The Waste Credit Governance Committee met to review the financial performance and risks associated with the council's loan to Mercia Waste Management (MWM) for the Energy from Waste (EfW) plant in Hartlebury. The committee noted the technical update on the EfW plant reporting requirements, the risk register, and the work plan for the coming year, finding that all relevant financial ratios had improved and no new risks had been identified. The committee agreed that there were no matters of concern to report to the council.

Energy from Waste Plant Reporting Requirements

The committee reviewed the technical update on the Energy from Waste Plant reporting requirements, and noted the main categories of reports that the borrower, MWM, must regularly produce.

Sherief Loutfy, Head of Pension Investments, reported that all relevant ratios had improved since the last committee report, and that no red flags had been identified in respect of the financial arrangements for the loan obligations. He also stated that there were no issues with the reporting mechanism with MWM, and that the company had conducted its annual shutdown of the EfW plant for maintenance as planned. The compliance statements produced were in line with expectations.

The committee reviewed the following reports:

• Historic Annual Debt Service Cover Ratio (HADSCR): This ratio was reported as 3.13.
• Projected Annual Debt Service Cover Ratio (PADSCR): This ratio was reported as 2.78, which is better than the target of 1.35.
• Loan Life Cover Ratio (LLCR): This ratio was reported as 14.07 as of 31 December 2024.
• Ratio Compliance Certificate
• Senior Term Loan Facility Agreement (STLFA) Assurance Statement

Lyn Gennoe, Financial Controller at MWM, said that the company's audited accounts were delayed due to additional audit work required because of the takeover of MWM's parent company, but she expected the audit to be signed off in October 2025 with a clean audit finding.

During the discussion, the committee discussed the following points:

• The extension of the loan for Facility B for a further five years, and the associated costs to the council. Sherief Loutfy explained that the loan had been extended to coincide with the life of the waste management contract with MWM, and Lyn Gennoe added that there would be no additional costs to the council as it formed part of the overall loan repayment arrangements.
• Potential future risks to the loan arrangements. Sherief Loutfy said that no impending risks had been identified from a financial perspective, based on the cashflow projections and assumptions in the modelling of the ratios. He added that MWM would raise any unexpected issues with the council, and action would be taken accordingly.
• The impact of Local Government Reorganisation on the loan arrangements. Sherief Loutfy responded that the loan facility would have to be in line with the waste contact arrangements, and that he was not aware of any discussions between the council and MWM about extending the waste contact.
• The impact of any loss of work contracts experienced by MWM on the loan arrangements. Sherief Loutfy advised that a significant impact on the contract side of MWM's work would be reflected in a dip in cashflow, but that this had not occurred to date.
• Ratio targets. Sherief Loutfy explained that the Projected Annual Debt Service Cover ratio target was 1.35, and that there were no targets for either the Historic Annual Debt Service Cover Ratio or the Loan Life Cover Ratio set out in the legal documentation for the loan.

The committee then agreed to note the reports and the update on the agreed contract extension with MWM.

Risk Register

The committee considered the risk register associated with the council's funding to Mercia Waste Management. The committee reviewed the unmitigated and mitigated risks associated with the loan arrangements, and considered whether the risks being borne by the council as lender were reasonable and appropriate.

Sherief Loutfy introduced the report, stating that there had been no changes to the register since the last report to the committee, and that there were no issues that indicated that new risks should be added to the register.

The three remaining risks were substantially mitigated and were green:

• Weakening of Mercia Waste Management parent company guarantee due to the acquisition of Urbaser's UK business to FCC Servicios Medio Ambiente.
• Default of loan repayments by borrower to lenders due to SPV (Mercia) or HZI falling into administration.
• Impact of extension of contract with Mercia Waste Management by the County on the ability of company to repay the loan.

In response to a query, Sherief Loutfy confirmed that the risk associated with the merger of the MWM parent company would lessen over time.

The committee agreed to note the risks set out in the risk register and that there were no matters of concern to report to the council.

Work Plan

The committee reviewed and noted the updated work plan for 2025/2026. The work plan included budget information, Short Term Loan Facility Agreement (STLFA) Assurance Statements, ratio analysis updates, and risk register updates.

The committee discussed the next loan repayment, which is not due until after the 8 December committee meeting. They agreed that unless something significant occurred, the meeting would be cancelled and a visit to the EfW plant would be arranged for committee members on that date instead.