OFFERING MEMORANDUM Aguila 3 S.A. to acquire Swissport International Ltd. CHF 350,000,000 7 7 / 8 % Senior Secured Notes due 2018 $425,000,000 7 7 / 8 % Senior Secured Notes due 2018 Aguila 3 S.A. a société anonyme incorporated and existing under the laws of Luxembourg with a registered office at 12, Rue Guillaume Schneider L-2522 Luxembourg (the “Issuer”) is offering CHF 350,000,000 aggregate principal amount of its 7 7 / 8 % Senior Secured Notes due 2018 (the “CHF Notes”) and $425,000,000 aggregate principal amount of its 7 7 / 8 % Senior Secured Notes due 2018 (the “Dollar Notes” and together with the CHF Notes, the “Notes”), as part of the financing for the proposed acquisition (the “Acquisition”) of Swissport International Ltd. by funds or limited partnerships managed or advised by PAI partners SAS (“PAI”). The Issuer will pay interest on the Notes semi-annually on each January 31 and July 31, commencing July 31, 2011. Prior to January 31, 2014, the Issuer will be entitled, at its option, to redeem all or a portion of the CHF Notes and/or the Dollar Notes by paying a “make-whole” premium. At any time on or after January 31, 2014, the Issuer may redeem all or part of the CHF Notes and/or the Dollar Notes by paying a specified premium to you. In addition, prior to January 31, 2014, the Issuer may redeem at its option up to 35% of the CHF Notes and/or the Dollar Notes with the net proceeds from certain equity offerings. Prior to January 31, 2014, the Issuer may also redeem up to 10% of the principal amount of the CHF Notes and/or the Dollar Notes in each 12-month period commencing on the Issue Date at a redemption price equal to 103% of the principal amount thereof plus accrued and unpaid interest, if any. Upon certain events defined as constituting a Change of Control, the Issuer may be required to make an offer to purchase the Notes. In the event of certain developments affecting taxation, the Issuer may redeem all, but not less than all, of the Notes. Pending the consummation of the Acquisition, the initial purchasers will deposit the gross proceeds from the offering of the Notes into an escrow account and PAI will contribute into the same escrow account an amount in cash equal to the interest that would accrue on the Notes from the Issue Date to the special mandatory redemption date. The escrow account will be controlled by, and pledged on a first-ranking basis in favor of, the trustee on behalf of the holders of the Notes. The release of escrow proceeds will be subject to the satisfaction of certain conditions, including the closing of the Acquisition. The consummation of the Acquisition is subject to certain conditions. If the Acquisition is not consummated on or prior to March 2, 2011, the Notes will be subject to a special mandatory redemption. The special mandatory redemption price will be a price equal to 100% of the aggregate issue price of the Notes plus accrued and unpaid interest and additional amounts, if any, from the issue date for the Notes to the date of the special mandatory redemption. See “Description of Notes—Escrow of Proceeds; Special Mandatory Redemption.” The Notes will be senior obligations of the Issuer and, following release of the proceeds of the offering of the Notes from the escrow account substantially concurrently with the consummation of the Acquisition (the date of such release, the “Completion Date”), will be guaranteed (the “Guarantees”) on a senior basis by the subsidiaries of the Issuer that guarantee the Revolving Credit Facility (as defined herein). Certain of the Guarantees will be granted on the Completion Date and the remainder concurrently with each Guarantor becoming an obligor under the Revolving Credit Facility, which is expected to be within 60 days from the Completion Date. The Notes will be secured by first-ranking security interests granted on an equal and ratable first-priority basis over the same assets that secure the Revolving Credit Facility. See “Summary—The Offering—Notes Security.” Subject to the terms of the indenture governing the Notes (the “Indenture”), the assets that secure the Notes may be granted to secure certain other indebtedness in the future. The Notes, the Guarantees and the assets securing the Notes and the Guarantees will be subject to restrictions on enforcement, and other intercreditor arrangements. See “Description of Certain Financing Arrangements—Intercreditor Agreement.” The Notes will be represented on issue by one or more global notes, which will be delivered through The Depository Trust Company (“DTC”), Euroclear Bank S.A./N.V. (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream”) on or about January 28, 2011. This offering memorandum (the “Offering Memorandum”) includes information on the terms of the Notes and the Guarantees, including redemption and repurchase prices, security, covenants and transfer restrictions. Application has been made to list the Notes on the Official List of the Luxembourg Stock Exchange and to be admitted for trading on the Euro MTF market of the Luxembourg Stock Exchange (the “Euro MTF Market”). The Offering Memorandum constitutes a prospectus for the purpose of the Luxembourg act dated July 10, 2005 on prospectuses for securities. Investing in the Notes involves risks that are described in the “Risk Factors” section beginning on page 20 of this Offering Memorandum. CHF Notes Price: 100.000% Dollar Notes Price: 100.000% The Notes and the Guarantees have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”), or the securities laws of any other jurisdiction. Unless they are registered, the Notes may be offered only in transactions that are exempt from registration under the U.S. Securities Act or the securities laws of any other jurisdiction. Accordingly, we are offering the Notes only to qualified institutional buyers under Rule 144A and outside the United States in reliance on Regulation S under the U.S. Securities Act. For further details about eligible offerees and resale restrictions, see “Notice to Investors.” Joint Lead Managers and Joint Bookrunners Citi Barclays Capital BNP PARIBAS RBC Capital Markets Co-Manager UBS Investment Bank The date of this Offering Memorandum is February 7, 2011.
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OFFERING MEMORANDUM
Aguila 3 S.A.
to acquire
Swissport International Ltd.
CHF 350,000,000 77/8% Senior Secured Notes due 2018
$425,000,000 77/8% Senior Secured Notes due 2018
Aguila 3 S.A. a société anonyme incorporated and existing under the laws of Luxembourg with a registered office at 12, Rue Guillaume Schneider L-2522 Luxembourg (the “Issuer”) is offering CHF 350,000,000 aggregate principal amount of its 77/8% Senior Secured Notes due 2018 (the “CHF Notes”) and $425,000,000 aggregate principal amount of its 77/8% Senior Secured Notes due 2018 (the “Dollar Notes” and together with the CHF Notes, the “Notes”), as part of the financing for the proposed acquisition (the “Acquisition”) of Swissport International Ltd. by funds or limited partnerships managed or advised by PAI partners SAS (“PAI”).
The Issuer will pay interest on the Notes semi-annually on each January 31 and July 31, commencing July 31, 2011. Prior to January 31, 2014, the Issuer will be entitled, at its option, to redeem all or a portion of the CHF Notes and/or the Dollar Notes by paying a “make-whole” premium. At any time on or after January 31, 2014, the Issuer may redeem all or part of the CHF Notes and/or the Dollar Notes by paying a specified premium to you. In addition, prior to January 31, 2014, the Issuer may redeem at its option up to 35% of the CHF Notes and/or the Dollar Notes with the net proceeds from certain equity offerings. Prior to January 31, 2014, the Issuer may also redeem up to 10% of the principal amount of the CHF Notes and/or the Dollar Notes in each 12-month period commencing on the Issue Date at a redemption price equal to 103% of the principal amount thereof plus accrued and unpaid interest, if any. Upon certain events defined as constituting a Change of Control, the Issuer may be required to make an offer to purchase the Notes. In the event of certain developments affecting taxation, the Issuer may redeem all, but not less than all, of the Notes.
Pending the consummation of the Acquisition, the initial purchasers will deposit the gross proceeds from the offering of the Notes into an escrow account and PAI will contribute into the same escrow account an amount in cash equal to the interest that would accrue on the Notes from the Issue Date to the special mandatory redemption date. The escrow account will be controlled by, and pledged on a first-ranking basis in favor of, the trustee on behalf of the holders of the Notes. The release of escrow proceeds will be subject to the satisfaction of certain conditions, including the closing of the Acquisition. The consummation of the Acquisition is subject to certain conditions. If the Acquisition is not consummated on or prior to March 2, 2011, the Notes will be subject to a special mandatory redemption. The special mandatory redemption price will be a price equal to 100% of the aggregate issue price of the Notes plus accrued and unpaid interest and additional amounts, if any, from the issue date for the Notes to the date of the special mandatory redemption. See “Description of Notes—Escrow of Proceeds; Special Mandatory Redemption.”
The Notes will be senior obligations of the Issuer and, following release of the proceeds of the offering of the Notes from the escrow account substantially concurrently with the consummation of the Acquisition (the date of such release, the “Completion Date”), will be guaranteed (the “Guarantees”) on a senior basis by the subsidiaries of the Issuer that guarantee the Revolving Credit Facility (as defined herein). Certain of the Guarantees will be granted on the Completion Date and the remainder concurrently with each Guarantor becoming an obligor under the Revolving Credit Facility, which is expected to be within 60 days from the Completion Date.
The Notes will be secured by first-ranking security interests granted on an equal and ratable first-priority basis over the same assets that secure the Revolving Credit Facility. See “Summary—The Offering—Notes Security.” Subject to the terms of the indenture governing the Notes (the “Indenture”), the assets that secure the Notes may be granted to secure certain other indebtedness in the future. The Notes, the Guarantees and the assets securing the Notes and the Guarantees will be subject to restrictions on enforcement, and other intercreditor arrangements. See “Description of Certain Financing Arrangements—Intercreditor Agreement.”
The Notes will be represented on issue by one or more global notes, which will be delivered through The Depository Trust Company (“DTC”), Euroclear Bank S.A./N.V. (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream”) on or about January 28, 2011.
This offering memorandum (the “Offering Memorandum”) includes information on the terms of the Notes and the Guarantees, including redemption and repurchase prices, security, covenants and transfer restrictions.
Application has been made to list the Notes on the Official List of the Luxembourg Stock Exchange and to be admitted for trading on the Euro MTF market of the Luxembourg Stock Exchange (the “Euro MTF Market”).
The Offering Memorandum constitutes a prospectus for the purpose of the Luxembourg act dated July 10, 2005 on prospectuses for securities.
Investing in the Notes involves risks that are described in the “Risk Factors” section beginning on page 20 of this Offering Memorandum.
CHF Notes Price: 100.000%
Dollar Notes Price: 100.000%
The Notes and the Guarantees have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “U.S.
Securities Act”), or the securities laws of any other jurisdiction. Unless they are registered, the Notes may be offered only in transactions that are exempt from registration under the U.S. Securities Act or the securities laws of any other jurisdiction. Accordingly, we are offering the Notes only to qualified institutional buyers under Rule 144A and outside the United States in reliance on Regulation S under the U.S. Securities Act. For further details about eligible offerees and resale restrictions, see “Notice to Investors.”
Joint Lead Managers and Joint Bookrunners
Citi Barclays Capital BNP PARIBAS RBC Capital MarketsCo-Manager
UBS Investment Bank The date of this Offering Memorandum is February 7, 2011.
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TABLE OF CONTENTS
Page
Summary........................................................................................................................................................................ 1Risk Factors ................................................................................................................................................................... 20The Transactions............................................................................................................................................................ 37Use of Proceeds ............................................................................................................................................................. 38Capitalization................................................................................................................................................................. 39Selected Historical Consolidated Financial Information ............................................................................................... 40Management’s Discussion and Analysis of Financial Condition and Results of Operations ........................................ 44Industry Overview ......................................................................................................................................................... 62Business ......................................................................................................................................................................... 66Management .................................................................................................................................................................. 81Principal Shareholders ................................................................................................................................................... 84Certain Relationships and Related Party Transactions .................................................................................................. 85Description of Certain Financing Arrangements ........................................................................................................... 86Description of Notes ...................................................................................................................................................... 95Book-Entry, Delivery and Form .................................................................................................................................... 156Certain Tax Considerations ........................................................................................................................................... 160ERISA Considerations................................................................................................................................................... 164Notice to Investors......................................................................................................................................................... 165Plan of Distribution........................................................................................................................................................ 168Legal Matters ................................................................................................................................................................. 170Independent Auditors..................................................................................................................................................... 171Where You Can Find More Information ....................................................................................................................... 172Enforcement of Judgments ............................................................................................................................................ 173Limitations on Validity and Enforceability of the Guarantees, the Notes Security and Certain Insolvency Law
Considerations ........................................................................................................................................................... 176Description of the Issuer ................................................................................................................................................ 207Listing and General Information.................................................................................................................................... 208Index to Financial Statements........................................................................................................................................ F-1
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We have not authorized any dealer, salesperson or other person to give any information or represent anything to you other than the information contained in this Offering Memorandum. You must not rely on unauthorized information or representations.
If you purchase the Notes, you will be deemed to have made certain acknowledgments, representations and warranties as detailed under “Notice to Investors.” You may be required to bear the financial risk of an investment in the Notes for an indefinite period. Neither we nor the initial purchasers are making an offer to sell the Notes in any jurisdiction where the offer and sale of the Notes is prohibited. We are not making any representation to you that the Notes are a legal investment for you. No action has been, or will be, taken to permit a public offering in any jurisdiction where action would be required for that purpose.
The Issuer and the initial purchasers are offering to sell the Notes only in places where offers and sales are permitted.
IN CONNECTION WITH THIS OFFERING, CITIGROUP GLOBAL MARKETS LIMITED (THE “STABILIZING MANAGER”) (OR PERSONS ACTING ON BEHALF OF THE STABILIZING MANAGER) MAY OVER-ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILIZING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILIZING MANAGER) WILL UNDERTAKE STABILIZATION ACTION. ANY STABILIZATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE FINAL TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT MUST END NO LATER THAN THE EARLIER OF 30 CALENDAR DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 CALENDAR DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES.
The Issuer is offering the Notes, and the Guarantors are issuing the Guarantees, in reliance on exemptions from the registration requirements of the U.S. Securities Act. These exemptions apply to offers and sales of securities that do not involve a public offering. The Notes have not been registered with, recommended by or approved by the U.S. Securities and Exchange Commission (the “SEC”) or any other securities commission or regulatory authority, nor has the SEC or any such securities commission or authority passed upon the accuracy or adequacy of this Offering Memorandum. Any representation to the contrary is a criminal offense in the United States.
We have prepared this Offering Memorandum solely for use in connection with the offer of the Notes to qualified institutional buyers under Rule 144A under the U.S. Securities Act and outside the United States under Regulation S under the U.S. Securities Act. You agree that you will hold the information contained in this Offering Memorandum and the transactions contemplated hereby in confidence. You may not distribute this Offering Memorandum to any person, other than a person retained to advise you in connection with the purchase of the Notes.
Each prospective purchaser of the Notes must comply with all applicable laws and rules and regulations in force in any jurisdiction in which it purchases, offers or sells the Notes and must obtain any consent, approval or permission required by it for the purchase, offer or sale by it of the Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers or sales, and neither we nor the initial purchasers shall have any responsibility therefor.
You are not to construe the contents of this Offering Memorandum as investment, legal or tax advice. You should consult your own counsel, accountant and other advisers as to legal, tax, business, financial and related aspects of a purchase of the Notes. You are responsible for making your own examination of us and your own assessment of the merits and risks of investing in the Notes. We are not, and the initial purchasers are not, making any representations to you regarding the legality of an investment in the Notes by you.
The information contained in this Offering Memorandum has been furnished by us and other sources we believe to be reliable. No representation or warranty, express or implied, is made by the initial purchasers as to the accuracy or completeness of any of the information set out in this Offering Memorandum, and nothing contained in this Offering Memorandum is or shall be relied upon as a promise or representation by the initial purchasers, whether as to the past or the future. This Offering Memorandum contains summaries, believed to be accurate, of some of the terms of specified documents, but reference is made to the actual documents, copies of which will be made available by us upon request, for the complete information contained in those documents. All summaries of the documents contained herein are qualified in their entirety by this reference. You agree to the foregoing by accepting this Offering Memorandum.
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We accept responsibility for the accuracy of the information contained in this Offering Memorandum. We have made all reasonable inquiries and confirm to the best of our knowledge, information and belief that the information contained in this Offering Memorandum with regard to us, our subsidiaries and affiliates and the Notes is true and accurate in all material respects, that the opinions and intentions expressed in this Offering Memorandum are honestly held and that we are not aware of any other acts the omission of which would make this Offering Memorandum or any statement contained herein misleading in any material respect.
No person is authorized in connection with any offering made pursuant to this Offering Memorandum to give any information or to make any representation not contained in this Offering Memorandum, and, if given or made, any other information or representation must not be relied upon as having been authorized by us or the initial purchasers. The information contained in this Offering Memorandum is current at the date hereof. Neither the delivery of this Offering Memorandum at any time nor any subsequent commitment to enter into any financing shall, under any circumstances, create any implication that there has been no change in the information set out in this Offering Memorandum or in our affairs since the date of this Offering Memorandum.
We reserve the right to withdraw the offering of the Notes at any time, and we and the initial purchasers reserve the right to reject any commitment to subscribe for the Notes in whole or in part and to allot to you less than the full amount of Notes subscribed for by you.
The Notes are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the U.S. Securities Act and applicable securities laws of any other jurisdiction pursuant to registration or exemption therefrom. Prospective purchasers should be aware that they may be required to bear the financial risks of this investment for an indefinite period of time. See “Notice to Investors” and “Plan of Distribution.”
Internal Revenue Service Circular 230 Disclosure
PURSUANT TO INTERNAL REVENUE SERVICE CIRCULAR 230, WE HEREBY INFORM YOU THAT THE DESCRIPTION SET FORTH HEREIN WITH RESPECT TO U.S. FEDERAL TAX ISSUES WAS NOT INTENDED OR WRITTEN TO BE USED, AND SUCH DESCRIPTION CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER UNDER THE U.S. INTERNAL REVENUE CODE. SUCH DESCRIPTION WAS WRITTEN IN CONNECTION WITH THE MARKETING OF THE NOTES. TAXPAYERS SHOULD SEEK ADVICE BASED ON THE TAXPAYER’S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO CERTAIN EUROPEAN INVESTORS
European Economic Area. This Offering Memorandum has been prepared on the basis that all offers of the Notes will be made pursuant to an exemption under Article 3 of Directive 2003/71/EC (the “Prospectus Directive”), as implemented in Member States of the European Economic Area (the “EEA”), from the requirement to produce a prospectus for offers of the Notes. Accordingly, any person making or intending to make any offer within the EEA of the Notes should only do so in circumstances in which no obligation arises for us or any of the initial purchasers to publish a prospectus for such offer. Neither we nor the initial purchasers have authorized, nor do they authorize, the making of any offer of Notes through any financial intermediary, other than offers made by the initial purchasers, which constitute the final placement of the Notes contemplated in this Offering Memorandum.
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Austria. The Notes may be offered and sold in the Republic of Austria only in compliance with the Capital Markets Act (Kapitalmarktgesetz) as amended and applicable European Union legislation. This Offering Memorandum has not been approved under the Austrian Capital Markets Act (Kapitalmarktgesetz) or the Directive 2003/71/EC and accordingly the Notes may not be offered publicly in Austria.
France. This Offering Memorandum has not been prepared in the context of a public offering in France within the meaning of Article L. 411-1 of the Code Monétaire et Financier and has not been admitted to the clearance procedure of the Autorité des marchés financiers (the “AMF”). Consequently, the Notes may not be, directly or indirectly, offered or sold to the public in France and neither this Offering Memorandum nor any other offering material may be distributed or caused to be distributed, directly or indirectly, to the public in France. Such offers, sales and distributions will only be made in France to providers of investment services relating to portfolio management for the account of third parties (personnes fournissant le service d’investissement de gestion de portefeuille pour le compte de tiers) and/or to qualified investors (investisseurs qualifiés) and/or to a limited circle of investors (cercle restreint d’investisseurs) each acting for their own accounts, as defined in and in accordance with Articles L. 411-1, L. 411-2 and D. 411-1 to 411-4 of the Code Monétaire et Financier.
