Yorkshire Water continues liability management spree

Published March 8th, 2018

The Universities Superannuation Scheme has acquired a further £51.2 million of bonds from the special purpose vehicle that Yorkshire Water set up to manage liabilities relating to its portfolio of inflation-linked swaps – which had a negative mark-to-market value of £2.6 billion in March 2016.

Notes issued by the Aysgarth Finance SPV transfer the inflation-accretion revenues owing on the swaps (but not the interest component) to the investor, with “coupons” only paid over the final five years of the bonds’ 20-year life.

Splitting off the accretion element makes it easier to novate the interest rate component to another bank, as the credit exposure on the latter is much smaller.

Aysgarth has completed several such transactions since Yorkshire established the SPV in 2015, and this is the second deal in which the USS has participated.

Yorkshire also raised an additional £275 million of long-term debt in the first half of 2017/18 to reduce interest payments on the swap portfolio.