Capital/Financing Update • Aug 18, 2021
Capital/Financing Update
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Sustainable logistics for a world in motion
○ This presentation (the "Presentation") has been prepared by Wallenius Wilhelmsen ASA ("Wallenius Wilhelmsen ASA" or the "Company", and together with its subsidiaries the "Group") with the assistance of Danske Bank, Norwegian Branch; DNB Markets, a part of DNB Bank ASA; Nordea Bank Abp, filial i Norge; Skandinaviska Enskilda Banken AB (publ); and Swedbank Norge, Branch of Swedbank AB (publ) (the "Managers") solely for use in connection with the offering of unsecured bonds (the "Bonds") by the Company (the "Offering"). By attending a meeting where this Presentation is made, or by reading the Presentation slides, you agree to be bound by the following terms, conditions and limitations. Any failure to comply with the restrictions set out herein may constitute a violation of applicable securities laws or may result in civil, administrative or criminal liabilities.
○ Neither this Presentation nor the Bonds have been reviewed, approved or disapproved by or registered with any public or regulatory authority or stock exchange and this Presentation does not constitute a prospectus or an offering memorandum. Any representation to the contrary is a criminal offence. This Presentation does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction.
○ The Managers have not independently verified any of the information contained herein through due diligence procedures or other investigations. None of the Company, the Managers or any of their respective parent, subsidiary or affiliate undertakings or any such person's officers or employees, makes any representation or warranty of any sort as to the accuracy or completeness of the information contained in this Presentation or the reasonableness of the assumptions on which any such information is based. No person shall have any right of action against the Company or the Managers, or any of their respective shareholders, affiliates, directors, officers, employees or any other person in relation to the accuracy or completeness of any such information. By attending or receiving this Presentation, you acknowledge that you will be solely responsible for your own assessment of the market and the market position of the Company and that you will conduct your own investigations and analysis and be solely responsible for forming your own view of the future performance of the Company's business and its current and future financial situation. The information contained in this Presentation is subject to amendment and/or completion without notice and such amendments may be material.
○ The contents of the Presentation are not to be construed as financial, legal, business, investment, tax or other professional advice. Each recipient should consult with its own professional advisors for any such matter and advice.
○ This Presentation contains information obtained from third parties. As far as the Company is aware and able to ascertain from the information published by that third party, such information has been accurately reproduced and no facts have been omitted that would render the reproduced information inaccurate or misleading. Only the Company and the Managers are entitled to provide information in respect of matters described in this Presentation. Information obtained from other sources is not relevant to the content of this Presentation or the terms of the Offering and should not be relied upon.
○ The information included in this Presentation may contain certain forward-looking statements relating to the business, financial performance and results of the Group and/or the industry in which it operates. Forward-looking statements concern future circumstances and results and other statements that are not historical facts, sometimes identified by the words "believes", "expects", "predicts", "intends", "projects", "plans", "estimates", "aims", "foresees", "anticipates", "targets", and similar expressions. The forward-looking statements contained in this Presentation, including assumptions, opinions and views of the Company or cited from third party sources are solely views and forecasts which are subject to risks, uncertainties and other factors that may cause actual events to differ materially from any anticipated development. None of the Company or any other company in the Group, or any of its advisors or any of their parent or subsidiary undertakings or any such person's affiliates, officers or employees provides any assurance that the assumptions underlying such forward-looking statements are free from errors nor does any of them accept any responsibility for the future accuracy of the opinions expressed in this Presentation or the actual occurrence of the forecasted developments. The Company assumes no obligation to update any forward-looking statements or to conform these forward-looking statements to the Group's actual results. Investors are advised, however, to inform themselves about any further public disclosures made by the Company, such as filings made with Oslo Børs or press releases.
○ The merits or suitability of investing in any securities previously issued or issued in the future by the Company for any investor's particular situation must be independently determined by such investor. Any such determination should involve, inter alia, an assessment of the legal, tax, accounting, regulatory, financial, credit, foreign exchange and other related aspects of the transaction in question.
