EQUITY RAISE: LOCK-UP AGREEMENT SIGNED WITH FINANCING CREDITORS OF SW GROUP

SW (FINANCE) I PLC

Released 8 July 2025

SW (Finance) I PLC

8 July 2025

SW (FINANCE) I PLC (the "Company")

SOUTHERN WATER SERVICES LIMITED ("Southern Water" and together with the Company, the "SW Group")

·    Southern Water today announces an agreement with more than 72% of its financing creditors and controlling shareholder paving the way for the previously announced £655m equity injection in November 2025

On 1 July, Southern Water announced (the "1 July 2025 RNS") that it had secured an offer of equity support from a consortium led by funds managed by Macquarie Asset Management ("MAM") to support its AMP8 investment programme, comprising a legally binding equity commitment of £655 million (the "Initial AMP8 Equity Commitment") provided on the terms of an equity commitment letter ("ECL") and confirmation of intent to provide further equity commitments of up to a further £545 million - and with a minimum of £245 million - by December 2025.

The Initial AMP8 Equity Commitment remains subject to certain conditions, including the implementation of certain changes and waivers in respect of certain finance documents of the SW Group, including the removal of the Ratings EoD (as defined below).

Today, Southern Water is announcing that it has entered into a lock-up agreement (the "LUA") with financing creditors of the SW Group representing more than 72% by value of the Class A indebtedness (which percentage by value includes, 100% of the liquidity facility providers, approximately 98% of interest rate and inflation-linked hedge providers and approximately 65% of other Class A creditors), in support of certain proposals including the Ratings EoD amendment.

LUA and Scheme Amendments

The LUA has been entered into by, among others, Southern Water, the Company, SWS Group Holdings Limited, SWS Holdings Limited and SW (Finance) II Limited, Sandstone Bidco Limited (the new ultimate indirect holding company of Southern Water ("Bidco")), MSCIF Luxembourg C Holdings S.A.R.L (the "Investor"), and financing creditors of the SW Group representing as at the time of this announcement c.£5.5 billion of the secured Class A indebtedness of the SW Group. 

The primary amendment to be made to the finance documents of the SW Group is to remove a specific event of default that would occur if the Company's underlying senior secured Class A credit rating was to be downgraded below investment grade by any two of Fitch Ratings, Moody's and S&P Global Ratings (a "Ratings EoD").

In order to ensure Southern Water is able to satisfy the relevant conditionality in the ECL and achieve unconditional access to the Initial AMP8 Equity Commitment as quickly as possible, the amendment to the Ratings EoD will be effected by means of an English law Scheme of Arrangement under Part 26 of the Companies Act 2006 to be proposed by SWS Holdings Limited, the immediate holding company of Southern Water (the "Scheme"). Once approved by the requisite majorities, it is anticipated that the Scheme will be sanctioned in the first-half of October 2025.

Permanent removal of the Ratings EoD is conditional on Southern Water receiving the full amount of £655m of the Initial AMP8 Equity Commitment in cash pursuant to the ECL on or before 31 March 2026 (the "Funding Condition"). Prior to receipt of the full amount, the Ratings EoD will be temporarily waived from the period starting once Southern Water receives £505 million of the Initial AMP8 Equity Commitment, which is expected to be received by early November with a long-stop date no later than 28 November 2025 under the LUA, and ending when the Funding Condition is satisfied. Southern Water is contractually obliged under the LUA to draw all of the Initial AMP8 Equity Commitment so as to receive the full amount on or before 31 March 2026. The amendments contemplated by the Scheme will also be conditional on the completion of the Holding Company Refinancings (as defined below).

Parties to the LUA will, amongst other things, undertake to support and facilitate the satisfaction of the conditions in the ECL relating to the funding of the Initial AMP8 Equity Commitment through the amendments and waivers to be proposed through the Scheme and the STID Proposals (as defined below) (the "Transaction").  This includes undertakings from the Investor to the creditor parties, among others, to comply with its obligations under the ECL. In addition, consent of the creditor parties will be required to amend or waive any of the terms of the ECL and related equity commitment documents.

Financing creditors of the SW Group party to the LUA undertake to vote in favour of the Scheme and, insofar as they are entitled to vote under the STID Proposals (as defined below), the STID Proposals and to not to take any enforcement action and forebear in relation to any breaches of the finance documents which in each case occur as a result of the Transaction.

Financing creditors that are party to or accede to the LUA by the date specified in the LUA are entitled to a fee of £1,000 each.

The LUA will be made available through the website set-up by Kroll Issuer Services Limited (the "Lock-Up Agent") at https://deals.is.kroll.com/southernwater.  Financing creditors will need to contact the Lock-Up Agent at [email protected] with questions on how to accede to the LUA.

Preliminary STID Proposal

Southern Water intends to launch and complete a consent request through a STID Proposal (the "Preliminary STID Proposal") before the Scheme is launched, to obtain the requisite majority creditor consent required under its financing documents to certain waivers and other documentary amendments which are needed to waive certain technical events of default that may otherwise be triggered under the finance documents of the SW Group by the launch of the Scheme.

