Senior Secured Notes due 2019
Overview
On October 31, 2012, the Company issued €500,000,000 aggregate principal amount of Senior Secured Notes due 2019 (the “2019 Notes”) under an indenture dated October 31, 2012, as supplemented on November 9, 2012, and as otherwise amended, supplemented or modified from time to time (the “2019 Notes Indenture”), among the Company, each of the guarantors named therein, Citibank, N.A., London Branch, as trustee (the “2019 Notes Indenture”), principal paying agent and transfer agent and Citigroup Global Markets Deutschland AG as registrar.
Ranking
The 2019 Notes are the general, senior secured obligations of the Company and rank equally in right of payment with the Company’s existing and future indebtedness that is not subordinated in right of payment to the 2019 Notes (including, without limitation, the Senior Credit Facility Agreement are guaranteed on a senior secured basis by the 2019 Notes Guarantors (as defined below), rank effectively senior to all existing and future indebtedness of the Company that is unsecured or secured by liens second to the liens securing the 2019 Notes to the extent of the value of the property securing the 2019 Notes and rank senior in right of payment to all existing and future obligations of the Company subordinated in right of payment to the 2019 Notes. In addition, the 2019 Notes are structurally subordinated in right of payment to all existing and future indebtedness and other liabilities of the Company’s non-guarantor subsidiaries and effectively subordinated to all of the Company’s existing and future secured indebtedness that is secured by property or assets that do not secure the 2019 Notes to the extent of the value of the property or assets securing such indebtedness.
Interest Rates, Payment Dates and Maturity
The 2019 Notes bear interest at a rate of 5.875% per annum. Interest on the 2019 Notes is payable semi-annually in arrears on May 1 and November 1 of each year, beginning May 1, 2013. The 2019 Notes will mature on November 1, 2019.
Guarantees
The 2019 Notes are jointly and severally guaranteed on a senior secured basis by the Guarantors (the “2019 Notes Guarantors”). The guarantee of each 2019 Notes Guarantor is its general, senior secured obligation and (i) ranks equally in right of payment with all existing and future indebtedness of such 2019 Notes Guarantor that is not subordinated in right of payment to such guarantee, including with respect to the guarantee of the 2019 Notes by each 2019 Notes Guarantor, indebtedness under the Senior Credit Facility Agreement, (ii) ranks effectively senior to all existing and future indebtedness of such 2019 Notes Guarantor that is unsecured or secured by liens second to the liens securing the 2019 Notes to the extent of the value of the property securing the Existing Notes, (iii) ranks senior in right of payment to all existing and future indebtedness of such 2019 Notes Guarantor that is subordinated in right of payment to such guarantee and (iv) is effectively subordinated to any existing and future indebtedness and other liabilities of such 2019 Notes Guarantor that are secured by liens senior to the liens securing such guarantee, or secured by property and assets that do not secure such guarantee, to the extent of the value of the property and assets securing such indebtedness and other liabilities.
Security
The 2019 Notes and the related guarantees are secured by first ranking liens on the same assets that will secure the obligations under the Senior Credit Facility Agreement.
Optional Redemption and Change of Control
At any time prior to November 1, 2019, the Company may redeem all or part of the 2019 Notes at a redemption price equal to 100% of the principal amount of the 2019 Notes redeemed plus (1) the excess of (a) the present value at such redemption date of (i) the principal amount of such 2019 Note at November 1, 2019, plus (ii) all required interest payments that would otherwise be due to be paid on such 2019 Note during the period between the redemption date and November 1, 2019, excluding accrued but unpaid interest to the redemption date, computed using a discount rate equal to the bund rate at such redemption date plus 50 basis points over (b) the principal amount of such 2019 Note, together with (2) additional amounts, if any, and
(3) accrued and unpaid interest on the 2019 Notes, if any, to the redemption date (subject to the rights of holders of record on relevant record dates to receive interest due on the relevant interest payment date).
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Upon the occurrence of both certain change of control events and a ratings decline, each holder of 2019 Notes may require the Company to repurchase all or a portion of its 2019 Notes at a purchase price equal to 101% of the principal amount of the 2019 Notes, plus additional amounts, if any, accrued and unpaid interest to the date of purchase.
If the Company sells assets which constitute collateral securing the 2019 Notes under certain circumstances, the Company is required to make an offer to purchase the 2019 Notes at 100% of the principal amount of the 2019 Notes, plus accrued interest to the date of purchase and additional amounts, if any, with the excess proceeds from the sale of the assets which constitute collateral securing the 2019 Notes, if the excess proceeds exceed €20.0 million.
