination value of hedge contracts is subject to market prices and
may therefore increase or decrease from the estimated amount included
in the document. The treatment of the hedge positions of the Hedging
Banks in the Restructuring requires further discussion with the Hedging
Banks, the Senior Creditors Committees and BHP Billiton.
5 The amount of A-2 Debt outstanding immediately following the
Restructuring will be lower to the extent that the Cash-Out Option is
exercised by Senior Creditors.
6 The amount of the A-3 Debt outstanding immediately following the
Restructuring will be equal to the sum of the debts owed to the Senior
Creditors (as set out in the table in section 1.1 above), less the sum
of the other tranches of the Restructured Debt and will be lower to the
extent that (a) the Project Funds are used to fund any Cash-Out Option
and (b) the hedging contracts with Hedging Banks are not terminated.
The figure shown is based on an exchange rate of $1.512 = (pound)1, the
Fed Funds Rate on 27 July 2000 being the rate applicable at the time of
the issue of the Senior Bonds. The actual exchange rate used will be
that as at a reference date prior to the Restructuring. The termination
value of hedge contracts is subject to market prices and may therefore
increase or decrease from the estimate included in this document.
7 This is the aggregate amount of the TXU Claim (net of VAT payable in
respect thereof). There is no assurance that the full amount of the TXU
Claim will ultimately be recovered or that the AES Drax Companies will
have tax losses to offset against any attributable income.
14
----------------------- ------------------------ -------------- ---------------
FINAL
DEBT STERLING EQUIVALENT MATURITY INTEREST RATE
----------------------- ------------------------ -------------- ---------------
Equity 100% ownership
(indirect) of Drax
Power Station
----------------------- ------------------------ -------------- ---------------
Trading Guarantee Up to(pound)100
Facility million(8)
----------------------- ------------------------ -------------- ---------------
Interest Rate
Hedging(9)
----------------------- ------------------------ -------------- ---------------
1.2.2 RIGHT TO RECEIVE PRO RATA SHARE OF RESTRUCTURED DEBT
One overriding principle in the Restructuring is that
for each (pound)1 of senior secured indebtedness owed
to a Senior Creditor such Senior Creditor will be
entitled to the same participating interest in each
of the tranches of debt. Accordingly, each Senior
Bank, Senior Bondholder and Hedging Bank (to the
extent their hedging agreement is terminated) will be
allocated, in proportion to its current relative
holdings of the Bank Loans, Senior Bonds or rights to
Hedge Termination Payments, as the case may be:
(i) participations in A-1 Debt and B Debt; and
(ii) the right to receive a combination of:
(a) participations in A-2 Debt and A-3
Debt (together with the A-1 Debt
and B Debt, the "RESTRUCTURED
Debt"); and/or
(b) cash pursuant to the exercise by
such Senior Creditor of its
Cash-Out Option described in
section 1.3 - The Cash-Out Option
below.
1.2.3 SENIOR CREDITORS' RIGHT TO ALL EQUITY
The Senior Creditors will, under the terms of this
Restructuring proposal, have the right to become
indirect owners of the whole of the equity of Drax
Power in proportion to their holdings of A-3 Debt
after the exercise of the Cash-Out Option. See
section 1.4 - Drax Power Station Ownership. The BHP
Billiton Offer does not provide for any consideration
to be provided to AES or the AES Drax Energy Limited
bondholders.
- -------------
8 To be finalised following agreement of a revised electricity trading
policy for the AES Drax Companies. In addition, it is intended that at
completion of the Restructuring a cash balance of up to
(pound)50,000,000 will be available from existing Company cash
resources to Drax Power for working capital purposes, subject to the
cashflow cycle.
9 Discussions required between the Hedging Banks, the Senior Creditors
Committees and BHP Billiton as to the treatment of hedge positions in
the Restructuring.
15
1.2.4 RESTRUCTURED TRANCHES OF DEBT
The Restructured Debt has been separated into
tranches in order to provide for:
(i) a first ranking tranche of debt(10), the A-1
Debt, of (pound)400 million with the
following scheduled amortisation profile and
a final maturity date of 2015:
- ------------------------- ---------------------------------
AMORTISATION ((POUNDS
YEAR STERLING) MILLION)(11)
- ------------------------- ---------------------------------
2007 10
- ------------------------- ---------------------------------
2008 20
- ------------------------- ---------------------------------
2009 55
- ------------------------- ---------------------------------
2010 55
- ------------------------- ---------------------------------
2011 55
- ------------------------- ---------------------------------
2012 55
- ------------------------- ---------------------------------
2013 50
- ------------------------- ---------------------------------
2014 50
- ------------------------- ---------------------------------
2015 50
- ------------------------- ---------------------------------
Interest on A-1 Debt will be payable on a
semi-annual basis. A-1 Debt will have the
benefit of certain prepayment rights as well
as a Debt Service Reserve Account (as
defined in section 2.1.1) funded at
completion of the Restructuring to an amount
equal to the interest payments falling due
on the two interest payment dates following
the Restructuring and, thereafter, funded in
accordance with the Cash Flow Waterfall (as
described in section 2.2 - Cash Flow
Waterfall) to a level equal to the interest
and scheduled principal payments on the A-1
Debt falling due on the two interest payment
dates following the relevant interest
payment date;
(ii) a second ranking tranche, the A-2 Debt, of
up to (pound)460 million which will have no
fixed amortisation profile, however, the
outstanding principal balance will fall due
for payment in 2015. Interest on the A-2
Debt will be payable on a semi-annual basis
after payment of interest on the A-1 Debt,
any hedging specific to the A-1 Debt(12)
scheduled principal payments on the A-1
Debt, and a cash sweep into the Debt Service
Reserve Account to ensure a required balance
equal to 12 months' interest payments on A-1
Debt;
A-2 Debt will also benefit from a 1.0 x
look-forward test/reserve of at least six
months. If there are insufficient funds to
pay interest on the A-2 Debt,
- -------------
10 This is subject to the priority of the Trading Guarantee Facility (see
section 1.5 - Electricity Trading Support for BHP Billiton's proposal).
11 Each annual scheduled amortisation shown above will be payable in two
equal instalments on the semi-annual interest payment dates in each
such year, provided that there will only be one payment in 2015.
12 Structure of hedging and ranking in Cash Flow Waterfall to be discussed
with the Hedging Banks and Senior Creditors Committees.
16
interest will be deferred . Repayment of the
principal on the A-2 Debt will not occur
prior to the principal amount of the A-1
Debt reducing to below (pound)200 million
and will, thereafter, be dependent upon
there being sufficient funds available for
such purpose in accordance with the Cash
Flow Waterfall;
(iii) a third ranking tranche, the A-3 Debt, of up
to (pound)135.455 million. Unpaid interest
on the A-3 Debt will be deferred (but not
capitalised). The A-3 Debt will not receive
cash payments of deferred interest or
principal until the A-1 Debt and A-2 Debt
have been repaid in full;
(iv) a fourth ranking tranche, the B Debt,
of(pound)338.4 million whose primary source
of repayment will be payments received in
relation to the TXU Claim and will have
first ranking security over the TXU Claim.
The B Debt will also have security over the
Principal Drax Assets ranking junior to the
A-3 Debt. Interest will accrue on the B Debt
and will be paid in accordance with the Cash
Flow Waterfall, where it ranks behind
scheduled A-1 Debt payments, A-2 Debt and
A-3 Debt interest payments and, inter alia,
deposits to a debt service reserve account
to ensure a required balance equal to 12
months' interest and scheduled principal
payments on the A-1 Debt. If there are
insufficient funds to pay interest on the B
Debt, interest will be deferred, but not
capitalised.
Proceeds of the TXU Claim will be used to
repay the principal amount of the B Debt and
interest thereon. The principal amount
outstanding of the B Debt will only
otherwise be repaid once the A-1 Debt, the
A-2 Debt and the A-3 Debt have been repaid
in full. See section 2.2 - Cash Flow
Waterfall for further details.
All Restructured Debt will accrue interest as from 1
July 2003 (see section 1.3.5 - Accrual of Interest).
1.3 THE CASH-OUT OPTION
1.3.1 OPTION TO SELL A-2 DEBT AND A-3 DEBT
As part of the Restructuring, each Senior Creditor
will have the option (the "CASH-OUT OPTION") to sell,
at a discount (see section 1.3.2. below), all of its
participation in the A-2 Debt and the A-3 Debt,
provided that a Senior Creditor may tender on a
pro-rata basis part of its A-2 Debt and A-3 Debt. Any
such sales will be completed concurrently with the
issuance of the Restructured Debt. A Senior Creditor
that exercises its Cash-Out Option will forego any
right to receive Equity (as defined in section 1.4.1
- Ownership below) for any A-3 Debt sold in the
Cash-Out Option.
The Cash-Out Option is designed to provide Senior
Creditors with an alternative in order to realise
immediate cash value for the holding of A-2 Debt, A-3
Debt and Equity which would otherwise be allocated to
them.
1.3.2 DISCOUNT PRICE
Under the Cash-Out Option, the discount price for a
Senior Creditor's participation in A-3 Debt will be
1% of its original principal amount. The discount
price for a
17
Senior Creditor's participation in A-2 Debt will be
70% of its original principal amount.
1.3.3 SOURCE OF FUNDS
Two sources of funds will be available to make
payments to Senior Creditors who elect to accept the
Cash-Out Option ("CASH-OUT FUNDS"):
(i) the amount, being at a minimum
(pound)30,000,000, which will be available
to the AES Drax Companies (after taking into
account fees and expenses in connection with
the Restructuring and working capital
requirements subject to the cashflow cycle)
is that amount of cash (the "PROJECT FUNDS")
in excess of funds required to make payment
in full of amounts in the Cash Flow
Waterfall down to and including A-2 Debt
interest on 31 December, 2003 and,
therefore, is yet to be finally determined;
and
(ii) up to (pound)95,000,000 (or such greater
amount as is referred to below) is to be
made available by BHP Billiton or one of its
affiliates (the "BHP BILLITON FUNDS").
The Cash-Out Funds for the Cash-Out Option will be
made available as follows:
(i) first, by the AES Drax Companies from
Project Funds up to(pound)30,000,000;
(ii) second, the amount of incremental Project
Funds in excess of the (pound)30,000,000
that the Company and Senior Creditors elect
to use until all Project Funds are
exhausted; and
(iii) finally, any additional amounts that are
required will be funded from BHP Billiton
Funds until BHP Billiton Funds are
exhausted.
It is possible that the amount of BHP Billiton Funds
might be increased if the Cash-Out Option is taken up
by Senior Creditors in such a manner that the
(pound)95,000,000 would prove to be insufficient. If
demand for the Cash-Out Option is so strong that
additional funds are required, BHP Billiton reserves
the right to increase the amount of the BHP Billiton
Funds and, if necessary, will endeavour to obtain
additional funding from third parties.
If Cash-Out Funds are insufficient to make payments
in full to all the Secured Creditors who elect to
accept the Cash-Out Option (each an "ELECTING SECURED
CREDITOR") then each Electing Secured Creditor will
be "scaled back". All Cash-Out Funds will be used so
that each Electing Secured Creditor will sell its A-2
Debt and A-3 Debt pro rata to its claim as a Secured
Creditor relative to the aggregate of claims of all
Electing Secured Creditors. Each Electing Secured
Creditor will then receive A-2 Debt and A-3 Debt
which remains unsold under its exercise of the
Cash-Out Option and, therefore, a corresponding
portion of the Equity.
1.3.4 CONSEQUENCES OF CASH-OUT OPTION
To the extent that Project Funds are used to purchase
participations in A-2 Debt and A-3 Debt under the
Cash-Out Option, the outstanding amount of such debt
will be retired, thereby deleveraging the Drax
project. To the extent that BHP Billiton purchases
participations in A-2 Debt and A-3 Debt, it will
become a Senior Creditor
18
holding Restructured Debt. In addition, BHP Billiton
will have the option to receive Equity in proportion
to the amount of A-3 Debt it purchases.