Germany. The Notes may be offered and sold in Germany only in compliance with the German Securities Prospectus Act (Wertpapierprospektgesetz) as amended, the Commission Regulation (EC) No 809/2004 of April 29, 2004 as amended, or any other laws applicable in Germany governing the issue, offering and sale of securities. This Offering Memorandum has not been approved under the German Securities Prospectus Act (Wertpapierprospektgesetz) or the Directive 2003/71/EC, as amended, inter alia, by Directive 2010/73/EU.
Italy. No action has been or will be taken which could allow an offering of the Notes to the public in the Republic of Italy. Accordingly, the Notes may not be offered or sold directly or indirectly in the Republic of Italy, and neither this Offering Memorandum nor any other offering circular, prospectus, form of application, advertisement, other offering material or other information relating to the Issuer, the Guarantors or the Notes may be issued, distributed or published in the Republic of Italy, except under circumstances that will result in compliance with all applicable laws, orders, rules and regulations. The Notes cannot be offered or sold to any natural persons nor to entities other than qualified investors (according to the definition provided for by the Prospectus Directive) either on the primary or on the secondary market.
Grand Duchy of Luxembourg. The terms and conditions relating to this Offering Memorandum have not been approved by and will not be submitted for approval to the Luxembourg Financial Services Authority (Commission de Surveillance du Secteur Financier) for purposes of public offering or sale in the Grand Duchy of Luxembourg (“Luxembourg”). Accordingly, the Notes may not be offered or sold to the public in Luxembourg, directly or indirectly, and neither this Offering Memorandum nor any other circular, prospectus, form of application, advertisement or other material may be distributed, or otherwise made available in or from, or published in, Luxembourg except for the sole purpose of the admission and listing of the Notes on the Official List of the Luxembourg Stock Exchange and trading on the Euro MTF Market of that exchange and except in circumstances which do not constitute a public offer of securities to the public, subject to prospectus requirements, in accordance with the Luxembourg Act of July 10, 2005 on prospectuses for securities.
Spain. Neither the Notes nor this Offering Memorandum have been approved or registered in the administrative registries of the Spanish Securities Markets Commission (Comisión Nacional del Mercado de Valores). Accordingly, the Notes may not be offered, sold or re-sold in Spain except in circumstances which do not constitute a public offering of securities in Spain within the meaning of Article 30-bis of the Spanish Securities Market Law of July 28, 1988 (Ley 24/1988, de 28 de julio, del Mercado de Valores) as amended and restated (the Spanish Securities Market Law) and Royal Decree 1310/2005 of 4 November (Real Decreto 1310/2005 de 4 de noviembre), and supplemental rules enacted thereunder or in substitution thereof from time to time, but the Securities may be offered or sold in Spain in compliance with the requirements of the Spanish Securities Market Law as amended and restated and any regulations developing it or in substitution thereof which may be in force from time to time.
Switzerland. This Offering Memorandum, as well as any other material relating to the Notes which are the subject of the offering contemplated by this Offering Memorandum, do not constitute an issue prospectus pursuant to article 652a and/or article 1156 of the Swiss Code of Obligations and may not comply with the Directive for Notes of Foreign Borrowers of the Swiss Bankers Association. The Notes will not be listed on the SIX Swiss Exchange Ltd., and, therefore, the documents relating to the Notes, including, but not limited to, this Offering Memorandum, do not claim to comply with the disclosure standards of the Swiss Code of Obligations and the listing rules of SIX Swiss Exchange Ltd. and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange Ltd. The Notes are being offered in Switzerland by way of a private placement (i.e., to a small number of selected investors only), without any public advertisement and only to investors who do not purchase the Notes with the intention to distribute them to the public. The investors will be individually approached directly from time to time. This Offering Memorandum, as well as any other material relating to the Notes, is personal and confidential and does not constitute an offer to any other person.
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This Offering Memorandum, as well as any other material relating to the Notes, may only be used by those investors to whom it has been handed out in connection with the offering described herein and may neither directly nor indirectly be distributed or made available to other persons without the Issuers express consent. This Offering Memorandum, as well as any other material relating to the Notes, may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in (or from) Switzerland.
United Kingdom. This Offering Memorandum is for distribution only to, and is only directed at, persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, (the “Financial Promotion Order”), (ii) are persons falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any Notes may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This Offering Memorandum is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this Offering Memorandum relates is available only to relevant persons and will be engaged in only with relevant persons.
NOTICE TO EEA INVESTORS
This Offering Memorandum has been prepared on the basis that all offers of the Notes will be made pursuant to an exemption under Article 3 of the Prospectus Directive, as implemented in member states of the European Economic Area (the “EEA”), from the requirement to produce a prospectus for offers of the Notes. Accordingly, any person making or intending to make any offer within the EEA of the Notes should only do so in circumstances in which no obligation arises for us or any of the initial purchasers to produce a prospectus for such offer. We, the Issuer and the Initial Purchasers have not authorized, nor do we authorize, the making of any offer of Notes through any financial intermediary, other than offers made by the Initial Purchasers, which constitute the final placement of the Notes contemplated in this Offering Memorandum.
In relation to each member state of the EEA that has implemented the Prospectus Directive (each, a “Relevant Member State”), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, the offer of any Notes which is the subject of the Offering contemplated by this Offering Memorandum is not being made and will not be made to the public in that Relevant Member State, other than: (a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; (b) to any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than €43,000,000 or (iii) an annual revenue of more than €50,000,000, as shown in its last annual or consolidated accounts; (c) to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) in any Relevant Member State; or (d) in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided that no such offer of the Notes shall require us or the Initial Purchasers to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of Notes to the public” in relation to the Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measures in each Relevant Member State.
Each subscriber for, or purchaser of, the Notes in the offering located within a member state of the EEA will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of Article 2(1)(e) of the Prospectus Directive. The Company, each Initial Purchaser and their affiliates, and others will rely upon the truth and accuracy of the foregoing representation, acknowledgment and agreement.
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PRESENTATION OF FINANCIAL AND OTHER INFORMATION AND CERTAIN DEFINITIONS
Presentation of Financial Information
Unless otherwise indicated, the historical consolidated financial information presented herein has been prepared in accordance with International Financial Reporting Standards (“IFRS”).
This Offering Memorandum includes the unaudited condensed consolidated interim financial statements of Swissport International Ltd., as of and for the nine months ended September 30, 2010 (including comparatives for the nine months ended September 30, 2009) and the audited consolidated financial statements of Swissport International Ltd., as of and for the years ended December 31, 2007, 2008 and 2009. The consolidated financial statements for the years ended December 31, 2007, 2008 and 2009 have been audited by PricewaterhouseCoopers AG. The condensed consolidated interim financial statements of Swissport International Ltd. as of and for the nine months ended September 30, 2010 (including comparatives for the nine months ended September 30, 2009) are unaudited, and all information contained in this Offering Memorandum as of these dates and with respect to those periods is also unaudited. Information for the twelve months ended September 30, 2010 is unaudited and calculated by taking the results of operations for the nine months ended September 30, 2010 and adding it to the difference between the results of operations for the full year ended December 31, 2009 and the nine months ended September 30, 2009. Swissport International Ltd.’s historical results do not necessarily indicate results that may be expected for any future period.
Swissport International Ltd.’s financial results are reported in Swiss franc denominations. This Offering Memorandum contains non-IFRS measures and ratios, including EBITDA, Adjusted EBITDA, Adjusted Pro Forma EBITDA, EBITDA Margin, Capital Expenditures and Profit before IFRS 3.65 adjustment to goodwill and income tax, that are not required by, or presented in accordance with, IFRS. We present non-IFRS measures because we believe that they and similar measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. We define EBITDA as net profit for the period from continuing operations plus income tax (expense)/credit, IFRS 3.65 adjustment to goodwill, gain on sale of subsidiary, net finance expense, share of profits from associates and jointly controlled companies, loss on sale of disposal group, depreciation and impairment of property, vehicles and equipment, and amortization and impairment of intangible assets. The non-IFRS measures may not be comparable to similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under IFRS. Non-IFRS measures and ratios such as EBITDA, Adjusted EBITDA, Adjusted Pro Forma EBITDA, EBITDA Margin, Capital Expenditures and Profit before IFRS 3.65 adjustment to goodwill and income tax, are not measurements of our performance or liquidity under IFRS or any other generally accepted accounting principles. In particular, you should not consider EBITDA, Adjusted EBITDA, Adjusted Pro Forma EBITDA, EBITDA Margin, Capital Expenditures and Profit before IFRS 3.65 adjustment to goodwill and income tax, as alternatives to (a) operating profit or profit for the period (as determined in accordance with IFRS) as a measure of our operating performance, (b) cash flows from operating, investing and financing activities as a measure of our ability to meet our cash needs or (c) any other measures of performance under generally accepted accounting principles. EBITDA, Adjusted EBITDA, Adjusted Pro Forma EBITDA, EBITDA Margin, Capital Expenditures and Profit before IFRS 3.65 adjustment to goodwill and income tax, have limitations as analytical tools, and you should not consider it in isolation, or as a substitute for an analysis of our results as reported under IFRS. Some of these limitations are:
• they do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
• they do not reflect changes in, or cash requirements for, our working capital needs;
• they do not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments, on our debts;
• although depreciation, amortization and impairment are non-cash charges, the assets being depreciated and amortized will generally need to be replaced in the future and EBITDA does not reflect any cash requirements that would be required for such replacements; and
• some of the exceptional items that we eliminate in calculating EBITDA, Adjusted EBITDA and Adjusted Pro Forma EBITDA reflect cash payments that were made, or will in the future be made.
The Issuer was incorporated on December 13, 2010 for the purpose of the offering of the Notes. Consequently, limited historical financial information relating to the Issuer is available, and the financial information included in this Offering Memorandum with respect to the Issuer consists only of the Issuer’s opening balance sheet as of December 13, 2010, which has been prepared in accordance with the generally accepted accounting principles of Luxembourg (“Luxembourg GAAP”). Since its incorporation, no other financial statements of the Issuer have been prepared. The Issuer intends to publish its first annual financial statements in respect of the year ended December 31, 2011.
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Other Data
Certain numerical figures set out in this Offering Memorandum, including financial data presented in millions or thousands, certain operating data, percentages describing market shares, have been subject to rounding adjustments and, as a result, the totals of the data in this Offering Memorandum may vary slightly from the actual arithmetic totals of such information. Percentages and amounts reflecting changes over time periods relating to financial and other data set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are calculated using the numerical data in the consolidated financial statements of Swissport International Ltd. or the tabular presentation of other data (subject to rounding) contained in this Offering Memorandum, as applicable, and not using the numerical data in the narrative description thereof.
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CURRENCY PRESENTATION AND DEFINITIONS
In this Offering Memorandum, all references to “CHF” are to Swiss francs, the lawful currency of Switzerland; all references to “Euro,” “euro,” “EUR” and “€” are to the single currency of the participating member states of the European Union participating in the third stage of economic and monetary union pursuant to the Treaty on the Functioning of the European Union, as amended or supplemented from time to time and all references to “U.S. Dollars,” “USD” and “$” are to the lawful currency of the United States of America.
Certain Definitions
As used in this Offering Memorandum:
• “Acquisition” refers to the proposed acquisition of Swissport International Ltd. by PAI, as described under “Summary—The Transactions.”
• “Acquisition Agreement” refers to the sale and purchase agreement dated as of November 1, 2010, and amended as of December 23, 2010, between, Ferrovial Servicios, SA (“Ferrovial”) and Global Lisimaco, S.L., an affiliate of PAI.
• “Completion Date” refers to the date on which the proceeds of the offerings of the Notes are released from the escrow account and immediately thereafter the Acquisition will be consummated.
• “Guarantees” collectively refers to guarantees to be issued by the Guarantors guaranteeing the Notes.
• “Guarantors” refers to the Initial Guarantors and the Post-Completion Guarantors.
• “Indenture” refers to the indenture to be dated on or about the Issue Date governing the Notes, by and among, inter alios, the Issuer, the Trustee, Barclays Bank PLC, as security agent and Citibank, N.A., London Branch, as principal paying agent.
• “Initial Guarantors” refers to Swissport Ltd., Aguila Bid AG, Swissport UK Holding Limited, Swissport Cargo Services UK Ltd., Swissport North America Holdings, Inc., Swissport Holdings, Inc., Swissport USA, Inc., Swissport North America, Inc., Swissport Fueling, Inc., Swissport Cargo Holdings, Inc. and Swissport Cargo Services, Inc., which will become Guarantors on the Completion Date.
• “initial purchasers” refers to the firms referred to under the “Plan of Distribution” section in this Offering Memorandum.
• “Issue Date” refers to the date on which the Notes offered hereby are issued.
• “Issuer” refers to Aguila 3 S.A., a société anonyme organized under the laws of Luxembourg, and not to any of its subsidiaries.
• “Offering” refers to the offering of the Notes contemplated by this offering memorandum.
• “Post-Completion Guarantors” refers to Swissport International Ltd., Swissport Group Services GmbH, Swissport Cargo Services Holding B.V., Swissport Cargo Services The Netherlands B.V., Cargo Service Center East Africa B.V., Swissport Nederland B.V., Swissport CFE, Inc., Swissport Canada Handling Inc., 9230-4948 Québec Inc., Swissport Brasil Ltda., Swissport Aviation Services de México S.A. de C.V., Cargo Service Center de México S.A. de C.V., Swissport México Holding, S. de R.L. de C.V., Swissport Cargo Services Deutschland GmbH, Swissport Deutschland GmbH and Swissport Germany Holding GmbH, which will become Guarantors at the time they become obligors under the Revolving Facility Agreement.
• “Revolving Facility Agreement” and “Revolving Credit Facility” refer, respectively, to the Revolving Credit Facility Agreement, dated January 17, 2011, among inter alios, the Issuer, Barclays Bank PLC, as agent and security agent, and the revolving credit facility made available thereunder, as described under “Description of Certain Financing Arrangements—Revolving Credit Facility.”
• “Security Agent” refers to Barclays Bank PLC, as security agent under the Indenture.
• “Security Documents” has the meaning ascribed to it under the “Description of Notes.”
• “Swissport” means, with or without its consolidated subsidiaries, as the context requires, Swissport International Ltd., a company limited by shares organized under the laws of Switzerland.
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• “Swiss Collateral Guarantor” has the meaning ascribed to it under the “Limitations on Validity and Enforeceability of the Guarantees, the Notes Security and Certain Insolvency Law Considerations.”
• “Transactions” has the meaning ascribed to it under “The Transactions.”
• “Trustee” refers to Citibank, N.A., London Branch, as trustee under the Indenture.
• “we,” “us” and “our” refer to the Issuer, its subsidiaries and other entities after taking into account the Transactions, unless the context otherwise requires or is clear from context. When discussing future or pro forma results of operations, such terms are generally used to refer to the business of the Issuer and its consolidated subsidiaries.
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EXCHANGE RATE INFORMATION
We present our consolidated financial statements in Swiss francs. We have set forth in the table below, for the periods and dates indicated, period average, high, low and end exchange rates as published by Bloomberg of euro expressed as CHF per €1.00. The exchange rate of the euro on January 24, 2011 was CHF 1.2960 = €1.00.
CHF per €1.00 High Low Average(1) Period End
Year 2006 ...................................................................................................................... 1.6089 1.5535 1.5755 1.60892007 ...................................................................................................................... 1.6778 1.6134 1.6456 1.65382008 ...................................................................................................................... 1.6337 1.4768 1.5786 1.49302009 ...................................................................................................................... 1.5244 1.4822 1.5068 1.48362010 ...................................................................................................................... 1.4705 1.2507 1.3699 1.2507
High Low Average(2) Period End
Month July 2010.............................................................................................................. 1.3782 1.3267 1.3482 1.3588August 2010......................................................................................................... 1.3875 1.2871 1.3406 1.2871September 2010 ................................................................................................... 1.3396 1.2825 1.3103 1.3396October 2010 ....................................................................................................... 1.3702 1.3295 1.3465 1.3702November 2010 ................................................................................................... 1.3780 1.3029 1.3434 1.3029December 2010.................................................................................................... 1.3168 1.2424 1.2791 1.2507January 2011 (through January 24)...................................................................... 1.3055 1.2471 1.2756 1.2960
(1) The average of the exchange rates on the last business day of each month during the relevant period.
(2) The average of the exchange rates for each business day during the relevant period.
We have set forth in the table below, for the periods and dates indicated, period average, high, low and end exchange rates as published by Bloomberg of dollars expressed as CHF per $1.00. The exchange rate of the dollar on January 24, 2011 was CHF 0.9487 = $1.00.
CHF per $1.00 High Low Average(1) Period End
Year 2006 ......................................................................................................... 1.3117 1.1978 1.2458 1.22012007 ......................................................................................................... 1.2441 1.1318 1.1942 1.13352008 ......................................................................................................... 1.2136 0.9931 1.0770 1.06872009 ......................................................................................................... 1.1689 1.0053 1.0828 1.03522010 ......................................................................................................... 1.1549 0.9352 1.0381 0.9352
High Low Average(2) Period End
Month July 2010............................................................................................................ 1.0646 1.0410 1.0531 1.0412August 2010....................................................................................................... 1.0602 1.0151 1.0393 1.0151September 2010 ................................................................................................. 1.0198 0.9758 1.0011 0.9825October 2010 ..................................................................................................... 0.9904 0.9530 0.9688 0.9824November 2010 ................................................................................................. 1.0036 0.9584 0.9852 1.0034December 2010.................................................................................................. 1.0023 0.9352 0.9670 0.9352January 2011 (through January 24).................................................................... 0.9758 0.9332 0.9609 0.9487
(1) The average of the exchange rates on the last business day of each month during the relevant period.
(2) The average of the exchange rates for each business day during the relevant period.
The rates in each of the foregoing tables may differ from the actual rates used in the preparation of the consolidated financial statements and other financial information appearing in this Offering Memorandum. We have provided these exchange rates solely for the convenience of potential investors. The rates should not be construed as a representation that Swiss franc amounts could have been, or could be, converted into euro or dollars at the rates set forth herein or at any other rate.
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TAX CONSIDERATIONS
Prospective purchasers of the Notes are advised to consult their own tax advisors as to the consequences of purchasing, holding and disposing of the Notes, including, without limitation, the application of U.S. federal tax laws to their particular situations, as well as any consequences to them under the laws of any other taxing jurisdiction, and the consequences of purchasing the Notes at a price other than the initial issue price in the Offering. See “Certain Tax Considerations.”
FORWARD-LOOKING STATEMENTS
This Offering Memorandum contains “forward-looking statements” as that term is defined by the U.S. federal securities laws. These forward-looking statements include, but are not limited to, statements other than statements of historical facts contained in this Offering Memorandum, including, but without limitation, those regarding our future financial condition, results of operations and business, our product, acquisition, disposition and finance strategies, our capital expenditure priorities, subscriber growth and retention rates, competitive and economic factors, the maturity of our markets, anticipated cost increases, liquidity, credit risk and target leverage levels. In some cases, you can identify these statements by terminology such as “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” and “will” and similar words used in this Offering Memorandum.
By their nature, forward-looking statements are subject to numerous assumptions, risks and uncertainties. Many of these assumptions, risks and uncertainties are beyond our control. Accordingly, actual results may differ materially from those expressed or implied by the forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding our present and future business strategies and the environment in which we operate. We caution readers not to place undue reliance on the statements, which speak only as of the date of this Offering Memorandum, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.
Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished.
Risks and uncertainties that could cause actual results to vary materially from those anticipated in the forward-looking statements included in this Offering Memorandum include those described under “Risk Factors.”
The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated results or events:
• general economic trends and trends in the aviation industries;
• the competitive environment in which we operate;
• airline consolidation and the increase of low cost carriers;
• competition from other means of transportation, including rail travel;
• deterioration of demand due to the global economic crisis;
• airport deregulation;
• terrorist attacks, epidimics and natural calamities;
• damage to aircraft;
• geopolitical and economic risks;
• payment defaults by our contractual partners;
• fluctuations in interest rates;
• workforce disruptions;
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• technological disruptions;
• exchange rate fluctuations;
• litigation; and
• environmental liabilities.