In addition, in the event that the Company becomes obligated to pay Additional Amounts (as defined in the 2019 Notes Indenture) to holders of the 2019 Notes as a result of changes affecting taxes applicable to payments on the 2019 Notes, the Company may redeem the 2019 Notes in whole but not in part at any time at 100% of the principal amount of the 2019 Notes plus accrued and unpaid interest to the redemption date and all additional amounts then due and which will become due on the redemption date as a result of the redemption or otherwise.
Covenants
The 2019 Notes Indenture contains covenants that, among other things, limit the ability of the Company and the Company’s subsidiaries to:
• make investments or other restricted payments; • create liens on assets to secure indebtedness;
• transfer, lease or sell assets which constitute collateral securing the 2019 Notes; • engage in certain transactions with affiliates;
• engage in certain business activities;
• consolidate, merge or transfer all or substantially all of the Company’s assets and the assets of the Company’s subsidiaries taken as a whole; and
• impair the security interests for the benefit of the holders of the 2019 Notes. These covenants are subject to a number of important limitations and exceptions.
Events of Default
The 2019 Notes Indenture contains customary events of default, including, among others, the non-payment of principal or interest on the 2019 Notes, certain failures to perform or observe any other obligation under the 2019 Notes Indenture or security documents, the failure to pay certain indebtedness or judgments and the bankruptcy or insolvency of the Company, any Significant Subsidiary (as defined in the 2019 Notes Indenture) or any group of subsidiaries that, taken together, would
constitute a Significant Subsidiary. The ongoing occurrence of any of the events of default would permit or require the acceleration of all obligations outstanding under the 2019 Notes.
Senior Credit Facility
This section headed “Senior Credit Facility” is a summary of the Senior Multicurrency Term and Revolving Facilities Agreement dated October 18, 2012, among, inter alia, EP Energy, a.s., as borrower, and UniCredit Bank Czech Republic, a.s. and certain other financial institutions as mandated lend arrangers and UniCredit Bank AG, London Branch, as facility agent and security agent (the “Senior Credit Facility Agreement”). Terms not defined herein are as defined in the Senior Credit Facility Agreement. The Senior Credit Facility Agreement originally provided for senior facilities of approximately €1,000 million, divided into two term loan facilities, one (divided into three tranches) amortizing in an amount of up to €502 million (all three tranches together, “Facility A”) and one non-amortizing in an amount of up to CZK 10,575,000,000 (the CZK equivalent amount of up to €423 million) (“Facility B”) and a revolving credit facility (the “Revolving Credit Facility”) of up to €75 million. Following the issuance of the Notes in 2012, Facility B was canceled in full and the commitments under Facility A were reduced by €70.6 million to €431.4 million. The commitments under Facility A were further reduced by €40 million at the end of 2012 pursuant to the Facility A repayment schedule.
On January 21, 2013, we borrowed €391.4 million under Facility A and €40 million under the Revolving Credit Facility. As of March 31, 2013, we had €391.4 million (excluding accrued interest) outstanding under Facility A and €40 million outstanding under the Revolving Credit Facility.
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The proceeds of Facility A are made available for the purpose of (1) refinancing existing shareholder indebtedness, (2) specified distributions to shareholders (including through the repayment of shareholder loans) and (3) general corporate purposes (including acquisitions).
Each of the SCFA Initial Guarantors (as defined below) may become a borrower under the Senior Credit Facility Agreement, subject to certain conditions, including compliance with public procurement laws, if applicable.
A commitment fee is payable on the available but unused amount of each facility, calculated as a percentage rate per annum equal to 40% of the margin applicable to that facility, commencing from the date of the Senior Credit Facility Agreement. The commitment fee is payable quarterly in arrear.
Interest
The interest rate under the Senior Credit Facility Agreement is EURIBOR (or PRIBOR for CZK denominated loans), plus mandatory costs and a margin initially set at 3.25% per annum for Facility A and 2.50% for the Revolving Credit Facility. The margins on Facility A are reviewed quarterly and may be adjusted if the EPE Group attains certain leverage ratios to a minimum margin of 2.00% per annum and a maximum of 3.50% for Facility A. The margin on the Revolving Credit Facility is not subject to
adjustment.
Maturity
Facility A will terminate and be finally repayable in full on December 31, 2017. The Revolving Credit Facility will (subject to extension (if any) in accordance with the terms thereof) terminate and be repayable in full on the third anniversary of the date of the Senior Credit Facility Agreement.
