Debt Risk Factors

8/13/2019 Debt Risk Factors

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New World Resources N.V. | Jachthavenweg 109h | 1081 KM Amsterdam | The Netherlands

Tel: +31 20 570 2200 I Fax: +31 20 570 2222 I E-mail: [email protected] I www.newworldresources.eu

Trade Register Amsterdam 34239108

Risk Factors Relating to NWRs Debt

The following is a brief summary of certain risks related to the 7.375% Senior Notes of NWR

due 2015 (the 2015 Notes) and the 7.875% Senior Secured Notes of NWR due 2018 (the

2018 Notes and together with the 2015 Notes, the Notes). An investment in the Notes

involves a significant degree of risk, including the risks described below. The risk factors set

forth below do not constitute all of the risks that may affect the Notes. You should carefully

consider the risk factors before investing in the Notes. Risks could materially adversely affect

the Groups business, financial condition or results of operations. In such case, you may lose

all or part of your original investment.

The Groups significant leverage may make it difficult for the Group to service its debt,including the Notes, and may adversely affect the Groups ability to obtain additional

financing, use the Groups operating cash flow in other areas of its business or

otherwise adversely affect its operations.

The Group has a substantial amount of indebtedness. The degree to which the Group is

leveraged could have important consequences to holders of the Notes, including, but not limited

to:

making it difficult for the obligors on the Notes to satisfy their obligations with respect

to the Notes (and in the case of the 2018 Notes, the Guarantees related to the

Notes);

increasing the Groups vulnerability to, and reducing its flexibility to respond to,

general adverse economic and industry conditions;

requiring the dedication of a substantial portion of the Groups cash flow from

operations to the payment of principal of, and interest on, its indebtedness, thereby

reducing the availability of such cash flow to fund working capital, capital

expenditures, acquisitions, joint ventures or other general corporate purposes;

limiting the Groups flexibility in planning for, or reacting to, changes in its business,

the competitive environment and the industry in which it operates;

placing the Group at a competitive disadvantage as compared to its competitors that

are not as highly leveraged; and

limiting the Groups ability to borrow additional funds and increasing the cost of any

such borrowing.

Any of these or other consequences or events could have a material adverse effect on the

Groups ability to satisfy its debt obligations, including the Notes and (and in the case of the

2018 Notes, the Guarantees related to the Notes).


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New World Resources N.V. | Jachthavenweg 109h | 1081KM Amsterdam | The Netherlands


Trade Register Amsterdam 34239108 2/2

The Group may not have enough cash available to service its debt.

The Groups ability to make scheduled payments on the Notes and its other indebtedness, or to

refinance its debt, depends on its future operating and financial performance, which will be

affected by its ability to implement successfully the Groups business strategy as well as general

economic, financial, competitive, regulatory, technical and other factors beyond its control. If in

the future the Group cannot generate sufficient cash to meet its debt service requirements, the

Group may, among other things, need to refinance all or a portion of its debt including the

Notes, obtain additional financing, delay planned capital expenditures or sell material assets. If

the Group is not able to refinance its debt as necessary, obtain additional financing or sell

assets on commercially reasonable terms or at all, the Group may not be able to satisfy its

obligations with respect to its debt, including the Notes. In that event, borrowings under otherdebt agreements or instruments that contain cross default or cross acceleration provisions may

become payable on demand, and the Group may not have sufficient funds to repay all of the

Groups debts, including the Notes.

Despite the Groups current significant leverage, the Group may be able to incur more

debt in the future, which could further exacerbate the risks of its leverage.

The Group may need to incur additional debt in the future to complete acquisitions or capital

projects or for working capital. Although the indentures governing the Notes and the

agreements governing the Groups other indebtedness may impose some limits on the Groups

ability to incur debt, these agreements permit the incurrence of significant additional debt if theGroup satisfies certain conditions. In certain circumstances, the Group may incur substantial

additional debt that could mature prior to the Notes, and which may be secured by liens on its

assets including the collateral that secures the Notes. If the Group and its subsidiaries incur

new debt, the risks related to being in a highly leveraged Group that the Group now faces could

intensify.

The Group is subject to restrictive debt covenants that may limit its ability to finance its

future operations and capital needs and to pursue business opportunities and activities.

The indentures governing the Notes and the Groups other financing agreements contain

covenants that limit the ability of the Group and its subsidiaries to take certain actions. These

restrictions may limit the Groups ability to operate its businesses and may prohibit or limit its

activity to enhance its operations or take advantage of potential business opportunities as they

arise. All of these limitations are subject to significant exceptions and qualifications. These

covenants could limit the Groups ability to finance its future operations and capital needs and

its ability to pursue business opportunities and activities that may be in the Groups interest.

