Credit and surety insurance services

Description

United Utilities Water Ltd (UU) proposes to deliver a scheme titled Haweswater Aqueduct Resilience Programme (HARP) via Ofwat’s Direct Procurement for Customers (DPC) approach, engaging a Competitively Appointed Provider (CAP) to design, build, finance and maintain this major water resilience supply project. In addition to engaging a CAP, UU is seeking input from suitably qualified parties who are capable of assessing and structuring a credit support mechanism that ultimately may be utilised by the CAP as part of its funding strategy. Parties interested in making available such a credit support product in respect of delivery of the HARP project should be of strong credit quality and have the capacity to offer such credit support products in capital markets or on projects with debt requirements in excess of GBP 500 million. It is not currently envisaged that such a credit support mechanism would be a mandated part of the subsequent CAP procurement process. The scope includes a potential credit support provider in respect of the HARP project working with UU to develop a product suitable for investors in a future CAP, which in turn may utilise this product to enhance the credit quality of the debt finance which a CAP bidder intends to raise if appointed to deliver the HARP project. The anticipated services required at each stage of the process will be as follows: Analysis of the HARP project from a credit perspective — the first stage is intended to allow the potential credit support provider to examine the commercial and financial arrangements proposed by UU for the CAP project agreement; — the potential credit support provider should then consider a range of appropriate financing solutions that may be applied in the project with a view to enhancing the credit characteristics, so as to demonstrate the potential for a better financial outcome for customers if a CAP bidder were to adopt the financing solutions with regard to the delivery of the HARP project; — the potential credit support provider may also consider wider market issues and risks as they may affect the financing of the CAP, including circumstances where the potential credit support provider might be unable to offer its credit enhancement product to prospective CAP bidders; — the potential credit support provider might be expected to work with UU in any discussions with or arising from UU’s engagement with the credit rating agencies as part of the development of the CAP arrangements in respect of the HARP project supporting discussions with investor market. The above assessment undertaken by the potential credit support provider will remain separate from the CAP procurement process. However, this assessment will inform the CAP procurement process and may assist prospective CAP bidders in the development of the detailed financial proposals that they will be required to submit as part of the CAP procurement process. The potential credit support provider will be expected to assist UU in carrying out engagement with prospective CAP bidders to assist in the development of the credit support mechanisms that align to the likely financing arrangements proposed by the CAP bidders. Offer of credit support It is in the interests of customers that the CAP proposals are efficiently financed and resilient. Should it become apparent that the CAP bidder submissions would offer better value for money if a credit enhancement product was available, then UU is keen to ensure that this option is made available to the widest possible range of prospective CAP bidders on terms that are consistent for those CAP bidders looking to access the credit enhancement product. This should facilitate enhanced competition in the CAP bidding process. The potential credit support provider should have the capacity to offer a credit enhancement product to a prospective CAP that has an underlying credit quality of investment grade. Any credit enhancement should over the course of the CAP agreement period result in enhanced value for money from the customer perspective. UU will not have any economic or other interest in the potential credit support provider making its credit enhancement products available to the CAP bidder market. CAP bidders will not be obliged to use this or any other credit enhancement product as part of their proposed financing solution. All financing risks in DPC will remain the responsibility of the CAP and so the final contractual relationship that may arise between the CAP and the provider of credit support will be solely a matter for those parties to determine and should not join UU in any way. Further information regarding DPC can be accessed via the following link: https://www.ofwat.gov.uk/publication/delivering-water-2020-final-methodology-2019-price-review-appendix-9-direct-procurement-customers/