The Issuer urges you to read the sections of this Offering Memorandum entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Industry Overview” and “Business” for a more complete discussion of the factors that could affect our future performance and the markets in which we operate. In light of these risks, uncertainties and assumptions, the forward-looking events described in this Offering Memorandum may not occur. These forward-looking statements speak only as of the date on which the statements were made. The Issuer undertakes no obligation to update or revise any forward-looking statement or risk factors, whether as a result of new information, future events or developments or otherwise.
The cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We undertake no obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Offering Memorandum.
We disclose important factors that could cause our actual results to differ materially from our expectations in this Offering Memorandum. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, it means to include effects upon business, financial and other conditions, results of operations and ability to make payments on the Notes.
TRADEMARKS AND TRADE NAMES
We own or have rights to certain trademarks or trade names that we use in conjunction with the operation of our businesses. Each trademark, trade name or service mark of any other company appearing in this Offering Memorandum belongs to its holder.
HISTORICAL AND CURRENT MARKET AND INDUSTRY DATA
Historical and current market data used throughout this Offering Memorandum were obtained from internal company analyses, industry publications and an independent consultant report. In particular, certain information has been provided by the Air Transport Association (“IATA”) and other industry experts including an independent consultant. Industry surveys, publications and independent consultant reports generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of the information contained in industry publications is not guaranteed. We have not independently verified this market data. While we are not aware of any misstatements regarding any industry or similar data presented herein, such data involve risks and uncertainties and is subject to change based on various factors, including those discussed under the “Risk Factors” section in this Offering Memorandum.
Internal company analyses, while believed by us to be reliable, have not been verified by any independent sources, and neither we nor any of the initial purchasers make any representation as to the accuracy of such information. In this Offering Memorandum, we present estimates of our market share for each of our ground handling and cargo handling services. We estimate our market share within each line of service in which we operate by making adjustments to data obtained from industry publications. Such adjustments are based on assumptions that may not be accurate and, as a result, our actual market share may differ from the estimates we present in this Offering Memorandum.
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SUMMARY
This summary highlights information contained elsewhere in this Offering Memorandum. It is not complete and may not contain all the information that you should consider before investing in the Notes. You should read the entire Offering Memorandum, including the more detailed information in the financial information and the related notes thereto included elsewhere in this Offering Memorandum, before making an investment decision. See “Risk Factors” for factors that you should consider before investing in the Notes and “Forward- Looking Statements” for information relating to the statements contained in this Offering Memorandum that are not historical facts.
Overview
We are the largest independent ground handler based on revenue and number of stations and the second largest cargo handler based on tons of cargo handled. We offer our customers a full-range of value-added airport services in our ground handling and cargo handling services and our personnel can be found throughout the airports in which we operate, both in passenger-facing roles, such as at check-in counters and security screening, as well as in logistical roles, such as baggage handling and aircraft services. Our services are innovative and flexible and are designed to meet our customers’ needs on both a local and global scale throughout our network. We believe that we are at the forefront of technological advancements in our industry and were among the first independent global aviation service providers to offer web check-in, mobile check-in, advanced security procedures and various other innovative aviation services. We are also flexible to our customers’ needs and to changes in the aviation landscape. We offer a full suite of aviation services, as well as more bespoke, customized services for clients, such as low cost carriers. For the nine months ended September 30, 2010, our consolidated revenues were CHF 1,262.1 million, a 7.0% increase over the same period in 2009, our EBITDA was CHF 104.1 million, a 31.6% increase over the same period in 2009 and our EBITDA Margin (EBITDA Margin is defined as EBITDA divided by total revenue and other operating income) was 8.0%, a 23.5% increase over the same period in 2009.
We group the services that we provide into the following two categories:
• Ground Handling. Our ground handling services generated 77.9% of our total revenue and 84.0% of EBITDA for the nine months ended September 30, 2010. Our core ground handling services include ramp and passenger handling, baggage services, lounge and ticketing supervision, cabin cleaning, deicing, e-services, passengers with reduced mobility (“PRM”) handling and executive aviation. We also offer specialty services which are complementary to our ground handling services. These services include fueling, aircraft maintenance and aviation security.
• Cargo Handling. Our cargo handling services generated 22.1% of our total revenue and 16.0% of EBITDA for the nine months ended September 30, 2010. Our cargo handling services include physical import and export handling of cargo, warehousing and storage of cargo, document handling, trucking and mail handling.
We were founded in 1996 and currently have over 33,000 personnel and, as of December 31, 2009, were active at 176 airports in 38 countries throughout Europe, Africa, Asia, North America and South America. We operate at some of the busiest airports in the world, including Chicago O’Hare International Airport, Los Angeles International Airport, London Heathrow Airport, John F. Kennedy International Airport and Paris-Charles de Gaulle Airport. In 2009, we provided ground handling services for over 70 million passengers on over 2.5 million flights and handled approximately 2.7 million tons of cargo on behalf of approximately 650 airline customers. As of December 31, 2009, we operated 56 stations in Europe, 51 in North America, 43 in South America, 21 in Africa and five in Asia.
Our customers are major commercial airlines, regional air carriers, freight forwarders and air cargo carriers, and include Swiss International Air Lines, Lufthansa, United Airlines, Air France/KLM, Ryanair, easyJet, Virgin Atlantic Airways, Great Wall Airlines, British Airways and Swiss WorldCargo, among others.
Our service quality is our hallmark, and we have a strong reputation for the quality of our service offerings and our high levels of customer service, as evidenced by our numerous awards and industry recognition. We were named “Global Aviation Ground Services Company 2010” by the Institute of Transport Management, marking the tenth successive year. At the World Air Cargo Awards, Air Cargo Week named our cargo services division the “Air Cargo Handling Agent of the Year for 2010,” for the second year in a row. Quality of service is fundamental in the aviation services industry because airlines entrust their handling services to be operated by external parties. Poor handling can lead to damaged aircraft, late check-in, lost luggage and delayed schedules, all of which can be costly for airlines, both from a financial and reputational point of view, partially because many customers view handling personnel as airline employees instead of third party employees. We recognize the importance in the quality of our services and seek to ensure that our customers feel confident that their business is in good hands and that their customers will have positive experiences with our services.
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We believe our strong reputation, loyal customer base and favorable brand recognition have been achieved because of our global scale, integrated service offerings and local management expertise. Our global scale and integrated service offerings allow us to offer a comprehensive range of services in each of the regions in which we operate. Because of our global scale, we are also able to utilize best practices from each of the regions in which we operate in order to deliver superior service that consistently apply Swissport quality across all of our global stations. Our local management expertise allows us to apply our global and integrated services offerings in a manner that is specifically tailored to the needs of our customers in each of those regions. This local expertise also allows us to respond quickly to changes in local market conditions and adapt our business accordingly. We believe our global scale, integrated service offerings and local expertise aid us in attracting and maintaining a strong and loyal customer base. For example, some of our largest customers, including Swiss International Air Lines, Lufthansa, United Airlines, South African Airways, Air France, easyJet and Virgin Atlantic Airways, have been our clients in key locations since our inception in 1996. We have a long service history with each of these customers and established contractual agreements in place with each.
Our Competitive Strengths
We believe we benefit from the following key strengths:
We are a market leader in our industry
We are the largest independent ground handler based on revenue and number of stations and the second largest cargo handler based on tons of cargo handled, making us a recognized leader in ground and cargo handling. We also manage a number of airline hubs in which we handle our customers’ ground and/or cargo needs at certain of the major airports in which they operate, including for Swiss International Air Lines in Zurich, easyJet in Geneva and Madrid, South African Airways in Johannesburg, Ukraine International Airlines in Kiev, Cyprus Airways in Larnaca, Ryanair in London Stansted Airport and Madrid and Linhas Aéreas Inteligentes (“GOL”) in Sao Paolo and Rio de Janeiro, as well as United Airlines in Los Angeles, Chicago, Washington D.C. and San Francisco for cargo. Airline hub management solidifies our leading market position at each of those stations and further strengthens our global presence and leading market position.
Our leading market positions and global presence place us at an advantage to other ground and cargo handling companies because they afford us both the capability to be a “one stop shop,” enabling us to deliver a comprehensive range of our services at each station at which we operate, and the capability to deliver the full spectrum of our high quality services on a global level. These services can further be individually tailored to the needs of our specific customers in each region in which we operate, giving us the flexibility to meet each of our customer’s individual needs.
We also believe our market position is sustainable because our scale allows us to reduce certain of the cost burdens associated with entering into new markets. The cost burdens include significant start up costs at each location in which an aviation service provider operates as well as high switching costs borne by airlines when they change service providers. For example, the initial investment costs in any station are substantial, including new equipment purchasing and the hiring and training of new staff. Our global presence allows us to minimize those expenses and capture new customers at lower marginal costs because we already have an extensive equipment and personnel base from which we can draw, allowing for cross-functional staff and equipment utilization. Our global scale also affords us favorable purchasing power, which may lower the costs of new equipment purchases should our equipment needs not be met by our existing fleet. Further, the process for airlines to switch service providers can be cumbersome, costly and time consuming. Such a switch could take up to several months, because air service providers become fully integrated into the daily activities of the airline. We are better positioned than many of our competitors to accept new customers that are switching from other providers because the sophistication of our global knowledge and services allows us to quickly and easily integrate our systems into each new station and for each new customer.
We have high quality service offerings and an established, loyal and diversified customer base
We have a reputation for quality and superior service among our customers in the aviation industry. We were named “Global Aviation Ground Services Company 2010” by the Institute of Transport Management for the tenth successive year. At the World Air Cargo Awards, Air Cargo Week named our cargo services division the “Air Cargo Handling Agent of the Year 2010” for the second year in a row. Zurich Airport was awarded the Best Airport for Baggage Delivery in 2010, a service that is heavily dependant on Swissport’s operations. Additionally, third party consultants have confirmed, through interviews with industry experts and our customers, our high quality reputation and favorable perception of our services. We have achieved this reputation by consistently providing our customers with a high level of service that is strengthened by our technical know-how, the large variety of innovative products we offer, including web and mobile check-in, and our flexibility in addressing the varied and demanding needs of our customers.
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Our reputation for quality and superior service is evidenced both by our loyal and diverse customer base and our ability to re-establish business relationships with customers who have previously stopped using our services. We have a strong contract renewal rate, as evidenced by our 95% renewal of contracts by revenue in EMEAA and we serve approximately 650 customers, with no customer other than Swiss International Air Lines, which makes up approximately 15% of our consolidated annual revenue, making up more than 3% of our consolidated annual revenue. These customers range from established multi-national airlines to low cost carriers to regional carriers to airports, some of which have been our customers since our inception and others since their inception. We believe we have achieved a loyal and diverse customer base because we provide each of our customers a leading range of global services with the local expertise to custom tailor a service package for each of their individual needs.
Our global footprint complemented by local expertise places us at a strategic advantage to our competitors
We currently have over 33,000 employees and, as of December 31, 2009, provided ground handling and cargo handling services at 176 airports in 38 countries worldwide, which is more than any other independent ground handling or cargo handling services provider. In 2009, we handled approximately 650 customer airlines, which operated approximately 2.5 million flights with more than 70 million passengers, and 2.7 million tons of cargo. Our global network enables us to share and deploy our best practices and global knowledge across our vast network, which has led to consistency in the services provided to our customers and a leaner cost structure. The operational effectiveness of our services is actively monitored at all levels by the use of standard key performance indicators, which we believe improve our financial and operational performance. We strengthen our global network by having a key account management team that provides product consistency to our customers across stations and local expert management teams that have the ability to respond quickly to changes in local market conditions. The combination of our global network and regional expertise give us a strategic advantage over our competitors by allowing us both to guide our existing customers as they expand into new locations and to better capture new customers at a local level because of our ability to draw upon our best practices worldwide, which allows us to offer our full range of services to those potential customers. Smaller, less diverse aviation service providers are often not able to offer a full range of products across multiple stations, which we believe decreases their competitiveness.
Our diverse business model helps to mitigate cyclical trends in the aviation industry
We have a diverse business model evidenced by both our global presence within various economic markets and the variety of our service offerings. This business model allows us to diversify market risks and mitigate the cyclical nature of the aviation industry. We operate in various markets, which allows us to diversify economic and market risks that are specific to certain regions. For example, throughout the global economic crisis, the emerging markets have fared better on a whole and are also recovering more quickly than more seasoned markets. Because we have operations in a variety of emerging markets, including South America, Africa, Asia and the Middle East, we believe we have been able, and will continue to be able, to reduce the negative impacts of certain cyclical trends in the aviation industry.
We also provide a variety of services within the aviation industry. This diversity of service offerings allows us to mitigate the negative impact suffered by any specific line of service within the aviation and aviation services industry. Our ground handling revenues and earnings have proven more stable than revenues in other aviation-related sectors that suffer as result of the cyclical nature of the aviation industry. For example, revenue for passenger airlines is primarily correlated to passenger volume and the use of premium class travel, both of which declined during the global economic crisis. However, our ground handling revenue stream is not directly correlated to either passenger volume or the use of premium class travel. Rather, based on our customer contracts, it is primarily correlated to the number of flights. While a reduction in passenger volume may cause airlines to close routes, thereby reducing flights, we can often foresee this risk because there will generally be a delay between the reduction of passengers and the closing of routes. Once such a risk is evident, we can seek to mitigate the risk by downsizing appropriately and implementing other such measures. Also, the air cargo industry as a whole suffered more than the passenger airline industry through the financial crisis, which has caused a decline in our cargo handling revenues. We have been able to mitigate the severity of this decline because our revenue is comprised of not only cargo services, but also ground handling and specialty services, which have fared better as a whole than cargo services. Further, certain events that may cause a decline in the number of airline flights, such as terrorist attacks or epidemics, thereby affecting our ground handling revenue stream, will not necessarily affect cargo volume as adversely.
Further, our diverse customer base, which includes both traditional multinational carriers as well as low cost carriers, allows us to benefit from occurrences that affect one type of carrier. For instance, while flight volume decreased for the airline industry as a whole during the economic crisis, low cost carriers have managed to increase their market share against the more established multinational carriers. We have been able to benefit from their increase in market share because some of our largest clients, including easyJet and Ryanair, are low cost carriers.
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We are well positioned to take advantage of current trends in the global aviation industry
We believe we are well positioned to take advantage of current trends in the aviation industry, which include outsourcing of airport services by airlines and airports, local deregulation of aviation services, an increased presence of low cost carriers and the increasing use of technology, including the automation of passenger, ground handling and cargo services. We consider these trends as opportunities and we believe that we are well positioned to take advantage of them because of our large size, global presence and wide variety of service offerings.
• Deregulation of aviation services. The deregulation of local airport services in many countries and regions has opened new markets to independent handlers and afforded us the opportunity to expand our network and utilize our global knowledge to improve aviation service processes at selected airports. For example, any EU airport where traffic exceeds 2 million passengers or 50,000 tons of freight per year is now required to have at least two handling operators, at least one of which must be independent from the airport or any dominant carrier at the airport. As a global independent operator, we benefit from such deregulation because as the emerging EU countries, such as Bulgaria and Poland, begin to handle more traffic, more markets are open to us.
• Outsourcing of airport services. Many airlines and airports that previously handled their own ground and cargo operations are in the process of outsourcing those services, including, by way of example, Larnaca and Paphos airports in Cyprus, which have already outsourced these services. Many airlines have sought to reduce their cost centers and focus on their core business of passenger transportation. These airlines have therefore outsourced their handling needs to third party handlers, which have provided a less expensive alternative. They are able to produce a less expensive alternative because ground and cargo handling are their core business, which allows them to operate more efficiently and at a lower cost, which we believe has resulted in material productivity gains for airlines. We believe we are well positioned to capitalize on the recent trend of outsourcing because we are able to provide our current and potential customers with a global array of services as well as the ability to provide them with local expertise and knowledge in many of the regions in which they operate.
• Increased presence of low cost carriers. Low cost carriers, such as Ryanair, easyJet and GOL, are gaining market share worldwide and have achieved significant growth in recent years. In Europe, as of December 31, 2009, one passenger seat in three is being sold by a low cost carrier. We believe we have the necessary infrastructure, resources and operational excellence to serve the growing number of low cost carriers, as is already evidenced by the fact that Ryanair, GOL and easyJet are three of our largest customers.
• Increasing use of technology. The aviation industry has become more dependent on technology, including the automation of passenger, ground and cargo handling services. Technology use and development have been a core priority of our business and we have generally been industry leaders in the development and implementation of technological advancements within our business. Such technology includes self-service applications, such as kiosks, web, mobile and off-airport check-in and common and self bag drops. We also have self-service process consulting services to advise customers and passengers about self-service products. We also seek to utilize state of the art technology in our cargo handling service, including FreightScan and hand held terminals (HHTs). We believe that such technology creates value by decreasing the time needed to measure cargo, thereby streamlining the cargo handling process and allowing us to handle a larger volume of cargo in a shorter period.
We have strong cash generation, a successful financial track record and strong financial backing
We have a long record of increasing the cash flow of our business, which we have continued to generate even during the recent economic downturn. We generated EBITDA of CHF 95.5 million, CHF 114.8 million and CHF 117.6 million for the three years ended December 31, 2007, 2008 and 2009, respectively. For the nine-month periods ending September 30, 2009 and 2010, we generated EBITDA of CHF 79.1 million and CHF 104.1 million, respectively. The profitability of the business and the increased focus on working capital management has led to improved cash flow generation. We also managed to reduce our days sales outstanding, or DSO, from 64 days in February 2008 to 41 days in September 2010 and we continue to manage our working capital closely to maximize our cash flow generation. We generated cash flow from operating activities of CHF 32.1 million, CHF 101.7 million and CHF 106.2 million for the years ended December 31, 2007, 2008 and 2009. For the nine-month periods ended September 30, 2009 and 2010, we generated cash flows from operating activities of CHF 81.7 million and CHF 93.2 million, respectively.
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We have an experienced, stable and strong management team with a successful track record at Swissport
We have an internationally diverse senior management team with over 100 years of combined industry experience and a proven track record in the air services and logistics operation industries. The international diversity of our management team, which is represented by seven nationalities, reflects the global approach of our company, which we believe has aided us in growing our total revenues, managing costs, introducing new products and acquiring and successfully integrating new businesses. We believe that the collective industry knowledge and leadership of our senior management team and their record of accomplishment in responding to challenging economic conditions and achieving profitable revenue growth will enable them to continue to execute our strategy profitably. Following the Acquisition, we will also benefit from the support of PAI, one of the oldest and most experienced private equity firms in Europe, renowned for its wealth of industry-specific expertise and its deep knowledge of the economic drivers of selected industries.
Our Strategy
The key components of our strategy are to:
Maintain and further strengthen our leading market positions by developing new products and service offerings in new locations
We continue to maintain and further strengthen our leading positions within our existing network by continuing to leverage our strong brand and focus on our core strengths. We opened our doors with three locations in Switzerland in 1996 and, as of December 31, 2009, had 176 locations globally. We believe we have achieved such growth as a result of the quality of our services and strong brand name and because we have constantly sought to adapt to market changes by offering state of the art products and services and moving into new markets and regions, a tradition that we will continue to pursue. For example, we were one of the first aviation services providers to provide technological innovations such as web and mobile check-in, and we have also been quick to adapt to changes in the aviation industry, including the increased presence of low cost carriers, a trend on which we have capitalized. In furtherance of our strategy of strengthening our leading market position, we currently have a number of projects in our pipeline, which we believe will yield a positive revenue impact in the next few years. We continue to focus on developing certain of these projects in 2011, including market entries in selected locations in Latin America, the Middle East and Eastern Europe. Throughout our advancements and expansions, we aim to meet and exceed the expectations of our customers with a continuous focus on quality.