○ AN INVESTMENT IN THE BONDS INVOLVES INHERENT RISKS, AND IS SUITABLE ONLY FOR INVESTORS WHO UNDERSTAND THE RISKS ASSOCIATED WITH THIS TYPE OF INVESTMENT AND WHO CAN AFFORD A LOSS OF ALL OR PART OF THE INVESTMENT. SEVERAL FACTORS COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT MAY BE EXPRESSED OR IMPLIED BY STATEMENTS AND INFORMATION IN THIS PRESENTATION. THERE MAY ALSO BE A LIMITED SECONDARY MARKET FOR THE BONDS WHICH MAY RESULT IN A SUBSTANTIAL LIQUIDITY RISK. PLEASE REFER TO SLIDE 6 FOR A SUMMARY OF RISK FACTORS AND SLIDES 35-41 FOR A DETAILED BUT NON-EXHAUSTIVE DESCRIPTION OF CERTAIN RISK FACTORS ASSOCIATED WITH THE COMPANY AND THE BONDS.
○ THIS DOCUMENT DOES NOT DISCLOSE ALL THE RISKS AND OTHER SIGNIFICANT ISSUES RELATED TO AN INVESTMENT IN THE BONDS AND/OR THE OFFERING. PRIOR TO TRANSACTING, POTENTIAL INVESTORS SHOULD ENSURE THAT THEY FULLY UNDERSTAND THE TERMS OF THE BONDS AND/OR THE OFFERING AND ANY APPLICABLE RISKS.
○ Neither this Presentation nor any copy of it nor the information contained herein is being issued, and nor may this Presentation nor any copy of it nor the information contained herein be distributed directly or indirectly to or into Australia, Hong Kong, Japan or the United States of America, absent applicable exemptions from relevant registration requirements, or any other jurisdiction in which such distribution would be unlawful. These materials are not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation or which would require any registration or licensing within such jurisdiction.
○ Neither the Group nor the Managers have taken any actions to allow the distribution of this Presentation in any jurisdiction where action would be required for such purposes. The distribution of this Presentation and any purchase of or application/subscription for Bonds may be restricted by law in certain jurisdictions, and persons into whose possession this Presentation comes should inform themselves about, and observe, any such restriction. Any failure to comply with such restrictions may constitute a violation of the applicable securities laws of any such jurisdiction. None of the Group or the Managers shall have any liability (in negligence or otherwise) for any loss howsoever arising from any use of this Presentation or its contents or otherwise arising in connection with the Presentation. Neither the Group nor the Managers have authorised any offer to the public of securities, or has undertaken or plans to undertake any action to make an offer of securities to the public requiring the publication of an offering prospectus, in any member state of the European Economic Area which has implemented Regulation (EU) 2017/1129, as amended (the "Prospectus Regulation").
○ In relation to each Member State of the European Economic Area (each, a "Relevant State"), no offer of Bond will be made to the public in that Relevant State other than: (a) to any legal entity which is a qualified investor as defined in the Prospectus Regulation; (b) to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Regulation); or (c) in any other circumstances falling within Article 1(4) of the Prospectus Regulation, provided that no such offer of Bonds shall require the Company or any Manager to publish a prospectus pursuant to Article 3 of the Prospectus Regulation. For the purposes of this provision, the expression an "offer of Bonds to the public" in relation to any Bonds in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and the Bonds to be offered so as to enable an investor to decide to purchase or subscribe for the Bonds.
○ The Bonds may be offered to and directed at specific addressees who, if in the United Kingdom, are "qualified investors" within the meaning of Article 2(e) of Regulation (EU) 2017/1129 as it forms part of UK law by virtue of the European Union (Withdrawal) Act and who are: (i) persons having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); or (ii) high net worth entities falling within Article 49(2)(a) to (d) of the Order; or (iii) are other persons to whom it may otherwise lawfully be communicated (all such persons referred to in (i), (ii) and (iii) together being "Relevant Persons"), and only in circumstances where, in accordance with section 86(1)(c) and (d) of the Financial and Services Markets Act 2000, as amended ("FSMA"), the requirement to provide an approved prospectus in accordance with the requirement under section 85 of the FSMA does not apply as the minimum denomination of and subscription for the Bonds exceeds EUR 100,000 or an equivalent amount. The Bonds may not be offered to or directed at specific addressees who in the United Kingdom, are not Relevant Persons.
