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

RISK FACTORSThis Business Update also contains forward-looking statements that involve risk and uncertainties. Our actualresults may differ materially from those anticipated in these forward-looking statements as a result of various factors,including the risks described below and elsewhere in this Business Update.Risks related to our BusinessOur substantial indebtedness could adversely affect our operations or financial results and prevent us from fulfilling ourdebt obligations.We have and will continue to have a substantial amount of outstanding indebtedness and obligations with respect tothe servicing of such indebtedness. As of June 30, 2011, our total debt on a consolidated basis (consisting of total long-termdebt and total current debt) was SEK 16,790 million (€1,836 million) (including approximately €252 million and $285million of Existing Notes and $40 million and €90 million of Subordinated Notes). Our substantial indebtedness couldadversely affect our operations or financial results and could have important consequences for you. For example, suchindebtedness could:restrict our ability to borrow money in the future for working capital, capital expenditures, acquisitions or otherpurposes;expose us to the risk of increased interest rates with respect to the debt we carry at variable interest rates;make us more vulnerable to economic downturns and adverse developments in our business;reduce our flexibility in responding to changing business and economic conditions, including increasedcompetition in the oil and gas industry; andlimit our ability to take advantage of significant business opportunities, to respond to competitive pressures andto implement our business strategies.We have breached certain financial covenants under the 2008 Credit Facility in the past, and while the New CreditFacility provides more flexibility in terms of the financial ratios and other covenants we are required to comply withcompared to the 2008 Credit Facility, there can be no assurances that we will not breach such covenants, or any other relatedobligations in the future.Corral Petroleum Holdings is a holding company with no revenue generating operations of its own. Corral PetroleumHoldings depends on its subsidiaries and shareholder to distribute cash to it.Corral Petroleum Holdings is a holding company. As a holding company, to meet its debt service and otherobligations, including payment of Cash Interest, Corral Petroleum Holdings is dependent upon dividends, permittedrepayment of intercompany debt, if any, and other transfers of funds from Preem. Substantially all of Corral PetroleumHoldings’ assets consist of 100% of the share capital of Preem.Under the New Credit Facility, the ability of Preem to declare dividends or otherwise transfer any funds to CorralPetroleum Holdings is subject to a number of restrictions, including, without limitation, certain liquidity requirements, asfurther described elsewhere in this Business Update. See “Description of Certain Indebtedness—New Credit Facility.”Additional restrictions on the distribution of cash to Corral Petroleum Holdings and in particular, from Preem, arisefrom, among other things, applicable corporate and other laws and regulations and by the terms of other agreements to whichPreem is or may become subject. Under Swedish law, Preem may only pay a dividend to the extent that it has sufficientdistributable equity according to its adopted balance sheet in its latest annual report; provided, however, that any distributionof equity may not be made in any amount which, considering the requirements on the size of its equity in view of the nature,scope and risks of the business as well as the financing needs of Preem or the Preem group, including the need forconsolidation, liquidity or financial position 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. If Preem is unable to pay dividends or otherwise transfer funds to Corral Petroleum Holdings andequity contributions from Corral Petroleum Holdings’ parent company, Moroncha Holdings, or its shareholder, are notforthcoming, then Corral Petroleum Holdings will be unable to pay interest on any new notes issued in a refinancing in cashand will be required to pay interest in the form of additional notes.4