STID Proposal for HS1 Accounting Basis Change - Formal launch

STID Proposal for a HS1 Accounting Basis Change

 

HS1 has today launched a STID Proposal on the accounting basis change to IFRS from FRS 102. The launch of the STID Proposal follows a soft-launch consultation period which commenced on the 21 January 2019 to 5 February 2019. The STID Proposal is asking lenders to vote on a change in accounting policies to align the whole group to IFRS Service Concession Accounting. 

 

The soft launch consultation period followed an announcement on HS1’s website in November 2018 that the company was reviewing its accounting standards for the year ended 31 March 2019 onwards.  Today HS1 has launched a consultation process with the view to asking lenders to vote on a change in accounting policies to align the whole group to IFRS Service Concession Accounting. 

  

Rationale for accounting basis change

The change will require lenders to vote on the change via a STID Proposal during February, closing on 6 March.  HS1 is recommending a change in accounting basis from FRS 102 Fixed Asset Accounting to IFRS Service Concession Accounting based on a review of:

 

  1. Reporting best practice and ease of comparability to other assets using IFRS
  2. Operational simplicity within the group, creating efficiencies and enhancing the control environment, as all group companies report under a standard set of accounting policies

 

We have assessed the impact on the HS1 credit and highlight that the change in accounting policies will create a re-profiling of the accounting profit, which has a de minimis impact on the DSCR over the life of the concession, subject to the vote noted below.

 

The accounting policy review has taken account of the possible impact on the following:

 

Review topic

Work done

Pre-Tax cashflows

KPMG review of HS1’s internal analysis

Corporation Tax

Non-Statutory Tax Clearance from HMRC

Credit Rating

Rating Agencies confirmation that there is no impact to the credit rating

Information Undertakings and Financial Covenants, in particular the DSCR

HS1 internal analysis supported by legal and accounting advice

 

HS1 believes based on the analysis which is included in the “comfort package” of documents below, including HS1 internal analysis, as well as legal and accounting reviews, there is significant rationale to change the accounting policies of the group.

 

Supporting “Comfort Package” of documents for the STID Proposal

HS1 is recommending the accounting change but will require a vote by lenders to support the:

-        accounting basis change, and;

-        the corresponding alignment of the EBITDA definitions in the DSCR to reflect the new shape of the PL

  

The HS1 “comfort package” of documents has been prepared to support the soft launch consultation period and formal STID Proposal:

 

Comfort Package Documents

Location

HS1 Investor Slide Deck

On website - the summary and introduction to the proposal

HS1 Memorandum

On website – detailed HS1 analysis of the proposal

Legal Pack (prepared by Linklaters LLP) consisting of

On website – technical legal draft STID Proposal and supporting documents based on the initial consultation documentation

Accountants Report (prepared by KPMG)

Held in data room – those that have not received invitation to view please contact Rinal Patel, details below.

Confirmation from Rating Agencies that no impact to credit rating

Held in data room – those that have not received invitation to view please contact Rinal Patel, details below.

  

Next steps and timetable

The aim is to have a decision on the proposed accounting change and corresponding amendment to the Master Definition Agreement to align the legal documents by 6 March, so the business has time to prepare for year end with certainty of the accounting policies to be used.  In light of this and following requests from lenders during previous proposals, the timetable has been extended from the minimum required in the Security Trust and Intercreditor Deed, to allow for lender engagement.  The detailed timetable is laid out in the HS1 Memorandum but is summarised below:

 

  • Soft Launch of the STID Proposal - Consultation process:  21 January to 5 February 2019
  • Formal Launch of STID Proposal 6 February 2019
  • Voting period:  12 February to 6 March 2019

 

If you have any questions, please do not hesitate to contact me.  Rinal Patel (r.patel@highspeed1.co.uk) can provide access to the data room upon request.

 

Kind regards

Mark

 

-----------------------------------------------------

Mark Farrer

 | 

CFO

mark.farrer@highspeed1.co.uk