Exercising our rights and responsibilities - Fixed income

A consent solicitation where we were not involved in an Investment Association Committee

The situation

We invested in bonds issued by a company in the offshore wind energy sector. It operates and manages infrastructure that transmits electricity from the wind farms into the onshore power grid. Offshore substations are connected to the shore by undersea cables. In March 2021, the issuer, following the successful repair of a cable fault that occurred in October 2020, decided to undertake further cable repairs to prevent a potential future serious failure with the transmission assets. 

The solution

To fund this repair, the issuer requested bondholders’ consent to draw down a maximum amount of £24.2m from the Project Bond Credit Enhancement (PBCE) facility. The PBCE facility is designed to supplement debt service shortfalls or be available after the acceleration of senior debt following a default. It’s designed as a way of de-risking the transaction for a creditor by making a default less likely not to provide additional liquidity for operating purposes. 

The outcome

We considered the proposal to be detrimental to creditors. Our view was that this expenditure should be funded by a cash injection from equity owners. While we voted against the consent solicitation, the issuer still received sufficient acceptance from other investors to implement the proposal.