If the Group breaches any of these covenants it may be in default under the Notes or other

indebtedness. A significant portion or all of the Groups indebtedness may then become

immediately due and payable. The Group may not have, or be able to obtain, sufficient funds to

make these accelerated payments. In addition, any default under the Notes could lead to an


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acceleration of debt under other debt instruments that contain cross acceleration or crossdefault provisions. If the debt under the Notes or other debt instruments is accelerated, the

Group may not have sufficient assets to repay amounts due thereunder. The Groups ability to

comply with the provisions of the indentures governing the Notes and other agreements

governing the Groups other debt may be affected by changes in economic or business

conditions or other events beyond its control. The Groups ability to comply with the provisions

of the indentures governing the Notes and other agreements governing the Groups other debt

may be affected by changes in economic or business conditions or other events beyond the

Groups control.

A change in the Groups financial policies may affect its ability to service its debt or may

increase its leverage or otherwise adversely affect Noteholders.

The Issuer is permitted to make dividend payments in cash under the terms of the indentures

governing the Notes and its other existing financing agreements. In the event the Issuer pays

dividends, or increases the percentage of the Groups net income that is paid as dividends, the

Groups cash position will decline and its net debt position will increase, which may result in the

Group being unable to satisfy its obligations with respect to the Notes as they come due. In the

future, the Group may increase its target leverage ratio or may not be able to achieve such

target. In the event the Issuer changes its target leverage ratio, the Groups leverage ratio may

increase. The decrease in the Groups cash position or the increase in its target leverage ratio

may adversely affect the financial position of the Group and its ability to service its debt,

including the Notes.

The value of the collateral securing the Notes may not be sufficient to satisfy the Groups

obligations under the Notes and the collateral securing the Notes may be reduced or

diluted under certain circumstances.

The 2018 Notes are secured by first-priority security interests, and the 2015 Notes are secured

by second-priority security interests, in the pledged shares described in the sections of this

website entitled 2018 Senior Secured Notes and 2015 Senior Notes, respectively. The

pledged shares may also secure additional debt to the extent permitted by the terms of the

indentures. Your rights to the pledged shares would be diluted by any increase in the debt

secured by the pledged shares.

The value of the pledged shares and the amount to be received upon a sale of such pledged

shares will depend upon many factors including, among others, the ability to sell the pledged

shares in an orderly sale, the condition of the economies in which the Groups operations are

located, the availability of buyers and other factors. The book value of the pledged shares

should not be relied on as a measure of realizable value for such assets. Portions of the

pledged shares may be illiquid and may have no readily ascertainable market value. The

pledged shares are located in a number of countries, and the multi-jurisdictional nature of any

foreclosure on the pledged shares may limit their realizable value. To the extent that holders of

other secured debt or third parties enjoy liens (including statutory liens), whether or not


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permitted by the indenture, such holders or third parties may have rights and remedies withrespect to the pledged shares securing the Notes that, if exercised, could reduce the proceeds

available to satisfy the obligations under the Notes.

The Noteholders are relying on the Intercreditor Agreement to achieve a lien in the

collateral.

The first priority status of the 2018 Notes and the second priority status of the 2015 Notes is

achieved through the Intercreditor Agreement. As a result, if the Intercreditor Agreement is

found to be invalid or unenforceable for any reason, or if an administrator refuses to give effect

to it, the Notes may not rank in priority to debt that is purportedly subordinated to such Notes.

Under the Intercreditor Agreement, the holders of Notes will be required to share

recovery proceeds with other secured creditors, have certain limitations on their ability

to enforce the security documents and have agreed that the collateral may be released in

certain circumstances without their consent.

The trustee of the 2015 Notes and the 2018 Notes have entered into an Intercreditor Agreement

with NWR and certain other parties. Other creditors may become parties to the Intercreditor

Agreement in the future, including counterparties to certain hedging obligations. Among other

things, the Intercreditor Agreement governs the enforcement of the security documents, the

sharing in any recoveries from such enforcement and the release of the collateral by the

security agent.

The Intercreditor Agreement governs the ability of holders of Notes to take enforcement action

in respect of the security documents. Further, the Intercreditor Agreement provides that the

security agent may disregard enforcement action instructions in certain circumstances, including

if the instructions are inconsistent with the Intercreditor Agreement or if the security agent is not

appropriately indemnified, secured, or prefunded.

Lenders under certain revolving credit facilities we enter into in the future and certain hedging

counterparties and lenders or creditors under certain other Indebtedness that NWR incurs in the

future will receive priority to the proceeds from the enforcement of security and the guarantees.

The Intercreditor Agreement provides that the security agent may release certain collateral in

connection with sales of assets pursuant to a permitted disposal or enforcement sale and in

other permitted circumstances. Therefore, such collateral available to secure the Notes could

be reduced in connection with the sales of assets or otherwise, subject to the requirements of

the financing documents and the Indenture governing the 2015 Notes and the Indenture

governing the 2018 Notes.

The Indenture governing the 2015 Notes and the Indenture governing the 2018 Notes permits

additional borrowing, including under a revolving credit facility or as part of certain hedging

arrangements, which may be entitled to a super-priority interest in the collateral. The ability of

NWR to incur additional debt in the future secured by the collateral may have the effect of


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diluting the ratio of the value of such collateral to the aggregate amount of the obligationssecured by the collateral.

