Exhibit 10(g)-2
EASTERN
To: Royal Bank of Scotland plc, as Agent under the
Standby Credit Facility referred to below
Copied to: The Standby Banks referred to below and, where
applicable, their successors and permitted
assigns.
11 March 1999
Dear Sirs
EASTERN MERCHANT PROPERTIES LIMITED ("EMPL")
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EASTERN MERCHANT GENERATION LIMITED ("EMGL")
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STANDBY CREDIT FACILITY DATED 28TH OCTOBER 1996
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1. INTRODUCTION
We refer to the Supplemental Agreement dated 17th July, 1998
(the "Supplemental Agreement"), supplemental to, and
amending and restating, a Standby Credit Facility Agreement
dated 28th October 1996 in favour of EMPL and EMGL, as
Borrowers, in the amount of L1,057,395,552 (the "Standby
Credit Facility Agreement", which expression means such
agreement as so amended and restated). The Banks listed in
Schedule 1 to the Standby Credit Facility Agreement are
referred to herein as the "Standby Banks".
By this letter, we request an amendment to be made to the
Standby Credit Facility Agreement.
2. BACKGROUND
(a) The Supplemental Agreement, as approved by the Standby
Banks, made certain amendments to the Standby Credit
Facility Agreement, including the insertion of two new
financial covenants, a minimum net worth covenant and a
gearing limit. For the purposes of the gearing limit a new
definition of "Total Consolidated Net Borrowings" was
introduced. Unfortunately, in this process an error were
made. The expression "Total Consolidated Net Borrowings"
was defined as the aggregate principal amount of all
Borrowings (as already defined) of the Group less Cash (as
defined). This new definition thus worked in part off an
existing definition (Borrowings") but erred in doing so
without qualification.
This is because Borrowings as already defined included, as a
deemed Borrowing under paragraph (g) of the definition, all
premium payable by EMPL to National Power Plc under the
National Power headlease. Whilst this was appropriate where
the expression Borrowings was used in the cross default
clause (Clause 19.1(f)), it was not appropriate in the
context of the new gearing covenant, given in particular the
nature of the National Power head lease as an operating
lease. The inclusion of lease premium as a deemed Borrowing
was also inappropriate where that term was used in the
context of the definition of Consolidated interest, used in
the interest cover covenant in Clause 18.1-(y), particularly
as that definition already made specific provision for a
portion of the rents payable by EMGL to EMPL under the
leases to be treated for this purpose as interest.
(b) In the past 12 months, Eastern has taken a number of
significant steps towards its objective of creating an
integrated pan-European energy portfolio.
. Purchase of 5% shareholding in Hidroelectrica del
Cantabrico (fourth largest electricity company in
Spain), and establishing of a joint venture energy
trading and risk management company with them to
operate in the deregulating Iberian market.
. Purchase of the rights to output from two hydro power
stations in Norway over a 55 year period, and formation
of joint venture energy retail and trading company to
operate in the Nord Pool area (Norway, Sweden and
Finland). Eastern's JV partner is Lunds Energi, one of
the top ten energy retailers in Sweden.
. Formation of Compass Energy, a joint venture with
Energie Noord West of Holland to retail gas in the
deregulating Dutch market.
. Establishment of development offices in Madrid,
Frankfurt, Stockholm, Prague and Warsaw, to be followed
by Paris and Milan.
The purchases in Spain and Norway have added some L180
million of additional borrowing to the balance sheet of
Eastern Group, although the process to replace a significant
portion of this amount with non recourse borrowing is well
advanced. At the same time, Eastern's Net Assets have been
depleted by the upstreaming of dividends to service the debt
introduced by the acquisition of Eastern by Texas Utilities
Company.
The combination of additional borrowing and reduced cash
reserves has pushed Eastern close to the existing 150%
gearing ceiling, which will constrain Eastern's ability to
make further significant investments until non recourse
refinancing creates further headroom.
Additional headroom for expansion is included in the revised
and restructured facility for Eastern's UK parent TXU
Eastern Holdings Limited, that is currently in syndication.
The proposed amendment is intended to create a similar
effect under this Facility.
An increase in the maximum permitted gearing limit to 200%,
would enable Eastern to provide the initial finance for new
investments, either from cash or short term borrowings, and
create time for the arrangement of longer term non recourse
refinancing.
To address the concern of lenders towards further depletion
of Net Assets, Eastern offers to increase the minimum Net
Worth requirement to L1,000,000,000.
3. AMENDMENTS REQUESTED
We request your consent to the amendment of the terms of the
Standby Credit Facility Agreement by:
(a) the inclusion, at the beginning of paragraph (g) of the
definition of "Borrowings", of the words "(for the purposes
only of Clause 19.1(f))"; and
(b) the deletion of existing Clause 18.1(bb) to be replaced
with:
"procure that:
(i) the Adjusted Consolidated Tangible Net Worth is not, at
any time, less than L1,000,000,000; and
(ii) Total Consolidated Net Borrowings do not, at any time,
exceed 200% of Adjusted Consolidated Tangible Net
Worth".
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4. EFFECTIVE DATE
The amendment set out above will take effect on and from the
date on which the Agent confirms to each Standby Bank, EMPL
and EMGL that Majority Banks have agreed to such amendment
(the "Effective Date") and the costs and expenses of the
Agent in respect of the amendments and waiver have been
paid.
5. SUPPLEMENT EFFECT
This letter is supplemental to the Standby Credit Facility
Agreement and, on and from the Effective Date, the terms of
this letter and the terms of the Standby Credit Facility
Agreement shall be read and construed as one document.
Except as expressly amended by this letter, the Standby
Credit Facility Agreement shall continue in full force and
effect.
6. INCORPORATION OF PROVISIONS
The provisions of Clauses 22, 28, 31 and 35 of the Standby
Credit Facility Agreement shall apply to this letter as if
set out in full in this letter (mutatis mutandis) but as if
references in those provisions to Finance Documents were
references to this letter. Capitalised terms not otherwise
defined in this letter shall, where the context so permits,
have the meanings given to them in the Standby Credit
Facility Agreement.
7. COUNTERPARTS
This letter may be executed in any number of counterparts
and this shall have the same effect as if all of the
signatures were on a single copy of this letter.
8. LAW
This letter is governed by English law.
If you agree to the above, please sign this letter and
return a copy of it to us.
Yours faithfully
/s/ X.X. Lean
........................................
Eastern Group plc
/s/ X.X. Lean
........................................
Eastern Merchant Properties Limited
/s/ X.X. Lean
........................................
Eastern Merchant Generation Limited
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/s/ X.X. Lean
........................................
Eastern Generation Limited
/s/ X.X. Lean
........................................
Eastern Electricity plc
We agree to the amendment requested in this letter and confirm
that we are authorised to sign this letter as Agent on behalf of,
and we have received the requisite approvals from, Majority Banks
in accordance with Clause 26.1. of the Standby Credit Facility
Agreement.
/s/ Illegible
........................................
The Royal Bank of Scotland plc as Agent
30th March 1999
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