1.3.5 ACCRUAL OF INTEREST
No interest will be paid in respect of the debt to be
compromised in the Restructuring which is held by the
Senior Banks and the holders of the Senior Bonds for
the period from and including 1 July 2003 to the
completion of the Restructuring. However, interest
will accrue in respect of the Restructured Debt as
from 1 July 2003 as if such debt had been issued on
such date, and will be paid in accordance with the
Cash Flow Waterfall. Appropriate treatment will need
to be agreed in relation to those Senior Creditors
who exercise the Cash-Out Option.
1.4 DRAX POWER STATION OWNERSHIP
1.4.1 OWNERSHIP
The indirect ownership of the Drax power station will
be transferred to the holders of the A-3 Debt in the
form of all of the shares (the "EQUITY") in a holding
company (the "PARENT") which indirectly owns all of
the equity in Drax Power.
As indicated under section 1.3 - The Cash-Out Option
above, if a Senior Creditor exercises the Cash-Out
Option, then it will not receive any Equity for any
A-3 Debt sold under the Cash-Out Option. In addition:
(i) to the extent that the Cash-Out Option is
funded by Project Funds, Equity
corresponding to A-3 Debt that is prepaid
will not be issued; and
(ii) to the extent that the Cash-Out Option is
funded by BHP Billiton Funds, BHP Billiton
will have the option, at no additional cost,
to become the owner of the Equity
corresponding to the A-3 Debt purchased by
BHP Billiton.
1.4.2 RESTRICTIONS ON TRADING
In order to provide a period of stability following
the Restructuring within which the Drax power station
may operate, the A-2 Debt, A-3 Debt and Equity
(including any option to hold Equity) (together, the
"LINKED SECURITIES") will remain "linked" for an
initial period13. During this period, no holder of
Linked Securities may sell any single Linked Security
without also selling proportionate amounts of its
other Linked Securities.
1.5 ELECTRICITY TRADING SUPPORT
As mentioned in paragraph 5 of the BHP Billiton Offer Letter,
Drax Power will require substantial credit support to continue
its electricity trading activities following the
Restructuring. If Drax Power is no longer required to provide
cash collateral as credit support this will enhance the
liquidity of the Drax power station and provide cash for other
purposes, including working capital and funding the Cash-Out
Option. BHP Billiton is willing to arrange from closing of the
Restructuring, subject to agreement of satisfactory terms by
30 September 2003 and internal BHP Billiton credit approval, a
(pound)100,000,000 Trading
19
Guarantee Facility to facilitate Drax Power's ability to trade
electricity. A portion of this Trading Guarantee Facility may
take the form of credit lines with a BHP Billiton entity.
Facility utilisation fees shall be calculated based on the
aggregate risk exposures generated by Drax Power's trading
activities, providing a more efficient facility than
traditional credit facilities. This Facility shall, at all
times, have first ranking security interest (senior to the
Senior Creditors) over the Principal Drax Assets.
2 SECTION 2 - DETAILED TERMS OF THE RESTRUCTURING PROPOSAL
2.1 RESTRUCTURED DEBT
2.1.1 A-1 DEBT (PRINCIPAL AMOUNT: (POUND)400 MILLION):
RANKING: A-1 Debt will have the benefit of a
second ranking security interest
over all of the properties, assets
and shares of the AES Drax
Companies (other than recoveries on
the TXU Claim which will be subject
to a first ranking security
interest for the benefit of the B
Debt) (such properties, assets and
shares other than the TXU Claim,
the "PRINCIPAL DRAX ASSETS"). A-1
Debt has a second ranking security
interest over the Principal Drax
Assets solely because it ranks
after the security interest in
respect of the Trading Guarantee
Facility (up to(pound)100 million).
Otherwise, A-1 Debt has a security
interest that ranks ahead of all
other tranches of the Restructured
Debt
INTEREST RATE: Libor plus a margin of 2.5%.
INTEREST PAYMENT Semi - annual.
DATE:
FINAL MATURITY 30 June 2015
DATE:
AMORTISATION: Scheduled amortisation to be
paid in each year in equal
instalments on semi-annual interest
payment dates and on the Final
Maturity Date as follows:
2007: (pound)10 million
2008: (pound)20 million
2009: (pound)55 million
2010: (pound)55 million
2011: (pound)55 million
2012: (pound)55 million
2013: (pound)50 million
2014: (pound)50 million
20
2015: (pound)50 million
PREPAYMENT: Until the principal amount of
the A-1 Debt has reduced below
(pound)200,000,000, cash available
for debt service will, after
payment of A-1 Debt interest and
hedging, A-1 Debt scheduled
amortisation, funding the DSRA
(defined below) for 12 months' A-1
Debt interest and scheduled
principal, payment of A-2 Debt
interest (including deferred
interest and, if applicable,
funding the A-2 Debt Interest
Reserve) and interest on the A-3
Debt and B Debt be applied solely
to prepayment of A-1 Debt principal
in inverse order of the scheduled
amortisation profile.
At any time after the principal
amount of the A-1 Debt has reduced
below (pound)200m, excess cash
available for debt service will,
after payment of the amounts
referred to in the immediately
preceding paragraph, be applied on
a pro rata basis to (a) prepayment
of A-1 Debt principal, in inverse
order of the scheduled amortisation
profile, and (b) A-2 Debt
principal, (for the avoidance of
doubt, this means proportionally to
the outstanding amount of A-1 Debt
and A-2 Debt immediately prior to
the prepayments).
PRIORITY OF See section 2.2 - Cash Flow
PAYMENTS: Waterfall.
DEBT SERVICE A debt service reserve account (the
RESERVE ACCOUNT: "DEBT SERVICE RESERVE ACCOUNT" or
"DSRA") will be established
immediately on the completion of
the Restructuring from funds
available in the Drax project in an
amount equal to the interest
falling due on the A-1 Debt on the
next two interest payment dates.
Following the Restructuring, after
payment of A-1 Debt interest and
hedging and scheduled A-1 Debt
amortisation, cash available for
debt service will be transferred to
the DSRA to the extent required to
ensure that the required balance
thereon is equal to the next two
A-1 Debt interest payments.
In addition, after payment of A-2
Debt interest (including deferred
interest and, if applicable,
funding the A-2 Debt Interest
Reserve), cash available for debt
service of up to the amount of
scheduled A-1 Debt amortisation
falling due on the next two
interest payment dates will be
transferred to the DSRA.
To the extent that the funds
credited to the DSRA as of an A-1
Debt interest payment date exceed
the required DSRA balance
determined as of such date, the
excess may be withdrawn and used to
make payments in
21
accordance with the Cash Flow
Waterfall.
COVENANT PACKAGE: The covenant package is to be
negotiated, but is expected to have
the level of protections similar to
those in the current Bank Loans.
ACCELERATION AND To be discussed with the Senior
ENFORCEMENT: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
CHANGE OF To be discussed with the Senior
CONTROL: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
CREDIT RATING: To be discussed with the Senior
Creditors Committees.
2.1.2 A-2 DEBT (PRINCIPAL AMOUNT: UP TO (POUND)460
MILLION):
RANKING: A-2 Debt will have the benefit of a
third ranking security interest
over the Principal Drax Assets,
ranking in point of security after
the amounts owing under the Trading
Guarantee Facility and the A-1
Debt.
INTEREST RATE: Libor plus a margin of 4%.
INTEREST PAYMENT: Interest on the A-2 Debt will be
payable on a semi-annual basis
after payment of interest on the
A-1 Debt and hedging, scheduled
principal payments on the A-1 Debt,
and a cash sweep into the Debt
Service Reserve Account to ensure a
required balance equal to 12 months
interest payments on A-1 Debt.
Unpaid interest is deferred (not
capitalised) and bears interest at
the same rate.
A-2 DEBT INTEREST There will be a six month (18
RESERVE: months on or before 31 December
2006) look-forward test for A-2
Debt interest on a 1.0 x debt
service cover ratio, and to the
extent such test is not passed, an
amount equal to the shortfall will
(in accordance with the Cash Flow
Waterfall) be placed in a reserve
account (the "A2 DEBT INTEREST
RESERVE"). Amounts standing to the
credit of the A-2 Debt Interest
Reserve would be used to make
payments of interest and scheduled
principal on the A-1 Debt before
making payments of interest on the
A-2 Debt if there were insufficient
funds available in the Cash Flow
Waterfall for such purpose and if
the DSRA had been fully utilised.
FINAL MATURITY 30 June 2015.
DATE:
AMORTISATION: No scheduled amortisation of
principal. Once the principal
amount outstanding of A-1 Debt is
less than(pound)200 million, excess
cash available for debt service
will, after payment of the A-1 Debt
interest and hedging,
22
scheduled A-1 Debt principal
amortisation, funding the DSRA for
12 months' A-1 Debt interest,
payment of A-2 Debt interest
(including deferred interest and,
if applicable, funding the A-2 Debt
Interest Reserve) and interest on
the A-3 Debt and B Debt and
hedging, funding the DSRA for 12
months' A-1 debt scheduled
principal, be applied to prepayment
of A-1 Debt principal and A-2 Debt
principal on a pro rata basis.
PRIORITY OF See section 2.2 - Cash Flow
PAYMENTS: Waterfall.
COVENANT PACKAGE: To be negotiated on same basis as
applicable to the A-1 Debt.
ACCELERATION AND To be discussed with the Senior
ENFORCEMENT: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
CASH-OUT OPTION: Senior Creditors who are otherwise
entitled to a holding of A-2 Debt
have the alternative of exercising
the Cash-Out Option described in
section 1.3 - The Cash-Out Option
above. To the extent so exercised
and to the extent the purchase is
funded from Project Funds, the A-2
Debt so purchased will be
cancelled. For further details, see
section 1.3 - The Cash-Out Option
above.
CHANGE OF To be discussed with the Senior
CONTROL: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
2.1.3 A-3 DEBT: PRINCIPAL AMOUNT: UP TO (POUND)135.455
MILLION
RANKING: A-3 Debt will have the benefit of a
fourth ranking security interest
over the Principal Drax Assets.
INITIAL PRINCIPAL The initial principal amount of the
AMOUNT A-3 Debt will, subject to reduction
in accordance with the Cash-Out
Option, be the difference between:
(i) the aggregate amount of
the Senior Creditors'
indebtedness being '
compromised by the
Restructuring; and
(ii) the aggregate amount of the
A-1 Debt, A-2 Debt and B
Debt (before any reduction
of any amount in respect
of Senior Creditors
exercising the Cash-out
Option).
INTEREST RATE: Libor plus a margin of 5%.
INTEREST PAYMENT Interest on A-3 Debt shall be
DATE: deferred (but not capitalised) if
there are insufficient funds
available in the Cash Flow
Waterfall for such purpose.
A-3 DEBT There will be a six month (18
INTEREST months on or before 31 December
RESERVE: 2006) look-forward test for A-3
Debt interest
23
on a 1.0 x debt service cover
ratio, and to the extent such test
is not passed, an amount equal to
the shortfall will (in accordance
with the Cash Flow Waterfall) be
placed in a reserve account (the
"A-3 DEBT INTEREST RESERVE").
Amounts standing to the credit of
the A-3 Debt Interest Reserve would
be used to make payments of
interest and scheduled principal on
the A-1 Debt or the A-2 Debt before
making payments of interest on the
A-3 Debt if there are insufficient
funds available in the Cash Flow
Waterfall for such purpose.
AMORTISATION: A-3 Debt principal will only be
paid after all of the A-1 Debt and
A-2 Debt have been paid in full.
COVENANT PACKAGE: Limited covenant package to be
agreed.
ACCELERATION AND To be discussed with the Senior
ENFORCEMENT: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
CASH-OUT OPTION: Senior Creditors who are otherwise
entitled to a holding of A-3 Debt
have the alternative of exercising
the Cash-Out Option described in
section 1.3 - The Cash-Out Option
above. To the extent so exercised
and to the extent the purchase is
funded from Project Funds, the A-3
Debt so purchased will be
cancelled. For further details, see
section 1.3 - The Cash-Out Option
above.
CHANGE OF To be discussed with the Senior
CONTROL: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
EQUITY: The Equity will be issued to
holders of the A-3 Debt immediately
after completion of the Cash-Out
Option in proportion to such
holdings.
