THIS ANNOUNCEMENT RELATES TO THE DISCLOSURE OF INFORMATION THAT QUALIFIED OR MAY HAVE QUALIFIED AS INSIDE INFORMATION WITHIN THE MEANING OF ARTICLE 7(1) OF THE MARKET ABUSE REGULATION (EU) 596/2014.

SOUTHERN GAS NETWORKS PLC

 (incorporated with limited liability under the laws of England and

Wales under registered number 05167021)
 

(Legal Entity Identifier: 549300SPX8573VZ2SK79)

SCOTLAND GAS NETWORKS PLC

 (incorporated with limited liability under the laws of
Scotland under registered number SC264065)

(Legal Entity Identifier: 549300Y7M5CC1U5DBX07)

Southern Gas Networks plc and Scotland Gas Networks plc announce Consent Solicitations

London, 23 October 2020

Southern Gas Networks plc ("Southern") and Scotland Gas Networks plc ("Scotland") (each, an "Issuer" and together, the "Issuers") today announce invitations to holders of the outstanding notes listed in the tables below (each a "Series" and together, the "Notes") to (i) consent to certain modifications to the Applicable Trust Deed of the relevant Series to amend the credit rating thresholds in the existing hedging counterparty criteria to align more closely with current Issuer financing documentation (including the current euro medium term note programme of the Issuers) and to reflect changes to the bank counterparty credit rating environment which has evolved during the period since the Series have been issued and (ii) consent to certain amendments to the 2034 Notes (as defined below) in connection with the proposal to remove the guarantee provided by Ambac Assurance UK Limited ("AMBAC") in respect of the 2034 Notes, to instruct the Trustee to release the guarantee provided by AMBAC and terminate or effect the secession from certain documents in connection with the removal of the AMBAC guarantee and to make changes corresponding to (i) above to the Applicable Trust Deed in so far as it relates to the 2034 Notes, both by approving the relevant extraordinary resolution (an "Extraordinary Resolution"), all as further described in the Consent Solicitation Memorandum prepared by the Issuers dated 23 October 2020 (the "Consent Solicitation Memorandum" and each such invitation in respect of a Series, a "Consent Solicitation"). Capitalised terms used in this notice and not otherwise defined shall have the meanings given to them in the Consent Solicitation Memorandum.

Early Participation Fee

Pursuant to each Consent Solicitation, each Noteholder who validly submits a Consent Instruction in respect of the relevant Extraordinary Resolution which is validly received by the Tabulation Agent by the Early Instruction Deadline may be eligible to receive an Early Participation Fee, subject to satisfaction of the Consent Conditions and as further described in the Consent Solicitation Memorandum.

Each Noteholder from whom a valid Consent Instruction in respect of the relevant Extraordinary Resolution is received by the Tabulation Agent by 4.00 p.m. (London time) on 5 November 2020 (such time and date with respect to each Series, as the same may be extended, the "Early Instruction Deadline") will be eligible to receive payment of an amount equal to 0.10 per cent. of the Principal Amount of the Notes that are the subject of the relevant Consent Instruction (the "Early Participation Fee").

Noteholders may continue to submit Consent Instructions after the Early Instruction Deadline and up to the Expiration Deadline, but such Noteholders will not be eligible to receive the Early Participation Fee in respect of those Consent Instructions.

Subject to the satisfaction of the Consent Conditions and subject to the relevant Consent Instruction being validly received by the Tabulation Agent on or prior to the Early Instruction Deadline and not being revoked (in the limited circumstances in which such revocation is permitted), the Payment Date for the Early Participation Fee will be no later than the fifth Business Day following the announcement of the satisfaction of the Consent Conditions.

Background to the Consent Solicitations

A.  Amendments to Hedging Counterparty Criteria

Within the Applicable Trust Deeds of the below Series there are credit rating criteria that the Issuers are required to apply when undertaking hedging transactions with counterparties. These criteria limit the number of counterparties with whom the Issuers can transact certain new hedging transactions and impose ongoing hedging counterparty criteria over the life of the Notes. The criteria are not currently uniform across all the Applicable Trust Deeds and are summarised below:

Current Hedging Counterparty Rating Criteria

The existing credit rating criteria were originally structured when the credit rating environment for hedge counterparties was substantively different to what it is today. Whilst the Issuers are currently able to enter into hedging transactions, the existing credit rating criteria limit the number of potential hedge counterparties that the Issuers can transact with and as a consequence any hedging the Issuers undertake risks concentrating mark to market exposure with a small pool of banks whilst also reducing the ability to create pricing tension for new hedging transactions.

