UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 2, 2006
CONSOLIDATED WATER CO. LTD.
(Exact Name of Registrant as Specified in its Charter)
         
Cayman Islands, B.W.I.   0-25248   Not Applicable
(State or Other Jurisdiction of
Incorporation) 		  (Commission File Number)   (IRS Employer Identification No.)
The Regatta Office Park
Windward Three, 4 th Floor
West Bay Road, P.O. Box 1114 GT
Grand Cayman, Cayman Islands
(Address of Principal Executive Offices) (Zip Code)
(345) 945-4277
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o       Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o       Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o       Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o       Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 

 

Item 1.01   Entry into a Material Definitive Agreement.
     On October 5, 2006, Consolidated Water (Bahamas) Ltd. (“CW-Bahamas”), a subsidiary of Consolidated Water Co. Ltd. (the “Company”), entered into a new $5.6 million credit facility with Royal Bank of Canada (the “Lender”), replacing its previous $5.4 million credit facility with the Lender. Unless otherwise indicated, dollar amounts in this Item 1.01 are in Bahamian dollars.
     The new credit facility consists of (i) a $500,000 revolving working capital loan (the “Working Capital Revolver”); (ii) term loans of US$38,062 (“Term Loan A”) and $127,276 (“Term Loan B,” together with Term Loan A, the “Term Loans”) and (iii) $4.98 million in bank guarantees (the “Guarantees”). The obligations under the credit facility are secured by the assets of CW-Bahamas. Borrowings under the Working Capital Revolver accrue interest at the Nassau Prime rate plus 1.50% per annum; borrowings under Term Loan A and Term Loan B accrue interest at the 90 day LIBOR rate plus 1.75% per annum and the Nassau Prime rate plus 1.50% per annum, respectively; and fees for the Guarantees equal 1.0% of the guarantee amounts, subject to annual renegotiation. Outstanding borrowings under the credit facility include the US $38,062 Term Loan A, the $127,276 Term Loan B and approximately $4.88 million under the Guarantees. No amounts are outstanding under the Working Capital Revolver.
     The new credit facility contains certain covenants applicable to CW-Bahamas, including restrictions on additional debt, guarantees and sale of assets. The credit facility limits the payment of dividends by CW-Bahamas to available cash flow (as defined in the loan agreement). The credit facility also requires CW-Bahamas to maintain a ratio of total liabilities to tangible net worth (each as defined in the loan agreement) of not greater than 2:1.
     All obligations under the new credit facility are repayable on demand by the Lender. Until demand is made, CW-Bahamas is required to repay any borrowings under the Term Loans in quarterly payments based on a ten year amortization schedule. The Guarantees expire annually or upon certain events as set forth in the loan agreement.
     The foregoing description is only a summary of certain provisions of the new credit facility and is qualified in its entirety by the loan agreement, a copy of which is attached hereto as Exhibit 10.1 and incorporated herein by reference.
Item 1.02   Termination of a Material Definitive Agreement.
     See the discussion under Item 1.01 above, which is incorporated under this Item 1.02 by reference.
Item 2.03   Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
     See the discussion under Item 1.01 above, which is incorporated under this Item 2.01 by reference.
Item 8.01   Other Events.
     On October 2, 2006, the Company was notified by Ocean Conversion (BVI) Ltd., the Company’s affiliate in the British Virgin Islands (“OC-BVI”), that the Ministry of Communications and Works of the Government of the British Virgin Islands (the “Ministry”) had asserted a purported right of ownership of OC-BVI’s desalination plant in Baughers Bay, Tortola pursuant to the terms of a Water Supply Agreement dated May 1990 (the “1990 Agreement”) and had invited OC-BVI to submit a proposal for its continued involvement in the production of water at the Baughers Bay plant in light of the Ministry’s planned assumption of ownership.
     Under the terms of the 1990 Agreement, upon the expiration of the initial seven year term in May 1999, the agreement would automatically be extended for another seven year term unless the Ministry provided notice, at least eight months prior to such expiration, of its decision to purchase the plant from OC-BVI for approximately $1.42 million.