2.1.4 B DEBT (PRINCIPAL AMOUNT: (POUND)338,400,000):
SOURCE OF PAYMENT The principal source of funds for
AND SECURITY: the payment of B Debt is the
proceeds to be received from the
TXU Claim. B Debt will have a first
ranking security interest over the
TXU Claim proceeds. The B Debt will
have a fifth ranking security
interest over the Principal Drax
Assets. To the extent the proceeds
of the TXU Claim are insufficient
to repay the B Debt (and deferred
interest thereon), payment of such
remaining B Debt will be made in
accordance with the Cash Flow
Waterfall (see section 2.2 - Cash
Flow Waterfall below).
INTEREST RATE: Libor plus a margin of 2%.
INTEREST PAYMENT: B Debt interest will be deferred
(but not capitalised) to the extent
excess cash is not available after
payment of
24
interest on the A-1 Debt and
hedging, scheduled principal
payments on the A-1 Debt, funding
the DSRA for 12 months' A-1 Debt
interest and scheduled principal
and payment of A-2 Debt interest
(including deferred interest and,
if applicable, funding the A-2 Debt
Interest Reserve) and hedging and
payment of A-3 Debt interest
(including deferred interest and,
if applicable, funding the A-3 Debt
Interest Reserve) (see section 2.2
- Cash Flow Waterfall below).
B DEBT INTEREST There will be a six month
RESERVE: look-forward test for B Debt
interest on a 1.0 x debt service
cover ratio, and to the extent such
test is not passed, an amount equal
to the shortfall will (in
accordance with the Cash Flow
Waterfall) be placed in a reserve
account (the "B DEBT INTEREST
Reserve"). Amounts standing to the
credit of the B Debt Interest
Reserve would be used to make
payments of interest and scheduled
principal on the A-1 Debt, the A-2
Debt, or the A-3 Debt before making
payments of interest on the B Debt
if there are insufficient funds
available in the Cash Flow
Waterfall for such purpose.
AMORTISATION: No fixed scheduled amortisation. B
Debt will be paid on receipt of
proceeds of the TXU Claim and
otherwise once the A-1 Debt, A-2
Debt and A-3 Debt have been repaid
in full.
PRIORITY OF See section 2.2 - Cash Flow
PAYMENTS: Waterfall (including the treatment
of taxes on the TXU Claim).
COVENANT PACKAGE: The B Debt will have the benefit of
a very limited set of covenants and
conditions of default which are
designed primarily to protect the
claim of the B Debt to the proceeds
of the TXU Claim. Specifically, the
B Debt will have no voting rights
in connection with their security
over the Principal Drax Assets, a
sale of Drax Holdings or any of its
affiliates or any recapitalisation,
restructuring etc.
ACCELERATION AND Irrespective of any default under
ENFORCEMENT: the B Debt, holders of B Debt will
neither be able to accelerate their
B Debt nor to enforce any of their
rights in respect of security
interests held on their behalf,
other than the security interest in
respect of the TXU Claim, until
such time as the holders of the A-1
Debt, A-2 Debt and A-3 Debt have
been repaid in full.
25
2.2 CASH FLOW WATERFALL
On any Interest Payment Date, the order of payments in respect of the
Restructured Debt shall be as set out in Schedule 2.
26
SCHEDULE 5
COAL SUPPLY - HEADS OF TERMS
BUYER: Drax Entity
SELLER: BHP Billiton Entity
START DATE: 1 January 2004
END DATE: 31 December 2018
COAL VOLUME: For the period from January 2004 to December 2005,
Seller to supply all of the Buyer's coal
requirements (whether due to reductions in
contracted volumes or delivery default by other
coal suppliers) in excess of current contracted
volumes subject to (i) a maximum of 3.7 million
tonnes in calendar year 2004 and of 6.5 million
tonnes in calendar year 2005, and (ii) sufficient
advance notice from the Buyer where volumes are to
be increased from the anticipated base contract
volumes in order to allow the Seller to secure the
coal and ensure the availability of logistical
capacity. Seller will also supply additional coal
above these coal volumes on the basis that
incremental costs for freight, port and rail costs
will be passed through to the Buyer.
From January 2006 to December 2010, Seller to
supply all of the Buyer's coal requirements on an
exclusive basis. From January 2011, Seller to
supply 80% of the Buyer's coal requirements and to
have the right to participate in a competitive
tender in respect of the Buyer's remaining coal
requirements. Note: All coal volumes based on coal
with calorific value of 6000 kcal/kg net as
received.
PRICING: The coal price (exclusive of VAT), basis free in
stock ("FIS") Drax power station, shall be the TFS
API2 index plus freight differential, port and
rail charges all of which are to be fixed for the
contract term.
"TFS API2" means an average of the Argus CIF
Rotterdam assessment as published in both Argus
Coal Daily International and Argus Coal Daily on
Friday (dated next working day) and McCloskey's NW
European steam coal marker as published in both
McCloskey's Fax on Friday (dated Friday) and the
fortnightly McCloskey's Coal Report (dated every
other Friday).
The price for each delivery of coal (train or road
truck) shall be the final TFS API2 index (as per
coal industry publications) of the calendar month
prior to the delivery, converted at the spot
GBP:USD exchange rate on the day of payment and
expressed in GBP/GJ terms, plus the agreed GBP/GJ
logistics adjustment.
Should the TFS API2 index become unavailable,
Buyer and Seller shall agree in good faith a
replacement index for coal deliveries to the
Amsterdam/Rotterdam/Antwerp area.
27
DELIVERY SCHEDULE: A scheduling process is to be agreed between the
Buyer and the Seller taking into account:
o Typical seasonality of coal burn;
o Seller's right to rail to Buyer's
stockyard subject to stockpile volumes
remaining at a minimum level of 600,000
tonnes; and
o Buyer to advise Seller of its firm coal
requirements in each month by the 15th
day of the preceding month.
PAYMENT TERMS: Payment of all invoices in full, on the 10th day
of the month following the month of delivery.
QUALITY: Initial typical specification range, on an ISO
as-received basis:
LOWER LIMIT UPPER LIMIT
Total Moisture (%) 4 13
Ash (%) 5 22
Volatile Matter (%) 25 33
NCV (GJ/mt) 20 27
HGI (ASTM) 45 70
AFT ((degree)C) 1150 -
Free Swelling Index 0 7
Sulphur (%) 0.55 2.8
Nitrogen (%) 0 1.7
Notes to above:
o Buyer agrees to conduct full test burns
on at least four coals or coal blends in
Seller's option prior to the
commencement of deliveries under the
coal supply agreement;
o The specification ranges above are
applicable to coals or coal blends
delivered to the plant, and such blends
may contain blend components with
specifications falling outside the
range;
o The lower limit on the volatile matter
is an average figure for each calendar
year, subject to a minimum level for any
delivery of 23 per cent. on an as
received basis;
o The lower limit on sulphur is an average
figure for each calendar year, subject
to a minimum level for any delivery of
0.4 per cent. on an as received basis;
o The upper limit for nitrogen is an
average figure for each calendar year;
and
o Seller may source compliant coal from
any location.
28
ANNUAL TEST BURNS: Buyer shall conduct trial burns of up to five
coals or coal blends at Seller's request each
calendar year (more by mutual agreement) in an
attempt to extend the boundaries of the coal
specifications listed in "Quality" above. Any
coals forming part of Seller's portfolio of equity
South African coals that are already approved may
be deducted from the number of trial burns to be
carried out in the first year. Approval of these
trial coals is conditional on a "good faith"
agreement that same will not have material adverse
operational and maintenance cost implications for
the plant.
COAL QUALITY All coal shall be sampled and tested according to
ANALYSIS AND WEIGHT ISO standards (ASTM in the case of hardgrove
DETERMINATION grindability index), on an as received basis, by
an independent and mutually appointed testing
laboratory. Such sampling and testing shall take
place at the point of loading of the train or road
truck, and shall be final and binding. Weight
determination shall be according to the results of
a "trade stamped" weighbridge at Drax power
station, and shall be final and binding.
CREDIT SUPPORT: The Seller is prepared to discuss securitisation
of part of the minimum strategic coal stockpile
to limit the credit support requirements.
TRADE FINANCE: In order to improve working capital for the Buyer,
the Seller is also prepared to discuss (i)
monetisation of part of the minimum strategic coal
stockpile; and (ii) deferral payment on early
shipments of coal.
ITEM 2
The Directors of AES Drax Holdings Limited
c/o Kempson House
Camomile Street
London EC3A 7AN
21 August 2003
Dear Sirs
DRAX - BHP BILLITON'S OFFER
We are pleased to submit this offer by BHP Billiton plc ("BHP BILLITON") to
provide support to facilitate the restructuring of the senior secured debt and
other contractual arrangements of AES Drax Holdings Ltd (the "Company") and
certain of its affiliates, including AES Drax Power Limited ("DRAX POWER") (the
"BHP BILLITON Offer").
While the BHP Billiton Offer is made by BHP Billiton solely on the terms and
conditions set out in this offer letter (the "BHP BILLITON OFFER LETTER") and
its schedules (the "SCHEDULES"), the BHP Billiton Offer to a large extent
follows the restructuring proposals as laid out in (i) the 30 June 2003 Form 6K
filing to the US Securities and Exchange Commission (SEC File #333-13096) ("30
JUNE 6K") and (ii) the 14 August 2003 Form 6K filing to the US Securities and
Exchange commission (SEC File #333-13096) ("14 AUGUST 6K") with a view to
facilitating the completion of the restructuring of the secured debt of the AES
Drax Companies and the entering into of the commercial agreements as set out in
BHP Billiton Offer Letter (the "RESTRUCTURING").
The BHP Billiton Offer includes a number of key commercial and economic terms,
which we believe substantially enhance the terms of the Restructuring and as
such maximise the ultimate recoveries for the Senior Banks, the Senior
Bondholders and the Hedging Banks, whether or not they intend to exercise the
Cash-Out Option. We strongly believe that an integrated financial and commercial
partnership between BHP Billiton and/or certain of its affiliates and the
Company and its relevant affiliates under which BHP Billiton (or an affiliate)
provides coal supply and energy trading services, together with O&M expertise
from Eskom Enterprises (Pty) Ltd, a wholly owned subsidiary of Eskom Holdings
(Pty) Ltd ("ESKOM"), adds significant value to the restructuring by increasing
the certainty of operating cashflows and mitigating key commodity and
operational risks.
BHP Billiton is the world's largest diversified resources company with a market
capitalisation of (pound)26.2 billion and a strong balance sheet and credit
rating. We are a major provider of both coal and natural gas to the power
generation industry. In particular, BHP Billiton Energy Coal is the world's
largest producer and marketer of sea-borne thermal coal. Our focus is on
providing competitive energy solutions for our world-wide portfolio of power
generation customers. The business is structured around a portfolio of
world-class producing assets, which provide a unique multi-sourcing capability
to service the major power markets of Europe and the United Kingdom in
particular. We have a proven track record and are a respected partner in joint
ventures worldwide.
Eskom, the South African electricity utility company, operates 42,000 MW of
power generation capacity, of which 37,000 MW comprises large coal-fired plants
including seven power stations with capacity in
1
excess of 3,000 MW. Eskom is a key business partner of BHP Billiton in South
Africa and the two companies have a strong relationship extending over many
years.
We recognise the dual needs of the Senior Creditors to meet the short-term
financial objectives of the Restructuring, while at the same time ensuring the
long-term viability of the Company. We believe that the BHP Billiton Offer
demonstrates a clear differentiation in value from the other proposals received
by the Company and provides for increased long-term security for the Senior
Creditors through a unique and distinctive set of capabilities and service
offerings.