Guarantees and security
The Senior Credit Facility will initially be guaranteed by the following entities (each an “SCFA Initial Guarantor”, and together the “SCFA Initial Guarantors”):
• Honor Invest, a.s. (“HI”, a holding company for PTHI); • NPTH, a.s. (“NPTH”, the direct owner of 50.1% of PT);
• EAST BOHEMIA ENERGY HOLDING LIMITED (“EBEH”, the holding company for EOP and NPTH);
• JTSD-Braunkohlebergbau GmbH (“JTSD”, the owner of Mitteldeutsche Braunkohlengesellschaft mbH (“MIBRAG”)); • LIGNITE INVESTMENTS 1 LIMITED (“LIG”, the owner of JTSD);
• HC Fin3 N.V. (“HC”, the owner of EBEH and LIG); • Plzeňská energetika a.s. (“PE”);
• United Energy, a.s. (“UE”);
• EP ENERGY TRADING, a.s. (formerly known as “United Energy Trading”, a.s.) (“EPET”); • Czech Energy Holding, a.s. (“CEH”);
• P-T Holding Investment B.V. (“PTHI”, the holding company owning a 49.0% stake in Pražská teplárenská Holding, a.s., (“PTH”), which owns Pražská teplárenská, a.s. (“PT”)); and
• Elektrárny Opatovice, a.s. (“EOP”, which became an SCFA Initial Guarantor on November 29, 2012). The Senior Credit Facility is secured on a pari passu basis with the Notes on the Collateral:
Certain other security is required to be granted by the SCFA Initial Guarantors following the date of the Senior Credit Facility Agreement as may be requested by the Security Agent (as defined therein) and subject to certain exceptions.
In addition, further guarantees and security are required to be provided by the EPE Group if any of the aggregate EBITDA, net assets or turnover (calculated on an unconsolidated basis excluding intra-group items and investments) of EPE, each other borrower (if any) and the Guarantors (as defined in the Senior Credit Facility Agreement) (other than certain specifically designated excluded entities and assets, including, amongst others, MIBRAG) falls below 95% of the consolidated EBITDA, net assets or turnover of the EPE Group (excluding certain specified excluded companies until such time (if any) as they become additional Guarantors). This guarantor test will be tested annually.
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Prepayment
The Senior Credit Facility Agreement allows for voluntary prepayments, and will require mandatory prepayment in full or in part, in certain circumstances. These include (inter alia):
• subject to certain excluded transactions, from proceeds from the disposal of assets; • subject to certain exceptions, from insurance proceeds; and
• a change of control, i.e. (i) the initial ultimate shareholders (or funds controlled by them) ceasing to control together EPE or EP Holding, or (ii) any initial ultimate shareholder (or persons acting in concert) gaining sole management control over EPE, or (iii) material change in the senior management of the company which has or is likely to have a Material Adverse Effect (as defined in the Senior Credit Facility Agreement) without prior consent of the majority lenders and is not remedied within a specified grace period; in each case subject to certain exceptions.
Covenants, representations and warranties and events of default
The Senior Credit Facility Agreement contains representations and warranties and undertakings common to facilities of this type and includes customary operating and financial covenants, subject to certain agreed exceptions, including covenants that restrict (variously) the ability of each of EPE, each other borrower (if any), each SCFA Initial Guarantor and any additional Guarantor, and each Material Company (as defined in the Senior Credit Facility Agreement) to:
• create or permit to subsist any security interests over their assets; • sell or dispose of their assets;
• substantially change the general nature of their business; • merge with other companies;
• make or permit to subsist any loans or grant credit; • engage in certain transactions on a non-arm’s length basis;
• incur or have outstanding certain borrowings, financial indebtedness, guarantees, loans or treasury transactions; • make certain acquisitions or investments, including certain joint ventures;
• declare or pay certain dividends or make certain other distributions to shareholders or share redemptions; • exceed certain loss limits under electricity trading transactions;
• make investments in Project Companies (as defined in the Senior Credit Facility Agreement); and
• make variations to the Senior Credit Facility Agreement finance and certain related transaction documentation. In each case these restrictions are subject to exceptions, some of which may be material.
The EPE Group’s financial and operating performance is monitored by a financial covenant package that requires it to maintain certain ratios of (i) operating cashflow to debt service, (ii) total senior net debt to EBITDA (or in certain circumstances, adjusted EBITDA) and (iii) total net debt to EBITDA (or in certain circumstances, adjusted EBITDA) and to observe limitations on capital expenditure each year, each in accordance with formulae set out in the Senior Credit Facility Agreement.
The Senior Credit Facility Agreement contains customary events of default (in relation to (variously) EPE, each other borrower (if any), the SCFA Initial Guarantors and any additional Guarantors and each Material Company and (in certain cases) EP Holding), including, among other things, non-payment, breach of other obligations set forth in the Senior Credit Facility Agreement, misrepresentation in respect of a representation or statement made in the Senior Credit Facility Agreement finance documents, unlawfulness or repudiation of obligations, certain insolvency, winding-up and related events, and cross default in relation to certain indebtedness not being paid when due or becoming due and payable before its specified maturity, the occurrence of which (subject to certain grace periods, de minimis thresholds and other exceptions) would allow the lenders under the Senior Credit Facility to accelerate all outstanding loans and terminate their commitments under the Senior Credit Facility.