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In correspondence between the parties from late 1998 through early 2000, the Ministry indicated that the government was prepared to exercise the option to purchase the plant but would be amenable to negotiating a new water supply agreement, and that it considered the 1990 Agreement to be in force on a monthly basis until negotiations between the government and OC-BVI were concluded. There have been occasional discussions between the parties since 2000 without resolution of the matter. OC-BVI has continued to supply water to the Ministry and has expended approximately $4.7 million to significantly expand the production capacity of the plant beyond that contemplated in the 1990 Agreement.
     The Ministry is OC-BVI’s sole customer and substantially all of OC-BVI’s revenue is generated from its operations at the Baughers Bay plant. At June 30, 2006, the net book value of the Baughers Bay plant as reflected on OC-BVI’s balance sheet was approximately $2.7 million. For the year ended December 31, 2005 and the six months ended June 30, 2006, the Company recognized approximately $1.4 million and $732,000, respectively, in income from its equity investment in the earnings of OC-BVI. For those same periods, the Company also recognized approximately $680,000 and $667,000, respectively, in revenue from its management services agreement with OC-BVI. As of June 30, 2006, loans to, and equity investment in, OC-BVI by the Company equaled approximately $13.1 million and the recorded value of the OC-BVI management services agreement, which is reflected as an intangible asset on the Company’s balance sheet, was approximately $856,000.
     OC-BVI has informed the Company that it and the Ministry have been and continue to be involved in amicable discussions concerning a new contract for the Baughers Bay plant. OC-BVI has indicated to the Ministry that it will submit a proposal to continue to supply water from the Baughers Bay plant and has indicated to the Company that it believes that the matter will be resolved to the satisfaction of both parties.
Cautionary Language Concerning Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements relating to the resolution of the government’s claims under the 1990 Agreement including, among other matters, OC-BVI’s response thereto and ability to negotiate a resolution with the Ministry to the satisfaction of both parties. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events or results. Actual future events and results could differ materially from these statements as a result of many factors, including uncertainties relating to OC-BVI’s negotiations with the Ministry and interpretation of the 1990 Agreement, as well as those factors set forth under Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, which is on file with the SEC. The Company undertakes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements, except as required by law.
Item 9.01   Financial Statements and Exhibits.
     (d) Exhibits.
  10.1   Loan Agreement dated as of October 4, 2006, by and between Royal Bank of Canada and Consolidated Water (Bahamas) Ltd.

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SIGNATURE
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  CONSOLIDATED WATER CO. LTD.
  		 
Dated: October 6, 2006  By:   /s/ Frederick W. McTaggart    
    Frederick W. McTaggart   
    President and Chief Executive Officer   
 

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Exhibit 10.1
Royal Bank of Canada
Commercial Banking Centre
101 East Hill Street, 3 rd Floor
P.O Box N-7549
Nassau, Bahamas
Transit: 02265
Tel: (242) 356-8500
Fax: (242) 325-8483
4 October 2006
Consolidated Water (Bahamas) Ltd. (formerly Waterfields Company Limited)
P.O. Box CR-54030
Nassau Bahamas
Attn: Frederick McTaggart, President & CEO
Dear Sirs:
Further to our recent discussions, we are pleased to offer the Credit Facilities described below, (which supersedes all previously advised facilities ) subject to the following terms and conditions:
         
BORROWER:   Consolidated Water (Bahamas) Ltd. (formerly Waterfields Company Limited)
(the “Borrower”).
       
 
LENDER:   Royal Bank of Canada (the “Bank”), through its branch at Main Branch at Bay Street; (the “branch of account”).
       