○ The Bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") or any state securities laws and may not be offered or sold within the United States, absent registration under the Securities Act or under an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, any offer or sale of Bonds will only be offered or sold (i) within the United States or to U.S. Persons, only to qualified institutional buyers as defined under Rule 144A under the Securities Act ("QIBs") and (ii) outside the United States in reliance on Regulation S under the Securities Act. Prospective purchasers that are QIBs are hereby notified that the Company and the Manager may rely on the exemption from the provision of Section 5 of the Securities Act provided by Rule 144A. Any purchaser of Bonds in the United States, or to or for the account of U.S. Persons, will be deemed to have made certain representations, acknowledgements and agreements, including without limitation that the purchaser is a QIB.
○ The Bonds will be subject to restrictions on resale and transfer and may not be transferred or resold except as permitted under applicable securities laws (including the Securities Act) pursuant to registration or exemption therefrom. Please see the application form for further applicable selling and transfer restrictions.
○ This Presentation speaks as of the date set out on the front page, and there may have been changes in matters which affect the Group subsequent to the date of this Presentation. Neither the issue nor delivery of this Presentation shall under any circumstance create any implication that the information contained herein is correct as of any time subsequent to the date hereof or that the affairs of the Group have not since changed, and the Company does not intend, and does not assume any obligation, to update or correct any information included in this Presentation.
○ The Managers and/or their employees may hold shares, bonds, options or other securities of the Company and may, as principal or agent, buy or sell such securities. The Managers may have other financial interests in transactions involving the Company or such securities.
○ This Presentation is subject to Norwegian law, and any dispute arising in respect of this Presentation is subject to the exclusive jurisdiction of Norwegian courts with Asker and Bærum District Court as exclusive venue.
The following sets out a summary of key risks facing the Company. Please see pages 35-41 for a full description of the risk factors.
Global market leader in the vehicle logistics segment
Diversified business model with a solid, long-term customer base
Historically resilient free cash flow mainly applied towards reducing debt
Solid market fundamentals driven by high economic activity after 2020 trough
Long-term commitment to ESG, demonstrated by ambitious Science Based Target
19 %
9 %
*Approximate share of group EBITDA L12M (Q3'20 – Q2'21)
10
Four decades of leading the High & Heavy space
Average # of hoistable decks
| VEHICLE PROCESSING | HIGH & HEAVY SERVICES | TERMINAL SERVICES | INLAND / SUPPLY CHAIN | |
|---|---|---|---|---|
| Vehicle Processing Centre Vehicles Processed* 70+ Sites 5M |
Equip Processing Centre Machines Processed* 27 Sites 150k |
Marine Terminals Units Handled* 9 Sites 5.3M |
Inbound Distribution Units Moved* 11 Networks 211k |
|
| SERVICES • Pre-Delivery Inspection • Receipt & Dispatch • Vehicle Preparation • Storage Management • Repairs & Rectifications • Accessory Fitting |
KEY DRIVERS • Port vs Plant • Vessel Schedule • Cargo Mix • Congestion • Labor Efficiencies • Storage Demand |
SERVICES KEY DRIVERS • Stevedoring • Vessel • Custom Clearance Schedule • Receive & Delivery • Cargo Mix • Cargo Handling • Congestion • Port Distribution • Labor Efficiencies • Storage • Storage • Fumigation Demand • Value Added Services |
SERVICES KEY DRIVERS • • Trucking/Rail In-House vs rd party 3 • Brokerage Transport • Capacity • Supply Chain • Management Labor Limitations • Inventory • Management Capital Resources • Online Marketplace Distribution |
|
| Performed in reporting sub-segment: • SOLUTIONS AMERICA (AUTO) • EMEA / APAC |
Performed in reporting sub-segment: • SOLUTIONS AMERICA (H&H) • EMEA / APAC |