In addition, Southern Water intends to seek the requisite majority creditor consent under its financing documents to the following:

-     amendments to the cash management provisions that would defer the appointment of a third-party cash manager in respect of all of the bank accounts of the SW Group that would otherwise occur automatically and immediately upon the occurrence of a standstill period following the occurrence of an event of default. Southern Water will remain the cash manager until the earlier of the date which is (a) 20 Business Days following the date on which the Security Trustee notifies the company that it has received a direction in writing for such third party appointment to commence from representatives of one or more providers of its qualifying Class A indebtedness representing at least 66 2/3% of the outstanding principal amount of the qualifying Class A indebtedness of the SW Group and (b) 18 months from the commencement of the standstill period; and

-     the inclusion of certain technical provisions reflecting provisions customarily included in finance documentation as policy requirements of UK, European and US regulated banks and financial institutions in relation to bail-in legislation and qualifying financial contracts.

Ancillary Amendments STID Proposal

Southern Water also intends, prior to or concurrent with the launch of the Scheme, to launch a consent request through a further STID Proposal (the "Ancillary Amendments STID Proposal" and together with the Preliminary STID Proposal, the "STID Proposals") to obtain the requisite majority creditor consent (for which the requisite support has been provided under the terms of the LUA) under its financing documents to the following additional documentary amendments which will take effect concurrently with the Ratings EoD amendment:

-     the deletion of the words "to the reasonable satisfaction of the Security Trustee" in paragraph 7 paragraph 7(b) (Compliance with laws and Instrument of Appointment) of Part 3 of Schedule 5 (Covenants) to the CTA, which requires Southern Water to comply in all material respects with the terms and conditions of the Instrument of Appointment "save to the extent Ofwat has waived or approved such non-compliance to the reasonable satisfaction of the Security Trustee";

-     the deletion of the condition precedent in paragraph 4 (Rating Agencies) of Schedule 2 (Conditions Precedent to Future Bond Issues or Wrapped Debt) to the CTA that the Security Trustee receives a confirmation from the Rating Agencies that any Class A Wrapped Bonds, when issued, will be rated AAA by S&P, Aaa by Moody's and AAA by Fitch and that any Class A Unwrapped Bonds, when issued, will be rated A- by S&P, A3 by Moody's and A- by Fitch; and

-     the inclusion of certain additional provisions in the CTA (or the amendment documents relating thereto) that are required to reflect the terms of the Transaction, including the inclusion of the following provisions in the CTA relating to the ECL:

o  a new undertaking from Southern Water (a) to exercise and diligently enforce its rights under the ECL; (b) to issue a funding request to ensure the full remaining balance of the Initial AMP8 Equity Commitment is funded no later than 31 March 2026; and (c) not to agree to any amendment or waiver of the terms of the ECL without the consent of the Security Trustee (acting on the instructions of the requisite percentage of providers of Class A indebtedness to be set out in the CTA); and

o  a new event of default for breach of any of the above undertakings to the extent (if capable of remedy) such breach has not been remedied within the specified remedy period.

The financing creditors of the SW Group party to the LUA as at the date of this announcement and who are entitled to vote on the STID Proposals represent qualifying Class A indebtedness in excess of the threshold percentage required to approve the waivers and amendments to be requested to approve the STID Proposals.

Holding Company Refinancings

As disclosed in the 1 July 2025 RNS, the transaction contemplated by the OpCo Scheme and Ancillary Amendments STID Proposal is part of a broader recapitalisation transaction, which will reduce holding company debt quantum by over 50 per cent, introduce a material maturity extension of residual holding company debt to September 2030 at the earliest and with interest capitalised (the "Holdco Refinancings").

The first stage of this process occurred on 4 July 2025 when Bidco acquired all of the shares in Greensands Junior Finance Limited and Southern Water (Greensands) Financing plc through a sale, with the full support of their creditors. Bidco is currently 100% owned by the Investor. At completion of the Holdco Refinancings, it is expected that certain creditors will become indirect minority shareholders of the SWS Group, but that the Investor will retain an ordinary shareholding of c.90%.

For further information, please contact Stuart Ledger (Group CFO) at:

Address:          Southern House, Yeoman Road, Worthing, BN13 3NX, United Kingdom

Tel:                  01903 272 611

Email:              [email protected]

DISCLAIMER - INTENDED ADDRESSEES

This announcement is released by Southern Water Services Limited and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of United Kingdom assimilated domestic law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR"), encompassing information relating to the Proposals described above. For the purposes of UK MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055 as it forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018, this announcement is made by Richard Manning (Company Secretary) at Southern Water Services Limited.

This announcement is a communication to the market. Nothing in this announcement constitutes an offer of securities for sale in the United States or any other jurisdiction. This announcement does not constitute a prospectus or a prospectus equivalent document.

This announcement has been delivered to you on the basis that you are a person into whose possession this announcement may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver this announcement to any other person. The distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities laws of any such jurisdiction.

Your right to access this service is conditional upon complying with the above requirement.

END