Powersun facility agreement
The following is a summary of the Facility Agreement dated January 12, 2011, originally between Powersun a.s., as borrower, and Investkredit Bank AG, as Arranger, original lender, agent and security agent (the “Powersun Facility Agreement”). This agreement has been transferred by way of novation to Československá obchodní banka, a.s. as the new lender.
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The Powersun Facility Agreement provides for a term loan facility (the “Powersun Term Loan Facility”) in the amount of CZK 213 million and a CZK 25 million VAT Facility (the “Powersun VAT Facility”). The proceeds of the Powersun Term Loan Facility were used for the purposes of (1) refinancing existing debt owed by the borrower to EP Energy a.s., (2) funding specified debt service accounts and (3) paying financing fees owed by the borrower to the lenders and certain legal fees. As of December 31, 2012, CZK 189 million of the Powersun Term Loan Facility had been drawn.
Interest
The interest rate under the Powersun Facility Agreement is PRIBOR plus a margin set at 2.85% per annum for loans outstanding under the Powersun Term Loan Facility (the “Powersun Term Loans”) and PRIBOR plus a margin set at 2.00% on the Powersun VAT Facility. Interest is payable in arrears every three months.
Maturity
The Powersun Term Loan Facility matures on December 31, 2024.
Guarantees and security
Indebtedness arising under or in connection with the Powersun Facility Agreement is secured by (1) a first ranking mortgage over certain real property owned by the borrower, (2) a pledge of the borrower’s monetary receivables under certain insurance policies relating to the construction, development and operation of a 2.03 MWp photovoltaic power plant (the “Kyjov Project”), (3) a pledge of the borrower’s monetary receivables arising from agreements on administration of reserve and other accounts, (4) a pledge of the borrower’s monetary receivables under certain sales contracts and contracts for work, (5) a pledge of selected material movable assets owned by the borrower forming part of the Kyjov Project and the project of construction, development and operation of a 1.15 MWe photovoltaic power plant (the “Hustopeče Project”) and (6) a pledge of shares in the
borrower representing 100% of the registered capital in the borrower. The borrower’s indebtedness to EPE is subordinated to its indebtedness to the lenders arising under or in connection with the Powersun Facility Agreement. The Powersun Facility
Agreement is not guaranteed.
Prepayment
The Powersun Facility Agreement allows for voluntary prepayments and requires mandatory prepayments, in full or in part, in certain circumstances. Mandatory prepayment is required when, among other things, there is a change of ownership of the borrower, the borrower receives certain insurance proceeds exceeding CZK 1 million and, in certain circumstances, there is excess cash flow. The borrower may prepay the Powersun Term Loans in whole or in part. If the borrower makes a voluntary prepayment of the Powersun Term Loans within four years of the first utilization date, the borrower will pay the agent a prepayment fee in an amount equal to 1.00% of the prepaid amount, unless such prepayment occurs due to a refinancing of the Powersun Term Loans by the majority lenders or if the prepayment is made by the borrower from its own sources.
Covenants, representations and warranties and events of default
The Powersun Facility Agreement contains representations and warranties and undertakings common to facilities of this type and includes customary operating and financial covenants, subject to certain exceptions, including covenants that restrict the borrower’s ability to:
• create any encumbrances; • sell or dispose of its assets;
• undertake any business activity other than implementation of the Kyjov Project and the Hustopeče Project; • merge with other companies;
• make any loans;
• incur indebtedness or give or issue any guarantee, indemnity, bond or letter of credit for the benefit of, or assume any liability of, another person;
• make certain acquisitions or investments; or • make certain distributions.
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The borrower’s financial and operating performance will be monitored by two financial covenants, which require the borrower to maintain a minimum debt service coverage ratio (not less than 1.05) and its equity is always a positive number (the first covenant test date with respect to this financial covenant was December 31, 2012).
The Powersun Facility Agreement contains customary events of default, including, among other things, non-payment, breach of other obligations set forth in the Powersun Facility Agreement, misrepresentation of a representation or warranty, cross default, unlawfulness, repudiation of a finance document and insolvency, the occurrence of which would allow the lenders under the Powersun Term Loan Facility to accelerate all outstanding loans and terminate their commitments under the Powersun Term Loan Facility
Greeninvest Energy bank loan agreement I
The following is a summary of the Loan Agreement dated December 21, 2009, between Greeninvest Energy, a.s., an associate of the EPE Group as borrower, and Komerční banka, a.s, an affiliate of the Société Générale, as lender (the “Greeninvest Bank Loan Agreement I”).
The Greeninvest Bank Loan Agreement I provides for a loan (the “Greeninvest Bank Loan I”) in the amount of CZK 86 million. The proceeds of the loan were made available for the purpose of the construction of the first phase of a solar power plant in Ladná,