Performed in reporting sub-segment: • TERMINALS |
Performed in reporting sub-segment: • SOLUTIONS AMERICA (AUTO) • SOLUTIONS AMERICA (H&H) • EMEA / APAC |
• Describes how we contributed to the UN SDGs
In 2020, we established a Science Based Target and climate objectives to guide our actions
We reduced fleet carbon intensity from 2008 to 2020 by:
33.2%
27.5%
Reduction CO2e intensity1 from Shipping from 2019 to 2030
To be approved by the SBTi2
Our climate objectives
1) CO2e intensity = grams CO2/tonne-km. Reduction compared to baseline in 2019
2) From the Science Based Targets initiative, a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF)
Actively engaging in initiatives to develop solutions that can deliver leap improvements in emissions
WAWI in brief Business update Financial update Market update Investment highlights
○ High & heavy cargo volumes highest since 2012
Logistics had mixed development QoQ, solid cargo/service mix countered by chip shortage volume impacts
19
1) Total volume based on prorated volume in Shipping services (ex. Government services), i.e. volumes are split between months based on the sailing period onboard the vessel
2) H&H share calculated based on unprorated volumes, i.e. volumes loaded onto vessels during the quarter
1Vessels in cold layup include Owned and Chartered vessels
220 vessels were reclassified from leased assets to owned assets effective from 01/01/2020
+3.1
+0.3
-1.0
RESULTS (USDm) KEY FINANCIAL METRICS
1) Return on capital employed: annualised EBIT divided by capital employed 2) Net interest-bearing debt divided by last twelve months adjusted EBITDA
Adj. EBITDA up 56% QoQ, solid across segments with Shipping rebound being key contributor
| WAWI in brief | Business update | Financial update | Market update | Investment highlights | |||
|---|---|---|---|---|---|---|---|
| Light vehicle sales continue to recover – however still 6.1% below Q2 in 2019 |
|||||||
| Strong consumer confidence and incentives fuel the light vehicle recovery, chip shortage for the OEMs dampen off some |
sales
hunger for Korean produced SUVs
28
Still a residential/non-residential dichotomy in construction, while commodity prices at multi-year highs fuel mining and agriculture
29 Source: 1 IHS Markit | World construction & agriculture equipment exports (avg. equipment value >20 kUSD ) (Units last 3 months, YoY) per May 2021. May 2021 data are limited to countries having reported May customs data as per August 3rd, 2021. 2Parker Bay | Large Mining Equipment Deliveries (Units last quarter YoY). Arrows indicate change from last quarter. 3Factset Data and Analytics (August 3rd, 2021) | OEM revenue consensus estimates per calendar year (USD). Constituents: Volvo, Caterpillar, CNH, Komatsu, Hitachi, Deere, Terex, Doosan, Sandvik, Epiroc and AGCO. Estimates include sales of constr./mining/agri. equipment only
New orders have a lead time of 3-4 years. Easing of current supply chain inefficiencies will add capacity
Business update
Financial update
Market update
Global market leader in the vehicle logistics segment
Diversified business model with a solid, long-term customer base
Historically resilient free cash flow mainly applied towards reducing debt
Solid market fundamentals driven by high economic activity after 2020 trough
Long-term commitment to ESG, demonstrated by ambitious Science Based Target
An investment in the Bonds involves inherent risks. Prospective investors should carefully consider all information in this Presentation, including the risk factors set out below, before making an investment decision. This section addresses both general risks associated with the industry in which Wallenius Wilhelmsen ASA (the "Company") or any of its subsidiaries (such entities together, the "Group") operates and the specific risks associated with its business. Further, this section describes certain risks relating to the Bonds which could also adversely impact the value of the Bonds. It is not intended to be exhaustive – additional risks and uncertainties not presently known to the Group, or that it currently deems immaterial, may also impair the Group's business operations, financial condition, results of operations, cash flow and/or the value of the Bonds.