The main points of the BHP Billiton Offer are as follows:
o BHP Billiton will provide substantial funding for the Cash-Out Option
with a significant premium to other offers based on a similar financial
structure.
o BHP Billiton offers to provide a unique suite of value-added fuel,
finance, O&M and commodity services that creates substantial value for
the Principal Drax Assets and does not diminish commercial control or
reduce flexibility for Senior Creditors.
o The BHP Billiton Offer is an integrated solution that provides clarity of
outcome through the creation of a stable, on-going and viable entity with
improved credit profile, lower cost base and reduced risk profile.
o A partnership with BHP Billiton will bring to the AES Drax Companies all
the credentials and capabilities of a world leading energy company with
an excellent credit rating. This partnership will help the AES Drax
Companies address the key challenges they face in their transition to
consuming imported coal.
o BHP Billiton is willing to arrange, at the Company's option, a
(pound)100,000,000 Trading Guarantee Facility to facilitate Drax Power's
ability to trade electricity.
o BHP Billiton's Offer is not subject to or contingent on third party
financing and does not result in any underwriting or other fees and
charges being paid to BHP Billiton. BHP Billiton is willing to discuss
placing amounts in escrow once a timetable for the overall Restructuring
is agreed between BHP Billiton and the Senior Creditors.
o BHP Billiton is able to work closely with the directors and Senior
Creditors to meet the timetable of the Restructuring and address
governance issues through discussion and negotiation.
The summary terms of the BHP Billiton Offer are as follows1:
1 BHP Billiton offers to increase the price for creditors who decide to
tender their A-2 Debt, C Debt (which will be renamed under the BHP
Billiton Offer "A-3 DEBT"), and Equity (the "CASH-OUT OPTION") to 70 per
cent. of the A-2 principal amount, a substantial improvement to the
prices proposed by The AES Corporation ("AES"), International Power plc
("IP") and Goldman Sachs International ("GS"). BHP Billiton would also
pay 1% for the A-3 Debt. BHP Billiton (or an affiliate) will provide up
to (pound)95,000,000 of cash to support the funding of the Cash-Out
Option ("BHP BILLITON FUNDS"). If demand for the Cash-Out Option is so
strong that additional funds are required, BHP Billiton reserves the
right to increase its participation and, if necessary, will endeavour to
obtain additional funding from third parties wishing to purchase the A-2
Debt. To the extent that such
- -------------
1 Additional detailed information is contained in the various Schedules
attached to the BHP Billiton Offer Letter. Any capitalised term used but
not otherwise defined in this BHP Billiton Offer Letter shall have the
meaning given to it in Schedule 4 of this Offer Letter. To the extent
there is any inconsistency between the BHP Billiton Offer Letter and the
Schedules, the terms of the BHP Billiton Offer Letter will prevail.
2
funding is not available, there would be a "scale back" as provided under
section 1.3.3 of Schedule 4 of this BHP Billiton Offer Letter. To the
extent that the Cash-Out Option is funded by BHP Billiton Funds, BHP
Billiton will purchase pro-rata holdings of the A-2 Debt and the A-3 Debt
and will have the option to become the owner of the Equity corresponding
to the amount of the A-3 Debt purchased by BHP Billiton.
2 BHP Billiton will leave it to the option of the Company and the Senior
Creditors whether they elect to use (pound)30,000,000 (the minimum
required by BHP Billiton) of cash currently held by the Company or such
higher amounts as may be deemed by the directors of the Company to be
available in order to fund the Cash-Out Option. To the extent that the
Company and the Senior Creditors elect to use more than (pound)30,000,000
of Project Funds, the Cash-Out Option will be funded as follows: first,
(pound)30,000,000 of Project Funds will be used; second, the amount of
incremental Project Funds in excess of the (pound)30,000,000 that the
Company and the Senior Creditors elect to use, and finally any additional
amounts that are required will be funded from BHP Billiton Funds until
BHP Billiton Funds are exhausted.
3 The BHP Billiton Offer increases the margin on the A-2 Debt to 400bps. In
addition, the terms and ranking of the B Debt and the A-3 Debt would be
as follows: the A-3 Debt will rank behind the A-2 Debt but ahead of the B
Debt, both in the Cash Flow Waterfall and with respect to its security
over the Principal Drax Assets. The A-3 Debt will have fourth ranking
security over the Principal Drax Assets and will accrue interest at a
rate of Libor + 500bp, with the potential of having interest deferred if
no funds are available under the Cash Flow Waterfall (similar to the A-2
Debt). The B Debt will accrue interest at the rate of Libor + 200bp with
the potential of having interest deferred if no funds are available under
the Cash Flow Waterfall (similar to the A-2 Debt and the A-3 Debt). The B
Debt will have first ranking security over the claims against TXU Europe
Energy Trading Limited and TXU Europe Group plc (the "TXU Claim"), as
well as a fifth ranking security over the Principal Drax Assets. The
holders of the B Debt however will not have any voting rights with
respect to the release of their security over the Principal Drax Assets,
the sale of the Company, or a recapitalisation of the balance sheet. The
B Debt holders may (by a 75 per cent. majority) agree to compromise the
TXU Claim or vote the interest of the AES Drax Companies in any
insolvency in respect of the TXU Claim. The A-3 Debt holders shall have
the first right of refusal to purchase all (or materially all) but not
part of the Drax Principal Assets if the A-1 Debt holders and/or A-2 Debt
holders have resolved to sell such assets.
4 It is a condition of BHP Billiton's Offer that BHP Billiton (or an
affiliate) will enter an agreement for the supply of coal to the Drax
power station for 15 years from January 2004. The agreement would be
structured to ensure supply security for Drax Power, allowing it to
retain maximum operational flexibility and mitigate risks in relation to
Drax Power's most significant cost item. It would allow significant
volume flexibility on coal supply which will be essential in ensuring an
efficient transition to sourcing more imported coal as local domestic
coal production declines. Subject to existing coal supply contracts, BHP
Billiton (or an affiliate) would supply 100% of Drax's coal requirements
on an exclusive basis from January 2006 to December 2010, and would
thereafter continue to supply 80% of the plant's total requirements to
2018. The remaining 20% during this period would be subject to a
competitive tender in which BHP Billiton (or an affiliate) would be
entitled to participate. The price for coal supplied by BHP Billiton (or
its affiliate) would be based on a competitive market index with a
fixed-price adjustment for UK-based logistics. BHP Billiton (or an
affiliate) will also assume management of the entire logistics chain of
its coal supply to Drax Power, including sea freight, port facilities and
rail transportation. BHP Billiton's position as a major coal supplier
would enable it to minimise stockpile requirements and thereby reduce
working capital requirements for
3
Drax Power, manage the blending of coals to ensure plant specifications
are met and cover risks associated with delivery to the plant. (Further
details are set out in Schedule 5).
5 Drax Power will require substantial credit support to continue its
electricity trading activities following the Restructuring. If Drax Power
is no longer required to provide cash collateral as credit support this
will enhance the liquidity of the Drax power station and provide cash for
other purposes, including working capital and funding the Cash-Out
Option. BHP Billiton is willing to arrange, subject to agreement of
satisfactory commercial terms by 30 September 2003, a (pound)100,000,000
Trading Guarantee Facility to facilitate Drax Power's ability to trade
electricity. BHP Billiton believes this will generate significant cost
savings in relation to the costs of credit support facilities
contemplated in other proposals.
6 There are a number of important commercial services which are necessary
for the ongoing operation of the Drax power station. It is a condition of
BHP Billiton's Offer that restructured commercial arrangements are put in
place in the three key areas of O&M (by 30 March 2004), trading services
(by 30 March 2004) and trading guarantee facilities (by the Effective
Date).
BHP Billiton believes it can add significant value through the provision
of a number of commercial services and, if the Company so requires, would
be happy to assist in the following respects:
6.1 BHP Billiton believes that it is desirable to enter into long-term
offtake agreements on up to two of the six Drax units in order to
ensure a minimum level of stable cash flows and reduce the
operational risk of trading all six units as a merchant plant. BHP
Billiton (through one of its affiliates) will be happy to assist
in structuring such contracts.
6.2 BHP Billiton believes that it can offer significant cost savings
to the Company in relation to its trading activities by offering
certain management services to Drax Power, including confirmation,
24-hour operation contract and risk management services,
accounting, settlements and invoicing services. At the option of
Senior Creditors and the Company, BHP Billiton (or an affiliate)
will make available trading facilities, systems and resources at
BHP Billiton (or its affiliates) offices enabling relevant
personnel to access BHP Billiton's (or its affiliate's) trading
systems and in particular its coal, power and CO2 trading
expertise. An agency fee would be payable in respect of the
provision of these services that BHP Billiton believes would
provide substantial ongoing cost savings to the Company.
6.3 BHP Billiton believes that the Company could make substantial
savings in relation to O&M services compared with the AES and IP
proposals, which include significant management fees for O&M
services. In addition, both AES and IP have proposed a long-term
O&M contract that can only be cancelled under very limited
circumstances. BHP Billiton believes that it can add considerable
value to the restructuring by procuring specialist O&M personnel
from Eskom.
6.4 BHP Billiton (or an affiliate) would also provide coal price
hedging services allowing Drax the option to fix forward coal
prices for up to three years, enhancing its control over cash
flows, timing of pricing and spark spreads.
7 Additional information on the terms of this BHP Billiton Offer are set
out in the various Schedules attached to this BHP Billiton Offer Letter.
8 The BHP Billiton Offer will lapse at 5.00 p.m. (London time) on 29 August
2003 unless the Company and the Senior Creditors Committees have by then
entered into an exclusive relationship with BHP Billiton by
countersigning this letter and returning it to us, thereby confirming
that they will not enter
4
into or continue any negotiations or discussions with any person other
than BHP Billiton with respect to the Cash-Out Options and the other
matters contemplated by this BHP Billiton Offer Letter, provided that
such exclusivity shall cease on 31 December 2003 or, if earlier, (i) the
date on which this offer lapses or is otherwise terminated, or (ii) the
date of execution of mutually acceptable documentation required for the
Restructuring (including the coal supply agreement and shareholders
agreement) and satisfaction of all conditions precedent thereto (the
"EFFECTIVE DATE").
On behalf of BHP Billiton, we very much appreciate your consideration of this
offer and look forward to your response. BHP Billiton believes that its offer
proposes a financial and commercial restructuring of the Company to the benefit
of the Senior Creditors. BHP Billiton sees this offer as forming the basis of a
long-term mutually beneficial relationship with the Company. In addition, we
believe that along with Eskom, we offer a package that lowers the risk and
enhances value to the Senior Creditors.
Please feel free to contact Rowen Bainbridge (on 0207 802 4015) or Paul Adair
(0207 802 4036) to discuss any questions or issues that you may have with
respect to this letter.
Yours faithfully,
Michael M.C. Oppenheimer
President, BHP Billiton Energy Coal
cc: Shaun Holmes, Royal Bank of Scotland
Martin Gudgeon, Close Brothers Corporate Finance Limited
Mark Dixson, Deutsche Bank A.G.
I confirm that I have been authorised by AES Drax Holdings Limited to accept the
BHP Billiton Offer and to confirm that (a) AES Drax Holdings Limited has the
right and power, and has taken or will take all action necessary to accept the
BHP Billiton Offer and execute and perform the matters and transactions
contemplated by it and (b) by accepting the BHP Billiton Offer and performing
such matters and transactions AES Drax Holdings Limited is not and will not be
in breach of any law, regulation or obligation whatsoever owed to any other
person.
Agreed and accepted on 2003 for and on behalf of AES Drax Holdings Limited
By: -----------------------------
Name: ---------------------------
Title: --------------------------
5
I confirm that I have been authorised by the Bank Steering Committee to accept
the BHP Billiton Offer and to confirm that (a) the Bank Steering Committee has
the right and power, and has taken or will take all action necessary to accept
the BHP Billiton Offer and execute and perform the matters and transactions
contemplated by it and (b) by accepting the BHP Billiton Offer and performing
such matters and transactions the Bank Steering Committee is not and will not be
in breach of any law, regulation or obligation whatsoever owed to any other
person.
Agreed and accepted on 2003 for and on behalf of the Bank Steering Committee
By: -----------------------------
Name: ---------------------------
Title: --------------------------
I confirm that I have been authorised by the Senior Bondholder Committee to
accept the BHP Billiton Offer and to confirm that (a) the Senior Bondholder
Committee has the right and power, and has taken or will take all action
necessary to accept the BHP Billiton Offer and execute and perform the matters
and transactions contemplated by it and (b) by accepting the BHP Billiton Offer
and performing such matters and transactions the Senior Bondholder Committee is
not and will not be in breach of any law, regulation or obligation whatsoever
owed to any other person.