The existing credit rating criteria within the Applicable Trust Deeds are no longer consistent with the Issuer's current euro medium term note programme which does not contain any equivalent hedging counterparty criteria (a position that is consistent with peers' documentation). The Issuers therefore propose to amend the existing hedging counterparty criteria to better reflect the current credit rating environment. Such amendments will: (i) allow the Issuers to spread hedging transactions across a larger number of counterparties and reduce counterparty concentration risk; (ii) promote a more price competitive hedging transaction environment to reduce hedging costs; and (iii) diversify funding sources and ensure that the Issuers have better access to a broader number of liquidity pools.

Proposed Hedging Counterparty Amendments

In addition, the Issuers propose limited changes to the Supplemental Trust Deeds to clarify the application of the Initial Credit Rating Criteria for their hedge counterparties to the effect that a rating is required from any one of Moody's, Fitch or S&P, but that the lowest rating assigned to such hedge counterparty will apply in determining whether the Initial Credit Rating Criteria are satisfied.

Concurrently with the Consent Solicitations, each of the relevant Issuers has sought the consent of Assured Guaranty (Europe) PLC (formerly named Financial Security Assurance (U.K.) Limited) ("AG") and Assured Guaranty Corp. ("AGC") as agent for Syncora Guarantee Inc. as assignee of Syncora Guarantee (U.K.) Limited (formerly named XL Capital Assurance (U.K.) Limited) ("Syncora") to make amendments equivalent to the Proposed Hedging Counterparty Amendments to the below listed series of outstanding notes which are one hundred per cent. guaranteed by AG and Syncora (the "Monoline Consents"): 

Southern Gas Networks plc

• £150,000,000 Index Linked Bonds (guaranteed by XL Capital Assurance (U.K.) Limited) due 21 October 2025 (XS0232335173)

• £375,000,000 4.875 per cent. Bonds (guaranteed by Financial Security Assurance (U.K.) Limited) due 21 March 2029 (XS0232335769)

• £250,000,000 Index Linked Amortising Bonds (guaranteed by XL Capital Assurance (U.K.) Limited) due 21 October 2035 (XS0232335926)

Scotland Gas Networks plc

• £165,000,000 Index Linked Bonds (guaranteed by Financial Security Assurance (U.K.) Limited) due 21 October 2022 (XS0232332154)

Pursuant to the 2005 Trust Deed, AG and Syncora can exercise all voting rights in respect of the amendments to the hedging counterparty criteria in the above listed series of outstanding notes. AG and AGC on behalf of Syncora have informed the Issuers that they find the proposals acceptable and are minded to vote in favour of the amendments.

B.  Removal of AMBAC Guarantee

Prior to launching the Consent Solicitation, Scotland Gas Networks plc has also been in discussions with AMBAC regarding the outstanding £225,000,000 4.875 per cent. Bonds (guaranteed by Ambac Assurance UK Limited) due 21 December 2034 (XS0232332402) of Scotland Gas Networks plc (the "2034 Notes") which AMBAC guarantees. AMBAC have requested to be released from their remaining obligations under the terms of the guarantee which they currently provide for this Series of Notes. This request to be released from their remaining obligations under the terms of the guarantee for the 2034 Notes is consistent with the approach which AMBAC has taken with respect to certain other consent solicitation exercises on notes in respect of which they have historically provided a guarantee and where issuers have sought to implement certain amendments. This is also in line with AMBAC's current approach of not undertaking new business.  

In light of the fact that the guarantee provided by AMBAC no longer provides any credit rating enhancement for this Series of Notes as AMBAC is no longer formally rated and, following the withdrawal of AMBAC's corporate rating, the fact that the 2034 Notes have the same rating as the outstanding unguaranteed notes issued by Scotland Gas Networks plc, Scotland Gas Networks plc now seeks Noteholder approval to remove the guarantee provided by AMBAC for this Series of Notes.

Following the release of the AMBAC guarantee for the 2034 Notes, (i) Noteholders of the 2034 Notes will have greater control over the enforcement of certain covenants which are currently only enforceable by AMBAC in respect of the 2034 Notes (including the discretion as to whether to declare events of default or enforcement events or to accelerate payments of principal and interest); and (ii) Scotland Gas Networks plc will be required to seek consent directly from Noteholders of the 2034 Notes in relation to certain matters under the 2005 Trust Deed, as supplemented by the relevant supplemental trust deed, in respect of the 2034 Notes.