Investors should be mindful of the uncertainties that follow the coronavirus SARS-CoV-2 ("Covid-19") pandemic when investing in the Bonds. The Covid-19 pandemic may adversely affect the likeliness of occurrence and/or materiality of the risk factors presented in this Presentation, and could also impose additional risks that have not yet been identified by the Company or which are not considered as material risks at the date of this Presentation.
The Group cannot assure investors that any of the events discussed in the risk factors below will not occur. If they do, the Group's business, financial condition, results of operations and cash flows could be materially adversely affected. In such case, the trading price of the Bonds could decline, the Company may be unable to pay all or part of the interest or principal on the Bonds, and an investor may lose all or part of its investment. An investment in the Bonds is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of the investment.
This Presentation also contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this Presentation.
The following sets out various risk elements that are considered particularly relevant for investing in the Bonds. The order in which the risks are presented below is not intended to provide an indication of the likelihood of their occurrence nor of their severity or significance.
The Covid-19 pandemic has caused, and is expected to continue to cause, severe disruptions in regional economies and the world economy and financial and commodity markets in general. The transmission of Covid-19 and efforts to contain its spread have resulted in international, national and local border closings, travel restrictions, significant disruptions to business operations, supply chains and customer activity and demand, service cancellations, workforce reductions and other changes, significant challenges in healthcare service provision and delivery, as well as considerable general concern and uncertainty, all of which have negatively affected the economic environment and may in the future have further and larger impacts.
The Group has experienced significant negative impact on the demand for both ocean transportation and landbased services. For instance, plant closures in Asia caused parts shortages, disrupting the inbound supply chain to vehicle production leading to lower output and less volumes shipped.
While the impact of the COVID-19 pandemic is not expected to last indefinitely, the circumstances relating to the pandemic are dynamic and its impacts on the Group's business operations is difficult to predict. Disruptions caused by the pandemic may lead to a decline in customers' production or ability to pay for the Group's services, which could result in decreased demand for its vessels and services. Customers' inability to pay could also result in their default on the Group's current contracts. A decline in the amount of services requested by the customers or customers' default on the Group's contracts with them could have a material adverse effect on the Group's business, results of operations, cash flows and financial condition.
The geographical pattern of production and sales of cars and rolling equipment may change going forward, because of, inter alia, restructuring in the industries, growing protectionism and currency concerns. A potential shift in the balance between locally produced and exported cargo may affect the overall demand for ocean transportation, and could result in lower and less efficient utilisation of the Group's fleet. Shifts in production and sales may also result in lower and less utilisation of the Group's landbased logistics facilities and transportation networks, which in turn may have a material adverse effect on the business, results of operations, cash flows and the financial condition of the Group.
The Company cannot predict the future level of demand for its services or future conditions in the industries it serves.
Historically, the shipping industry has been highly cyclical, experiencing volatility in profitability and asset values. This has primarily been due to changes in the level and pattern of global economic growth, the highly competitive nature of the world of the shipping industry and changes in the supply of and demand for vessel capacity.
The Group's performance and growth depends heavily on the demand for deep-sea transportation of cars, high and heavy machinery and break bulk cargo, including US governmental cargo, supply of vessels built and old vessels recycled, converted to other uses or lost, as well as government and industry regulation of maritime transportation. An increase in the supply of vessels or other vessel capacity without a corresponding increase in demand for transportation could cause freight rates to decline. An oversupply of vessels that can cause pressure on rates may materially adversely affect Group's business, results of operations, cash flows and financial condition.
The shipping and logistics industries in which the Group operates are highly competitive. The Group obtains employment for its vessels in competitive markets, where it encounters competition from owners and operators of roll-on roll-off vessels, large car and truck carriers ("LCTCs"), pure car and truck carriers ("PCTCs") and pure car carriers ("PCCs"), as well as by logistics services providers. The Group's logistics services providers operate in highly competitive markets in which they face competition from landbased transportation and logistics services companies, as well as international logistics service providers.
