The Waste Credit Governance Committee met on Thursday, 12 March 2026, to discuss technical updates regarding the Energy from Waste Plant reporting requirements, review the risk register, and consider the committee's work programme. The meeting's agenda focused on financial covenants, risk management, and future planning related to waste management contracts.

Technical Update - Energy From Waste Plant Reporting Requirements

The committee was scheduled to receive a technical update concerning the reporting requirements for the Energy from Waste (EFW) plant. The Chief Financial Officer recommended that the committee note and comment on the main categories of reports the Borrower must regularly produce. These include the Historic Annual Debt Service Cover Ratio (HADSCR), the Projected Annual Debt Service Cover Ratio (PADSCR), and the Loan Life Cover Ratio (LLCR), as detailed in Appendix 1 of the report pack. The committee was also to consider an update on the agreed contract extension with Mercia Waste Management (MWM).

The report provided background on the joint waste PFI contract signed in 1998 between Worcestershire County Council and Herefordshire District Council. It detailed a £163.50m loan provided in May 2014 for the construction of an EFW project in Hartlebury. Facility A of this loan has been fully repaid, while Facility B's repayment has been extended by five years, with a final bullet payment due on 11 January 2029. The report explained that borrowers are required to report periodically to lenders on their compliance with certain requirements, particularly financial ratios stipulated in the Senior Term Loan Facility Agreement (STLFA). These ratios, including ADSCR and LLCR, serve as a monitoring mechanism to provide early warning of project distress and potential borrower default.

The report also noted the extension of the waste management services contract with Mercia Waste Management until January 2029, which involved extending the existing loan. Due diligence by KPMG had concluded that the projected financial ratios would remain compliant. The committee was to be advised by external financial, technical, and legal advisers. The report highlighted that the Borrower's regular reporting obligations include Ratio Calculations reports and Ratio Compliance Certificates. Specific figures for the Historic ADSCR (2.76), Projected ADSCR (1.54), and LLCR (10.78) as at 31 December 2025 were provided, with the Projected ADSCR being better than the target of 1.35. An assurance statement from MWM was also included to reassure lenders about the company's ability to repay the loan.

Risk Register

The committee was scheduled to consider the risks associated with the funding provided by the Council to Mercia Waste Management. The Chief Financial Officer recommended that the committee consider the risks set out in the Risk Register and determine if any matters should be reported to the Council. A Risk Register had been established to outline unmitigated and mitigated risks. The report indicated that three remaining risks had been substantially mitigated and were categorised as 'green'.

The register detailed several risks, including the weakening of Mercia Waste Management's parent company guarantee due to an acquisition, the default of loan repayments by the borrower, the impact of the contract extension on the company's ability to repay the loan, and Mercia's loan principal and/or interest repayments being below the required values. For each risk, the report outlined the gross impact, likelihood, and risk score, along with the risk control approach and mitigating actions. For instance, regarding the parent company guarantee, legal advice had been procured, and an independent review by KPMG confirmed the financial standing of the proposed new guarantor. The risk of default was being managed by calculating the Council's maximum exposure and monitoring press articles for financial strength issues. The impact of the contract extension was assessed by KPMG, who provided assurance that revised ratios would not affect repayment ability. The risk of loan repayments being below required values was being managed by the Council's treasury team maintaining a detailed spreadsheet of drawdowns and expected payments, reconciled with Mercia's repayment data and assurance statements.

Work Programme

The committee was also scheduled to review and comment on its updated work plan for 2026/2027. The work plan, attached as an appendix, outlined planned activities for the upcoming year, including budget information, updates on the Short Term Loan Facility Agreement (STLFA) Assurance Statement, Ratio Analysis updates, and Risk Register updates. These activities were scheduled across different quarters of 2026 and 2027.