Focus on profitable growth and maintenance of strong cash flow
We continue to grow profitably and expand our operations in certain of our key markets and to expand our relationships with other key customers at all of our stations. In particular, we are aiming to expand into high margin sectors and areas such as Eastern Europe and Latin America and other emerging markets. We also recently strengthened our presence in Germany, primarily through our new ground handling hub framework agreement for the regional fleet of Lufthansa in Munich starting in January 2011. In addition, we continue to selectively close the gaps in our existing network in an effort to offer more complete coverage to our customers and to sell all available services at each station at which we operate.
We also continue to focus on maintaining strong cash flow generation by maximizing the utilization of our assets, leveraging existing resources and maintaining a disciplined approach in growth-oriented capital expenditure. This will be undertaken by further optimization and management of working capital and tax outflows as well as the implementation of cash pooling structures. We continue to improve our DSO, which we have already reduced from 64 days in February 2008 to 41 days in September 2010.
Continue to implement the Swissport Formula throughout our businesses
The Swissport Formula is a ten-point initiative that we began implementing in 2008. This initiative yielded tangible results already in 2009 and we are confident it will help us maintain a competitive edge in our industry. The Swissport Formula is based on lean management principles, pursuant to which we introduce standard management practices throughout our businesses in order to achieve operational excellence as well as a leaner cost structure. This initiative is a cultural change built on the principles of centralized planning, daily operational key performance indicator monitoring and steering, establishment of common best-practice standards across our businesses, active management and monitoring of customer and network relationships, and lean organizational structures optimized to each station’s size and operational complexity. We believe these measures provide improved choice and access to innovative services for our clients worldwide. The Swissport Formula provides for optimized solutions for both the global and local requirements of our customers and for interoperability and compatibility of services between multiple stations. These standard practices enable us to provide our customers with consistent quality, reliability and well-trained management and staff. It also allows us to streamline our workforce best practices to create a leaner cost structure, which further drives our financial and operational performance, by, among other things, allowing us to provide superior service to our customers.
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The Swissport Formula, according to our internal analysis, has been implemented in more than 70% of our largest ground handling stations. We began implementing the Swissport Formula within our cargo handling operations in 2010 and we intend to complete the implementation of the Swissport Formula within Europe, the Middle East, Africa and Asia (“EMEAA”) and Brazil in 2011. The Swissport Formula is a continuous improvement initiative and will lead to implementation of a Swissport Improved Formula, to ensure further savings and ongoing improvement.
Focus on human resources management
Ground handling and cargo handling are relatively labor intensive businesses. We currently have over 33,000 employees globally and believe that our workforce management is a key differentiating factor among air services operators. We believe our efforts have resulted in such tangible results as constructive labor relationships globally and strong local human resources relationships with a proven track record, evidenced by very few union and labor related issues. We intend to continue to focus on our human resources management to further differentiate our service offerings from those of our competitors. We are implementing a consistent performance development review system to be used across the Swissport business and, in addition, are in the process of implementing a leadership development program that includes assessment, training and succession planning for our mid-level and senior management. Furthermore, we are in the process of designing and implementing a global corporate compensation and benefits policy that we expect to roll out by the end of 2011, which will closely align compensation and benefits to standardized performance matrices.
We have also sought to maintain a flexible workforce by outsourcing certain of our ground and cargo handling needs to third parties, a move which we believe allows us to remain flexible throughout cyclical trends in the aviation industry, thereby allowing us to maximize productivity and workforce utilization.
Our Shareholders
Following the Transactions, Swissport will be wholly owned by direct or indirect subsidiaries of the Issuer, which will be owned by Aguila 2 S.A., which, in turn, is owned by Aguila 1 S.à r.l., which will be owned indirectly by PAI and certain co-investors (through Aguila PAI S.à r.l.). Following the Transactions, PAI will have the ability to nominate the directors of the Issuer and nominate a majority of the directors of Swissport’s board of directors. Following the consummation of the Transactions, certain members of senior management of Swissport are expected to invest indirectly in the shares of the Issuer.
The Transactions
The Acquisition
On November 1, 2010, Global Lisimaco, S.L., an entity beneficially owned by PAI, entered into a share purchase agreement with Ferrovial to acquire all of the issued and outstanding capital stock of Swissport (the “Acquisition”). On December 23, 2010, the share purchase agreement was amended such that all of Global Lisimaco, S.L.’s rights were assigned to the Issuer. The consummation of the Acquisition pursuant to the Acquisition Agreement is subject to certain conditions.
The Issuer, a société anonyme incorporated and existing under the laws of Luxembourg, is a wholly owned subsidiary of Aguila 2 S.A., a société anonyme incorporated and existing under the laws of Luxembourg. Each of the Issuer and Aguila 2 S.A. were formed to facilitate the Transactions.
The Financing
The Purchase Price in the Acquisition is expected to be approximately CHF 894 million, excluding transaction fees and expenses. The Acquisition will be financed as follows:
• PAI and certain co-investors will contribute indirectly CHF 450 million to the Issuer through a combination of equity and perpetual preferred equity certificates (the “PPECs”) (together, the “Equity Contribution”);
• the Issuer will issue the Notes in the amount of CHF 753.2 million (equivalent); and
• cash on hand at Swissport.
The proceeds from the Equity Contribution, the Notes and such cash will be used to:
• purchase from Ferrovial the outstanding share capital of Swissport as well as certain receivables held by Ferrovial, the counterparties of which are subsidiaries of Swissport;
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• repay certain outstanding indebtedness of Swissport and its subsidiaries; and
• pay the fees and expenses in connection with the Acquisition, the Offering and the entry into our new Revolving Credit Facility.
For a description of the PPECs, see “Description of Certain Financing Arrangements—Perpetual Preferred Equity Certificates.”
Pending the consummation of the Acquisition, the initial purchasers will deposit the gross proceeds from the Offering of the Notes into an escrow account and PAI will contribute into the same escrow account an amount in cash equal to the interest that would accrue on the Notes from the Issue Date to the special mandatory redemption date, for the benefit of the holders of the Notes. The holders of the Notes will also benefit from a security interest over the rights of the Issuer, under the escrow agreement and escrow account. The release of escrow proceeds is subject to the satisfaction of certain conditions, including the substantially concurrent closing of the Acquisition and the granting of certain guarantees and security for the Notes. If the Acquisition is not consummated prior to March 2, 2011, the Notes will be subject to a special mandatory redemption. The special mandatory redemption price will be a price equal to 100% of the aggregate issue price of the Notes plus accrued and unpaid interest and additional amounts, if any, from the Issue Date. See “Description of Notes—Escrow of Proceeds; Special Mandatory Redemption.”
We refer to the Acquisition and the Financing collectively as the “Transactions.” See “Use of Proceeds,” “Capitalization,” “Description of Certain Financing Arrangements,” and “Description of Notes.”
Recent Developments
We generated revenue for the month of October and November of CHF 141.8 million and CHF 132.3 million, respectively. The consolidated EBITDA for that two-month period was CHF 25.0 million which represents an increase of 2.8% in comparison to the previous year. The October and November 2009 results already benefited from the recovery of cargo volumes. The operating cash flow for the months of October and November 2010 was CHF 32.2 million in comparison to CHF 21.2 million for 2009.
The preliminary financial results presented above are derived from internal management accounts and are subject to the completion of our financial closing procedures. These procedures have not been completed. Accordingly, these results may change and those changes may be material.
The preliminary financial data included in this Offering Memorandum has been prepared by and is the responsibility of Swissport’s management. The information has not been audited, reviewed or compiled, nor have any procedures been performed by Swissport’s independent auditors with respect to the accompanying preliminary financial data. Accordingly, no opinion or any other form of assurance is provided with respect thereto.
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Summary Corporate and Financing Structure
The following diagram summarizes our corporate structure and principal outstanding financing arrangements after giving effect to the Transactions, as described in “Transactions” and “Use of Proceeds.” For a summary of the debt obligations referenced in this diagram, see “Description of Notes” and “Description of Certain Financing Arrangements.”
(1) Aguila PAI S.à. r.l. is controlled by PAI. Certain co-investors will invest alongside PAI.
(2) After the consummation of the Acquisition, members of Swissport’s senior management team will invest, through intermediate holding companies, in the Issuer.
(3) The Notes will be senior obligations of the Issuer and will be guaranteed on a senior basis by the Guarantors. On the Completion Date, the Initial Guarantors, which includes our subsidiaries in the United States (other than Swissport CFE, Inc.) and the United Kingdom as well as Aguila Bid AG will guarantee the Notes and pledge substantially all of their respective assets on a first-ranking basis to secure the Notes. The Notes will also be secured by a first-ranking share pledge over the shares of the Issuer. After the Completion Date, the Post-Completion Guarantors will guarantee the Notes at the time they become obligors under the Revolving Credit Facility. At such time, the Post-Completion Guarantors will pledge their respective assets on a first-ranking basis (i) the shares of each Guarantor that have not already been pledged to secure the Notes and (ii) certain other property and assets that will also be pledged to secure the Revolving Credit Facility, which assets are expected to include, taking into account the jurisdiction of incorporation and assets of the relevant Guarantor as well as the cost of granting security interest over certain assets, (i), certain receivables of the Issuer
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and the Guarantors, (ii) certain rights under insurance policies, (iii) certain intellectual property rights and (iv) certain stock, inventory and machinery. See “Description of Notes—The Guarantees” and “—Security” for further information on the guarantees and the collateral securing the Notes.
(4) The Guarantees of the Notes will be subject to certain limitations under applicable law, as described under “Limitations on Validity and Enforceability of the Guarantees, the Notes Security and Certain Insolvency Law Considerations.”
(5) In connection with the Transactions, the Issuer has also entered into a Revolving Credit Facility in the amount of CHF 200 million. Following the Completion Date, Aguila Bid AG will become a borrower and Swissport and certain of its subsidiaries will become borrowers and guarantors under the Revolving Credit Facility on or after the Completion Date. The Issuer and the Guarantors will be borrowers and/or guarantors under the Revolving Credit Facility. On the Completion Date, we currently expect that the Revolving Credit Facility will remain undrawn. See “Description of Certain Financing Arrangements—Revolving Credit Facility” for further information.
(6) The same assets that will secure Notes will also secure our Revolving Credit Facility as well as certain hedging obligations on an equal and ratable basis. Pursuant to the terms of the Intercreditor Agreement, any liabilities in respect of obligations under the Revolving Credit Facility and certain priority hedging obligations will receive priority with respect to any proceeds received upon any enforcement action over any collateral. Any proceeds received upon any enforcement action over any collateral, after all obligations under the Revolving Credit Facility have been repaid and such hedging obligations have been discharged from such recoveries, will be applied pro rata in repayment of all obligations under the Indenture and any other Indebtedness of the Issuer and the Guarantors permitted to be incurred and secured by the collateral securing the Notes. See “Description of Certain Financing Arrangements—Intercreditor Agreement.”
(7) The Notes will be guaranteed on a senior basis by the Guarantors. For the twelve months ended September 30, 2010, on a pro forma basis after giving effect to the Transactions, the Issuer and the Initial Guarantors represented approximately 30.1% of our consolidated revenues and 20.6% of our consolidated EBITDA, and, as at September 30, 2010, the Issuer and the Initial Guarantors represented approximately 18.8% of our consolidated total assets, in each case excluding the revenues, EBITDA and assets of Unrestricted Subsidiaries. For the twelve months ended September 30, 2010, on a pro forma basis after giving effect to the Transactions, the Issuer, the Initial Guarantors and the Post-Completion Guarantors represented approximately 72.6% of the our consolidated revenues and 67.1% of our consolidated EBITDA, and, as at September 30, 2010, the Issuer, the Initial Guarantors and the Post-Completion Guarantors represented approximately 80.8% of our consolidated total assets, in each case excluding the revenues, EBITDA and assets of Unrestricted Subsidiaries.
(8) Swissport, through wholly owned subsidiaries, owns 51% of Swissport Israel Cargo Services Ltd., (“Swissport Israel”) an organization existing under the laws of Israel. Swissport Israel will not be a Guarantor of the Notes and will be considered an “Unrestricted Subsidiary” of the Issuer under the Indenture. For the nine months ended September 30, 2010, Swissport Israel represented 0.4% of revenue and did not contribute to the EBITDA of the Swissport Group. As of September 30, 2010, Swissport Israel represented 3.1% of the assets of the Swissport group. As of September 30, 2010, Swissport Israel had CHF 34.0 million of indebtedness outstanding under a bi-lateral credit facility. The credit facility is secured only on the assets and shares of Swissport Israel. For further information on Swissport Israel and its indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Unrestricted Subsidiary.”
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THE OFFERING
The following summary of the Offering contains basic information about the Notes. It is not intended to be complete and it is subject to important limitations and exceptions. For a more complete description of the terms of the Notes, including certain definitions of terms used in this summary, see “Description of Notes.”
Issuer............................................... Aguila 3 S.A. (the “Issuer”). Notes Offered Hereby:
CHF Notes .................................... CHF 350,000,000 aggregate principal amount of 77/8% Senior Secured Notes due 2018 (the “CHF Notes”).
Dollar Notes .................................. $425,000,000 aggregate principal amount of 77/8% Senior Secured Notes due 2018 (the “Dollar Notes”).
Issue Date.......................................... On or about January 28, 2011 (the “Issue Date”). Issue Price:
CHF Notes .................................... 100.000%. Dollar Notes .................................. 100.000%.
Maturity Date................................... January 31, 2018. Interest Payment Dates ................... Semi-annually in arrears on each January 31 and July 31, commencing July 31,
2011. Interest will accrue from the Issue Date. Form of Denomination .................... Each CHF Note will have a minimum denomination of CHF 150,000 and integral
multiples of CHF 1,000 in excess thereof. Each Dollar Note will have a minimum denomination of $150,000 and integral multiples of $1,000 in excess thereof.
Ranking of the Notes ....................... The Notes will be: • general obligations of the Issuer; • guaranteed by the Initial Guarantors as of the Completion Date and by the
Post-Completion Guarantors following the Completion Date on the date such Post-Completion Guarantors become obligors under the Revolving Credit Facility;
• secured as under “—Security”; • effectively subordinated to any existing and future indebtedness of the Issuer
that is secured by property or assets that do not secure the Notes, to the extent of the value of the property and assets securing such indebtedness;
• pari passu in right of payment to any future indebtedness of the Issuer that is not subordinated in right of payment to the Notes;
• senior to any future indebtedness of the Issuer that is subordinated in right of payment to the Notes; and
• effectively subordinated to any existing and future indebtedness of subsidiaries of the Issuer that do not guarantee the Notes.
Guarantees ....................................... The Issuer’s obligations under the Notes will be guaranteed (the “Guarantees”) on a senior basis by the Initial Guarantors as of the Completion Date and by the Post-Completion Guarantors at the time they become obligors under the Revolving Credit Facility. The Notes will be fully and unconditionally guaranteed, however the Guarantees of certain Guarantors will be limited as described under “Risk Factors—The Guarantees of the Notes, along with any future guarantees of the Notes, will be subject to certain limitations on enforcement and may be limited by applicable law or subject to certain defenses that may limit their validity and enforceability” and “Limitations on Validity and Enforceability of the Guarantees, the Notes Security and Certain Insolvency Law Considerations.”
Ranking of the Guarantees ............. The Guarantees of the relevant Guarantor will be: • a general obligation of that Guarantor; • secured as described below under “—Security”; • effectively subordinated to any existing and future indebtedness of the relevant
Guarantor that is secured by property or assets that do not secure such Guarantee, to the extent of the value of the property and assets securing such indebtedness;
• pari passu in right of payment with all existing and future indebtedness of such Guarantor that is not subordinated in right of payment to such Note Guarantee; and
• senior in right of payment to all existing and future indebtedness of such Guarantor that is subordinated in right of payment to such Guarantee.
The Guarantees will be subject to the terms of the Intercreditor Agreement. See “Description of Certain Financing Arrangements—Intercreditor Agreement.”
The Guarantees will be subject to release under certain circumstances. See
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“Description of Notes—The Guarantees—Release of the Notes Guarantees.” Security ........................................... Prior to the Completion Date, the Notes will be secured on a first-ranking basis by
the escrowed property held in the escrow account described below under “—Escrow of Proceeds; Special Mandatory Redemption.”
As of the Completion Date, the Notes and Guarantees will be secured on a first-ranking basis by:
• all of the share capital of the Issuer; and • all of the share capital of the Initial Guarantors (other than the share capital of
the Target, which will be pledged promptly after the Completion Date); and • substantially all the other assets of the Issuer and the Initial Guarantors. In addition, the Post-Completion Guarantors will pledge certain assets when they
become Guarantors, which assets will consist of: • all of the share capital of the Post-Completion Guarantors; and • certain other property and assets that will also be pledged to secure the
Revolving Credit Facility, which assets are expected to include, taking into account the jurisdiction of incorporation and assets of the relevant Guarantor as well as the cost of granting security interest over certain assets, (i), certain receivables of the Issuer and the Post-Completion Guarantors, (ii) certain rights under insurance policies, (iii) certain intellectual property rights and (iv) certain stock, inventory and machinery.
Any security granted by the Issuer and certain Guarantors will be limited as described under “Risk Factors—The Guarantees of the Notes, along with any future guarantees of the Notes, will be subject to certain limitations on enforcement and may be limited by applicable law or subject to certain defenses that may limit their validity and enforceability” and “Limitations on Validity and Enforceability of the Guarantees, the Notes Security and Certain Insolvency Law Considerations.”
The assets securing the Notes will also secure the Revolving Credit Facility on an equal and ratable basis and may be released under certain circumstances. See “Risk Factors—There are circumstances other than repayment or discharge of the Notes under which the collateral securing the Notes and the Guarantees will be released automatically and under which the Guarantees will be released automatically, without your consent or the consent of the Trustee,” “Description of Certain Financing Arrangements—Intercreditor Agreement” and “Description of Notes—Security.” Pursuant to the terms of the Intercreditor Agreement, the obligations of the Issuer and the Guarantors under the Revolving Credit Facility and certain hedging obligations will be entitled to receive payment from the proceeds of enforcement of the Security Documents prior to the Trustee for the benefit of the holders of the Notes.
Escrow of Proceeds; Special Mandatory Redemption ..............
Pending the consummation of the Acquisition, the initial purchasers will deposit the gross proceeds from the offering of the Notes into an escrow account and PAI will contribute into the same escrow account an amount in cash equal to the interest that would accrue on the Notes from the Issue Date to the special mandatory redemption date, for the benefit of the holders of the Notes. Upon delivery to the escrow agent of an officer’s certificate stating that the conditions to the release of the proceeds from escrow are satisfied, the escrowed funds will be released to us and utilized as described in “The Transactions,” “Use of Proceeds,” “Description of Notes—Escrow of Proceeds; Special Mandatory Redemption.” The release of escrow proceeds will be subject to the satisfaction of certain conditions, including at the Completion Date. The consummation of the Acquisition pursuant to the share purchase agreement is subject to certain conditions. For so long as the net proceeds from the offering of the Notes are held in the escrow account described above, the holders of the Notes will also benefit from a security interest over the rights of the Issuer under the escrow account.
If the Acquisition is not consummated prior to March 2, 2011 the Notes will be subject to a special mandatory redemption. The special mandatory redemption price will be a price equal to 100% of the aggregate issue price of the Notes plus accrued and unpaid interest and additional amounts, if any, from the Issue Date. The escrow funds would be applied to pay for any such special mandatory redemption. See “Description of Notes—Escrow of Proceeds; Special Mandatory Redemption.”
Optional Redemption ...................... Prior to January 31, 2014, the Issuer will be entitled at its option to redeem all or a portion of the Notes at a redemption price equal to 100% of the principal amount
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of the Notes plus the applicable “make-whole” premium described in this Offering Memorandum and accrued and unpaid interest to the redemption date.
On or after January 31, 2014, the Issuer will be entitled at its option to redeem all or a portion of the Notes at the redemption prices set forth under the caption “Description of Notes—Optional Redemption” plus accrued and unpaid interest to the redemption date.
