Our performance in 2009 - Sappi

56 Chief financial officer’s report continued
Debt
Debt is a major source of funding for the group. In the management of debt we focus on net
debt, which is the sum of current and non-current interest-bearing borrowings and bank overdraft,
net of cash, cash equivalents and short-term deposits.
Net debt
The movement in net debt from 2008 to 2009 is explained below:
US$ million 2009
Net debt at beginning of year 2,405
Cash generated during the year* (289)
Debt assumed with the acquisition 52
Acquisition fees 32
Vendor loan notes (r220 million) 307
Discount on the subsequent repayment of vendor loan notes (41)
Fair value adjustments 53
Currency and other 57
Net debt at end of year 2,576
* Excludes cash outflow relating to the acquisition which was funded by the r450 million rights issue.
During the year, net debt increased by US$171 million. As part of the acquisition funding, we
issued r220 million (US$307 million) of vendor loan notes to M-real (which were subsequently
repurchased at a discount of approximately US$41 million) and we assumed debt of US$52 million.
This was offset by strong cash generation from operations after deducting capital expenditure of
US$289 million for the year.
During the year, we embarked on a major refinancing of our debt in order to refinance impending
maturities and short-term debt. All new debt taken up during the year was used to either settle
existing facilities (including the vendor loan notes) or hold as cash for liquidity purposes and
therefore did not result in an increase net debt.
Debt structure
Two material debt maturities were approaching that required refinancing; namely a r600 million
revolving credit facility (RCF) due for repayment in May 2010 and a r400 million syndicated bank
facility (the OeKB facility) maturing in December 2010. In order to address these maturities and
to term out short-term debt, the following actions were taken:
The r400 million OeKB facility was refinanced with a new r400 million five-year amortising
loan profile until 2014.
New public bonds of approximately US$800 million maturing in 2014 were issued.
The proceeds of these bonds, together with surplus cash balances, were used to repay
amounts outstanding under our previous RCF, the majority of our short-term debt and the Mreal
vendor loan note at a substantial discount.
A new RCF of r209 million with a tenure of three years was arranged, which remains
unutilised at this point in time.
The refinancing has improved the group’s debt structure considerably. This is indicated by
comparing the position as at end September 2008 with September 2009, which shows that net
short-term debt has improved from a negative position of US$724 million at September 2008 to
a positive US$150 million (ie cash holdings exceed short-term debt by US$150 million).