The laws of The Netherlands, the Czech Republic and Poland may not be as favorable to

holders of the Notes as those of another jurisdiction with which you may be familiar.

The Issuer is incorporated under the laws of The Netherlands and has its registered offices in

The Netherlands. In addition, the guarantors of the 2018 Notes are incorporated in the laws of

the Czech Republic and Poland. Accordingly, certain proceedings may be proceed under, and

be governed by, the laws of The Netherlands, or the laws of the Czech Republic or Poland.

Such laws may not be as favourable to the Noteholders interests as those of another

jurisdiction with which they may be familiar.

Enforcing your rights as a holder of the Notes across multiple jurisdictions may prove

difficult.

The Issuer is organized under the laws of The Netherlands. The Notes will be guaranteed by

Subsidiary Guarantors organized under the laws of the Czech Republic and Poland. Your rights

under the Notes and the guarantees will thus be subject to the laws of several jurisdictions, and

there can be no assurance that you will be able to effectively enforce your rights in multiple

bankruptcy, insolvency or similar proceedings. Moreover, such multi-jurisdictional proceedings

are typically complex and costly for creditors and often result in substantial uncertainty and

delay in the enforcement of your rights.

In addition, the bankruptcy, insolvency, administrative and other laws of the various jurisdictions

of organization may be materially different from, or in conflict with, each other in certain areas,

including creditors rights, priority of creditors, the ability to obtain post-petition interest and the

duration of the insolvency proceeding. The application of these various laws in multiple

jurisdictions could trigger disputes over which jurisdictions law should apply and could

adversely affect your ability to enforce your rights and to collect payment in full under the Notes

and the guarantees.

Transfers of the Notes are restricted, which may adversely affect the value of the Notes.

The Notes have not been and will not be registered under the U.S. Securities Act, any

U.S. state securities laws or under any other countrys securities laws. You may not offer the

Notes in the United States except pursuant to an exemption from, or in a transaction not subject

to, the registration requirements of the U.S. Securities Act and applicable state securities laws,

or pursuant to an effective registration statement. The Notes and the Indenture contain

provisions that restrict the Notes from being offered, sold or otherwise transferred except

pursuant to the exemptions available pursuant to Rule 144A and Regulation S, or other

exemptions, under the U.S. Securities Act. It is your obligation to ensure that your offers and

sales of the Notes within the United States and other countries comply with applicable securities

laws.


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The 2015 Notes are structurally subordinated to the liabilities of the Issuers subsidiaries.

The 2015 Notes are not guaranteed by the Issuers subsidiaries. Generally, holders of

indebtedness of, and trade creditors of, the Issuers subsidiaries, including lenders under bank

financing agreements, are entitled to payments of their claims from the assets of such

subsidiaries before these assets are made available for distribution to the Issuer, as direct or

indirect shareholder.

Accordingly, in the event that any of the Issuers subsidiaries become insolvent, liquidates or

otherwise reorganizes:

the creditors of the Issuer (including the holders of the 2015 Notes) will have no rightto proceed against such subsidiarys assets; and

creditors of such subsidiary, including trade creditors, will generally be entitled to

payment in full from the sale or other disposal of the assets of such subsidiary before

the Issuer, as direct or indirect shareholder, will be entitled to receive any

distributions from such subsidiary.

The 2018 Notes will be structurally subordinated to the liabilities of non-guarantor

subsidiaries.

Some, but not all, of the Issuers subsidiaries are guarantors of the 2018 Notes. Generally,holders of indebtedness of, and trade creditors of, non-guarantor subsidiaries, including lenders

under bank financing agreements, are entitled to payments of their claims from the assets of

such subsidiaries before these assets are made available for distribution to any guarantor or the

Issuer, as direct or indirect shareholders.

Accordingly, in the event that any of the non-guarantor subsidiaries become insolvent, liquidates

or otherwise reorganizes:

the creditors of the Issuer and the guarantors (including the holders of the Notes) will

have no right to proceed against such subsidiarys assets; and

creditors of such non-guarantor subsidiary, including trade creditors, will generally be

entitled to payment in full from the sale or other disposal of the assets of such

subsidiary before the Issuer or any subsidiary guarantor, as direct or indirect

shareholder, will be entitled to receive any distributions from such subsidiary.

The guarantees by the guarantors of the 2018 Notes will be subject to certain limitations

on enforcement and may be limited by applicable laws or subject to certain defenses that

may limit their validity and enforceability.

The indenture governing the 2018 Notes provides that the guarantees by the guarantors will be

limited to the maximum amount that can be guaranteed by the relevant guarantor without


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rendering the guarantee, as it relates to that guarantor, voidable or otherwise ineffective underlocal law. In addition, enforcement of the guarantee would be subject to certain generally

available defenses. These laws and defenses include those that relate to corporate benefit,

fraudulent conveyance or transfer, voidable preference, financial assistance, corporate purpose,

capital maintenance or similar laws, regulations or defenses affecting the rights of creditors

generally.

Debt Risk Factors

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