Prior to January 31, 2014, the Issuer will be entitled at its option on one or more occasions to redeem the Notes in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the CHF Notes and/or the Dollar Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 107.875% of the principal amount outstanding in respect of the CHF Notes or 107.875% of principal amount of Dollar Notes plus accrued and unpaid interest to the redemption date.
Prior to January 31, 2014, the Issuer may also redeem up to 10% of the principal amount of the CHF Notes and/or the Dollar Notes in each 12-month period commencing on the Issue Date at a redemption price equal to 103% of the principal amount thereof plus accrued and unpaid interest, if any.
Change of Control.......................... If the Issuer experiences a change of control, it will be required to offer to repurchase the Notes at 101% of their aggregate principal amount plus accrued interest to the date of such repurchase. See “Description of Notes—Repurchase at the Option of the Holders—Change of Control.”
Redemption for Taxation Reasons . If certain changes in the law of any relevant taxing jurisdiction become effective after the issuance of the Notes that would impose withholding taxes or other deductions on the payments on the Notes, we may redeem the Notes in whole, but not in part, at any time, at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, and additional amounts, if any, to the date of redemption. See “Description of Notes—Redemption for Changes in Taxes.”
Additional Amounts......................... Any payments made with respect to the Notes will be made without withholding or deduction for taxes in any relevant taxing jurisdiction unless required by law. If withholding or deduction for such taxes is required to be made with respect to a payment under the Notes, subject to certain exceptions, we will pay the additional amounts necessary so that the net amount received by the holders of Notes after the withholding is not less than the amount that they would have received in the absence of the withholding. See “Description of Notes—Additional Amounts.”
Certain Covenants ........................... The Indenture will limit, among other things, the ability of the Issuer and its restricted subsidiaries to:
• incur or guarantee additional indebtedness and issue certain preferred stock; • create or incur certain liens; • make certain payments, including dividends or other distributions, with
respect to the shares of the Issuer or its restricted subsidiaries; • prepay or redeem subordinated debt or equity; • make certain investments; • create encumbrances or restrictions on the payment of dividends or other
distributions, loans or advances to and on the transfer of assets to the Issuer or any of its restricted subsidiaries;
• sell, lease or transfer certain assets including stock of restricted subsidiaries; • engage in certain transactions with affiliates; • consolidate or merge with other entities; and • impair the security interests for the benefit of the holders of the Notes. Each of these covenants is subject to significant exceptions and qualifications. See
“Description of Notes—Certain Covenants.” Transfer Restrictions....................... The Notes and the Guarantees have not been, and will not be, registered under the
U.S. Securities Act or the securities laws of any other jurisdiction. The Notes are subject to restrictions on transfer and may only be offered or sold in transactions that are exempt from or not subject to the registration requirements of the U.S. Securities Act. See “Notice to Investors” and “Plan of Distribution.”
Use of Proceeds ................................ We intend to use substantially all of the net proceeds of the Offering as described under “Use of Proceeds.”
No Established Market for the Notes..............................................
The Notes will be new securities for which there is currently no market. Although the initial purchasers have informed us that they intend to make a market in the Notes, they are not obligated to do so and they may discontinue market-making at any time without notice. Accordingly, we cannot assure you that a liquid market for the Notes will develop or be maintained.
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Listing and Trading ....................... Application has been made to list the Notes on the Official List of the Luxembourg Stock Exchange and to admit the Notes for trading on the Luxembourg Stock Exchange’s Euro MTF Market.
Trustee .............................................. Citibank, N.A., London Branch. Principal Paying Agent and
Transfer Agent ............................. Citibank, N.A., London Branch. Registrar ........................................... Citigroup Global Markets Deutschland AG. Listing Agent .................................... Dexia Banque Internationale à Luxembourg. Security Agent .................................. Barclays Bank PLC. Escrow Agent ................................... Citibank, N.A., London Branch. Governing Law for the Notes,
Guarantees and the Indenture .... New York law. Governing Law for the
Intercreditor Agreement ............. English law. Governing Law for the Security
Documents ....................................Luxembourg, Switzerland, United States of America, Germany, United Kingdom, the Netherlands, Brazil, Canada and Mexico.
Risk Factors...................................... Investing in the Notes involves substantial risks. You should consider carefully all the information in this Offering Memorandum, and, in particular, you should evaluate the specific risk factors set forth in the “Risk Factors” section in this Offering Memorandum before making a decision whether to invest in the Notes.
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Summary Historical Consolidated Financial and Other Data
The tables below set forth the following summary consolidated financial information:
• summary consolidated income statement, balance sheet and cash flow information of Swissport as of and for the years ended December 31, 2007, 2008 and 2009; and
• summary unaudited condensed consolidated income statement, balance sheet and cash flow information of Swissport as of and for the nine-month period ended September 30, 2010, comparative summary unaudited condensed consolidated income statement and cash flow information for the nine-month period ended September 30, 2009 and summary unaudited condensed consolidated income statement information for the twelve months ended September 30, 2010.
The summary consolidated income statement, balance sheet and cash flow information for Swissport set forth below as of and for the years ended December 31, 2007, 2008 and 2009 was extracted without material adjustment from the audited consolidated financial statements of Swissport prepared in accordance with IFRS and included elsewhere in this Offering Memorandum. The summary unaudited condensed consolidated income statement, balance sheet and cash flow information set forth below for Swissport as of and for the nine months ended September 30, 2010 and comparative summary unaudited condensed consolidated income statement and cash flow information for the nine-month period ended September 30, 2009 was extracted without material adjustment from the unaudited condensed consolidated interim financial statements of Swissport as of September 30, 2010, prepared in accordance with IAS 34 and included elsewhere in this Offering Memorandum. Information for the twelve months ended September 30, 2010 is unaudited and calculated by taking the results of operations for the nine months ended September 30, 2010 and adding to it the difference between the results of operations for the full year ended December 31, 2009 and the nine months ended September 30, 2009.
The financial information for the nine months and twelve months ended September 30, 2010 is not necessarily indicative of the results that may be expected for the year ended December 31, 2010, and should not be used as the basis for or prediction of an annualized calculation.
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Summary Consolidated Income Statement Information:
Year ended December 31, Nine months ended
September 30, Twelve months ended
September 30, 2007(1) 2008(1) 2009 2009 2010 2010 (CHF in thousands) Unaudited Unaudited
(CHF in thousands)
(CHF in
thousands)* (€ in
thousands)(2)
Continuing Operations Revenue ............................................... 1,752,920 1,712,559 1,584,550 1,179,326 1,262,072 1,667,296 1,244,622Other operating income ....................... 63,575 75,951 59,322 44,987 42,383 56,718 42,340
Total revenue and other operating income ........................................ 1,816,495 1,788,510 1,643,872 1,224,313 1,304,455 1,724,014 1,286,962
Goods and services purchased ............. (310,766) (300,250) (258,821) (190,887) (208,808) (276,742) (206,586)Personnel expenses .............................. (1,141,732) (1,109,172) (1,032,970) (783,566) (790,434) (1,039,838) (776,230)Other operating expenses..................... (268,455) (264,302) (234,441) (170,795) (201,152) (264,798) (197,669)Depreciation and impairment of
property, vehicles and equipment.... (27,075) (27,752) (32,254) (25,222) (21,272) (28,304) (21,129)Amortization and impairment of
intangible assets .............................. (3,922) (4,179) (1,326) (1,021) (1,029) (1,334) (996)Total operating expenses ................. (1,751,950) (1,705,655) (1,559,812) (1,171,491) (1,222,695) (1,611,016) (1,202,610)Operating profit ............................... 64,545 82,855 84,060 52,822 81,760 112,998 84,352
Finance expense................................... (38,832) (40,931) (25,751) (18,194) (22,089) (29,646) (22,130)Finance income.................................... 12,004 13,036 20,159 16,680 17,558 21,037 15,704
Net finance expense ........................ (26,828) (27,895) (5,592) (1,514) (4,531) (8,609) (6,426)Share of (losses)/profits from
associates and jointly controlled entities ............................................. 3,561 2,893 (275) 753 1,955 927 692
Loss on sale of disposal group............. (2,035) — — — — — —Gain on sale of subsidiary.................... 457 — — — — — —Profit before IFRS 3.65 adjustment to
goodwill and income tax ................. 39,700 57,853 78,193 52,061 79,184 105,316 78,618IFRS 3.65 adjustment to goodwill ....... (699) (2,260) (9,244) (9,244) — — —Profit before income tax ...................... 39,001 55,593 68,949 42,817 79,184 105,316 78,618Income tax (expense)/credit................. (18,998) 7,647 14,003 19,484 (25,013) (30,494) (22,764)
Net profit for the period from continuing operations.................. 20,003 63,240 82,952 62,301 54,171 74,822 55,854
Discontinued operations Net loss for the period from
discontinued operations................... (809) (6,163) (11,382) (11,382) — — —Net profit for the period................... 19,194 57,077 71,570 50,919 54,171 74,822 55,854
Attributable to: Holder’s of the company’s equity ... 11,972 51,732 62,744 44,645 48,243 66,342 49,524Minority interests ............................ 7,222 5,345 8,826 6,274 5,928 8,480 6,330
* The exchange rate of U.S. dollars on September 30, 2010 was CHF 0.9825 to $1.00
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Summary Consolidated Balance Sheet Information:
As of December 31, As of
September 30,
2007(1) 2008(1) 2009 2010
(CHF in thousands) Unaudited (CHF in
thousands) Total non-current assets ............................................................................... 605,076 516,426 588,496 557,329Total current assets ...................................................................................... 474,627 453,550 418,586 471,285
Total assets .............................................................................................. 1,079,703 969,976 1,007,082 1,028,614
Total equity.................................................................................................. 82,768 11,556 108,023 35,918Total non-current liabilities ......................................................................... 665,842 623,522 507,909 621,400Total current liabilities................................................................................. 331,093 334,898 391,150 371,296
Total liabilities ......................................................................................... 996,935 958,420 899,059 992,696Total equity and liabilities ........................................................................... 1,079,703 969,976 1,007,082 1,028,614
Summary Consolidated Cash Flow Information:
Year ended December 31, Nine months ended
September 30, 2007(1) 2008(1) 2009 2009 2010
(CHF in thousands) Unaudited
(CHF in thousands) Cash Flow Statement Data: Total cash flow from operating activities ............................................ 32,085 101,720 106,218 81,738 93,228Total cash flow from investing activities ............................................. (55,713) (51,130) (39,638) (29,313) (52,078)*
Total cash flow from financing activities ............................................ 19,691 (3,032) (45,343) (40,866) (18,391)Net increase (decrease) in unrestricted cash and cash equivalents ...... (3,937) 47,558 21,237 11,559 22,759
* The cash flow from investing activities as of September 30, 2010 includes an increase in cash collateral to cover
bank guarantees issued under the existing revolving credit facility.
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Other Financial Information:
Year ended December 31, Nine months ended
September 30,
As of and for the twelvemonths ended September 30,
2007 2008 2009 2009 2010 2010 Unaudited Unaudited
(CHF in thousands, except ratios) (CHF in thousands,
except ratios)
(€ in thousands,
except ratios)(2)
Other Financial Data: EBITDA(3) .............................................................. 95,542 114,786 117,640 79,065 104,061 142,636 106,477EBITDA Margin(4) .................................................. 5.3% 6.4% 7.2% 6.5% 8.0% 8.3% —Adjusted EBITDA(5) ............................................... — — 121,101 81,778 112,027 151,350 112,982Adjusted Pro Forma EBITDA(5) .......................... — — 135,633 92,514 122,922 166,041 123,948Pro forma total debt(6) ............................................. — — — — — 803,078 599,491Pro forma cash and cash equivalents(7) ................... — — — — — 72,318 53,984Pro forma net debt(8) ............................................. — — — — — 730,761 545,507Pro forma cash interest expense(9)........................... — — — — — 71,273 53,205Ratio of pro forma total debt to Adjusted Pro
Forma EBITDA .................................................. — — — — — 4.84x —Ratio of pro forma net debt to Adjusted Pro
Forma EBITDA .................................................. — — — — — 4.40x —Ratio of Adjusted Pro Forma EBITDA to Pro
Forma cash interest expense ............................... — — — — — 2.33x —
(1) As restated.
(2) Convenience translation in euro based on an exchange rate of 1.3396 Swiss francs per euro as of September 30, 2010.
(3) EBITDA consists of net profit for the period from continuing operations plus income tax (expense)/credit, IFRS 3.65 adjustment to goodwill, gain on sale of subsidiary, net finance expense, share of profits from associates and jointly controlled companies, loss on sale of disposal group, depreciation and impairment of property, vehicles and equipment, and amortization and impairment of intangible assets. EBITDA is not a uniformly or legally defined financial measure and is not a measurement of performance under IFRS and you should not consider EBITDA as an alternative to (a) operating income or net income (as determined in accordance with IFRS) as a measure of our operating performance, (b) cash flows from operating, investing and financing activities as a measure of our ability to meet our cash needs or (c) any other measures of performance under generally accepted accounting principles. We believe that EBITDA is a useful indicator of our ability to incur and service our indebtedness and can assist securities analysts, investors and other parties to evaluate the Company. EBITDA and similar measures are used by different companies for differing purposes and are often calculated in ways that reflect the circumstances of those companies. You should exercise caution in comparing EBITDA as reported by the Company to EBITDA of other companies. EBITDA as presented here may differ from the definition of “Consolidated EBITDA” contained in the “Description of Notes” and other financing documents of the Swissport group. The following is a reconciliation of net profit to EBITDA for the periods below:
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Year ended December 31, Nine months ended
September 30, Twelve months ended
September 30, 2007 2008 2009 2009 2010 2010 Unaudited Unaudited
(CHF in thousands) (CHF in
thousands) (€ in
thousands)(2)
Net Profit for the period ..................... 19,194 57,077 71,570 50,919 54,171 74,822 55,854Net loss for the period from
discontinued operations..................... 809 6,163 11,382 11,382 — — —Income tax (credit)/expense .................. 18,998 (7,647) (14,003) (19,484) 25,013 30,494 22,764IFRS 3.65 adjustment to goodwill ........ 699 2,260 9,244 9,244 — — —Loss on sale of disposal group .............. 2,035 — — — — — —Gain on sale of subsidiary..................... (457) — — — — — —Share of profits from associates and
jointly controlled companies ............. (3,561) (2,893) 275 (753) (1,955) (927) (692)Net finance expense .............................. 26,828 27,895 5,592 1,514 4,531 8,609 6,427Amortization and impairment of
intangible assets ................................ 3,922 4,179 1,326 1,021 1,029 1,334 996Depreciation and impairment of
property, vehicles and equipment ..... 27,075 27,752 32,254 25,222 21,272 28,304 21,129EBITDA ............................................... 95,542 114,786 117,640 79,065 104,061 142,636 106,477
(4) EBITDA Margin is defined as EBITDA divided by total revenue and other operating income.
(5) Adjusted EBITDA and Adjusted Pro Forma EBITDA are defined as EBITDA as adjusted to remove the effects of the items presented below. Adjusted EBITDA and Adjusted Pro Forma EBITDA are not a uniformly or legally defined financial measure and is not a measurement of performance under IFRS and you should not consider Adjusted EBITDA or Adjusted Pro Forma EBITDA as alternatives to (a) operating income or net income (as determined in accordance with IFRS) as a measure of our operating performance, (b) cash flows from operating, investing and financing activities as a measure of our ability to meet our cash needs or (c) any other measures of performance under generally accepted accounting principles. We believe that Adjusted EBITDA and Adjusted Pro Forma EBITDA are useful indicators of our ability to incur and service our indebtedness and can assist securities analysts, investors and other parties to evaluate the Company. Adjusted EBITDA, Adjusted Pro Form EBITDA and similar measures are used by different companies for differing purposes and are often calculated in ways that reflect the circumstances of those companies. You should exercise caution in comparing Adjusted EBITDA and Adjusted Pro Forma EBITDA as reported by the Company to Adjusted EBITDA or Adjusted Pro Forma EBITDA of other companies.
Year ended
December 31,Nine months ended
September 30, Twelve months ended
September 30, 2009 2009 2010 2010 Unaudited Unaudited
(CHF in thousands) (CHF in
thousands) (€ in
thousands)(2)
EBITDA ........................................................................... 117,640 79,065 104,061 142,636 106,477Effect of Eyjafjallajökull volcano(10)................................. — — 6,500 6,500 4,852Swissport Israel EBITDA(11) ............................................. 3,461 2,713 1,466 2,214 1,653Adjusted EBITDA........................................................... 121,101 81,778 112,027 151,350 112,982Shareholder management fees(12) ...................................... 7,807 5,903 5,337 7,241 5,405Pro forma increased shareholding in Spanish UTEs(13)..... 6,725 4,833 5,558 7,450 5,561ADJUSTED PRO FORMA EBITDA............................ 135,633 92,514 122,922 166,041 123,948
(6) Pro forma total debt is defined as financial indebtedness, after giving pro forma effect to the Transactions as described in “Use of Proceeds” as if the Transactions had occurred on September 30, 2010. The adjustment also reflects gross debt resulting from the transfer of the 40% of Spanish UTEs. It also excludes the indebtedness of Swissport Israel under its credit facility which, as of September 30, 2010 amounted to CHF 34.0 million as well as a third-party shareholder loan of Swissport Israel amounting to CHF 5.7 million. Swissport Israel will not be a Guarantor of the Notes and will be considered an “Unrestricted Subsidiary” of Swissport under the Indenture. The amounts shown reflect the actual issuance of CHF 350 million in CHF Notes and $425 million in Dollar Notes. The Dollar Notes have been converted into Swiss francs at a rate of 0.9487 Swiss francs to $1.00, the exchange rate as of the date of this Offering Memorandum.
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(7) Pro forma cash and cash equivalents is defined as cash and cash equivalents after giving pro forma effect to the Transactions as described in “Use of Proceeds.” This includes cash and cash equivalents resulting from the transfer of the Spanish UTEs and excludes cash and cash equivalents of Swissport Israel.
(8) Pro forma net debt is defined as pro forma total debt less pro forma cash and cash equivalents.
(9) Pro forma cash interest expense represents the annual interest expense in connection with the pro forma total debt of Swissport as defined in footnote (6) above (at an assumed blended rate of 7.11%).
(10) The 2010 eruptions of Eyjafjallajökull were a series of volcanic events at Eyjafjöll in Iceland which, although relatively small for volcanic eruptions, caused a material disruption to air travel across western and northern Europe over an initial period of six days in April 2010. Beginning on April 14, 2010, the eruption entered a second phase and created an ash cloud that led to the closure of most of Europe’s airspace from April 15–20, 2010. The cancellation of flights had a negative impact on the results of our operations. This adjustment reflects the net of the loss of revenue for that period of 6 days and the cost reduction measures carried out during that period.
(11) Swissport Israel will not be a Guarantor of the Notes and will be considered an “Unrestricted Subsidiary” of Swissport under the Indenture. For further information on Swissport Israel see footnote (7) of “—Summary Corporate and Financing Structure” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Unrestricted Subsidiaries.”
(12) Includes historical management fees paid to Ferrovial net of the maximum monitoring fees that PAI Partners SAS is entitled to receive in accordance with the provisions of the Indenture. See “Description of Notes—Certain Covenants—Restricted Payments.” This adjustment gives effect to the Transactions as if they had occurred on January 1, 2009.
(13) On December 23, 2010, we agreed to purchase 40% of the participation in the Spanish UTEs from Ferrovial, which brought our holdings of the Spanish UTEs to 61%. The transaction is effective from December 31, 2010. The adjustment reflects the increased participation in the Spanish UTEs. This adjustment gives effect to the Transactions as if they had occurred on January 1, 2009.
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RISK FACTORS
An investment in the Notes involves risks. Before purchasing the Notes, you should consider carefully the specific risk factors set forth below, as well as the other information contained in this Offering Memorandum. Any of the risks described below could have a material adverse impact on our cash flows, financial condition or results of operations and could therefore have a negative effect on the trading price of the Notes and our ability to pay all or part of the interest or principal on the Notes. Additional risks not currently known to us or that we now deem immaterial may also harm us and affect your investment.