The competition in the markets where the Group operates may lead to reduced profitability and/or expansion opportunities and the Group's market share and competitive position in these markets may erode in the future. Any new markets that are entered into could include participants that have greater experience or financial strength than the Group, and it may thus not be successful in entering such new markets.
If any of these risks were to materialise, it may have a material adverse effect on the Group's business, results of operations, cash flows and financial condition.
The Group is active in a number of regions, which expose the Group to political, governmental and economic instability, which could in turn harm operations.
Changes in the legislative, political, governmental and economic framework in the regions in which the Group carries on business could have a material impact on the business. In particular, changing laws and policies affecting trade, investment and changes in tax regulations could have a materially adverse effect on the Group's revenues, profitability, cash flows and financial condition.
Risks related to piracy, armed robbery, hijackings and kidnapping
Acts of piracy and armed robbery have historically occurred in areas where the Group has operated and there is a risk that acts of piracy, armed robbery, hijackings and kidnapping will continue to occur in these
The activities of the Group are subject to environmental regulation pursuant to a variety of international conventions and state and municipal laws and regulations. Changes in regulations concerning emission of greenhouse gases is one such risk factor for the Company. Compliance with such regulations may require significant expenditures, and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. Changes in environmental laws may result in a material increase in the cost of operating the Group's units or otherwise materially adversely affect its business, profitability, cash flows and financial condition.
The Group's vessels work in harsh environments, and the Group also operates and/or manages/procures transportation of cargo by truck, rail and barge. The vessels and cargoes are at risk of being damaged or lost because of events such as marine disasters, human errors, bad weather conditions, war and terrorism, grounding, fire, explosions and collisions, and faulty constructions.
There can be no assurance that the Group will be able to renew its existing customer contracts and/or establish additional customer agreements, or that any such future agreements will be on terms equally favourable to the Group as is currently the case. The Group's business, results of operations, cash flows and financial condition may be materially adversely affected if it fails to continue its current agreements or establish new agreements on similar terms.
The Company's subsidiary American Roll-On Roll-Off Carrier Group Inc ("ARC") was awarded the multi-year Global Household Goods Contract ("GHC") on 30 April 2020 by United States Transportation Command ("TRANSCOM"). The government procurement process includes rights and routes for protest by unsuccessful bidders, and two unsuccessful competitors filed protests against the award. The protests were sustained by the US Government Accountability Office in November 2020, and therefore TRANSCOM issued a new GHC tender on 2 December 2020. Three bidders, including ARC, submitted bids on 11 August 2021 and the new GHC award is expected in late October 2021.
The Group operates in various legal and regulatory environments world-wide. The Group might because of this be involved in disputes and legal, administrative and governmental proceedings in Norway and other jurisdictions. Potential outcomes of such disputes and proceedings are subject to many uncertainties which can expose the Group to losses and liabilities. The final results of such disputes and proceedings may have a material adverse effect on the business, profitability, cash flows and financial condition of the Group.
The operating entities WW Ocean and EUKOR have been part of authority anti-trust investigations in several jurisdictions since 2012. These proceedings are now largely resolved. Some related civil claims are still pending, and the timeline for full and final resolution of these claims is uncertain. As per the second quarter of 2021, provisions set aside for anti-trust claims are USD 121 million.
The reporting currency for the Group is USD. The Group is exposed to currency risk on revenues and expenses incurred (transaction risk) and balance sheet items (translation risk) in currencies other than USD, including CNY, EUR, GBP, JPY, KRW, NOK, SEK, as well as other currencies.
The Group's long-term debt is primarily based on floating interest rates, and the Group has entered into interest rate swaps to obtain a certain level of fixed rate exposure. Interest rate fluctuations will influence the level of interest expense payable on the floating rate debt. An increase in interest rates can therefore materially adversely affect the Group's financial results, cash flow and financial condition.