Agreed and accepted on 2003 for and on behalf
of the Senior Bondholder Committee
By: -----------------------------
Name: ---------------------------
Title: --------------------------
6
SCHEDULE 1
FURTHER TERMS AND CONDITIONS RELATING TO THE BHP BILLITON OFFER
1
1.1 BHP Billiton requires the holders of Equity to enter into a
shareholders' agreement. The detailed terms and conditions,
including the right to appoint directors, rights and
restrictions on the transfer of shares and voting rights will be
agreed with the Senior Creditors Committees. BHP Billiton (or
its affiliate) would not have the right to block a sale by the
Senior Creditors of their Equity. If, following completion of
the Restructuring, the Senior Creditors receive an offer, or
enter into any process or negotiations for the sale of the
Equity or the Principal Drax Assets, BHP Billiton requires
notice of such offer, process or negotiations and the right to
submit an offer for such Equity or the Principal Drax Assets for
consideration by the relevant Senior Creditors. Certain other
reserved matters such as changes to the coal supply arrangements
will require unanimity.
1.2 BHP Billiton requires to appoint such number of directors as is
proportionate to its overall shareholding interest. Such
director(s) would have veto rights over certain reserved
matters, including the appointment of identified key
individuals, such as the station manager and the implementation
of a commodity price risk management policy.
1.3 BHP Billiton is supportive of the proposal to provide a period
of stability following the Restructuring within which the Drax
power station may operate, by linking the A-2 Debt, A-3 Debt and
Equity (including any option to hold Equity) for an initial
period on terms to be agreed with the Senior Creditors
Committees.
2 The BHP Billiton Offer is subject to:
2.1 prior to the Effective Date there being, in BHP Billiton's
opinion, no material adverse change in the assets, operations or
liabilities (but excluding any such change arising out of a
change in commodity prices in the UK market) of the Company and
its affiliates or in the forecasts with regard to capital and
operating expenditure and taxes compared to the information: (i)
contained within the Form 6K filing dated 16 July 2003 (SEC file
#:333-13096) and/or (ii) as disclosed to BHP Billiton during the
due diligence referred to in paragraph 2.4 below;
2.2 satisfactory legal and regulatory approvals and clearances that
are necessary or desirable to effect the Restructuring having
been obtained by the time necessary or desirable;
2.3 BHP Billiton board approval of the final Restructuring
documentation; and
2.4 BHP Billiton finalising to its satisfaction its confirmatory
technical and commercial due diligence process; which it expects
to do by 15 September 2003.
3 In addition to the matters described in the BHP Billiton Offer Letter,
it is a condition of BHP Billiton's Offer that, in accordance with the
timeline set out in Schedule 3:
3.1 heads of terms for the coal supply agreement with BHP Billiton
(or an affiliate) are agreed by 15 September 2003;
3.2 a financial term sheet for the Restructuring and heads of terms
for the shareholders' agreement and Trading Guarantee Facility
are agreed by 30 September 2003;
7
3.3 from the date on which your acceptance of this offer is received
(the "ACCEPTANCE DATE") until the Effective Date, the Company
(and in the case of paragraph 3.3.1 below, the Senior Creditors
Committees) will not:
3.3.1 enter into or continue any negotiations or discussions
with any person other than BHP Billiton with respect to
the Cash-Out Options and the other matters relating to
the Restructuring contemplated by this BHP Billiton
Offer Letter; or
3.3.2 enter into any agreement with any person other than BHP
Billiton (or any of its affiliates) with respect to the
supply of coal to the Drax power station except with the
prior consent of BHP Billiton, which shall not be
unreasonably withheld or delayed; and
3.4 the Restructuring is completed (including the satisfaction of
any conditions relating thereto) by no later than 31 December
2003 on the basis of documentation in a form mutually acceptable
to BHP Billiton and the Senior Creditors.
4 BHP Billiton will (prior to completion of the Restructuring) be
consulted with respect to (but subject to paragraph 3.3.2 above shall
not have a veto right in relation to) major business decisions,
including the appointment of the plant manager and head of trading,
entry into material contracts, any long-term hedging agreements and the
level of minimum required working capital.
5 BHP Billiton will be entitled, from the Acceptance Date to the Effective
Date, to receive the same information, analyses, reports and advice in
relation to the Restructuring and the business as is provided to the
Senior Creditors, unless there is a clear conflict of interest in BHP
Billiton receiving the same.
6 Only BHP Billiton and a person who has duly accepted this offer will be
entitled to rely on or enforce its terms.
8
SCHEDULE 2
AMENDED CASH FLOW WATERFALL
The Cash Flow Waterfall in respect of the A-1 Debt, A-2 Debt, A-3 Debt and B
Debt, all as defined in Schedule 4 of this BHP Billiton Offer Letter (the
"RESTRUCTURED DEBT"), will be as follows:
1 On any interest payment date, the order of payments in respect of the
Restructured Debt from cash available for debt service, after any payment
required to be made in relation to the Trading Guarantee Facility and
taking into account working capital requirements restructuring costs and
expenses (including reasonable costs and expenses of the Senior Creditors
Committees to the extent not paid at the closing of the Restructuring but
excluding the costs and expenses of BHP Billiton and its advisers) and
tax, is:
(a) first, to make payments of interest on the A-1 Debt and hedging of
A-1 Debt interest2;
(b) second, to make scheduled repayments of principal on the A-1 Debt;
(c) third, to make a deposit to the DSRA of the amount required so
that funds standing to the credit of the DSRA are equal to the
interest on A-1 Debt falling due on the next two interest payment
dates;
(d) fourth, to make payments of interest on the A-2 Debt (including
deferred interest and hedging of A-2 Debt interest);
(e) fifth, to fund the A-2 Debt Interest Reserve to the required
amount;
(f) sixth, to make a deposit to the DSRA of an amount so that the
balance on the DSRA is equal to the scheduled amortisation of
principal on A-1 Debt falling due on the next two interest payment
dates;
(g) seventh, to make payments of interest on the A-3 Debt;
(h) eighth, to fund the A-3 Debt Interest Reserve to the required
amount;
(i) ninth, to pay interest on the B Debt;
(j) tenth, to fund the B Debt Interest Reserve to the required amount;
(k) eleventh, to make prepayments and repayments as follows:
(i) at any time after the principal amount outstanding of the
A-1 Debt is (pound)200,000,000 or more, to prepay the A-1
Debt, with prepayments of A-1 Debt being applied to the
amortisation profile of the A-1 Debt in inverse order of
maturity; and
(ii) at any time after the principal amount outstanding of the
A-1 Debt is less than (pound)200,000,000, to prepay A-1
Debt and prepay A-2 Debt on a pro rata basis as to the
outstanding principal amount of A-1 Debt and A-2 Debt
immediately prior to the prepayment. Prepayments of the A-1
Debt will be applied to the amortisation profile of the A-1
Debt in inverse order of maturity;
(l) twelfth, if the A-1 Debt and the A-2 Debt have been repaid in
full, to pay A-3 Debt deferred interest;
- -------------
2 Structuring of hedging facilities and ranking in Cash Flow Waterfall to
be discussed between the Senior Creditors Committees and BHP Billiton.
9
(m) thirteenth, if the A-1 Debt and the A-2 Debt have been repaid in
full, to prepay principal on the A-3 Debt;
(n) fourteenth, if the A-1 Debt, the A-2 Debt and the A-3 Debt have
been repaid in full, to pay B Debt deferred interest; and
(o) fifteenth, if the A-1 Debt, the A-2 Debt and the A-3 Debt have
been repaid in full, to prepay principal on the B Debt.
Proceeds received in respect of the TXU Claim will be excluded from the
Cash Flow Waterfall. If any amount is paid in respect of the TXU Claim,
such amount (net of related VAT and a withholding on account of UK
corporation tax) will be applied to prepay the principal of the B Debt.
The amount withheld on account of UK corporation tax from TXU Claim
proceeds will be equal to 30% (or, if different, the prevailing UK
corporation tax rate in the tax year such payment in respect of the TXU
Claim is received). The amount withheld will be paid into an escrow
account. If payment had been received in respect of the TXU Claim, and
the relevant company in the Drax group has a liability in respect of UK
corporation tax, an amount shall be applied to pay such tax amount when
such amount falls due for payment. If, having paid the full UK
corporation tax liability of the relevant company, there remains a
positive balance in the escrow account, such positive balance shall be
applied to prepay the principal of the B Debt.
BHP Billiton is prepared to discuss any appropriate structure which may
achieve a mutually beneficial result for the parties.
10
SCHEDULE 3
TIMELINE OF THE BHP BILLITON OFFER
29 AUG 2003: Last date for acceptance of BHP Billiton Offer. The Company and the
Senior Creditors Committees enter into exclusive negotiations with BHP Billiton
as the preferred counterparty.
15 SEP 2003: Agreed heads of terms for coal supply agreement.
30 SEP 2003: Financial Term Sheet agreed for the Restructuring and agreed heads
of terms for the shareholders agreement and Trading Guarantee Facility.
31 DEC 2003: Deadline for the completion of the Restructuring including the
satisfaction of any conditions relating thereto and signature of the coal supply
agreement, shareholders agreement and the Trading Guarantee Facility
documentation.
31 MARCH 2004: Agreed O&M agreement and trading services agreement.
11
SCHEDULE 4:
AES DRAX HOLDINGS LIMITED:
Our restructuring proposal follows, in general, the key structural terms of the
14 August 6K. However, following consultation with Senior Creditors and their
advisors, it includes a number of specific structural differences from that
proposal that we believe add value to the terms of the Restructuring. The
principal differences are:
(i) flexibility to consider any proposals which have been developed on the
treatment of the Hedge Termination Payments and any reinstated interest
rate hedges (see section 1.2.1);
(ii) no cash-out option for the B Debt. We also do not propose the option to
eliminate the B tranche's claim on the Principal Drax Assets (see section
2.1);
(iii) arrangement by BHP Billiton of the Trading Guarantee Facility at the
Company's option (see section 1.5);
(iv) willingness to enter into discussions with third parties to provide
Cash-Out funding on the same terms as our proposal, should the BHP
Billiton funds not be sufficient to satisfy all demand for the Cash-Out
Option (see section 1.3.3); and
(v) flexibility to discuss issues further with the Senior Creditors, on the
basis of the proposal set out in the 30 June 6K.
PROPOSED RESTRUCTURING TERMS FOR SENIOR CREDITORS UNDER THE BHP BILLITON OFFER
GLOSSARY
"AES" means the AES Corporation
"AES DRAX COMPANIES" means Drax Holdings, Drax Power, AES Drax Acquisition
Limited, AES Drax Financing Limited and other subsidiaries of Drax Holdings
"BANK LOANS" means the loans provided by the Senior Banks to InPower
"BANK STEERING COMMITTEE" means the steering committee representing the Senior
Banks
"BHP BILLITON OFFER" means the offer being made by BHP Billiton and/or certain
of its affiliates on 21 August 2003 to facilitate the restructuring of the
senior secured debt and other contractual arrangements of Drax Holdings, Drax
Power, and/or certain of their affiliates
"CURRENCY HEDGING BANKS" means the banks providing currency hedging facilities
to Drax Holdings
"DRAX HOLDINGS" means AES Drax Holdings Limited
"DRAX POWER" means AES Drax Power Limited
"EUROBONDS" means the(pound)1,725 million secured bonds due 2015 issued by Drax
Holdings
"HARICH" Harich Investment B.V.