This Offering Memorandum also contains forward-looking statements that involve risks and uncertainties. Our actual results 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 Offering Memorandum.
Risks Relating to the Industry and Our Business
The aviation industry is highly susceptible to adverse economic developments, which results in a decline in the demand for flights and consequently a decline in the demand for airline services, at times when the economy is weak.
The condition of the airline industry has a substantial effect on our business, since our customers consist of passenger airlines and freight carriers. The worldwide aviation industry is highly susceptible to adverse economic developments. Generally, when economic factors adversely affect the airline industry, they tend to reduce the overall demand for airline services, including cargo handling, maintenance and repair, among others, causing downward pressure on pricing and increasing the credit risks associated with doing business with airlines.
In addition to a decline in demand for flights and consequently a decline in the demand for airline services, economic volatility typically causes our customers to seek ways to cut costs. One way in which they have sought to reduce their costs is by reducing the amount they spend on aviation services, including the services that we provide. As a result of the current economic climate, certain of our customers have sought to renegotiate lower prices for our services under existing contracts and negotiate lower prices for our services when our contracts are up for renewal. This trend could continue or even intensify in the future, which could lead to a drop in profitability or to losses. In addition, there is no guarantee that the measures we have taken to optimize income by adjusting prices, reducing operating costs and capacity to the demand situation will also be successful if market conditions change.
The susceptibility of the aviation industry to adverse economic developments often leads to price pressure along the entire value chain, including the prices we can charge for ground handling, cargo handling maintenance, fueling and specialty services that we provide to our customers. All of these effects further exacerbate the adverse consequences of reduced demand for our services on our cash flows, financial condition and results of operations.
We face high levels of competition in the airport services industry generally and at many of the stations at which we operate.
The airport and aviation service industry and the markets for our products and services are extremely competitive, and we face competition from a number of sources. Our competitors include a limited number of well-capitalized companies, which offer a broad range of services, a large number of smaller, specialized companies and subsidiaries established by major airlines to provide certain services. The level of competition depends primarily on the number and size of the other airport services providers operating at the airports at which we operate. At some of these airports, the service market is highly competitive and we compete against a number of operators. We cannot assure you that competitive pressures will not materially adversely affect our business, financial condition or results of operations.
If a significant number of our existing airline customers or one or more of our larger airline customers were to begin purchasing the services we currently provide to them from our competitors or were to self-handle their ground support operations and other aviation services, our cash flows, results of operations and financial condition could be adversely affected. In addition, if the level of competition we face increases significantly, our cash flows, financial condition and results of operations could be adversely affected.
We are exposed to the risk of airline consolidation.
The airline industry has recently been subject to a number of airline consolidations, which may continue. Such consolidations could potentially reduce both the number of our customers and the number of flights we handle. If any of our customers consolidates with another airline, especially an airline that is not our customer, we risk losing that customer’s business. Similarly, if any of our customers consolidates with another airline that offers similar services to ours, such as ground and cargo handling, that customer may no longer require our services and we may lose that customer. Further, airline consolidation could reduce the number of overall flights as the airlines eliminate redundant flight schedules and routes. Both of these occurrences could have a material adverse effect on our cash flows, financial condition and results of operations.
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An increase in the number of lower cost carriers could lead to a reduction in our profit margins.
The airline industry has seen a recent trend in an increase in the number of operators, and frequency of flights, of low cost carriers, including carriers such as Ryanair and easyJet. Low cost carriers seek to reduce costs by simplifying the services they offer. Therefore, they often have fewer ground handling needs, which means we may not be able to offer the full range of our services to them. If this trend continues, and if we do not adequately adapt to this trend, there may be a material adverse effect on our cash flows, financial condition and results of operations.
The aviation industry faces competition from alternative means of transportation, in particular rail travel.
High-speed trains offer an alternative form of transport on many routes that have traditionally been served by airlines. With the opening of additional high-speed train routes, particularly within Europe, competitive pressure from railway operators will increase. The further loss of air passengers to rail transport could have a material adverse effect on our cash flows, financial condition and results of operations. In addition, certain European countries are supporting the expansion of rail transport, particularly in the high-speed sector. It is possible that rail transport will receive more support at the European Union and/or national level in the future. This support could result from direct or indirect subsidies for rail travel or other direct or indirect discrimination against air travel (for example, due to changes in tax or environmental laws and regulations), and could have a material adverse effect on our cash flows, financial condition and results of operations.
The global economic crisis that occurred during 2008-2009 led to a deterioration in the demand for our services and should the economic climate worsen again, it could have significant adverse effects on our business over a longer period of time.
The financial crisis that occurred in 2008 and 2009 led to a worldwide economic crisis that affected nearly all industries. Because the global aviation industry is largely dependent on economic developments, our business was adversely affected by the economic crisis. Demand for air cargo services decreased considerably during the second half of 2008 and all of 2009, resulting in a significant decrease in utilization of cargo handling services. In situations involving economic downturns it is difficult to predict when those trends will end or whether they will occur again. It is possible that an economic crisis could occur again, which could negatively affect the demand for air cargo and other airline services.
Deregulation of airports and airline service operators could negatively affect our business.
The airline services industry has traditionally benefited from strict public regulation of access to airports and airline service operators. Recently, airports and the airline service industry have been subject to increased deregulation, which opens up the possibility of an increased number of market participants which may increase competition and force downward pressure on the fees we charge for our services. Such a decrease in the fees we are able to charge for our services may have a material adverse effect on our cash flows, financial condition and results of operations.
Terrorist attacks, threats of attacks, geopolitical instability, epidemics, threats of epidemics, natural calamities or other “Acts of God” may unexpectedly disrupt our operations and revenues.
Any attack, military action, threat of an attack, epidemic or perception that an epidemic could occur could have a negative impact on the aviation industry as a whole and could therefore have a material adverse effect on our cash flows, financial condition and results of operations. Terrorism and war (and threats of terrorism and war) and civil/political strife may also contribute to a fear of travelling by air, or visiting particular destinations, resulting in a sharp fall in demand for air travel and correspondingly cause an adverse impact on our business. The occurrence of such events, or civil unrest in a country, may also result in the closure or restriction of access to airspace or airports. Given that airline services depend on the availability of these facilities, our cash flows, financial condition and results of operations could be adversely affected by the occurrence of such events. The attacks of September 11, 2001 in the United States have had a major impact on the air transport sector. Airlines suffered from declining revenues and rising costs linked notably to the fall in demand and to higher insurance and security costs.
Similarly, the outbreak of any contagious disease with human-to-human airborne or contact propagation effects that escalates into a regional or global pandemic may have an adverse impact on all airlines that operate to/from the affected areas/regions. Our business will be adversely affected even though international and national response plans to address such events have been developed or are in development. The SARS epidemic resulted in a sharp fall in air traffic and revenues in Asia.
Other natural disasters such as earthquakes, volcanoes, floods or tsunamis may devastate destinations and significantly reduce travel to those areas for a period of time thereby causing our business to be adversely affected. For example, the volcanic ash cloud that resulted in the closing of large portions of European airspace several times during
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the spring of 2010 had a material effect on our cash flows, financial condition and results of operations. We cannot assure that similar or other natural calamities will not have a material adverse effect on cash flows, financial condition and results of operations in the future.
We are exposed to the risk of losses from damage caused to aircraft.
We operate in and around aircraft and, as such, we face the inherent risk that we may inadvertently damage aircraft or aircraft equipment that could lead to flight delays or possibly crashes. For example, the improper deicing of an aircraft, unbalanced loading of cargo within an aircraft, or any other damage to an aircraft caused by our employees could result in delays and/or the loss of an aircraft. Although we maintain what we believe to be adequate insurance, any claim as a result of such damage could exceed our insurance coverage or could result in the cancellation of our insurance coverage. Moreover, there can be no assurance that we would not be forced to bear substantial losses irrespective of insurance coverage. In particular, it is possible that losses could occur that are not limited to losses covered by our insurance or that our reputation or standing could be harmed. An aircraft accident could tarnish our reputation, thus resulting in a significant, and possibly sustained, decline in demand. Any of these events could have a material adverse effect on our business, cash flows, financial condition and results of operation.
Our global operations in diverse locations expose us to various geopolitical and economic risks that are beyond our control.
As of December 31, 2009, we operated in 38 countries at 176 locations. Due to the international scope of our operations, we are subject to a number of political, social and economic risks and challenges, many of which are beyond our control.
We are subject to political and social risks and uncertainties, particularly in developing countries in which we operate that have been undergoing substantial political transformations. There can be no assurance that the political reforms necessary to complete such transformations will continue. The political systems in these countries may be vulnerable to the public’s dissatisfaction with reforms, social and ethnic unrest and other factors that are beyond our control. Any disruption or volatility in the political or social environment in these countries may have a material adverse effect on our cash flows, financial condition and results of operations.
We are also subject to economic risks and uncertainties in the countries in which we operate. Any slowdown in the development of the economies of the countries in which we operate or any deterioration of currencies or disruption of the economic environment or reduction in government or private sector spending in the countries in which we operate may have a material adverse effect on our cash flows, financial condition and results of operation. Furthermore, certain incidents could lead to international tensions that could result in boycotts or otherwise restrict our ability to perform and render our services, which may have a material adverse effect on our cash flows, financial condition and results of operations.
As a result of our global operations, we are also subject to a series of other risks associated with operating in foreign countries, including:
• political, social and economic instability;
• war, civil disturbance or acts of terrorism;
• taking of property by nationalization or expropriation without fair compensation;
• changes in government policies and regulations;
• devaluation and fluctuations in currency exchange rates;
• imposition of limitations on conversions of foreign currencies or remittance of dividends and other payments by foreign subsidiaries;
• imposition or increase of withholding and other taxes on remittance and other payments by foreign subsidiaries;
• hyperinflation in certain foreign countries; and
• imposition or increase of investment and other restrictions or requirements by foreign governments.
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We rely upon our subsidiaries and regional management to comply with various laws and intercompany policies.
We delegate considerable operational responsibility to our subsidiaries. Although we have adopted internal controls throughout many of our locations to provide uniformity and consistency. There can be no assurance that we will not experience incidents of our local, regional and national managers not complying with our policies, making unintended accounting misstatements or breaches of local and national regulations and legislation, any of which could, individually or collectively, have a material adverse effect on our cash flows, financial condition and results of operations.
We are exposed to the risk of payment default by our contractual partners.
We generate a notable portion of our revenue from a comparatively small number of customers. The ten highest revenue-generating customers as of September 30, 2010 accounted for approximately 39% of our revenue. In our businesses, the advance performance of services to customers is significant. The result is that total receivables in respect of individual customers, banks and financial institutions sometimes accrue in considerable amounts. There is a risk that these receivables could be uncollectable in whole or in part if contractual partners fail to pay or experience a temporary inability to pay or become insolvent. In addition, a reduction or elimination of demand for our services by a key customer due to insolvency could lead to a fall in revenue. In the future, if contractual partners who owe considerable amounts to us were to become insolvent, including due to the economic crisis, or if key customers were to halt or curtail their business operations, this could have a material adverse effect on our cash flows, financial condition and results of operations.
We rely on licenses to conduct our business at various airports.
We operate our businesses under licenses usually granted by local Civil Aviation Authorities and occasionally the operators of various airports. We also lease from such operators land and other facilities necessary to conduct our businesses. If we were to lose or not be able to renew our existing licenses from those operators, we would be unable to provide our services for our customers at those airports and our cash flows, financial condition and results of operations would be adversely affected. In addition, if we were to fail to comply with the performance standards required by such operators over an extended period of time, our reputation could be harmed and we could lose existing customers or fail to attract new customers and, as a result, our cash flows, financial condition and results of operations could be adversely affected or our licenses from such operators could be revoked.
Our business requires the work of many employees and any major disruption in our workforce could adversely affect our cash flows, financial condition and results of operations.
Our business is labor intensive and requires highly trained ground handling and cargo handling personnel. If we are unable to hire additional employees to meet our requirements or to retain existing employees, our cash flows, financial condition and results of operations could be adversely affected. As of September 30, 2010, approximately one third of our employees were subject to collective bargaining agreements. These agreements may in the future limit our ability to contain increases in labor costs and our ability to control our future labor costs depends on the outcome of our wage negotiations with our staff. Further, our performance depends, in part, upon the continued service and performance of certain key staff members. These key personnel may leave in the future and compete with us. The loss of any of these individuals could have a material adverse effect on our cash flows, financial condition and results of operations.
We rely upon aviation industry personnel and labor strikes, work stoppages and other labor disputes could impact our operations.
Our operations and services rely heavily upon various aviation industry personnel who are not employed by us and any labor strikes, work stoppages and other labor disputes could have a negative impact on our operations. For example, air traffic controllers in Spain staged a strike on December 3, 2010, causing widespread flight delays and cancellations. Pilots and flight crews could also cause cancellations and delays by staging similar strikes. Such labor strikes, work stoppages and other labor disputes are beyond our control and they could have a material adverse effect on our cash flows, financial condition and results of operations.
We could be adversely affected by a failure or disruption of our computer, communications or other technology systems.
We are heavily and increasingly dependent on technology to operate our business. The computer and communications systems on which we rely could be disrupted due to various events, some of which are beyond our control, including natural disasters, power failures, terrorist attacks, equipment failures, software failures and computer viruses and hackers. We have taken certain steps to help reduce the risk of some of these potential disruptions. There can be no assurance, however, that the measures we have taken are adequate to prevent or remedy disruptions or failures of these systems. Any substantial or repeated failure of these systems could impact our operations and customer service, result in the loss of important data, loss of revenues, and increased costs, and generally harm our business.
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We are subject to exchange rate fluctuations.
Our revenue, costs, debts, capital expenditure and investments are mainly denominated in Swiss francs and several currencies such as U.S. dollars, Euros and British pounds sterling. We are also exposed to currencies such as the South African rand, the Japanese yen, the Korean won, the Canadian dollar, the Brazilian real and the Mexican peso, among others. Consequently, portions of our costs, profit margins and asset values are affected by fluctuations in the exchange rates among the above-mentioned currencies. We do not actively engage in foreign exchange hedging because we believe that a significant portion of our revenues and operating costs, generated by our companies, are denominated in their functional currencies. In addition, where possible, our subsidiaries enter into local funding and/or leasing arrangements denominated in their functional currency. Our corporate treasury department may enter into a foreign exchange forward contracts to attempt to remove the foreign exchange risk on a loan to or from our companies. However, to the extent balances change in the future or foreign currency exchange rates fluctuate significantly in the future, our cash flows, financial condition and results of operations could be materially adversely affected. Some of the currencies may not be convertible or exchangeable or may be subject to exchange controls. Our reporting currency is the Swiss franc. Exchange rate gains or losses will arise when the assets and liabilities in foreign currencies are translated or exchanged into Swiss francs for financial reporting or repatriation purposes. If the foreign currencies depreciate against the Swiss franc, this may adversely affect our reported consolidated financial results.
The recent global economic downturn could adversely affect our liquidity and our ability to access capital markets.
Our business depends on access to capital funding and the success of financial markets. Financial markets have been experiencing extreme disruptions, including, among other things, volatility in security prices, diminished liquidity and credit availability, rating downgrades on certain investments and declining valuations of others. In addition to the impact that the recent global economic downturn has already had on us, we may face significant challenges if conditions in the financial markets do not improve or if they worsen. In addition, our ability to access the capital markets may be restricted at a time when we would like, or need, to do so, which could have an impact on our flexibility to react to changing economic and business conditions.
We may experience limited availability of funds.
We may require additional financing to fund working capital requirements, to support the future growth of our business and/or to refinance debt obligations. There can be no assurance that additional financing, either on a short-term or a long-term basis, will be made available or, if available, that such financing will be obtained on terms favorable to us. Factors that could affect our ability to procure financing include the cyclical nature of the aviation industry and market disruption risks which could adversely affect the liquidity, interest rates and the availability of funding sources. In addition, any consolidation in the banking industry may also reduce the availability of credit as the merged banks seek to reduce their combined exposure to one company or sector.
Our pension obligations could substantially exceed the provisions we have recognized for these obligations in our accounts.
We have certain pension obligations toward our employees. These pension obligations are covered partly by provisions, but for the most part by pension funds or insurance. The amount of these provisions is based on certain actuarial assumptions, including discounting factors, demographic trends, pension trends, future salary trends and expected returns on plan assets. If actual results, particularly in relation to discounting factors, were to deviate from these assumptions, or if actuarial assumptions change, there could be a substantial increase in pension obligations and a resulting increase in the provisions for pensions on our balance sheet.
We are also susceptible to financial market risk of below-average portfolio performance and of errors in investment choices. All the above factors could have material adverse effects on our cash flows, financial condition and results of operations.
We are exposed to litigation risks.
We are involved in a number of lawsuits, both as plaintiff and as defendant. These lawsuits relate to claims that arise in the ordinary course of our business and include, but are not limited to, allegations of breach of contract, breach of warranty, property damage, and violation of employment rights and similar causes of action. A large number of these lawsuits relate to employment related issues. There are currently several proceedings pending against us in connection with compensation disputes. It is generally not possible to predict the outcome of pending or threatened legal proceedings. This is particularly true of lawsuits in the United States, in light of the large amounts of damages being claimed in some of these proceedings. See “Business—Legal Proceedings.”
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There is no guarantee that we will not be found liable and ordered to make substantial payments in one or more of the lawsuits in which we are or may be involved. A negative outcome in one or more of the pending or threatened high-value lawsuits, or in several relatively low-value lawsuits, could have a material adverse effect on our cash flows, financial condition and results of operations.
We are exposed to liability risks relating to possible environmental damage.
In our operations, especially in fueling services, environmental damage can occur due to spills or releases of harmful or hazardous substances, including aviation fuel or other oil products, that could contaminate real estate owned by us or by third-parties, or pollute waterways or groundwater. This is particularly applicable with regard to the facilities where hazardous substances are used, transported, stored, processed, discharged, managed and disposed, as well as the other facilities and storage areas used by us. Such contamination or pollution could result not only in possible fines or other public law sanctions, but also in considerable costs for removal, restoration and disposal, as well as further liability risks. Public knowledge of such environmental damage caused by us could also damage our reputation significantly. These events could therefore have material adverse effects on our cash flows, financial condition and results of operations. We may also be subject to environmental liability in relation to our cargo handling services, primarily because we store and ship potentially hazardous materials, including deicing fluid. However, our exposure to such activities regarding hazardous materials is limited because certain substances, including explosives, are not allowed to be transported by aircraft.
Risks linked to changes in international, national or regional regulations and legislation may impact our activity and costs of operations.
Air transport and aircraft ground activities are subject to a high degree of regulation, notably with regard to maintenance, security and operating standards. Additional laws and regulations and tax increases (aeronautical, shipping and airport among others) could lead to an increase in operating expenses or reduce our revenues. For example, the Federal Aviation Administration, from time to time, issues directives and other regulations relating to the management, maintenance and operation of aircraft and facilities. Compliance with those requirements may cause us to incur significant expenditures. The ability of carriers to operate international routes is liable to be affected by amendments to bilateral agreements between governments. As such, future laws or regulations could have a negative impact on our activity and we cannot provide assurance that any such future law or regulations will not adversely affect our cash flows, financial condition and results of operations.
We are subject to environmental laws and regulations that could impose significant costs on us and the failure to comply with such laws could subject us to administrative, civil and criminal sanctions and material fines and expenses.
Air transport and aircraft ground activities are subject to a high degree of regulation, notably with regard to maintenance, security and operating standards. Additional laws and regulations and tax increases (aeronautical, shipping and airport) could lead to an increase in operating expenses or reduce our revenues. For example, the Federal Aviation Administration, from time to time, issues directives and other regulations relating to the management, maintenance and operation of aircraft and facilities. Compliance with those requirements may cause us to incur significant expenditures. The ability of carriers to operate international routes is liable to be affected by amendments to bilateral agreements between governments. As such, future laws or regulations could have a negative impact on our activity and we cannot provide assurance that any such future law or regulations will not adversely affect our cash flows, financial condition and results of operations.