Interest rate fluctuations will also influence the fair value of its portfolio of financial derivatives and thereby its financial results. An increase in interest rates can therefore materially adversely affect the Group's financial condition.
The Group has a number of covenants related to its loans and other financial commitments. Similarly, the bond terms (the "Bond Terms") will provide certain restrictions on the Group from certain actions. The restrictions in such terms and conditions may prevent the Group from taking actions that it believes would be in its best interest and may make it difficult for the Group to execute its business strategy successfully or compete effectively with companies that are not similarly restricted. Furthermore, any additional debt financing, if available, may involve restrictive covenants. Failure to comply with financial and other covenants may result in increased financial costs, requirement for additional security or cancellation of loans, which in turn may have a material adverse effect on the Group's results of operations, cash flow and financial condition.
Liquidity risk is the risk that the Group may not be able to meet its liabilities as they fall due. The Group's policy on overall liquidity is to maintain a minimum liquidity to cover regular operating costs and serve as a cushion against temporary fall in revenues or unforeseen payments. The Group is actively using a system for planning and forecasting of cash flows in order to forecast long-term liquidity needs and to plan for the necessary financing to fund future operations and investments An insufficient liquidity position may have a material adverse effect on the operations and development of the Group, which in turn may have a material adverse effect on the Group's results of operations, cash flow and financial condition.
The Group routinely executes a large volume of transactions involving daily settlement of substantial amounts, many of which expose the Group to the risk of contractual default by a counterparty. Due to the current difficult market conditions and the Covid-19 pandemic, this risk has increased. The Group's profitability, cash flows and financial condition may be materially adversely effected, should its counterparties fail to meet their contractual obligations.
The Group's customer base consists of diverse customers with no single material source of credit risk. However, a downturn in financial markets and economic activity may result in a higher volume of late payments and outstanding receivables. Even though the Group routinely seeks to recover all outstanding receivables, the amounts of write-offs may increase and have a materially adverse effect on the results of operations, cash flow and financial condition of the Group.
The profitability and cash flow of the Group is influenced by the market price of bunker fuel, which is affected by numerous factors beyond the control of the Company. The price of fuel oil has historically been volatile. An increase in fuel prices may materially affect the Group's profitability and put pressure on the operating margins, particularly in periods with price increases, as there is a lagging effect in the bunker compensation mechanism in the Group's customer contracts. Thus, the market price of bunker fuel may have a material adverse effect on the business, results of operations, cash flows and financial condition of the Group.
Each potential investor in the Bonds must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
Interest rate risk is the risk that results from the variability of the NIBOR interest rate. The coupon payments, which depend on the NIBOR interest rate and the margin, will vary in accordance with the variability of the NIBOR interest rate. The interest rate risk related to this bond issue will be limited, since the coupon rate will be adjusted quarterly according to the change in the reference interest rate (NIBOR 3 months) over the tenor of the Bonds. The primary price risk for a floating rate bond issue will be related to the market view of the correct trading level for the credit spread related to the bond issue at a certain time during the tenor, compared with the credit margin the bond issue is carrying. A possible increase in the credit spread trading level relative to the coupon defined credit margin may relate to general changes in the market conditions and/or Issuer specific circumstances. However, under normal market circumstances the anticipated tradable credit spread will fall as the duration of the bond issue becomes shorter. In general, the price of bonds will fall when the credit spread in the market increases, and conversely the bond price will increase when the market spread decreases.
The regulation and reform of "benchmarks" may adversely affect the value of securities linked to or referencing such "benchmarks" unkers price risk
Interest rates and indices which are deemed to be "benchmarks", (including NIBOR) are subject of recent national and international regulatory guidance and proposals for reform. Some of these reforms are already effective whilst others are still to be implemented. These reforms may cause such benchmarks to perform differently than in the past, to disappear entirely, or have other consequences which cannot be predicted. Any such consequence could have a material adverse effect on any securities linked to or referencing such a "benchmark". The Benchmarks Regulation could have a material impact on any Bonds linked to or referencing a "benchmark", in particular, if the methodology or other terms of the "benchmark" are changed in order to comply with the requirements of the Benchmarks Regulation. Such changes could, among other things, have the effect of reducing, increasing or otherwise affecting the volatility of the published rate or level of the "benchmark". The Bonds are linked to NIBOR and there is a risk that any discontinuance or reforms of NIBOR may material adverse effect the pricing of the Bonds. No guarantees can be made as to the continuance of the current underlying reference rate of the Bonds and the possible consequences a potential discontinuance of NIBOR may have of the value of the Bonds.
