Linklaters has acted for Southern Water Services Limited (SWS) and its…

Linklaters has acted for Southern Water Services Limited (SWS) and its majority shareholder, Royal Bank Investments Limited (RBIL), the private equity arm of The Royal Bank of Scotland group, on its £1.9 billion whole business securitisation. The securitisation was co-arranged by The Royal Bank of Scotland (RBS) and Citigroup.

To date, Linklaters has acted in every UK public water securitisation and on the vast majority of private water securitisations. Linklaters had previously advised RBIL on its purchase of shares in the Southern Water group in May 2003. A subsidiary of Veolia Environnement (previously Vivendi Environnement) purchased the remaining shares.

The successful securitisation involved a Cayman Islands incorporated subsidiary of SWS issuing fixed rate, floating rate and index-linked notes – approximately £835 million of which are guaranteed by MBIA Assurance S.A. The Class A Notes are rated by AAA/Aaa or A-/A3 and the Class B Notes are rated BBB/Baa3 and are denominated in sterling and U.S. dollars. The total size of the programme is £6 billion.

The issuer also borrowed £233.2 million mezzanine debt from RBIL, and entered into a £120 million debt service liquidity facility agreement arranged by RBS and a £165 million secured term loan facility with RBS which was immediately refinanced by Artesian Finance II Plc, funded by the issue of Asset-Backed Fixed Rate Notes as part of an issue under the existing Artesian Securitisation Programme and benefiting from a financial guarantee provided by Financial Security Assurance (U.K.) Limited (FSA). SWS also issued £260 million preference shares to Veolia and its syndicatees and entered into a £150 million capital enhancement/working capital facility arranged by RBS. The proceeds of the securitisation and the SWS preference shares were used to repay a £1.7 billion bridge loan, to fund reserves and to repay existing intercompany indebtedness.

The securitisation is novel because of the use of mezzanine debt and preference shares as part of the capital structure and also the involvement of two monoline insurers. This is the fifth water securitisation using the RBS Artesian securitisation conduits, on each of which Linklaters has acted.

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