2012 Integrated report - Sappi

Notes to the group annual financial statements
for the year ended September 2012
20. Interest-bearing borrowings continued
Other restrictions
As is the norm for bank loan debt, a portion of the group’s financial indebtedness is subject to cross default provisions. Breaches
in bank covenants in certain subsidiaries, if not corrected in time, might result in a default in group debt, and in this case, a portion
of the group’s consolidated liabilities might eventually become payable on demand.
During fiscal 2012 and 2011, the group was in compliance with the financial covenants relating to all loans payable. Compliance with
applicable covenants are regularly monitored on an ongoing basis. If a possible breach of a financial covenant were to be expected,
negotiations would commence with the applicable institutions before such breach occurs.
Borrowing facilities secured by trade receivables
On 25 August 2011, Sappi entered into a three-year committed trade receivables purchase programme with UniCredit Bank AG with a
programme limit of €360 million.
The proceeds from the programme were used to refinance the group’s short-term securitisation programme with Galleon Capital LLC
that was due to mature in December 2011.
In terms of the programme, the securitisation sellers being Sappi Lanaken NV on behalf of Sappi Fine Paper Europe, Sappi NA Finance
LLC (a special purpose entity) on behalf of Sappi Fine Paper North America and, Sappi Deutschland GmbH and Sappi Papier Holding
GmbH on behalf of Sappi Trading sell certain eligible trade receivables to Elektra Purchase N° 29 Ltd (Elektra), an Irish bankruptcy remote
entity, that is consolidated by the Sappi group. Elektra has a commissioning agreement with Arabella Finance Limited (Arabella), an entity
belonging to UniCredit Bank AG that issues commercial paper to fund the purchase of the trade receivables (alternative funding resources
are available should the market for commercial paper be disrupted). The funding is settled in US Dollar and Euro.
As at September 2012, a reserve, that is reset on a monthly basis, amounting to 22.3% as well as a letter of credit covering the credit risk
up to the maximum facility was required.
The cost of the programme includes a variable component based on the cost of funding of Arabella, a fixed margin of 1.75% in addition
to a commitment fee of 0.90% computed on the difference between €330 million and the used portion of the programme limit.
The trade receivables are legally transferred; however, these receivables do not qualify for de-recognition under IAS 39 as most of the
market risk (foreign exchange risk and interest rate risk) and the credit risk is retained by Sappi. As a result, the trade receivables sold
under the programme are accounted for as on-balance sheet with a corresponding liability (external loan) being recognised. The
corresponding interest is recorded within finance costs.
Further detail of the value of trade receivables pledged as security for this programme is included in notes 16 and 24.
Unutilised facilities
The group monitors its availability of funds on a weekly basis. The group treasury committee monitors the amount of unutilised facilities
to assess the headroom available. The net cash balances included in current assets and current liabilities are included in the determination
of the headroom available.
US$ million Currency Interest rate 2012 2011
Unutilised committed facilities
Syndicated loan/revolving credit facility (1) EUR Variable (EURIBOR) 450 335
Various Southern African facilities ZAR Variable (JIBAR) 61 62
Securitisation facility (if underlying eligible trade receivables
would be available)
EUR
Variable (cost of
funding bank) 45 74
556 471
Unutilised uncommitted facilities
Southern Africa ZAR Variable (JIBAR) 43 43
Cash management overdraft facility EUR Variable (EURIBOR) 23 24
Securitisation facility (if underlying eligible trade receivables
would be available)
EUR Variable (cost of
funding bank) 39 40
105 107
Total unutilised facilities (committed and uncommitted) excluding cash 661 578
(1) Syndicated loan with a consortium of banks with J.P. Morgan Europe Limited as facility agent with a revolving facility available of €350 million (2011: €250 million),
which is subject to financial covenants relating to the Sappi Limited group and is secured by the same assets as the public bonds maturing in 2014, 2017, 2018, 2019
and 2021. The facility matures in April 2016. The group has paid a total commitment fee of US$4 million (2011: US$7 million) in respect of the syndicated loan facility.
Fair value
The fair values of all interest-bearing borrowings are disclosed in note 29.
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