"HARICH SWAPS" means the swaps between Harich and InPower, and between Harich
and Drax Power
"HEDGE TERMINATION PAYMENTS" means amounts payable to the Hedging Banks upon
termination of any interest rate or currency swaps to which the Hedging Banks
are a party, which will be converted into Restructured Debt on a pro-rata basis
12
"HEDGING BANKS" means the Currency Hedging Banks and the Interest Rate Hedging
Banks
"INPOWER" means InPower Limited
"INTEREST RATE HEDGING BANKS" means the banks providing interest rate hedging
facilities to Drax Power
"RESTRUCTURED DEBT" means A-1 Debt, A-2 Debt, A-3 Debt and B Debt, all as
defined in section 1.2 of this Schedule
"RESTRUCTURING" means the restructuring reflected in this proposal
"SENIOR BANKS" means the syndicate of banks which financed (through a loan to
InPower) the acquisition of the Eurobonds by InPower
"SENIOR BONDHOLDER COMMITTEE" means the committee representing the holders of
the Senior Bonds
"SENIOR BONDHOLDERS" means the holders of the Senior Bonds
"SENIOR BONDS" means the 9.07% Senior Secured Bonds due 2025 and 10.4% Senior
Secured Bonds due 2020 issued by Drax Holdings
"SENIOR CREDITORS" means the Senior Banks, the Senior Bondholders and the
Hedging Banks
"SENIOR CREDITORS COMMITTEES" means the Bank Steering Committee and the Senior
Bondholder Committee
"TRADING GUARANTEE FACILITY" means the facility that may be provided by BHP
Billiton (or its affiliate) to support the electricity trading of Drax Power
following the Restructuring or a third party, at the discretion of the Company
"TXU CLAIM" means the claim by Drax Power against TXU Europe Energy Trading
Limited and TXU Europe Group plc in connection with defaults under certain power
purchase arrangements.
1 SECTION 1 - THE RESTRUCTURING PROPOSAL
1.1 CURRENT DEBT STRUCTURE
The current senior secured indebtedness owed by Drax Holdings
to the Senior Creditors is summarised in the table below.
------------------------------------- -------------------------- ---------------- ------------------
DEBT PRINCIPAL AMOUNT FINAL MATURITY INTEREST RATE
------------------------------------- -------------------------- ---------------- ------------------
Bank Loans owed to Senior Banks (pound)842,555,000 2015 Libor plus 3.0%(3)
(serviced through interest coupons
under the Eurobonds and the Harich
Swaps)
------------------------------------- -------------------------- ---------------- ------------------
Senior Secured Bonds due 2020 U.S.$302,400,000 2020 10.41%
------------------------------------- -------------------------- ---------------- ------------------
- -------------
3 We understand that the margin of 3% above Libor is the margin to which
the Senior Banks are entitled under the Bank Loans given the current
credit rating of the AES Drax Companies. However interest with a margin
of 2.2% was paid to the Senior Banks on 31 December 2002 and on 30 June
2003.
13
------------------------------------- -------------------------- ---------------- -----------------
DEBT PRINCIPAL AMOUNT FINAL MATURITY INTEREST RATE
------------------------------------- -------------------------- ---------------- -----------------
Senior Secured Bonds due 2025 (pound)200,000,000 2025 9.07%
------------------------------------- -------------------------- ---------------- -----------------
Hedge Termination Payments Up to approx Not Not
(pound)91,400,0004 applicable applicable
------------------------------------- -------------------------- ---------------- -----------------
1.2 PROPOSED DEBT STRUCTURE
1.2.1 PROPOSED DEBT STRUCTURE
The Restructuring reflected in this proposal involves
replacing the existing senior secured debt with new
secured debt, as well as providing the Senior
Creditors with Equity, as summarised below.
- ----------------------- ------------------------ -------------- ---------------
FINAL
DEBT STERLING EQUIVALENT MATURITY INTEREST RATE
- ----------------------- ------------------------ -------------- ---------------
A-1 Debt (pound)400,000,000 2015 Libor plus
2.5%
- ----------------------- ------------------------ -------------- ---------------
A-2 Debt Up to(pound) 2015 Libor plus
460,000,000(5) 4.0%
- ----------------------- ------------------------ -------------- ---------------
A-3 Debt Up to(pound) 2020 Libor plus
135,455,000(6) 5.0%
- ----------------------- ------------------------ -------------- ---------------
B Debt (pound)338,400,000(7) 2025 Libor plus
2.0%
- ----------------------- ------------------------ -------------- ---------------
Total Debt Up to(pound)
1,333,855,000
- ----------------------- ------------------------ -------------- ---------------
- -------------
4 The amount of (pound)91,400,000 for Hedge Termination Payments is based
upon the most recent indicative valuation of the termination sum
payable by Drax Holdings or Drax Power (as supplied by AES in its
restructuring proposal). The indicative termination payments, if all
positions were to be terminated, are included in the above table. The
termination value of hedge contracts is subject to market prices and
may therefore increase or decrease from the estimated amount included
in the document. The treatment of the hedge positions of the Hedging
Banks in the Restructuring requires further discussion with the Hedging
Banks, the Senior Creditors Committees and BHP Billiton.
5 The amount of A-2 Debt outstanding immediately following the
Restructuring will be lower to the extent that the Cash-Out Option is
exercised by Senior Creditors.
6 The amount of the A-3 Debt outstanding immediately following the
Restructuring will be equal to the sum of the debts owed to the Senior
Creditors (as set out in the table in section 1.1 above), less the sum
of the other tranches of the Restructured Debt and will be lower to the
extent that (a) the Project Funds are used to fund any Cash-Out Option
and (b) the hedging contracts with Hedging Banks are not terminated.
The figure shown is based on an exchange rate of $1.512 = (pound)1, the
Fed Funds Rate on 27 July 2000 being the rate applicable at the time of
the issue of the Senior Bonds. The actual exchange rate used will be
that as at a reference date prior to the Restructuring. The termination
value of hedge contracts is subject to market prices and may therefore
increase or decrease from the estimate included in this document.
7 This is the aggregate amount of the TXU Claim (net of VAT payable in
respect thereof). There is no assurance that the full amount of the TXU
Claim will ultimately be recovered or that the AES Drax Companies will
have tax losses to offset against any attributable income.
14
----------------------- ------------------------ -------------- ---------------
FINAL
DEBT STERLING EQUIVALENT MATURITY INTEREST RATE
----------------------- ------------------------ -------------- ---------------
Equity 100% ownership
(indirect) of Drax
Power Station
----------------------- ------------------------ -------------- ---------------
Trading Guarantee Up to(pound)100
Facility million(8)
----------------------- ------------------------ -------------- ---------------
Interest Rate
Hedging(9)
----------------------- ------------------------ -------------- ---------------
1.2.2 RIGHT TO RECEIVE PRO RATA SHARE OF RESTRUCTURED DEBT
One overriding principle in the Restructuring is that
for each (pound)1 of senior secured indebtedness owed
to a Senior Creditor such Senior Creditor will be
entitled to the same participating interest in each
of the tranches of debt. Accordingly, each Senior
Bank, Senior Bondholder and Hedging Bank (to the
extent their hedging agreement is terminated) will be
allocated, in proportion to its current relative
holdings of the Bank Loans, Senior Bonds or rights to
Hedge Termination Payments, as the case may be:
(i) participations in A-1 Debt and B Debt; and
(ii) the right to receive a combination of:
(a) participations in A-2 Debt and A-3
Debt (together with the A-1 Debt
and B Debt, the "RESTRUCTURED
Debt"); and/or
(b) cash pursuant to the exercise by
such Senior Creditor of its
Cash-Out Option described in
section 1.3 - The Cash-Out Option
below.
1.2.3 SENIOR CREDITORS' RIGHT TO ALL EQUITY
The Senior Creditors will, under the terms of this
Restructuring proposal, have the right to become
indirect owners of the whole of the equity of Drax
Power in proportion to their holdings of A-3 Debt
after the exercise of the Cash-Out Option. See
section 1.4 - Drax Power Station Ownership. The BHP
Billiton Offer does not provide for any consideration
to be provided to AES or the AES Drax Energy Limited
bondholders.
- -------------
8 To be finalised following agreement of a revised electricity trading
policy for the AES Drax Companies. In addition, it is intended that at
completion of the Restructuring a cash balance of up to
(pound)50,000,000 will be available from existing Company cash
resources to Drax Power for working capital purposes, subject to the
cashflow cycle.
9 Discussions required between the Hedging Banks, the Senior Creditors
Committees and BHP Billiton as to the treatment of hedge positions in
the Restructuring.
15
1.2.4 RESTRUCTURED TRANCHES OF DEBT
The Restructured Debt has been separated into
tranches in order to provide for:
(i) a first ranking tranche of debt(10), the A-1
Debt, of (pound)400 million with the
following scheduled amortisation profile and
a final maturity date of 2015:
- ------------------------- ---------------------------------
AMORTISATION ((POUNDS
YEAR STERLING) MILLION)(11)
- ------------------------- ---------------------------------
2007 10
- ------------------------- ---------------------------------
2008 20
- ------------------------- ---------------------------------
2009 55
- ------------------------- ---------------------------------
2010 55
- ------------------------- ---------------------------------
2011 55
- ------------------------- ---------------------------------
2012 55
- ------------------------- ---------------------------------
2013 50
- ------------------------- ---------------------------------
2014 50
- ------------------------- ---------------------------------
2015 50
- ------------------------- ---------------------------------
Interest on A-1 Debt will be payable on a
semi-annual basis. A-1 Debt will have the
benefit of certain prepayment rights as well
as a Debt Service Reserve Account (as
defined in section 2.1.1) funded at
completion of the Restructuring to an amount
equal to the interest payments falling due
on the two interest payment dates following
the Restructuring and, thereafter, funded in
accordance with the Cash Flow Waterfall (as
described in section 2.2 - Cash Flow
Waterfall) to a level equal to the interest
and scheduled principal payments on the A-1
Debt falling due on the two interest payment
dates following the relevant interest
payment date;
(ii) a second ranking tranche, the A-2 Debt, of
up to (pound)460 million which will have no
fixed amortisation profile, however, the
outstanding principal balance will fall due
for payment in 2015. Interest on the A-2
Debt will be payable on a semi-annual basis
after payment of interest on the A-1 Debt,
any hedging specific to the A-1 Debt(12)
scheduled principal payments on the A-1
Debt, and a cash sweep into the Debt Service
Reserve Account to ensure a required balance
equal to 12 months' interest payments on A-1
Debt;
A-2 Debt will also benefit from a 1.0 x
look-forward test/reserve of at least six
months. If there are insufficient funds to
pay interest on the A-2 Debt,
- -------------
10 This is subject to the priority of the Trading Guarantee Facility (see
section 1.5 - Electricity Trading Support for BHP Billiton's proposal).
11 Each annual scheduled amortisation shown above will be payable in two
equal instalments on the semi-annual interest payment dates in each
such year, provided that there will only be one payment in 2015.
12 Structure of hedging and ranking in Cash Flow Waterfall to be discussed
with the Hedging Banks and Senior Creditors Committees.
16
interest will be deferred . Repayment of the
principal on the A-2 Debt will not occur
prior to the principal amount of the A-1
Debt reducing to below (pound)200 million
and will, thereafter, be dependent upon
there being sufficient funds available for
such purpose in accordance with the Cash
Flow Waterfall;
(iii) a third ranking tranche, the A-3 Debt, of up
to (pound)135.455 million. Unpaid interest
on the A-3 Debt will be deferred (but not
capitalised). The A-3 Debt will not receive
cash payments of deferred interest or
principal until the A-1 Debt and A-2 Debt
have been repaid in full;
(iv) a fourth ranking tranche, the B Debt,
of(pound)338.4 million whose primary source
of repayment will be payments received in
relation to the TXU Claim and will have
first ranking security over the TXU Claim.
The B Debt will also have security over the
Principal Drax Assets ranking junior to the
A-3 Debt. Interest will accrue on the B Debt
and will be paid in accordance with the Cash
Flow Waterfall, where it ranks behind
scheduled A-1 Debt payments, A-2 Debt and
A-3 Debt interest payments and, inter alia,
deposits to a debt service reserve account
to ensure a required balance equal to 12
months' interest and scheduled principal
payments on the A-1 Debt. If there are
insufficient funds to pay interest on the B
Debt, interest will be deferred, but not
capitalised.
Proceeds of the TXU Claim will be used to
repay the principal amount of the B Debt and
interest thereon. The principal amount
outstanding of the B Debt will only
otherwise be repaid once the A-1 Debt, the
A-2 Debt and the A-3 Debt have been repaid
in full. See section 2.2 - Cash Flow
Waterfall for further details.
All Restructured Debt will accrue interest as from 1
July 2003 (see section 1.3.5 - Accrual of Interest).