Scotland Gas Networks plc proposes to enter into a deed of release with Southern Gas Networks plc, AMBAC and the Trustee (the "Deed of Release") and a deed of secession and termination with AMBAC, AG and the Trustee (the "Deed of Secession and Termination") to effect the removal of the guarantee from the 2034 Notes, to terminate or amend certain transaction documents to which AMBAC is a party, to effect AMBAC's secession from the Scotland Monoline ICA and to further enter into a supplemental trust deed between the Issuers, the Trustee, AMBAC, AG and AGC (on behalf of Syncora) to amend the Applicable Final Terms to reflect the removal of the guarantee provided by AMBAC for the 2034 Notes.

Scotland Gas Networks plc will not, as a result of the removal of the AMBAC guarantee for the 2034 Notes, receive a reduction in fees or incur an increase in fees payable to AMBAC compared to what Scotland Gas Networks plc is contractually obliged to pay to AMBAC if the AMBAC guarantee for the 2034 Notes is not removed.

Whilst the 2005 Trust Deed also currently applies to the £215,000,000 4.875 per cent. Bonds due 21 December 2020 issued by Southern Gas Network plc (XS0232334952) (the "2020 Notes"), the Issuer has determined that the usage of the amended hedging arrangements (as proposed by the Consent Solicitation Memorandum) do not require amendments to be implemented with regards to the 2020 Notes. As a result, the Issuer is not proposing to make corresponding changes to the hedging arrangements or to remove AMBAC as a guarantor in respect of the 2020 Notes and no action is therefore required to be taken by noteholders in the 2020 Notes.

Consent Conditions

Payment of the Early Participation Fee and the implementation of the Proposed Amendments (as defined in the Consent Solicitation Memorandum) set out above in respect of each Series will be conditional on:

(a)  the relevant Consent Solicitation not having been terminated;

(b)  the passing of the relevant Extraordinary Resolution;

(c)  the Monoline Consents having been obtained; and

(d)  the Extraordinary Resolutions in respect of all Series of Notes having been duly passed at each Relevant Meeting or an adjourned Meeting for the relevant Series of Notes,

(each, a "Consent Condition" and together the "Consent Conditions").

It is a condition of each Consent Solicitation, the payment of the Early Participation Fee and the implementation of the Proposed Amendments that the Extraordinary Resolutions in respect of all Series of Notes have been duly passed at each relevant Meeting or at an adjourned Meeting for the relevant Series of Notes and that the Monoline Consents (as defined above) have been obtained. The Effective Date in relation to the Consent Solicitations and each Extraordinary Resolution which has been duly passed in respect of any Series of Notes will be delayed to the extent (and subject to the satisfaction of the other conditions specified herein) that the Extraordinary Resolution in respect of one or more other Series of Notes has not been passed simultaneously with such Extraordinary Resolutions due to the relevant Meeting for such Series of Notes being inquorate and will not occur, in the event that the Extraordinary Resolution in respect of any other Series of Notes has not been passed at an adjourned Meeting.

The relevant Issuer will announce the results of each Meeting and (i) whether the relevant Extraordinary Resolution has been passed; and (ii) the satisfaction (or otherwise) of the Consent Conditions, as soon as reasonably practicable after the relevant Meeting.

Recommendation of the Consent Solicitations and the Proposed Amendments by the Investment Association

The Proposed Amendments have been considered by a special committee (the "Special Committee") of the Investment Association at the request of the Issuers. The members of the Special Committee, who hold in aggregate approximately 28.04 per cent. of the Principal Amount of the Notes, have examined the Proposed Amendments. They have informed the Issuers that they find the Proposed Amendments acceptable and that, subject to client and other approvals, they intend to vote in favour of the Proposed Amendments in respect of their holdings of the Notes.

The Special Committee has advised the Issuers that this recommendation relates only to the Proposed Amendments set out in the Consent Solicitation Memorandum with respect to the Notes and not to any future proposed amendments which the Issuers may make.

Noteholders should however make their own detailed assessment of the Consent Solicitation and the Proposed Amendments.

Meetings

Each notice convening the Meetings of the Notes (together, the "Notices of Meeting") to be held via teleconference on 16 November 2020 has been given to Noteholders in accordance with the Conditions on the date of the Consent Solicitation Memorandum.

Pursuant to the applicable Meetings Provisions, the Extraordinary Resolutions in respect of the Notes will be consolidated into five Meetings as set out in the Notices of Meeting.

The initial Meeting (in respect of the 2023 Notes and the 2040 Notes) will commence at 9:30 a.m. (London time), with the meetings for (i) the 2025 Notes, (ii) the 2039 Notes and the 2043 Notes, (iii) the 2027 Notes, and (iv) the 2034 Notes being held at 5 minute intervals thereafter or after the completion of the preceding Meeting (whichever is later).