During the lifetime of the Bonds, the Company will be required to make payments on the Bonds. The Company is dependent upon its and its subsidiaries' ability to generate cash flow from operations and to make distributions to the Issuer in order for the Company to make scheduled payments on the indebtedness, including the Bonds.
The future financial performance of the Group will be affected by a range of economic, competitive, governmental, operating and other business factors, many of which cannot be controlled, such as general economic and financial conditions in the business or the economy at large. A significant reduction in operating cash flows resulting from changes in economic conditions, increased competition or other events could increase the need for additional or alternative sources of liquidity and could have a material adverse effect on the business, financial condition or results of operations, as well as the Group's ability to service its debt, including the Bonds, and other obligations.
If the Group is unable to service its indebtedness, it will be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing indebtedness or seeking equity capital. The Group cannot assure investors that any of these alternative strategies could be effected on satisfactory terms, if at all, or that they would yield sufficient funds to make required payments on the Bonds and the Group's other indebtedness. In addition, any failure to make scheduled payments of interest and principal on outstanding indebtedness is likely to result in a reduction of credit rating, which could harm the ability to incur additional indebtedness on acceptable terms.
The Bonds will be the Company's direct senior unsecured obligations and will rank equal in right of payment (except as to claims preferred by operation of law) with all of its other existing and future senior indebtedness. The Bonds will be effectively subordinated to all of the Company's existing and future secured indebtedness to the extent of the assets securing such indebtedness. If the Company is involved in any bankruptcy, dissolution, liquidation or reorganization, the secured debt holders would, to the extent of the value of the assets securing the secured debt, be paid before the holders of the Bonds. In that event, a holder of Bonds may not be able to recover any principal or interest due to it under the Bonds.
The Bonds will be unsecured obligations and structurally subordinated to the liabilities of any of the Group's subsidiaries
Generally, creditors under indebtedness and trade creditors of the Company's subsidiaries will be entitled to payments of their claims from the assets of such subsidiaries before these assets are made available for distribution to the Company, as a direct or indirect shareholder. Accordingly, in the event that any of the Group's subsidiaries becomes subject to any foreclosure, dissolution, winding-up, liquidation, recapitalisation, administrative or other bankruptcy or insolvency proceeding, the Company's creditors (including the holders of the Bonds) will have no right to proceed against the assets of any such subsidiary, and creditors of the Group's subsidiaries, including financial indebtedness and trade creditors, will generally be entitled to payment in full from the sale or other disposal of the assets of such subsidiary before the Company, as a direct or indirect shareholder, will be entitled to receive any distributions from such subsidiary.
Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the Bonds. Any such disruptions could adversely affect the prices at which investors may sell their Bonds. In addition, subsequent to their initial issuance, the Bonds may trade at a discount from their initial placement, depending on the prevailing interest rates, the market for similar securities, the performance of the Company and other factors, many of which are beyond the Group's control.
The Bonds are a new issue of securities with no established trading history. Even though the Group will apply for listing of the Bonds on Oslo Børs (or any other regulated market), no assurance can be made that the Bonds will be successfully listed.
The Group has not entered into any market-making scheme to ensure liquidity of the Bonds. A liquid trading market for the Bonds may not develop or be maintained and investors may not be able to sell the Bonds quickly or at a favourable price. If an active market does not develop or is not maintained, the price and liquidity of the Bonds may be adversely effected. The Group cannot assure investors as to the future liquidity of the Bonds and as a result, investors bear the financial risk of their investment in the Bonds.
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