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Prysmian completed the placement of a convertible bond
with institutional investors for Euro 300 million, with a 1.25%
coupon and maturity in March 2018. Previously, in March 2011,
the Group had entered into a long-term loan agreement for
Euro 800 million (Credit Agreement 2011) with a syndicate
of leading banks. This five-year agreement comprises a loan
for Euro 400 million (Term Loan Facility 2011) and a revolving
facility for Euro 400 million (Revolving Credit Facility 2011). In
addition, the placement of an unrated bond with institutional
investors on the Eurobond market was completed in March
2010 for a nominal total of Euro 400 million with a 5.25%
coupon and maturity in April 2015. Lastly, it is recalled that
in January 2010 Prysmian entered into a forward start credit
agreement for Euro 1,070 million, of which Euro 670 million
related to a Term Loan Facility and Euro 400 million to a
Revolving Credit Facility, maturing on 31 December 2014. As
at 31 December 2013, the Term Loan Facility stood at Euro
184 million (for more details, reference should be made to the
section on Significant Events During the Year).
The annual interest rate on the Credit Agreements is equal to
the sum of:
• LIBOR or EURIBOR, depending on the currency;
• an annual spread determined on the basis of the
ratio between consolidated net financial position and
consolidated EBITDA.
As at 31 December 2013, the Group’s total financial resources,
comprising cash and cash equivalents and undrawn
committed credit lines, came to in excess of Euro 1 billion.
A detailed analysis of “Borrowings from banks and other
lenders” can be found in the Explanatory Notes to the
Consolidated Financial Statements.
Financial covenants
The credit agreements mentioned in the preceding paragraph
both contain a series of financial and non-financial covenants
with which the Group must comply. These covenants could
restrict the Group’s ability to increase its net debt, other
conditions remaining equal; should it fail to satisfy one of the
covenants, this would lead to a default event which, unless
resolved under the terms of the respective agreements,
could lead to their termination and/or an early repayment of
any amounts drawn down. In such an eventuality, the Group
might be unable to repay the amounts demanded early, which
in turn would give rise to a liquidity risk.
The financial covenants are measured at the half-year close
on 30 June and at the full-year close on 31 December.
All covenants, financial or otherwise, were fully observed at 31
December 2013. In particular:
(i) the ratio between EBITDA and Net finance costs, as
defined in the credit agreements, was 6.91x (against a
required covenant of not less than 5.50x);
(ii) the ratio between Net Financial Position and EBITDA, as
defined in the credit agreements, was 1.28x (against a
required covenant of below 2.75x).
As things stand and in view of the level of the financial
covenants reported above, Prysmian Group believes that
it will not have to face this risk in the near future. A more
detailed analysis of the risk in question can be found in the
Explanatory Notes to the Consolidated Financial Statements.
Exchange rate fluctuation
The Prysmian Group operates internationally and is therefore
exposed to exchange rate risk for the various currencies in
which it operates (principally the US Dollar, British Pound,
Brazilian Real and Chinese Renminbi). Exchange rate risk
occurs when future transactions or assets and liabilities
recognised in the statement of financial position are
denominated in a currency other than the functional currency
of the company which undertakes the transaction.
To manage exchange rate risk arising from future trade
transactions and from the recognition of foreign currency
assets and liabilities, most Prysmian Group companies use
forward contracts arranged by Group Treasury, which manages
the various positions in each currency.
However, since Prysmian prepares its consolidated financial
statements in Euro, fluctuations in the exchange rates
used to translate the financial statements of subsidiaries,
originally expressed in a foreign currency, could affect the
Group’s results of operations and financial condition.
A more detailed analysis of the risk in question can
nonetheless be found in the “Financial Risk Management”
section of the Explanatory Notes to the Consolidated
Financial Statements.
Interest rate fluctuation
Changes in interest rates affect the market value of the
Prysmian Group’s financial assets and liabilities as well as its
net finance costs. The interest rate risk to which the Group is
exposed is mainly on long-term financial liabilities, carrying
both fixed and variable rates.
Fixed rate debt exposes the Group to a fair value risk. The
Group does not operate any particular hedging policies
in relation to the risk arising from such contracts since
it considers this risk to be immaterial. Variable rate debt
exposes the Group to a rate volatility risk (cash flow risk).
The Group uses interest rate swaps (IRS) to hedge this risk,
which transform variable rates into fixed ones, thus reducing
the rate volatility risk. Under such IRS contracts, the Group
agrees with the other parties to swap on specific dates the
difference between the contracted fixed rates and the variable
rate calculated on the loan’s notional value. A potential rise in
interest rates, from the record lows reached in recent years, is
a risk factor in coming quarters.
A more detailed analysis of the risk in question can
nonetheless be found in the “Financial Risk Management”
section of the Explanatory Notes to the Consolidated
Financial Statements.
Credit risk
Credit risk is the Prysmian Group’s exposure to potential
losses arising from the failure of trade or financial