General

The relevant Issuer may, at its option and in its sole discretion, extend, amend or terminate such Consent Solicitation at any time (subject in each case to applicable law and the relevant Meeting Provisions, and provided that no amendment may be made to the terms of the relevant Extraordinary Resolution). Details of any such extension, amendment or termination will be announced as promptly as practicable after the relevant decision is made.

Indicative Timetable

Set out below is an indicative timetable showing one possible outcome for the timing of the Consent Solicitations, which will depend, among other things, on timely receipt (and non-revocation) of instructions, the rights of the relevant Issuer (where applicable) to extend, amend and/or terminate any Consent Solicitation (other than the terms of the relevant Extraordinary Resolution) and the passing of each Extraordinary Resolution at the initial Meeting for the relevant Series. Accordingly, the actual timetable may differ significantly from the timetable below.

Event

Announcement of Consent Solicitations

Noteholders are advised to check with any bank, securities broker or other intermediary through which they hold their Notes when such intermediary would need to receive instructions from a Noteholder in order for such Noteholder to participate in, or (in the limited circumstances in which revocation is permitted) to validly revoke their instruction to participate in, the relevant Consent Solicitation(s) and/or the relevant Meeting(s) by the deadlines specified above. The deadlines set by any such intermediary and each Clearing System for the submission and (where permitted) revocation of Consent Instructions will be earlier than the relevant deadlines above.

Further Information

A complete description of the terms and conditions of the Consent Solicitations is set out in the Consent Solicitation Memorandum. A copy of the Consent Solicitation Memorandum is available to eligible persons upon request from the Tabulation Agent.

Before making a decision with respect to the Consent Solicitations, Noteholders should carefully consider all of the information in the Consent Solicitation Memorandum and, in particular, the risk factors described in the section entitled "Certain Considerations relating to the Consent Solicitations"

This announcement is released by Southern Gas Networks plc and contains information in relation to the Notes that qualified or may have qualified as inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 ("MAR"), encompassing information relating to the Consent Solicitations and/or the proposal described above. For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is made by Duncan Holder.

Further details about the transaction can be obtained from:

The Solicitation Agents

Copies of the Consent Solicitation Memorandum can be obtained from, and requests for information in relation to the procedures for participating in the Consent Solicitations, and the submission of a Consent Instruction should be directed to:

Tabulation Agent

Lucid Issuer Services Limited

Tankerton Works

12 Argyle Walk

London

WC1H 8HA

United Kingdom

Tel: +44 20 7704 0880
Attention: Arlind Bytyqi
Email: sgn@lucid-is.com

DISCLAIMER This announcement must be read in conjunction with the Consent Solicitation Memorandum. This announcement and the Consent Solicitation Memorandum contain important information which should be read carefully before any decision is made with respect to the relevant Proposed Amendments. If any Noteholder is in any doubt as to the action it should take or is unsure of the impact of the implementation of the relevant Proposed Amendments or the relevant Extraordinary Resolution to be proposed at the relevant Meeting, it is recommended to seek its own financial, legal or other advice, including as to any tax consequences, from its stockbroker, bank manager, solicitor, accountant, independent financial adviser authorised under the Financial Services and Markets Act 2000, as amended (the "FSMA") (if in the United Kingdom) or other appropriately authorised financial adviser. Any individual or company whose Notes are held on its behalf by a broker, dealer, bank, custodian, trust company or other nominee must contact such entity if it wishes to participate in the relevant Consent Solicitation.

None of the Issuers, the Solicitation Agents, the Tabulation Agent, the Trustee, the Principal Paying Agent or any director, officer, employee, agent or affiliate of any such person, is acting for any Noteholder, or will be responsible to any Noteholder for providing any protections which would be afforded to its clients or for providing advice in relation to any Consent Solicitation (including the Proposed Amendments) or any Extraordinary Resolution, and accordingly none of the Issuers, the Solicitation Agents, the Tabulation Agent, the Trustee, the Principal Paying Agent or any director, officer, employee, agent or affiliate of any such person, makes any recommendation whether Noteholders should participate in the relevant Consent Solicitation. The Solicitation Agents, the Tabulation Agent, the Trustee and the Principal Paying Agent do not take any responsibility for the contents of this announcement or the Consent Solicitation Memorandum.

IMPORTANT INFORMATION

This announcement is for informational purposes only and does not constitute or form part of an offer to sell or the solicitation of an offer to buy or subscribe to any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. This announcement is not an offer of securities for sale into the United States.

The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions.

No solicitation will be made in any jurisdiction in which the making or acceptance thereof would not be in compliance with the laws of such jurisdiction.

This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase. It is not an advertisement and not a prospectus for the purposes of Regulation (EU) 2017/1129.