Corral Petroleum Holdings AB (publ) Business Update ... - Preem

Since 2006, Preem has not been permitted to expend any cash, declare any dividends or otherwise transfer any fundsto Corral Petroleum Holdings, except that it may do so provided it maintains certain financial ratios and repays or prepaysspecified amounts. These restrictions remain in the 2008 Credit Facility. Under the 2008 Credit Facility, Preem obtained anadditional right to declare and pay dividends or lend money to Corral Petroleum Holdings, at any time on or prior to April 15,2010, up to the maximum of $130 million over the life of the 2008 Credit Facility, provided (i) certain defaults are notoutstanding under the 2008 Credit Facility; and (ii) the proceeds are either used for the purpose of paying interest that is nextdue under the Existing Notes in cash or for repaying the Moroncha Note; or administrative costs to Corral PetroleumHoldings up to a maximum of $500,000 in any calendar year. However, this additional right was removed by way of anamendment to the 2008 Credit Facility on January 25, 2010. The New Credit Facility will also contain certain restrictions onPreem’s ability to make dividend payments, distributions or other payments (including by way of a subordinated loan) toCorral Petroleum Holdings. At any time, Preem is permitted to make group tax contributions (Sw: Koncernbidrag) to CorralPetroleum Holdings by way of dividend, provided that such amount is funded by way of equity contribution or asubordinated loan and that it is effected by accounting entries only and not by movement of cash. Preem is also permitted topay administrative costs of CPH up to a maximum amount of $500,000 in any calendar year.At any time following payment of all arrangement fees under the New Credit Facility, subject to minimum liquidityrequirements of $100 million and provided that no event of default is outstanding under the New Credit Facility, Preem ispermitted to make a distribution, dividend or payment to Corral Petroleum Holdings to allow for the payment of cash-payinterest on any new notes issued in a refinancing up to a maximum of 4% per annum.At any time following payment of all arrangement fees under the New Credit Facility, subject to minimum liquidityrequirements of $200 million and provided that (i) the term loan facility has been repaid in full (ii) all fees due under the NewCredit Facility have been paid (iii) the Total Net Debt (as defined in the New Credit Facility) to consolidated EBITDA ratiohas been equal or below 4.0x for two successive quarters and would not be breached on a pro forma last twelve months basisafter making the payment and (iv) no event of default is outstanding, Preem is permitted to make a distribution, dividend orpayment to Corral Petroleum Holdings for any purpose.Notwithstanding the above, the aggregate of dividends, payments or other distributions out of Preem from theClosing Date to the maturity date of the New Credit Facility (other than with respect to group tax contributions) shall notexceed 100% of the net income of Preem arising after the Closing Date.Additional restrictions on the distribution of cash to Corral Petroleum Holdings arise from, among other things,applicable corporate and other laws and regulations and by the terms of other agreements to which Preem is or may becomesubject. Under Swedish law, Preem may only pay a dividend to the extent that it has sufficient distributable equity accordingto its adopted balance sheet in its latest annual report; provided, however, that any distribution of equity may not be made inany amount which, considering the requirements on the size of its equity in view of the nature, scope and risks of the businessas well as the financing needs of Preem or the Preem group, including the need for consolidation, liquidity or financialposition of Preem and the Preem group, would not be defendable.As a result of the above, Corral Petroleum Holdings’ ability to service cash interest payments or other cash needs isconsiderably restricted. Pursuant to the terms of the New Credit Facility, Preem would not be currently permitted and is notpermitted to pay a dividend until all fees under the New Credit Facility have been paid in full, which is expected not to occurbefore June 27, 2013.Quantitative and Qualitative Disclosures about Market RiskOur primary market risk exposures are commodity price risk, foreign currency risk and interest rate risk.Commodity Price RiskChanges in the price of commodities, such as crude oil, can affect our cost of goods sold and the price of our refinedproducts. Commodity price changes can trigger a price effect on inventory, which can affect our revenues, gross profit andoperating income. Our inventory management strategies include the purchase and sale of exchange-traded, oil-related futuresand options with a duration of twelve months or less. To a lesser extent, we also use oil swap agreements similar to thosetraded on international exchanges such as the Intercontinental Exchange, including “crack” spreads (which areintercommodity spreads based on the difference between the price of a refined product and crude oil) or intercommodityspreads, and options that, because they contain certain terms, such as point of delivery, customized to the market in which wesell, are better suited to hedge against the specific price movements in our markets. The number of barrels of crude oil andrefined products covered by such contracts varies from time to time. Nevertheless, we seek to maintain our “normalposition” of crude oil, finished products and intermediates. Our “normal position,” which is 1,840,000 cubic meters(approximately 12 million barrels), is evaluated based on the average optimal inventory level in our depot system, therequired inventory levels to allow for continuous flow and operations and the amount of crude oil and products that are29