 
CREDIT FACILITIES:   The Credit Facilities are available in the following segments in Bahamian dollars (or United States dollars where stated) by way of
       
 
    Segment 1.  
Operating:
Royal Bank Nassau Prime based loans (“NP loans”);
    Segment 2.  
Reducing Demand Loan:
NP and Libor loans;
    Segment 3.  
Bonds and/or Guarantees (L/G’s);
    (collectively the “Borrowings”).
       
 
AMOUNTS:   Segment 1a:  
$500,000
    Segment 2a.  
$38,062 (USD)
    Segment 2b.  
$127,276
    Segment 3a.  
$100,000
    Segment 3b.  
$1,910,775
    Segment 3c.  
$2,968,985

 

 

         
PURPOSE:   Segment 1a.  
Working capital and supplement L/G’s.
    Segment 2a.  
To assist with construction and start-up costs of desalination plant re. supply of water to the Water & Sewerage Corporation.
    Segment 2b.  
To assist with construction and start-up costs of desalination plant re. supply of water to the Water & Sewerage Corporation.
    Segment 3a.  
To facilitate payment of customs duties on plant materials and equipment.
    Segment 3b.  
To provide a guarantee to Water & Sewerage Corporation during the years of operations.
    Segment 3c.  
To facilitate a construction guarantee to Water & Sewerage Corporation for recently awarded Blue Hills Plant.
       
 
REPAYMENT:   Segment 1a.  
Operating loans repayable on demand, and L/G’s expires December 31, annually.
    Segment 2a.  
Repayable on demand but until such demand shall be made this facility shall be reduced by blended quarterly payments of $74,000 principal and interest, based on a 10 year amortization. Payments to be adjusted at least annually to ensure payout within the aforementioned amortization.
    Segment 2b.  
Repayable on demand but until such demand shall be made this facility shall be reduced by blended quarterly payments of $37,000 principal and interest, based on a 10 year amortization. Payments to be adjusted at least annually to ensure payout within the aforementioned amortization.
    Segment 3a.  
On demand and expiring December 31, annually. Drawings will be charged to the Borrower’s General deposit account at maturity.
    Segment 3b.  
On demand and expiring December 31, annually or until Water & Sewerage Corporation authorizes the release from same. Drawings will be charged to the Borrower’s general deposit account upon demand.

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    Segment 3c.  
On demand and expiring twelve months after the “substantial completion date” (July 2007) or until released by Water & Sewerage Corporation. Drawings will be charged to the Borrower’s general deposit account upon demand.
       
 
OVERRIDING REPAYMENT:   Although the same has been made clear to you in our previous discussion for the avoidance of doubt we reiterate that notwithstanding any previous expressions or comments either herein or during negotiations for the credit facilities outlined herein to the contrary, the Credit Facilities outlined herein, including the availability on any undrawn facility, are extended to you at the sole discretion of Royal Bank of Canada are in each and every case and without exception repayable on demand.
       
 
AVAILABILITY:   Segment 1.  
The Borrower may borrow, repay, and re- borrow up to the amount of this operating facility.
    Segment 3.  
L/G’s will be issued for periods not exceeding one year, except with the agreement of the Bank
       
 
INTEREST      
 
RATES & FEES:   Segment 1a.  
Nassau Prime (“NP”) plus 1.50%.
    Segment 2a.  
Libor (90 days) plus 1.75%.
    Segment 2b.  
NP plus 1.50%.
    Segment 3a.  
1% per annum (to be renegotiated at next review).
    Segment 3b.  
1% per annum (to be renegotiated at next review).
    Segment 3c.  
1% per annum (to be renegotiated at next review).
       
 
    Interest on Bahamian dollar loans shall be computed on the daily principal amounts outstanding, at the aforementioned rates, based on the actual number of days elapsed divided by three hundred and sixty-five (365), and shall be payable in arrears on the 31 st of each month for all operating loans and at each payment date for reducing demand loans.
       
 
    Interest on United States dollar loans shall be computed on the daily principal amounts outstanding, at the aforementioned rates, based on the actual number of

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    days elapsed divided by three hundred and sixty (360), and shall be payable in arrears on each payment date for reducing demand loans.
       
