Our performance in 2009 - Sappi

58 Chief financial officer’s report continued
The 2009 notes and our bank facilities contain customary affirmative and negative covenants
restricting, among other things, the granting of security, incurrence of indebtedness, the provision
of loans and guarantees, mergers and dispositions and certain restricted payments, including
the payment of dividends.
Vendor loan notes
As part of the consideration price for the acquisition, Sappi Papier Holding issued to M-real
Corporation the vendor loan notes of r220 million in December 2008. The notes carried an
interest rate stepping up from 9% to 15% over time. The notes had a maturity of up to 48 months
and ranked pari passu with our existing long-term debt. The vendor loan notes were repaid in
full on 27 August 2009 at a discount of 13.5% (approximately r30 million/US$41 million), utilising
proceeds from the issuance of the 2009 notes.
Debt maturity structure
Following the refinancing, the average maturity of our debt is 4.8 years, with the profile as shown
alongside.
As at September 2009 financial year end, short-term debt and overdraft funding was US$620 million,
all of which – and US$150 million of the 2011 maturities – is covered by cash and near cash
resources of US$770 million. In addition, included in the short-term debt is US$400 million of
funding in the form of revolving securitised trade receivables funding, which in the normal course
we expect to continue to be available and not to require refinancing. For further information on
group borrowing facilities secured by trade receivables, please refer to note 20 to the annual
financial statements.
In addition, we have unutilised committed and uncommitted borrowing facilities of US$307 million
and US$156 million respectively. The committed facilities consist of the undrawn portion of our
r209 million RCF. A downgrade of our public debt ratings could result in banks reviewing the
availability of uncommitted facilities.
Net debt by currency
The make-up of net debt by currency is shown in the following table:
Net debt by currency ratio 2009 2008
US$ 48.4% 41.3%
EUR 34.1% 40.3%
CHF 0% 6.3%
ZAR 17.5% 12.1%
Off-balance sheet funding
Off-balance sheet funding at the end of each of the last two financial years comprises a debtor’s
securitisation programme at Forest Products, amounting to US$194 million and US$171 million
in 2008 and 2009 respectively. This securitisation programme involves the outright sale of
receivables to FirstRand Bank Limited and we expect this funding to remain off-balance sheet
for the foreseeable future. For more information on this, please refer to note 16 to the annual
financial statements.
Interest rate risk
The group has a policy of maintaining a reasonable balance between fixed and variable rate loans
which enables it to minimise the impact of borrowing costs on reported earnings. Exceptions are
made when fixed rates can be obtained at attractive rates, as this strategy locks in acceptable
interest rates for the life of the borrowing instrument. Hedging activity in relation to borrowings
are restricted to interest rate swaps and where appropriate, cross-currency swaps.
As explained above, a number of interest rate swaps were unwound during the financial year.
A new interest rate and currency swap of US$300 million was taken up in August 2009 to hedge
the new US$300 million public bonds in the books of Sappi Papier Holding, a Euro functional
currency company. At year end, the ratio of gross debt at fixed and floating interest rates was
85:15 respectively.