1.3 THE CASH-OUT OPTION
1.3.1 OPTION TO SELL A-2 DEBT AND A-3 DEBT
As part of the Restructuring, each Senior Creditor
will have the option (the "CASH-OUT OPTION") to sell,
at a discount (see section 1.3.2. below), all of its
participation in the A-2 Debt and the A-3 Debt,
provided that a Senior Creditor may tender on a
pro-rata basis part of its A-2 Debt and A-3 Debt. Any
such sales will be completed concurrently with the
issuance of the Restructured Debt. A Senior Creditor
that exercises its Cash-Out Option will forego any
right to receive Equity (as defined in section 1.4.1
- Ownership below) for any A-3 Debt sold in the
Cash-Out Option.
The Cash-Out Option is designed to provide Senior
Creditors with an alternative in order to realise
immediate cash value for the holding of A-2 Debt, A-3
Debt and Equity which would otherwise be allocated to
them.
1.3.2 DISCOUNT PRICE
Under the Cash-Out Option, the discount price for a
Senior Creditor's participation in A-3 Debt will be
1% of its original principal amount. The discount
price for a
17
Senior Creditor's participation in A-2 Debt will be
70% of its original principal amount.
1.3.3 SOURCE OF FUNDS
Two sources of funds will be available to make
payments to Senior Creditors who elect to accept the
Cash-Out Option ("CASH-OUT FUNDS"):
(i) the amount, being at a minimum
(pound)30,000,000, which will be available
to the AES Drax Companies (after taking into
account fees and expenses in connection with
the Restructuring and working capital
requirements subject to the cashflow cycle)
is that amount of cash (the "PROJECT FUNDS")
in excess of funds required to make payment
in full of amounts in the Cash Flow
Waterfall down to and including A-2 Debt
interest on 31 December, 2003 and,
therefore, is yet to be finally determined;
and
(ii) up to (pound)95,000,000 (or such greater
amount as is referred to below) is to be
made available by BHP Billiton or one of its
affiliates (the "BHP BILLITON FUNDS").
The Cash-Out Funds for the Cash-Out Option will be
made available as follows:
(i) first, by the AES Drax Companies from
Project Funds up to(pound)30,000,000;
(ii) second, the amount of incremental Project
Funds in excess of the (pound)30,000,000
that the Company and Senior Creditors elect
to use until all Project Funds are
exhausted; and
(iii) finally, any additional amounts that are
required will be funded from BHP Billiton
Funds until BHP Billiton Funds are
exhausted.
It is possible that the amount of BHP Billiton Funds
might be increased if the Cash-Out Option is taken up
by Senior Creditors in such a manner that the
(pound)95,000,000 would prove to be insufficient. If
demand for the Cash-Out Option is so strong that
additional funds are required, BHP Billiton reserves
the right to increase the amount of the BHP Billiton
Funds and, if necessary, will endeavour to obtain
additional funding from third parties.
If Cash-Out Funds are insufficient to make payments
in full to all the Secured Creditors who elect to
accept the Cash-Out Option (each an "ELECTING SECURED
CREDITOR") then each Electing Secured Creditor will
be "scaled back". All Cash-Out Funds will be used so
that each Electing Secured Creditor will sell its A-2
Debt and A-3 Debt pro rata to its claim as a Secured
Creditor relative to the aggregate of claims of all
Electing Secured Creditors. Each Electing Secured
Creditor will then receive A-2 Debt and A-3 Debt
which remains unsold under its exercise of the
Cash-Out Option and, therefore, a corresponding
portion of the Equity.
1.3.4 CONSEQUENCES OF CASH-OUT OPTION
To the extent that Project Funds are used to purchase
participations in A-2 Debt and A-3 Debt under the
Cash-Out Option, the outstanding amount of such debt
will be retired, thereby deleveraging the Drax
project. To the extent that BHP Billiton purchases
participations in A-2 Debt and A-3 Debt, it will
become a Senior Creditor
18
holding Restructured Debt. In addition, BHP Billiton
will have the option to receive Equity in proportion
to the amount of A-3 Debt it purchases.
1.3.5 ACCRUAL OF INTEREST
No interest will be paid in respect of the debt to be
compromised in the Restructuring which is held by the
Senior Banks and the holders of the Senior Bonds for
the period from and including 1 July 2003 to the
completion of the Restructuring. However, interest
will accrue in respect of the Restructured Debt as
from 1 July 2003 as if such debt had been issued on
such date, and will be paid in accordance with the
Cash Flow Waterfall. Appropriate treatment will need
to be agreed in relation to those Senior Creditors
who exercise the Cash-Out Option.
1.4 DRAX POWER STATION OWNERSHIP
1.4.1 OWNERSHIP
The indirect ownership of the Drax power station will
be transferred to the holders of the A-3 Debt in the
form of all of the shares (the "EQUITY") in a holding
company (the "PARENT") which indirectly owns all of
the equity in Drax Power.
As indicated under section 1.3 - The Cash-Out Option
above, if a Senior Creditor exercises the Cash-Out
Option, then it will not receive any Equity for any
A-3 Debt sold under the Cash-Out Option. In addition:
(i) to the extent that the Cash-Out Option is
funded by Project Funds, Equity
corresponding to A-3 Debt that is prepaid
will not be issued; and
(ii) to the extent that the Cash-Out Option is
funded by BHP Billiton Funds, BHP Billiton
will have the option, at no additional cost,
to become the owner of the Equity
corresponding to the A-3 Debt purchased by
BHP Billiton.
1.4.2 RESTRICTIONS ON TRADING
In order to provide a period of stability following
the Restructuring within which the Drax power station
may operate, the A-2 Debt, A-3 Debt and Equity
(including any option to hold Equity) (together, the
"LINKED SECURITIES") will remain "linked" for an
initial period13. During this period, no holder of
Linked Securities may sell any single Linked Security
without also selling proportionate amounts of its
other Linked Securities.
1.5 ELECTRICITY TRADING SUPPORT
As mentioned in paragraph 5 of the BHP Billiton Offer Letter,
Drax Power will require substantial credit support to continue
its electricity trading activities following the
Restructuring. If Drax Power is no longer required to provide
cash collateral as credit support this will enhance the
liquidity of the Drax power station and provide cash for other
purposes, including working capital and funding the Cash-Out
Option. BHP Billiton is willing to arrange from closing of the
Restructuring, subject to agreement of satisfactory terms by
30 September 2003 and internal BHP Billiton credit approval, a
(pound)100,000,000 Trading
19
Guarantee Facility to facilitate Drax Power's ability to trade
electricity. A portion of this Trading Guarantee Facility may
take the form of credit lines with a BHP Billiton entity.
Facility utilisation fees shall be calculated based on the
aggregate risk exposures generated by Drax Power's trading
activities, providing a more efficient facility than
traditional credit facilities. This Facility shall, at all
times, have first ranking security interest (senior to the
Senior Creditors) over the Principal Drax Assets.
2 SECTION 2 - DETAILED TERMS OF THE RESTRUCTURING PROPOSAL
2.1 RESTRUCTURED DEBT
2.1.1 A-1 DEBT (PRINCIPAL AMOUNT: (POUND)400 MILLION):
RANKING: A-1 Debt will have the benefit of a
second ranking security interest
over all of the properties, assets
and shares of the AES Drax
Companies (other than recoveries on
the TXU Claim which will be subject
to a first ranking security
interest for the benefit of the B
Debt) (such properties, assets and
shares other than the TXU Claim,
the "PRINCIPAL DRAX ASSETS"). A-1
Debt has a second ranking security
interest over the Principal Drax
Assets solely because it ranks
after the security interest in
respect of the Trading Guarantee
Facility (up to(pound)100 million).
Otherwise, A-1 Debt has a security
interest that ranks ahead of all
other tranches of the Restructured
Debt
INTEREST RATE: Libor plus a margin of 2.5%.
INTEREST PAYMENT Semi - annual.
DATE:
FINAL MATURITY 30 June 2015
DATE:
AMORTISATION: Scheduled amortisation to be
paid in each year in equal
instalments on semi-annual interest
payment dates and on the Final
Maturity Date as follows:
2007: (pound)10 million
2008: (pound)20 million
2009: (pound)55 million
2010: (pound)55 million
2011: (pound)55 million
2012: (pound)55 million
2013: (pound)50 million
2014: (pound)50 million
20
2015: (pound)50 million
PREPAYMENT: Until the principal amount of
the A-1 Debt has reduced below
(pound)200,000,000, cash available
for debt service will, after
payment of A-1 Debt interest and
hedging, A-1 Debt scheduled
amortisation, funding the DSRA
(defined below) for 12 months' A-1
Debt interest and scheduled
principal, payment of A-2 Debt
interest (including deferred
interest and, if applicable,
funding the A-2 Debt Interest
Reserve) and interest on the A-3
Debt and B Debt be applied solely
to prepayment of A-1 Debt principal
in inverse order of the scheduled
amortisation profile.
At any time after the principal
amount of the A-1 Debt has reduced
below (pound)200m, excess cash
available for debt service will,
after payment of the amounts
referred to in the immediately
preceding paragraph, be applied on
a pro rata basis to (a) prepayment
of A-1 Debt principal, in inverse
order of the scheduled amortisation
profile, and (b) A-2 Debt
principal, (for the avoidance of
doubt, this means proportionally to
the outstanding amount of A-1 Debt
and A-2 Debt immediately prior to
the prepayments).
PRIORITY OF See section 2.2 - Cash Flow
PAYMENTS: Waterfall.
DEBT SERVICE A debt service reserve account (the
RESERVE ACCOUNT: "DEBT SERVICE RESERVE ACCOUNT" or
"DSRA") will be established
immediately on the completion of
the Restructuring from funds
available in the Drax project in an
amount equal to the interest
falling due on the A-1 Debt on the
next two interest payment dates.
Following the Restructuring, after
payment of A-1 Debt interest and
hedging and scheduled A-1 Debt
amortisation, cash available for
debt service will be transferred to
the DSRA to the extent required to
ensure that the required balance
thereon is equal to the next two
A-1 Debt interest payments.
In addition, after payment of A-2
Debt interest (including deferred
interest and, if applicable,
funding the A-2 Debt Interest
Reserve), cash available for debt
service of up to the amount of
scheduled A-1 Debt amortisation
falling due on the next two
interest payment dates will be
transferred to the DSRA.
To the extent that the funds
credited to the DSRA as of an A-1
Debt interest payment date exceed
the required DSRA balance
determined as of such date, the
excess may be withdrawn and used to
make payments in
21
accordance with the Cash Flow
Waterfall.
COVENANT PACKAGE: The covenant package is to be
negotiated, but is expected to have
the level of protections similar to
those in the current Bank Loans.
ACCELERATION AND To be discussed with the Senior
ENFORCEMENT: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
CHANGE OF To be discussed with the Senior
CONTROL: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
CREDIT RATING: To be discussed with the Senior
Creditors Committees.
2.1.2 A-2 DEBT (PRINCIPAL AMOUNT: UP TO (POUND)460
MILLION):
RANKING: A-2 Debt will have the benefit of a
third ranking security interest
over the Principal Drax Assets,
ranking in point of security after
the amounts owing under the Trading
Guarantee Facility and the A-1
Debt.
INTEREST RATE: Libor plus a margin of 4%.
INTEREST PAYMENT: Interest on the A-2 Debt will be
payable on a semi-annual basis
after payment of interest on the
A-1 Debt and hedging, scheduled
principal payments on the A-1 Debt,
and a cash sweep into the Debt
Service Reserve Account to ensure a
required balance equal to 12 months
interest payments on A-1 Debt.
Unpaid interest is deferred (not
capitalised) and bears interest at
the same rate.
A-2 DEBT INTEREST There will be a six month (18
RESERVE: months on or before 31 December
2006) look-forward test for A-2
Debt interest on a 1.0 x debt
service cover ratio, and to the
extent such test is not passed, an
amount equal to the shortfall will
(in accordance with the Cash Flow
Waterfall) be placed in a reserve
account (the "A2 DEBT INTEREST
RESERVE"). Amounts standing to the
credit of the A-2 Debt Interest
Reserve would be used to make
payments of interest and scheduled
principal on the A-1 Debt before
making payments of interest on the
A-2 Debt if there were insufficient
funds available in the Cash Flow
Waterfall for such purpose and if
the DSRA had been fully utilised.
FINAL MATURITY 30 June 2015.