 
PAYMENT OF      
 
INTEREST & FEES:   L/G’s — The Borrower shall pay fees at the rates set forth above in advance at the time of issue of the L/G. This fee shall be based upon the amount of the instrument issued and shall be calculated on the number of days that it will be outstanding.
       
 
    The yearly rates of interest to which the rates determined in accordance with the Payment of Interest & Fees section of this agreement are equivalent, are the rates so determined and multiplied by the actual number of days in the calendar year and divided by three hundred and sixty five (365) for Bahamian dollar loans and three hundred and sixty (360) for United States dollar loans.
       
 
OTHER FEES :   The Borrower acknowledges that for requests for loan increases over the amount established in this letter, a negotiation fee will be levied.
       
 
    Renewal Fee
A renewal fee of 0.25% is payable at each annual review with respect to segment 1a and 1% with respect to segments 3a, 3b & 3c (to be renegotiated at next review).
         
COLLATERAL SECURITY:      
–   Registered demand debenture creating a fixed and floating charge over the assets of Consolidated      Water (Bahamas) Ltd. (formerly Waterfields Co. Ltd.) with a right of access to the property. Stamped       for $6,418,440.
       
–   Assignment of full covering risk insurance (including hurricane) over plant assets.
       
–   Acknowledged loan agreement.
CONDITIONS          
 
PRECEDENT:   The obligation of the Bank to make available the Borrowings to the Borrower is subject to and conditional upon:
    1.  
Receipt by the Bank of the within stipulated collateral security inform and substance satisfactory to the Bank, together with such corporate authorizations and legal opinions as the Bank may require.

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    2.  
The Borrower authorizes and directs the Bank to automatically debit by mechanical, electronic or manual means, any bank account of the Borrower for all amounts payable under this agreement, including but not limited to, the repayment of principal and the payment of interest, fees and all charges for the keeping of such bank accounts.
    3.  
Receipt of acknowledged loan agreement.
         
 
REPRESENTATIONS        
 
AND WARRANTIES:   The Borrower represents and warrants to the Bank that:
    a)  
it is a corporation validly incorporated under laws of the Commonwealth of the Bahamas.
    b)  
the execution and delivery of this agreement has been duly authorized by all necessary actions and does not violate any law or any provision of its by-laws or any unanimous shareholders’ agreement to which it is subject.
         
 
NON-MERGER: The provisions of this agreement shall not merge with any security given by the Borrower to the Bank, but shall continue in full force for the benefit of the parties hereto.
         
 
COVENANTS: The Borrower agrees:
    a)  
Upon demand to pay all sums of money due under this agreement; or until such demand be made upon the terms otherwise provided herein;
    b)  
To provide the Bank with quarterly in-house financial statements within 45 days of the end of each quarter and audited financial statements within 120 days of each fiscal year-end;
    c)  
To provide the Bank with annual pro forma balance sheets, profit and loss and cash flow statements for the next year and such other reports as the Bank may reasonably request from time to time including but not limited to quarterly production reports within 45 days of the end of each quarter;
    d)  
To give the Bank prompt notice of any breach of this agreement or any event which, with time or notice, would constitute a breach of this agreement;
    e)  
To maintain, on a consolidated basis, the ratio of total Liabilities to Tangible Net Worth of not greater than 2:1. Tangible Net Worth means the aggregate of paid up capital, retained earnings and debt which has been formerly postponed to the Bank, less amounts due by related persons/entities,