We are subject to environmental laws and regulations that could impose significant costs on us and the failure to comply with such laws could subject us to sanctions and material fines and expenses.
We are subject to a broad range of international, national and local environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the uses, transport, storage, processing, discharge, management and disposal of hazardous substances and wastes and the responsibility to investigate and clean-up contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Some of these laws and regulations require us to obtain permits, which can contain terms and conditions that impose limitations on our ability to emit and discharge hazardous materials into the environment and periodically may be subject to modification, renewal and revocation by issuing authorities. Substantial fines and penalties may be imposed for non-compliance with applicable environmental laws and regulations and the failure to have or to comply with the terms and conditions of required permits. We periodically review our procedures and policies for environmental compliance. We believe that our operations generally are in material compliance with applicable environmental laws and regulations and the terms and conditions of required permits. Historically, the costs of achieving and maintaining such compliance, and curing any non-compliance, have not been material; however, the operation our business entails risks in these areas, and a failure by us to comply with applicable environmental laws, regulations, or permits could result in civil or criminal fines, penalties,
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enforcement actions, third party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures. Moreover, if applicable environmental laws and regulations, or the interpretation or enforcement thereof, become more stringent in the future, we could incur capital or operating costs beyond those currently anticipated. See “Business—Environmental.”
Risks Relating to Our Management, Principal Shareholders and Related Parties
Our success depends on our ability to retain and attract key employees.
Our future success will be heavily dependent on the performance of our executive officers and managers. Our growth and future success will depend, in large part, on the continued contributions of our senior management team, as well as our ability to motivate and retain these personnel or hire other persons. Our recent downsizing measures, could make it more difficult for us to retain key employees. Although we believe we will be able to hire and retain qualified personnel, we can give no assurance that we will be successful in obtaining, recruiting and retaining such personnel in sufficient numbers to increase revenue, attain profitability, or successfully implement our growth strategy.
The interests of our principal shareholders may be inconsistent with the interests of the Noteholders.
As of or shortly after the Issue Date, PAI, certain co-investors and certain of Swissport’s management team will own, directly or indirectly, 100% of the Issuer’s shares. As a result, PAI has, and will continue to have, directly or indirectly, the power to affect, among other things, our legal and capital structure and our day-to-day operations, as well as the ability to elect and change our management and to approve other changes to our operation. In addition, for compliance with certain restrictive covenants, we will depend upon the cooperation of our principal shareholders who have the power to effect compliance with such covenants. The interests of PAI and their affiliates could conflict with your interests, particularly if we encounter financial difficulties or are unable to pay our debts when due. Affiliates of PAI also have an interest in pursuing divestitures, financings or other transactions that in their judgment could enhance their equity investments, although such transactions might involve risks to you as a holder of notes. In addition, the PAI or its affiliates may, in the future, own businesses that directly compete with ours or do business with us.
Risks Relating to Our Indebtedness, including the Notes
Our significant leverage may make it difficult for us to service our debt, including the Notes, and operate our business.
Upon consummation of the Transactions, we will have a substantial amount of outstanding indebtedness with significant debt service requirements. As of September 30, 2010, on an as adjusted basis after giving effect to the Transactions and the application of the proceeds thereof, our total borrowings would have been approximately CHF 803 million, including the Notes.
Our significant leverage could have important consequences for you as a holder of the Notes, including:
• making it more difficult for us to satisfy our obligations with respect to the Notes and our other debt and liabilities;
• requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thus reducing the availability of our cash flow to fund internal growth through working capital and capital expenditures and for other general corporate purposes;
• increasing our vulnerability to a downturn in our business or economic or industry conditions;
• placing us at a competitive disadvantage compared to our competitors that have less debt in relation to cash flow;
• limiting our flexibility in planning for or reacting to changes in our business and our industry;
• restricting us from exploiting certain business opportunities; and
• limiting, among other things, our and our subsidiaries’ ability to borrow additional funds or raise equity capital in the future and increasing the costs of such additional financings.
Any of these of other consequences or events could have a material adverse effect on our ability to satisfy our debt obligations, including under the Notes.
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Restrictive covenants in the Revolving Credit Facility and the Indenture governing the Notes may restrict our ability to operate our business. Our failure to comply with these covenants, including as a result of events beyond our control, could result in an event of default that could materially and adversely affect our cash flow, financial condition and results of operations.
The Revolving Credit Facility requires us to comply with certain affirmative covenants and one financial covenant. See “Description of Certain Financing Arrangements—Revolving Credit Facility.”
Furthermore, the Indenture governing the Notes and the Revolving Credit Facility will contain negative covenants restricting, among other things, our ability to:
• incur or guarantee additional debt or issue preferred stock;
• pay dividends and make other restricted payments;
• create or incur liens;
• make certain investments;
• agree to limitations on the ability of our subsidiaries to pay dividends or make other distributions;
• engage in sales of assets and subsidiary stock;
• enter into transactions with affiliates; and
• transfer all or substantially all of our assets or enter into merger or consolidation transactions.
The restrictions contained in the Revolving Credit Facility and the Indenture governing the Notes could affect our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities as they arise. For example, such restrictions could adversely affect our ability to finance our operations, make strategic acquisitions, investments or alliances, restructure our organization or finance our capital needs. Additionally, our ability to comply with these covenants and restrictions may be affected by events beyond our control. These include prevailing economic, financial and industry conditions. If we breach any of these covenants or restrictions, we could be in default under the Revolving Credit Facility and the Indenture.
If there were an event of default under any of our debt instruments that is not cured or waived, the holders of the defaulted debt could terminate their commitments thereunder and cause all amounts outstanding with respect to such indebtedness to be due and payable immediately, which in turn could result in cross defaults under our other debt instruments including the Notes. Any such actions could force us into bankruptcy or liquidation, and we may not be able to repay our obligations under the Notes in such an event.
Despite our high level of indebtedness, we and our subsidiaries will still be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the Revolving Credit Facility contains, and the Indenture governing the Notes will contain, restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our and our subsidiaries’ existing debt levels, the related risks that we now face would increase. In addition, the Indenture and the Revolving Credit Facility will not prevent us from incurring obligations that do not constitute indebtedness under those agreements.
We may not be able to generate sufficient cash to meet our debt service obligations.
Our ability to make interest payments on the Notes and to meet our other debt service obligations, including under the Revolving Credit Facility, or to refinance our debt, depends on our future operating and financial performance, which will be affected by our ability to successfully implement our business strategy as well as general economic, financial, competitive, regulatory and other factors beyond our control. If we cannot generate sufficient cash to meet our debt service requirements, we may, among other things, need to refinance all or a portion of our debt, including the Notes, obtain additional financing, delay planned capital expenditures or investments or sell material assets.
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If we are not able to refinance any of our debt, obtain additional financing or sell assets on commercially reasonable terms or at all, we may not be able to satisfy our debt obligations, including the Notes. In that event, borrowings under other debt agreements or instruments that contain cross-default or cross- acceleration provisions may become payable on demand, and we may not have sufficient funds to repay all of our debts, including the Notes. See “Description of Certain Financing Arrangements.”
We are exposed to interest rate risks. Shifts in such rates may adversely affect our debt service obligations.
We are exposed to the risk of fluctuations in interest rates, primarily under the Revolving Credit Facility, which is indexed to LIBOR or EURIBOR.
In order to meet our liquidity requirements, we may need to refinance the Revolving Credit Facility, and we may not be able to do so on acceptable terms or at all.
The Revolving Credit Facility has a term of six years. See “Description of Certain Financing Arrangements—Revolving Credit Facility—Repayments and Prepayments.” Our ability to refinance the facility could be affected by a number of factors, including volatility in the financial markets, contractions in the availability of credit, including in interbank lending and changes in investment markets, including changes in interest rates, exchange rates and returns from equity, property and other investments. Any adverse developments in the credit markets and in our credit rating, as well as other general economic conditions, may negatively impact our ability to issue additional debt as well as the amount and terms of the debt we are able to issue. Our liquidity will be adversely affected if we are unable to refinance the Revolving Credit Facility on acceptable terms or at all, and we can provide no assurance we will be able to do so. In connection with any refinancing, it may also be possible that we will need to agree to covenants that place additional restrictions on our business.
Our ability to repay our debt is dependent on our ability to obtain cash from our subsidiaries.
The Issuer is a holding company that conducts no business operations of its own and has no significant assets other than the shares it holds in its direct subsidiary and their claims under certain intercompany loans. Repayment of our indebtedness, including under the Notes, is dependent on the ability of our subsidiaries to make such cash available to the Issuer, by dividend distributions, debt repayment, loans or otherwise. Our subsidiaries may not be able to, or may be restricted by the terms of their existing or future indebtedness, or by law, in their ability to make distributions or advance upstream loans to enable us to make payments in respect of our indebtedness, including the Notes. Each subsidiary of ours is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries.
While the Indenture governing the Notes and the Revolving Credit Facility limit the ability of our subsidiaries to incur contractual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to certain significant qualifications and exceptions. In the event that we do not receive distributions or other payments from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the Notes. We do not expect to have any other sources of funds that would allow us to make payments to holders of the Notes.
Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in an event of default that could materially and adversely affect our cash flows, financial condition and results of operations.
If there were an event of default under any of the agreements relating to our outstanding indebtedness, including the Revolving Credit Agreement, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure you that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. Further, if we are unable to repay, refinance or restructure our indebtedness under our secured debt, the holders of such debt could proceed against the collateral securing that indebtedness. In addition, any event of default or declaration of acceleration under one debt instrument could also result in an event of default under one or more of our other debt instruments.
Corporate benefit and financial assistance laws and other limitations on the obligations under the Guarantees may adversely affect the validity and enforceability of the Guarantees.
The Guarantees provide the holders of the Notes with a right of recourse against the assets of the relevant Guarantors. Each of the Guarantees and the amounts recoverable thereunder will be limited to the maximum amount that can be guaranteed by a particular Guarantor without rendering the Guarantee, as it relates to that Guarantor, voidable or otherwise ineffective under applicable law. Enforcement of the obligations under the Notes against the Issuer and enforcement of a guarantee against a Guarantor will be subject to certain defenses available to the Issuer or the relevant
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Guarantor, as the case may be. These laws and defenses may include those that relate to fraudulent conveyance, financial assistance, corporate benefit and regulations or defenses affecting the rights of creditors generally. If one or more of these laws and defenses are applicable, the Issuer or a Guarantor may have no liability or decreased liability under the Notes or its Guarantee may be unenforceable.
The granting of the security interests in connection with the issuance of the Notes may create hardening periods for such security interests in accordance with the laws applicable in certain jurisdictions.
The granting of security interests to secure the Notes and the Guarantees may create hardening periods for such security interests in certain jurisdictions. The applicable hardening period for these new security interests will run from the moment each new security interest has been granted or perfected. At each time, if the security interest granted or recreated were to be enforced before the end of the respective hardening period applicable in such jurisdiction, it may be declared void or ineffective and/or it may not be possible to enforce it.
The same rights also apply following the issuance of the Notes in connection with the accession of further subsidiaries as additional Guarantors and the granting of security interest over their relevant assets and equity interests for the benefit of Noteholders. See “Description of Notes—Security.”
The collateral may not be sufficient to secure the obligations under the Notes.
The Notes and the Guarantees will be secured by security interests in the collateral described in this Offering Memorandum, which collateral also secures the obligations under the Revolving Credit Facility. The collateral may also secure additional debt to the extent permitted by the terms of the Indenture and the Intercreditor Agreement. Your rights to the collateral may be diluted by any increase in the first-priority debt secured by the collateral or a reduction of the collateral securing the Notes.
The value of the collateral and the amount to be received upon an enforcement of such collateral will depend upon many factors, including, among others, the ability to sell the collateral in an orderly sale, the condition of the economies in which operations are located and the availability of buyers. The book value of the collateral should not be relied on as a measure of realizable value for such assets. All or a portion of the collateral may be illiquid and may have no readily ascertainable market value. Likewise, we cannot assure you that there will be a market for the sale of the collateral, or, if such a market exists, that there will not be a substantial delay in its liquidation. In addition, the share pledges of an entity may be of no value if that entity is subject to an insolvency or bankruptcy proceeding. The collateral is located in a number of countries, and the multijurisdictional nature of any foreclosure on the collateral may limit the realizable value of the collateral. For example, the bankruptcy, insolvency, administrative and other laws of the various jurisdictions may be materially different from, or conflict with, each other, including in the areas of rights of creditors, priority of government and other creditors, ability to obtain post-petition interest and duration of the proceedings.
It may be difficult to realize the value of the collateral securing the Notes.
The collateral securing the Notes will be subject to any and all exceptions, defects, encumbrances, liens and other imperfections permitted under the Indenture and/or the Intercreditor Agreement and accepted by other creditors that have the benefit of first-priority security interests in the collateral securing the Notes from time to time, whether on or after the date the Notes are first issued. The existence of any such exceptions, defects, encumbrances, liens and other imperfections could adversely affect the value of the collateral securing the Notes, as well as the ability of the Security Agent to realize or foreclose on such collateral. Furthermore, the first-priority ranking of security interests can be affected by a variety of factors, including, among others, the timely satisfaction of perfection requirements, statutory liens or recharacterization under the laws of certain jurisdictions.
The security interests of the Security Agent will be subject to practical problems generally associated with the realization of security interests in collateral. For example, under Luxembourg and Swiss law, the enforcement of security interests over shares, whether by means of a sale or an appropriation, may be subject to certain specific requirements. The Security Agent may also need to obtain the consent of a third party to enforce a security interest. We cannot assure you that the Security Agent will be able to obtain any such consents. We also cannot assure you that the consents of any third parties will be given when required to facilitate a foreclosure on such assets. Accordingly, the Security Agent may not have the ability to foreclose upon those assets, and the value of the collateral may significantly decrease.
Enforcement of the Guarantees across multiple jurisdictions may be difficult.
The Notes will be issued by us and guaranteed by the initial and any additional Guarantors, which are organized or incorporated under the laws of multiple jurisdictions. In the event of a bankruptcy, insolvency or similar event, proceedings could be initiated in any of these jurisdictions. The rights of holders of the Notes under the Guarantees will thus be subject to the laws of a number of jurisdictions, and it may be difficult to enforce such rights in multiple
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bankruptcy, insolvency and other similar proceedings. Moreover, such multi jurisdictional proceedings are typically complex and costly for creditors’ rights. In addition, the bankruptcy, insolvency, administration and other laws of our jurisdiction of organization and the jurisdiction of organization of the Guarantors may be materially different from, or in conflict with, one another, including creditor’s rights, priority of creditors, the ability to obtain post-petition interest and the duration of the insolvency proceeding. The application of these various law in multiple jurisdictions could trigger disputes over which jurisdictions’ law should apply and could adversely affect the ability to realize any recovery under the Notes and the Guarantees.
The security interests in the collateral will be granted to the Security Agent rather than directly to the holders of the Notes. The ability of the Security Agent to enforce certain of the collateral may be restricted by local law.
The security interests in the collateral that will secure our obligations under the Notes and the obligations of the Guarantors under the Guarantees will not be granted directly to the holders of the Notes but will be granted only in favor of the Security Agent. The Indenture will provide (along with the Intercreditor Agreement) that only the Security Agent has the right to enforce the security documents. As a consequence, holders of the Notes will not have direct security interests and will not be entitled to take enforcement action in respect of the collateral securing the Notes, except through the Trustee, who will (subject to the provisions of the Indenture) provide instructions to the Security Agent in respect of the collateral.
The appointment of a foreign security agent will be recognized under Luxembourg law, (i) to the extent that the designation is valid under the law governing such appointment and (ii) subject to possible restrictions, depending on the type of the security interests. Generally, according to article 2(4) of the Luxembourg Act dated August 5, 2005 concerning financial collateral arrangements, a security (financial collateral) may be provided in favor of a person acting on behalf of the collateral taker, a fiduciary or a trustee in order to secure the claims of third-party beneficiaries, whether present or future, provided that these third-party beneficiaries are determined or may be determined. Without prejudice to their obligations vis-à-vis third-party beneficiaries of the security, persons acting on behalf of beneficiaries of the security, the fiduciary or the trustee benefit from the same rights as those of the direct beneficiaries of the security aimed at by such law.
In Switzerland, the security interests in the form of a pledge in certain of the collateral that (if and when granted) will constitute security for the obligations of the Issuer under the Notes and the Indenture will not be granted directly to the holders of Notes but only in favor of the Security Agent, as beneficiary of parallel debt obligations (the “Parallel Debt”). This Parallel Debt is created by way of an abstract acknowledgment of debt (abstraktes Schuldanerkenntnis) to satisfy a requirement under the laws of Switzerland that the Security Agent, as grantee of certain types of collateral, be a creditor of the relevant debtor of the secured obligations. The Parallel Debt is in the same amount and payable at the same time as the obligations of the Issuer under the Indenture and the Notes (the “Principal Obligations”). Any payment in respect of the Principal Obligations will discharge the corresponding Parallel Debt and any payment in respect of the Parallel Debt will discharge the corresponding Principal Obligations. Although the Security Agent will have, pursuant to the Parallel Debt, a claim against the Issuer for the full principal amount of the Notes, holders of the Notes bear some risks associated with a possible insolvency or bankruptcy of the Security Agent. The Parallel Debt obligations referred to above are contained in the Intercreditor Agreement and will also be agreed and acknowledged under the Indenture, which are governed by English and New York law, respectively. There is no assurance that such a structure will be effective before the Swiss courts as there is no judicial or other guidance as to its efficacy, and therefore the ability of the Security Agent to enforce the collateral may be restricted.
Your ability to recover under the collateral may be limited. Before any amounts are available to repay the Notes, lenders under our Revolving Credit Facility and certain hedge counterparties will have a right to be repaid with the proceeds realized following the enforcement of all or part of the collateral.
The obligations under the Notes and the Guarantees are secured by security interests over collateral granted to secure obligations under the Revolving Credit Facility and certain hedging arrangements entered into pursuant to the Intercreditor Agreement. Pursuant to the Intercreditor Agreement, the lenders under our Revolving Credit Facility and certain hedging arrangements entered into pursuant to the Intercreditor Agreement will have priority over the Noteholders with respect to the proceeds from this collateral. In addition, the creditors under our Revolving Credit Facility and certain hedging arrangements entered into pursuant to the Intercreditor Agreement will have priority over any amounts received from the sale of any assets of the Issuer or a Guarantor pursuant to an insolvency event or other disposals of the collateral pursuant to the provisions on the Intercreditor Agreement. As such, you may not be able to recover on the collateral if the claims of the lenders under our Revolving Credit Facility and hedging obligations are greater than the proceeds realized from any enforcement of the share pledges. In addition, the collateral securing the Notes will also secure certain future indebtedness on a pari passu basis and may be granted to secure hedging obligations and certain future indebtedness permitted by the Indenture. Any proceeds from an enforcement sale of the collateral by any creditor will, after all obligations under our Revolving Credit Facility and hedging obligations in relation thereto have been paid from such recoveries, be applied pro rata in repayment of the Notes and certain hedging obligations and
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any other such secured obligations. Subject to certain conditions, any security interest in the collateral will be automatically released at the time of an enforcement sale of the pledged entity or of the assets or shares of any direct or indirect parent entity of such subsidiary. Following such a sale, the Trustee and the holders of Notes will have no claims in relation to such entity and its direct and indirect subsidiaries under the Notes or any Guarantee.
There are circumstances other than repayment or discharge of the Notes under which the collateral securing the Notes and the Guarantees will be released automatically and under which the Guarantees will be released automatically, without your consent or the consent of the Trustee.