DATE:
AMORTISATION: No scheduled amortisation of
principal. Once the principal
amount outstanding of A-1 Debt is
less than(pound)200 million, excess
cash available for debt service
will, after payment of the A-1 Debt
interest and hedging,
22
scheduled A-1 Debt principal
amortisation, funding the DSRA for
12 months' A-1 Debt interest,
payment of A-2 Debt interest
(including deferred interest and,
if applicable, funding the A-2 Debt
Interest Reserve) and interest on
the A-3 Debt and B Debt and
hedging, funding the DSRA for 12
months' A-1 debt scheduled
principal, be applied to prepayment
of A-1 Debt principal and A-2 Debt
principal on a pro rata basis.
PRIORITY OF See section 2.2 - Cash Flow
PAYMENTS: Waterfall.
COVENANT PACKAGE: To be negotiated on same basis as
applicable to the A-1 Debt.
ACCELERATION AND To be discussed with the Senior
ENFORCEMENT: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
CASH-OUT OPTION: Senior Creditors who are otherwise
entitled to a holding of A-2 Debt
have the alternative of exercising
the Cash-Out Option described in
section 1.3 - The Cash-Out Option
above. To the extent so exercised
and to the extent the purchase is
funded from Project Funds, the A-2
Debt so purchased will be
cancelled. For further details, see
section 1.3 - The Cash-Out Option
above.
CHANGE OF To be discussed with the Senior
CONTROL: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
2.1.3 A-3 DEBT: PRINCIPAL AMOUNT: UP TO (POUND)135.455
MILLION
RANKING: A-3 Debt will have the benefit of a
fourth ranking security interest
over the Principal Drax Assets.
INITIAL PRINCIPAL The initial principal amount of the
AMOUNT A-3 Debt will, subject to reduction
in accordance with the Cash-Out
Option, be the difference between:
(i) the aggregate amount of
the Senior Creditors'
indebtedness being '
compromised by the
Restructuring; and
(ii) the aggregate amount of the
A-1 Debt, A-2 Debt and B
Debt (before any reduction
of any amount in respect
of Senior Creditors
exercising the Cash-out
Option).
INTEREST RATE: Libor plus a margin of 5%.
INTEREST PAYMENT Interest on A-3 Debt shall be
DATE: deferred (but not capitalised) if
there are insufficient funds
available in the Cash Flow
Waterfall for such purpose.
A-3 DEBT There will be a six month (18
INTEREST months on or before 31 December
RESERVE: 2006) look-forward test for A-3
Debt interest
23
on a 1.0 x debt service cover
ratio, and to the extent such test
is not passed, an amount equal to
the shortfall will (in accordance
with the Cash Flow Waterfall) be
placed in a reserve account (the
"A-3 DEBT INTEREST RESERVE").
Amounts standing to the credit of
the A-3 Debt Interest Reserve would
be used to make payments of
interest and scheduled principal on
the A-1 Debt or the A-2 Debt before
making payments of interest on the
A-3 Debt if there are insufficient
funds available in the Cash Flow
Waterfall for such purpose.
AMORTISATION: A-3 Debt principal will only be
paid after all of the A-1 Debt and
A-2 Debt have been paid in full.
COVENANT PACKAGE: Limited covenant package to be
agreed.
ACCELERATION AND To be discussed with the Senior
ENFORCEMENT: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
CASH-OUT OPTION: Senior Creditors who are otherwise
entitled to a holding of A-3 Debt
have the alternative of exercising
the Cash-Out Option described in
section 1.3 - The Cash-Out Option
above. To the extent so exercised
and to the extent the purchase is
funded from Project Funds, the A-3
Debt so purchased will be
cancelled. For further details, see
section 1.3 - The Cash-Out Option
above.
CHANGE OF To be discussed with the Senior
CONTROL: Creditors Committees on the basis
of the proposal set out in the 30
June 6K.
EQUITY: The Equity will be issued to
holders of the A-3 Debt immediately
after completion of the Cash-Out
Option in proportion to such
holdings.
2.1.4 B DEBT (PRINCIPAL AMOUNT: (POUND)338,400,000):
SOURCE OF PAYMENT The principal source of funds for
AND SECURITY: the payment of B Debt is the
proceeds to be received from the
TXU Claim. B Debt will have a first
ranking security interest over the
TXU Claim proceeds. The B Debt will
have a fifth ranking security
interest over the Principal Drax
Assets. To the extent the proceeds
of the TXU Claim are insufficient
to repay the B Debt (and deferred
interest thereon), payment of such
remaining B Debt will be made in
accordance with the Cash Flow
Waterfall (see section 2.2 - Cash
Flow Waterfall below).
INTEREST RATE: Libor plus a margin of 2%.
INTEREST PAYMENT: B Debt interest will be deferred
(but not capitalised) to the extent
excess cash is not available after
payment of
24
interest on the A-1 Debt and
hedging, scheduled principal
payments on the A-1 Debt, funding
the DSRA for 12 months' A-1 Debt
interest and scheduled principal
and payment of A-2 Debt interest
(including deferred interest and,
if applicable, funding the A-2 Debt
Interest Reserve) and hedging and
payment of A-3 Debt interest
(including deferred interest and,
if applicable, funding the A-3 Debt
Interest Reserve) (see section 2.2
- Cash Flow Waterfall below).
B DEBT INTEREST There will be a six month
RESERVE: look-forward test for B Debt
interest on a 1.0 x debt service
cover ratio, and to the extent such
test is not passed, an amount equal
to the shortfall will (in
accordance with the Cash Flow
Waterfall) be placed in a reserve
account (the "B DEBT INTEREST
Reserve"). Amounts standing to the
credit of the B Debt Interest
Reserve would be used to make
payments of interest and scheduled
principal on the A-1 Debt, the A-2
Debt, or the A-3 Debt before making
payments of interest on the B Debt
if there are insufficient funds
available in the Cash Flow
Waterfall for such purpose.
AMORTISATION: No fixed scheduled amortisation. B
Debt will be paid on receipt of
proceeds of the TXU Claim and
otherwise once the A-1 Debt, A-2
Debt and A-3 Debt have been repaid
in full.
PRIORITY OF See section 2.2 - Cash Flow
PAYMENTS: Waterfall (including the treatment
of taxes on the TXU Claim).
COVENANT PACKAGE: The B Debt will have the benefit of
a very limited set of covenants and
conditions of default which are
designed primarily to protect the
claim of the B Debt to the proceeds
of the TXU Claim. Specifically, the
B Debt will have no voting rights
in connection with their security
over the Principal Drax Assets, a
sale of Drax Holdings or any of its
affiliates or any recapitalisation,
restructuring etc.
ACCELERATION AND Irrespective of any default under
ENFORCEMENT: the B Debt, holders of B Debt will
neither be able to accelerate their
B Debt nor to enforce any of their
rights in respect of security
interests held on their behalf,
other than the security interest in
respect of the TXU Claim, until
such time as the holders of the A-1
Debt, A-2 Debt and A-3 Debt have
been repaid in full.
25
2.2 CASH FLOW WATERFALL
On any Interest Payment Date, the order of payments in respect of the
Restructured Debt shall be as set out in Schedule 2.
26
SCHEDULE 5
COAL SUPPLY - HEADS OF TERMS
BUYER: Drax Entity
SELLER: BHP Billiton Entity
START DATE: 1 January 2004
END DATE: 31 December 2018
COAL VOLUME: For the period from January 2004 to December 2005,
Seller to supply all of the Buyer's coal
requirements (whether due to reductions in
contracted volumes or delivery default by other
coal suppliers) in excess of current contracted
volumes subject to (i) a maximum of 3.7 million
tonnes in calendar year 2004 and of 6.5 million
tonnes in calendar year 2005, and (ii) sufficient
advance notice from the Buyer where volumes are to
be increased from the anticipated base contract
volumes in order to allow the Seller to secure the
coal and ensure the availability of logistical
capacity. Seller will also supply additional coal
above these coal volumes on the basis that
incremental costs for freight, port and rail costs
will be passed through to the Buyer.
From January 2006 to December 2010, Seller to
supply all of the Buyer's coal requirements on an
exclusive basis. From January 2011, Seller to
supply 80% of the Buyer's coal requirements and to
have the right to participate in a competitive
tender in respect of the Buyer's remaining coal
requirements. Note: All coal volumes based on coal
with calorific value of 6000 kcal/kg net as
received.
PRICING: The coal price (exclusive of VAT), basis free in
stock ("FIS") Drax power station, shall be the TFS
API2 index plus freight differential, port and
rail charges all of which are to be fixed for the
contract term.
"TFS API2" means an average of the Argus CIF
Rotterdam assessment as published in both Argus
Coal Daily International and Argus Coal Daily on
Friday (dated next working day) and McCloskey's NW
European steam coal marker as published in both
McCloskey's Fax on Friday (dated Friday) and the
fortnightly McCloskey's Coal Report (dated every
other Friday).
The price for each delivery of coal (train or road
truck) shall be the final TFS API2 index (as per
coal industry publications) of the calendar month
prior to the delivery, converted at the spot
GBP:USD exchange rate on the day of payment and
expressed in GBP/GJ terms, plus the agreed GBP/GJ
logistics adjustment.
Should the TFS API2 index become unavailable,
Buyer and Seller shall agree in good faith a
replacement index for coal deliveries to the
Amsterdam/Rotterdam/Antwerp area.
27
DELIVERY SCHEDULE: A scheduling process is to be agreed between the
Buyer and the Seller taking into account:
o Typical seasonality of coal burn;
o Seller's right to rail to Buyer's
stockyard subject to stockpile volumes
remaining at a minimum level of 600,000
tonnes; and
o Buyer to advise Seller of its firm coal
requirements in each month by the 15th
day of the preceding month.
PAYMENT TERMS: Payment of all invoices in full, on the 10th day
of the month following the month of delivery.
QUALITY: Initial typical specification range, on an ISO
as-received basis:
LOWER LIMIT UPPER LIMIT
Total Moisture (%) 4 13
Ash (%) 5 22
Volatile Matter (%) 25 33
NCV (GJ/mt) 20 27
HGI (ASTM) 45 70
AFT ((degree)C) 1150 -
Free Swelling Index 0 7
Sulphur (%) 0.55 2.8
Nitrogen (%) 0 1.7
Notes to above:
o Buyer agrees to conduct full test burns
on at least four coals or coal blends in
Seller's option prior to the
commencement of deliveries under the
coal supply agreement;
o The specification ranges above are
applicable to coals or coal blends
delivered to the plant, and such blends
may contain blend components with
specifications falling outside the
range;
o The lower limit on the volatile matter
is an average figure for each calendar
year, subject to a minimum level for any
delivery of 23 per cent. on an as
received basis;
o The lower limit on sulphur is an average
figure for each calendar year, subject
to a minimum level for any delivery of
0.4 per cent. on an as received basis;
o The upper limit for nitrogen is an
average figure for each calendar year;
and
o Seller may source compliant coal from
any location.
28
ANNUAL TEST BURNS: Buyer shall conduct trial burns of up to five
coals or coal blends at Seller's request each
calendar year (more by mutual agreement) in an
attempt to extend the boundaries of the coal
specifications listed in "Quality" above. Any
coals forming part of Seller's portfolio of equity
South African coals that are already approved may
be deducted from the number of trial burns to be
carried out in the first year. Approval of these
trial coals is conditional on a "good faith"
agreement that same will not have material adverse
operational and maintenance cost implications for
the plant.
COAL QUALITY All coal shall be sampled and tested according to
ANALYSIS AND WEIGHT ISO standards (ASTM in the case of hardgrove
DETERMINATION grindability index), on an as received basis, by
an independent and mutually appointed testing
laboratory. Such sampling and testing shall take
place at the point of loading of the train or road
truck, and shall be final and binding. Weight
determination shall be according to the results of
a "trade stamped" weighbridge at Drax power
station, and shall be final and binding.
CREDIT SUPPORT: The Seller is prepared to discuss securitisation
of part of the minimum strategic coal stockpile
to limit the credit support requirements.
TRADE FINANCE: In order to improve working capital for the Buyer,
the Seller is also prepared to discuss (i)
monetisation of part of the minimum strategic coal
stockpile; and (ii) deferral payment on early
shipments of coal.