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goodwill, deferred costs, net leasehold improvements, and other assets normally regarded as intangible under Generally Accepted Accounting Principles. Total liabilities include all direct liabilities, but exclude amounts formally postponed to the Bank;
      f)  
Not to grant, create, assume or suffer to exist any mortgage, charge, lien, or other encumbrance affecting any of its properties, assets or other rights;
      g)  
Not to sell, transfer, convey, lease or otherwise dispose of any part of its property or assets, without the prior written consent of the Bank except in the ordinary course of business;
      h)  
Not to, directly or indirectly, guarantee or otherwise provide for, on a direct or indirect or contingent basis, the payment of any monies or performance of any obligations by any third party except as provided herein;
      i)  
To give the Bank 30 days prior notice in writing of any intended change in the ownership of its shares and not to dispose of shares of any of its subsidiaries without the Bank’s prior written consent;
      j)  
Not to change its name or merge, amalgamate or consolidate with any other corporation without the Bank’s prior written consent;
      k)  
Not to declare or pay dividends exceeding available cash flow; which is defined as net income plus depreciation & amortization less principal repayments less membrane replacement without the prior written permission of the Bank;
      l)  
The Bank is empowered at any time or times (without consulting the Borrower) to impress additional stamp duties on its Mortgages/ Debentures from the Borrower covering any sum or sums at any time or times advanced to the Borrower by the Bank PROVIDED ALWAYS that such Mortgages/Debentures are intended and shall secure at all times the aggregate amount or amounts actually advanced by the Bank to the Borrower at any time or times whether or not the Mortgages/Debentures shall have been stamped or upstamped to cover such amounts;
      m)  
To keep all assets insured for at least replacement cost and/or as per security documentation contained

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herein and to provide the Bank with evidence of all insurance renewals within 30 days of the expiry;
    n)  
To ensure real property taxes are fully paid up and to provide evidence of payment by March 31 st , annually; and
    o)  
To provide the bank with a singed compliance certificate (as per attached “Schedule A”) on a quarterly/annual basis, verifying compliance or non-compliance with the covenants contained herein;
           
 
EXPENSES:   The Borrower agrees to pay all of the Bank’s costs incurred from time to time in the preparation, negotiation and execution of this agreement and the collateral security, and any costs incurred in the operation or enforcement of this agreement or any other agreement entered into pursuant to this agreement.
           
 
GOVERNING LAW:   This agreement shall be construed in accordance with and governed by the laws of the Commonwealth of the Bahamas applicable therein.
           
 
ACCEPTANCE:   Please acknowledge the terms and conditions of the loan agreement by signing and returning the enclosed copy at your soonest opportunity.
Very truly
/s/ Brian L. Knowles
Brian L. Knowles
Account Manager
Enc.

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Before accepting the terms and conditions herein by signing hereof we again draw your attention the overriding condition contained above that the credit facilities provided hereunder are in every case repayable on demand notwithstanding any provisions for payment on terms. By signing hereof you will be acknowledging that you fully understand that your loan or loans are always repayable on demand.
TERMS AND CONDITIONS HEREBY ACCEPTED
THIS 5 th DAY OF OCTOBER 2006
Consolidated Water (Bahamas) Ltd. (formerly Waterfields Company Limited)
/s/ Frederick W. McTaggart
Authorized signing officer - Frederick W. McTaggart
/s/ Wilmer Pergande
Authorized signing officer - Wilmer Pergande

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Compliance Certificate
Schedule A.
In accordance with the terms of our Letter Agreement dated (4 October 2006), between Royal Bank of Canada and Consolidated Water (Bahamas) Ltd. (formerly Waterfields Company Limited), (“the Company”), I enclose the following:
  1.   Company Prepared/Audited financial statements for the Company for quarter/year ending ___;
 
  2.   Budget, forecast Income Statement, Balance Sheet and Cash Flow Statement for the Company for the year ending ___;
 
  3.   Production report for the Company for the quarter ending ___;
In addition, I also certify that as at (quarter/year) ending ___, these financial statements confirm the following:
  1)   The ratio of Debt to Tangible Net Worth was         :1.00 and therefore in compliance/not in compliance with the maximum permitted ratio of 2.00:1.00;
 
  2)   Dividends declared by the company to date was $___, and therefore in compliance/not in compliance with the maximum permitted.
Consolidated Water (Bahamas) Ltd .


Name:
Title:
Date:

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