Kruk S.A. — Capital/Financing Update 2016

Feb 26, 2016

Current Report No. 15/2016

Date of the report: February 25th 2016

Subject: Resolution of the KRUK S.A. Management Board to issue unsecuredbonds

Legal basis: Art. 56.1.2 of the Public Offering Act - Current andperiodic information

Text of the report:

The Management Board of KRUK S.A. (the "Issuer" or the "Company")announces that, acting pursuant to Art. 371.1, 371.2 and 371.3 of theCommercial Companies Code of September 15th 2000 in conjunction withArt. 2.1 and Art 33.2 of the Act on Bonds (the "Act on Bonds") ofJanuary 15th 2015, on 25th February 2016 it passed Resolution No.35/2016 (the "Resolution") on the issue of unsecured Series AA2 bonds(the "Bonds").

The Company intends to use the issue proceeds for financing of debtpurchases by the KRUK Group (the "Group"), refinancing of the Group'sdebt, or financing of the Group's growth through acquisitions.

The Company resolved to issue up to 150 000 unsecured Series AA2 bearerbonds with a nominal value of PLN 1 000 per bond, maturing 72 monthsafter the allotment date.

The Bonds will be offered at the issue price equal to their nominalvalue. The Bonds will bear interest, with the rate of interestdetermined by the Company Management Board based on the bookbuildingprocess, by way of a separate resolution. Interest on the Bonds will bepayable every three months. The Bonds will be issued in accordance with,and will be governed by, Polish law.

Invitations to acquire Bonds will be submitted to no more than 149entities, pursuant to Art. 33.2 of the Act on Bonds.

Only the entities to whom an invitation to acquire Bonds is submittedwill be eligible to participate in the offer and acquire the Bonds.

The issue of the Bonds will be carried out by June 30th 2016.

The Bonds will be issued as securities in book-entry form. The Issuerintends to register the Bonds, after the Issue Date, with the CentralSecurities Depository of Poland (the "CSDP") in accordance with Art. 8.5of the Act on Bonds and Art. 5a.1 of the Act on Trading in FinancialInstruments of July 29th 2005 (Dz. U. of 2014.94 cons. text). The Issuerwill seek to introduce the Bonds to trading in the Catalyst alternativetrading system, operated by the WSE or BondSpot S.A. of Warsaw (the"Catalyst").

All activities related to registration of the Bonds with the CSDP andexercise of rights attached to the Bonds registered with the CSDP willbe performed by the CSDP under an agreement with the Issuer. The CSDPRules and Detailed Rules of Operation of the CSDP will apply in thisrespect. Upon registration of the Bonds with the CSDP, cash paymentsrelated to the exercise of rights under the Bonds will be made by theIssuer, who will make cash funds available to the CSDP for making cashpayments under the Terms and Conditions of the Series AA2 Bonds, andsuch cash payments will be effected through the CSDP. Prior toregistration of the Bonds with the CSDP, cash payments under the Bondswill be effected through the Bonds Depositary, in accordance with theTerms and Conditions of the Bonds.

The Bonds will be redeemed against payment of an amount equal to theirnominal value. The Bonds will only confer the rights to cash payments.Rights attached to the Bonds will be freely transferable. The Bonds willnot be secured.

The Company Management Board reports that, as at the last day of thequarter immediately preceding the submission of invitations to purchaseBonds, i.e. as at December 31st 2015, the Issuer's estimated liabilitiestotalled PLN ...m, including liabilities under borrowings and other debtinstruments of PLN...m, and none of the Issuer's liabilities were past due.

The growth prospects of the debt collection market, and particularly thesignificant supply of cases expected to be outsourced for collection bythe banking sector within the next several years, is an opportunity forthe Issuer and its Group to purchase a large volume of debt portfolios.The Issuer expects the KRUK Group to make significant investments indebt portfolios over those years. As before, such investments will befinanced with the KRUK Group's internally generated funds from allsegments of its business, including proceeds from debt portfoliospurchased and from credit management services, as well as with borrowedfunds, in particular bank loans and bonds issued by the Issuer. Thedegree of financial leverage expected by the Company in connection withits investment objectives will depend on several factors. These willinclude:

(1) the size, type and price of portfolios available on the debt market,

(2) steps taken by the KRUK Group's competitors and their financialresources,

(3) the availability of financing, including credit, and terms on whichsuch financing will be made available to the KRUK Group,

(4) the amount of the KRUK Group's own funds it will be prepared toinvest.

Given in particular the factors specified above, the Management Boardassumes that the KRUK Group's and the Issuer's debt may continue to growuntil the Bonds are fully redeemed, as well as in the coming years.

Irrespective of the nominal amount of its debt, in the Terms andConditions of the Bonds the Management Board will undertake to maintainthe KRUK Group's Debt Ratio at or below 3.0 until the Bonds areredeemed. In the Terms and Conditions of the Bonds, the Debt Ratio willbe defined as the Net financial debt to Equity ratio, where: (i) Netfinancial debt represents the KRUK Group's financial liabilities lesscash and (ii) Equity is the KRUK Group's equity.

Financial liabilities means the sum of financial liabilities arisingunder: (i) bonds or other debt securities similar to bonds; or (ii)loans; or (iii) bank borrowings; or (iv) finance leases; or (v)promissory notes issued by way of security for liabilities of non-KRUKGroup entities; or (vi) guarantees or sureties provided in respect ofrepayment of liabilities of non-KRUK Group entities under bankborrowings, loans, finance leases, bonds or other debt securitiessimilar to bonds, or (vii) accession to debt owed by non-KRUK Groupentities under bank borrowings, loans, finance leases, bonds or otherdebt securities similar to bonds; or (viii) assumption of liabilities ofnon-KRUK Group entities under bank borrowings, loans, finance leases,bonds or other debt securities similar to bonds; or (ix) liabilitiesarising under derivatives contracts.

The Debt Ratio will be tested on the basis of the consolidated financialstatements of the KRUK Group prepared in accordance with the IFRS.

The Issuer's commitment to keep its Debt Ratio from exceeding a certainlevel gives investors assurance that any decisions by the Group and bythe Issuer to contract new financial liabilities will be made in acontrolled manner. The Issuer does not expect any difficulties in beingable to meet its obligations under the unsecured Bonds.

In addition, the Issuer will undertake that in certain extraordinarycircumstances defined in the Terms and Conditions of the Bonds, forinstance if the Issuer shares are delisted from the Warsaw StockExchange, if the Debt Ratio exceeds 3.0 or if the Issuer files apetition in bankruptcy or is declared bankrupt, it will redeem the Bondsearly on the Bondholder's demand, with the proviso that the Bondholderswill have the right to demand mandatory early redemption of their Bondsat such time as is defined in the Terms and Conditions of the Bonds.

Projects to be financed with proceeds from the issue of the unsecuredBonds will be comparable to similar projects undertaken by the Companyto date.

Detailed legal basis: Par. 5.1.11 of the Regulation of the Minister ofFinance of February 19th 2009 on current and periodic information [...]