Under various circumstances, collateral securing the Notes and the Guarantees will be released automatically. Even though the holders of the Notes share in the collateral securing the Notes ratably with the lenders under the Revolving Credit Facility, the creditors under the Revolving Credit Facility and certain of our hedging arrangements will initially control enforcement actions with respect to the collateral through the Security Agent, whether or not the holders of the Notes agree or disagree with those actions. See “Description of Notes—The Guarantees” and “—Security.”
The Notes will be structurally subordinated to the indebtedness and other obligations of our non-guarantor subsidiaries.
Some, but not all, of our subsidiaries will guarantee the Notes. Generally, creditors under indebtedness and trade creditors, and preferred shareholders (if any), of our non-guarantor subsidiaries are entitled to payments of their claims from the assets of such subsidiaries before these assets are made available for distribution to any guarantor, as direct or indirect shareholder. Accordingly, in the event that any non-guarantor subsidiary becomes subject to any foreclosure, dissolution, winding-up, liquidation, recapitalization, administrative or other bankruptcy or insolvency proceeding:
• the creditors of the Issuer (including the Noteholders) will have no right to proceed against the assets of such subsidiary; and
• creditors of such non-guarantor subsidiary, including trade creditors, will generally be entitled to payment in full from the sale or other disposal of the assets of such subsidiary before any guarantor, as direct or indirect shareholder, will be entitled to receive any distributions from such subsidiary.
We may not be able to obtain sufficient funds to finance an offer to repurchase the Notes upon the occurrence of certain events constituting a change of control as required by the Indenture.
Upon the occurrence of certain events constituting a change of control (as defined in the relevant Indenture), the Issuer is required to offer to repurchase all outstanding Notes issued by it at a purchase price in cash equal to 101% percent of the principal amount thereof on the date of purchase plus accrued and unpaid interest to the date of purchase. If a change of control were to occur, we cannot assure you that the Issuer would have sufficient funds available at such time to pay the purchase price of the outstanding Notes or that the restrictions in the Revolving Credit Facility or other then-existing contractual obligations of the Issuer would allow the Issuer to make such required repurchases. A change of control may result in an event of default under, or acceleration of, the Revolving Credit Facility, the Notes and other indebtedness or trigger a similar obligation to offer to repurchase loans or notes thereunder. The repurchase of the Notes pursuant to such an offer could cause a default under such indebtedness, even if the change of control itself does not. The Issuer’s ability to pay cash to the holders of the Notes following the occurrence of a change of control may be limited by our then-existing financial resources. Sufficient funds may not be available when necessary to make any required repurchases. If an event constituting a change of control occurs at a time when the Issuer is prohibited from repurchasing Notes, we may seek the consent of the lenders under such indebtedness to the purchase of Notes or may attempt to refinancing the borrowings that contain such prohibition. If we do not obtain such a consent or repay such borrowings, the Issuer will remain prohibited from repurchasing any tendered Notes. In addition, we expect that we would require third-party financing to make an offer to repurchase the Notes upon a change of control. We cannot assure you that we would be able to obtain such financing. Any failure by either Issuer to offer to purchase Notes would constitute a default under the relevant Indenture, which would, in turn, constitute a default under the Revolving Credit Facility and the Notes.
The change of control provision contained in the Indenture may not necessarily afford you protection in the event of certain important corporate events, including reorganization, restructuring, merger or other similar transaction involving us that may adversely affect you, because such corporate events may not involve a shift in voting power or beneficial ownership or, even if they do, may not constitute a “change of control” as defined in the Indenture. Except as described under “Description of Notes—Repurchase at the Option of Holders—Change of Control,” the Indenture does not contain provisions that require us to offer to repurchase or redeem the Notes in the event of a reorganization, restructuring, merger, recapitalization or similar transaction.
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The definition of “change of control” contained in the Indenture includes a disposition of all or substantially all of the assets of the relevant Issuer and its restricted subsidiaries taken as whole to any person. Although there is a limited body of case law interpreting the phrase “all or substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve a disposition of “all or substantially all” of the assets of the Issuer and its restricted subsidiaries taken as a whole. As a result, it may be unclear as to whether a change of control has occurred and whether the relevant Issuer is required to make an offer to repurchase the Notes issued by it.
The Guarantees of the Notes, along with any future guarantees of the Notes, will be subject to certain limitations on enforcement and may be limited by applicable law or subject to certain defenses that may limit their validity and enforceability.
The Issuer’s obligations under the Notes will be guaranteed by the Guarantors and secured by certain assets of some of the Issuer and the Guarantors. The Notes and the Guarantees and security may be subject to claims that they should be limited or subordinated in favor of the Issuer’s existing and future creditors under the laws of Brazil, Canada, France, Germany, Mexico, The Netherlands, Spain, Switzerland and the United States of America, or any other applicable jurisdiction.
Enforcement of each Guarantee and the relevant security will, where applicable, be limited to the extent of the amount which can be guaranteed or secured by a particular Guarantor without rendering the Guarantee, as it relates to that Guarantor, or security, voidable or otherwise ineffective under applicable law and without rendering the Guarantor insolvent or subject to any legal cause that would require it to be dissolved. These laws and defenses include those that relate to fraudulent conveyance or transfer, insolvency, voidable preference, financial assistance, corporate purpose or benefit, preservation of share capital, thin capitalization and defenses affecting the rights of creditors generally.
Although laws differ among various jurisdictions, in general, under fraudulent conveyance and similar laws, a court could subordinate or void any Guarantee or security provided by such Guarantor or any other person if it found that:
• the relevant Guarantee was incurred or the security was created with actual intent to hinder, delay or defraud creditors or shareholders of the Guarantor other person or to prefer one creditor over another or, in certain jurisdictions, even when the recipient was simply aware that the Guarantor or other person was insolvent when it issued the Guarantee or granted the security;
• the Guarantor or other person did not receive fair consideration or reasonably equivalent value for the Guarantee or security, and the Guarantor or other person:
• was insolvent, subsequently became insolvent or was rendered insolvent because of the Guarantee or security;
• was undercapitalized or became undercapitalized because of the Guarantee; or
• intended to incur, or believed that it would incur, debts beyond its ability to pay at maturity;
• the Guarantee or security was not in the best interests or for the benefit of the Guarantor or other person; or
• the amount paid was in excess of the minimum amount permitted under applicable law.
The measure of insolvency for purposes of fraudulent conveyance and similar laws varies depending on the law applied. Generally, however, a Guarantor or other person would be considered insolvent if it could not pay its obligations as they became due. In such circumstances, if a court voided such Guarantee or security, or held it unenforceable, Noteholders would cease to have any claim in respect of the Guarantor or other person and would be a creditor solely of the Issuer and the remaining Guarantors. Please see “Limitations on Validity and Enforceability of the Guarantees, the Notes Security and Certain Insolvency Law Considerations” on specific local law considerations, which may deviate from the above. If a court decides a Guarantee or security interest was a fraudulent conveyance and voids the Guarantee or security interest, or holds it unenforceable for any other reason, you may cease to have any claim in respect of the Guarantor or other person and would be a creditor solely of the Issuer and any remaining Guarantors. See “Limitations on Validity and Enforceability of the Guarantees, the Notes Security and Certain Insolvency Law Considerations.”
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Relevant insolvency and administrative laws may not be favorable to creditors, including holders of Notes, as the case may be, as insolvency laws of the jurisdictions in which you are familiar and may limit your ability to enforce your rights under the Notes, the Guarantees or the security interests in the collateral.
The Issuer is incorporated in Luxembourg, Swissport is organized in Switzerland and the Guarantors are incorporated or organized in Brazil, Canada, Germany, Mexico, The Netherlands, Switzerland and the United States of America. Some of our subsidiaries are incorporated or organized in jurisdictions other than those listed above and are subject to the insolvency laws of such jurisdictions. The insolvency laws of these jurisdictions may not be as favorable to your interests as creditors as the bankruptcy laws of the United States or certain other jurisdictions. In addition, there can be no assurance as to how the insolvency laws of these jurisdictions will be applied in relation to one another. In the event that any one or more of the Issuer or the Guarantors or the Issuer’s other subsidiaries experience financial difficulty, it is not possible to predict with certainty in which jurisdiction or jurisdictions insolvency or similar proceedings would be commenced, or the outcome of such proceedings. Applicable insolvency laws may affect the enforceability of the obligations and the security granted by the Issuer, the Guarantors and shareholders of them. Please see “Limitations on Validity and Enforceability of the Guarantees, the Notes Security and Certain Insolvency Law Considerations” for a summary of certain insolvency law considerations in some of the jurisdictions in which the Issuer and the Guarantors are or may be organized. Set forth below is a summary description of the insolvency laws of Switzerland. This description, as well as any other descriptions of insolvency law considerations in the jurisdictions of the Issuer and the Guarantors are only a summary and does not purport to be complete or to discuss all of the limitations or considerations that may affect the validity and enforceability of the Notes, the Guarantees and the security interests. Prospective investors in the Notes should consult their own legal advisors with respect to such limitations and considerations. See “Limitations on Validity and Enforceability of the Guarantees, the Notes Security and Certain Insolvency Law Considerations.”
Switzerland
Swissport and certain of its subsidiaries are organized under the laws of Switzerland. Consequently, in the event of a bankruptcy or insolvency event with respect to us or one of our subsidiaries, primary proceedings would likely be initiated in Switzerland. Swiss insolvency laws may make it difficult or impossible to effect a restructuring and the insolvency laws of Switzerland may not be as favorable to your interests as creditors as the laws of the United States or other jurisdictions with which you may be familiar.
The following is a brief description of certain aspects of insolvency laws in Switzerland. In the event that we or any of our Swiss subsidiaries experienced financial difficulty, it is not possible to predict with certainty in which jurisdiction or jurisdictions insolvency or similar proceedings would be commenced, or the outcome of such proceedings.
Pursuant to Swiss insolvency laws, your ability to receive payment under the Notes may be more limited than would be the case under U.S. or any other non-Swiss bankruptcy laws. Under Swiss law, the following types of proceedings (altogether referred to as insolvency proceedings) may be opened against an entity having its registered office or assets in Switzerland.
In the event of a Swiss entity’s insolvency, the respective insolvency proceedings would be governed by Swiss law as a result of such Swiss entity’s offices being registered in the competent commercial register in Switzerland. In addition, Swiss debt enforcement and insolvency laws may be applicable in case of an enforcement of security interests over assets of a foreign entity located in Switzerland. The enforcement of claims and questions relating to insolvency and bankruptcy in general are dealt with by the Swiss Federal Act on Debt Enforcement and Bankruptcy as amended from time to time. Under these present rules, claims that are pursued against a Swiss entity can lead to the opening of bankruptcy (Konkurs) and, hence, a general liquidation of all assets, even if located outside Switzerland, and liabilities of the debtor. However, with regard to assets located outside Switzerland, a Swiss bankruptcy decree is enforceable only if it is recognized at the place where such assets are located. If bankruptcy has not been declared, creditors secured by a pledge must follow a special enforcement proceeding limited to the liquidation of the collateral (Betreibung auf Pfandverwertung) unless the parties have agreed on a private liquidation. However, if bankruptcy is declared while such a special enforcement proceeding is pending, the proceeding ceases and the creditor participates in the bankruptcy proceedings with the other creditors and a private liquidation is no longer permitted.
As a rule, the opening of bankruptcy by the competent court needs to be preceded by a prior debt enforcement procedure which involves, inter alia, the issuance of a payment summons by local debt enforcement authorities (Betreibungsamt). However, the competent court may also declare a debtor bankrupt without such prior proceedings if the following requirements are met: (i) at the request of the debtor, if the debtor’s board of directors or the auditors of the company (in case of failure of the board of directors) declare that the debtor is overindebted (überschuldet) within the meaning of art. 725 (2) of the Swiss Code of Obligations (or the corresponding provision of the Swiss Code of Obligations in case of a limited liability company (GmbH)) or if it declares to be insolvent (zahlungsunfähig), and (ii) at the request of a creditor, if the debtor commits certain acts to the detriment of its creditors or ceases to make payments (Zahlungseinstellung) or if certain events happen during composition proceedings. The bankruptcy proceedings are carried out and the bankrupt estate is managed by the receiver in bankruptcy (Konkursverwaltung).
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All assets at the time of the declaration of bankruptcy and all assets acquired or received subsequently form the bankrupt estate, which after deduction of costs and certain other expenses, is used to satisfy the creditors. Assets of the bankrupt estate over which a pledge was created in favor of a creditor before the declaration of bankruptcy are included in the bankrupt estate. The pledgee is under an obligation to remit the pledged assets to the bankrupt estate. The assets are liquidated by the receiver in bankruptcy in the same manner as the other assets of the bankrupt estate, but the creditor secured by the pledge retains its privilege to be satisfied from the proceeds of the liquidation of the assets pledged to it with priority over the unsecured creditors. Final distribution of non-secured claims is based on a ranking of creditors in three classes. The first and the second class, which are privileged, comprise claims under employment contracts, accident insurance, pension plans and family law. Certain privileges can also be claimed by the government and its subdivisions based on specific provisions of federal law. All other creditors are treated equally in the third class. A secured party participates in the third class to the extent its claim is not covered by its collateral.
Claims assigned for security purposes by a Swiss entity that come into existence prior to the opening of bankruptcy can be enforced by the assignee outside Swiss bankruptcy proceedings. Assigned claims that come into existence after the opening of bankruptcy over a Swiss entity may fall within the bankrupt estate and the assignee may not be entitled to such claim proceeds.
Swiss insolvency laws also provide for reorganization procedures by composition with the debtor’s creditors. Reorganization is initiated by a request with the competent court for a stay (Nachlassstundung) pending negotiation of the composition agreement with the creditors and confirmation of such agreement by the competent court. A distinction is made between a composition agreement providing for the assignment of assets (Nachlassvertrag mit Vermögensabtretung) which leads to a private liquidation and in many instances has analogous effects as a bankruptcy, and a dividend composition (Dividenden-Vergleich) which provide for the payment of a certain percentage on the creditors’ claims and the continuation of the debtor. Further, there is the possibility of a composition in the form of a mere payment term extension (Stundungsvergleich). During a moratorium, debt collection proceedings cannot be initiated and pending proceedings are stayed. Furthermore, the debtor’s power to dispose of its assets and to manage its affairs is restricted. In case of a pledge, the secured party is not entitled to proceed with a private liquidation until the confirmation of the settlement by the competent court. A secured creditor participates in the settlement only for the amount of its claim not covered by the collateral. The moratorium does not affect the agreed due dates of debts (contrary to bankruptcy, in which case all debts become immediately due upon adjudication). The moratorium aims at facilitating the conclusion of one of the above composition agreements. Any composition agreement needs to be approved by the creditors and confirmed by the competent court. With the judicial confirmation, the composition agreement becomes binding on all creditors, whereby secured claims are only subject to the composition agreement to the extent that the collateral proves to be insufficient to cover the secured claims.
Foreign bankruptcy decrees issued in the country of a debtor’s domicile may be recognized in Switzerland only provided that (i) the bankruptcy decree is enforceable in the country where it was issued, (ii) its recognition is, inter alia, not against Swiss public policy, and (iii) the country which issued the bankruptcy decree grants reciprocity to Switzerland.
Transfers of the Notes are restricted, which may adversely affect the value of the Notes.
The Notes are being offered and sold pursuant to an exemption from registration under the U.S. Securities Act and applicable state securities laws of the United States. The Notes have not been and will not be registered under the U.S. Securities Act or any U.S. state securities laws. Therefore you may not transfer or sell the Notes in the United States except pursuant to an exemption from, or a transaction not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws, or pursuant to an effective registration statement, and you may be required to bear the risk of your investment in the Notes for an indefinite period of time. The Notes and the Indenture governing the Notes contain provisions that restrict the Notes from being offered, sold or otherwise transferred except pursuant to the exemptions available pursuant to Rule 144A and Regulation S under the U.S. Securities Act, or other exemptions under the U.S. Securities Act. In addition, by acceptance of delivery of any Notes, the holder thereof agrees on its own behalf and on behalf of any investor accounts for which it has purchased the Notes that it shall not transfer the Notes in an aggregate principal amount of less than CHF 150,000 or $150,000, as the case may be. Furthermore, we have not registered the Notes under any other country’s securities laws. It is your obligation to ensure that your offers and sales of the Notes within the United States and other countries comply with applicable securities laws. See “Notice to Investors.”
You may be unable to recover in civil proceedings for U.S. securities laws violations.
The Issuer is organized under the laws of Luxembourg and the Guarantors are organized under the laws of Brazil, Canada, France, Germany, Mexico, The Netherlands, Spain, Switzerland and the United States of America. It is anticipated that some or all of the directors and executive officers of the Issuer and each of the Guarantors will be non-residents of the United States and that some of their assets will be located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon the Issuer, the Guarantors or its or
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their respective directors and executive officers, or to enforce any judgments obtained in U.S. courts predicated upon civil liability provisions of the U.S. securities laws. In addition, neither the Issuer nor the Guarantors assure you that civil liabilities predicated upon the federal securities laws of the United States will be enforceable in any of the above mentioned jurisdictions, other than the United States of America. See “Enforcement of Judgments.”
The Notes will initially be held in book-entry form, and therefore you must rely on the procedures of the relevant clearing systems to exercise any rights and remedies.
The Notes will initially only be issued in global certificated form and held through Euroclear and Clearstream.
Interests in the global notes will trade in book-entry form only, and the Notes in definitive registered form, or definitive registered notes, will be issued in exchange for book-entry interests only in very limited circumstances. Owners of book-entry interests will not be considered owners of the Notes. The common depositary, or its nominee, for Euroclear and Clearstream will be the sole registered holder of the global-notes representing the Notes. Payments of principal, interest and other amounts owing on or in respect of the global notes representing the Notes will be made to, as paying agent, which will make payments to Euroclear and Clearstream. Thereafter, these payments will be credited to participants’ accounts that hold book-entry interests in the global notes representing the Notes and credited by such participants to indirect participants. After payment to the common depositary for Euroclear and Clearstream, we will have no responsibility or liability for the payment of interest, principal or other amounts to the owners of book-entry interests. Accordingly, if you own a book-entry interest, you must rely on the procedures of Euroclear and Clearstream, and if you are not a participant in Euroclear or Clearstream, on the procedures of the participant through which you own your interest, to exercise any rights and obligations of a holder of the Notes under the Indenture.
Unlike the holders of the Notes themselves, owners of book-entry interests will not have the direct right to act upon our solicitations for consents, requests for waivers or other actions from holders of the Notes. Instead, if you own a book-entry interest, you will be permitted to act only to the extent you have received appropriate proxies to do so from Euroclear or Clearstream. The procedures implemented for the granting of such proxies may not be sufficient to enable you to vote on a timely basis.
Similarly, upon the occurrence of an event of default under the Indenture, unless and until definitive registered Notes are issued in respect of all book-entry interests, if you own a book-entry interest, you will be restricted to acting through Euroclear and Clearstream. The procedures to be implemented through Euroclear and Clearstream may not be adequate to ensure the timely exercise of rights under the Notes. See “Book-Entry, Delivery and Form.”
There may not be an active trading market for the Notes in which case your ability to sell the Notes will be limited.
We cannot assure you as to:
• the liquidity of any market in the Notes;
• your ability to sell your Notes; or
• the prices at which you would be able to sell your Notes.
Future trading prices of the Notes will depend on many factors, including, among other things, prevailing interest rates, our operating results and the market for similar securities. Historically, the market for non-investment grade securities has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the Notes. The liquidity of a trading market for the Notes may be adversely affected by a general decline in the market for similar securities and is subject to disruptions that may cause volatility in prices. It is possible that the market for the Notes will be subject to disruptions. Any such disruption may have a negative effect on you, as a holder of Notes, regardless of our prospects and financial performance. As a result, there may not be an active trading market for the Notes. If no active trading market develops, you may not be able to resell your Notes at a fair value, if at all.
Although the Issuer will, in the Indenture, agree to use its reasonable best efforts to have the Notes listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the Euro MTF Market of that exchange within a reasonable period after the issue date of the Notes and to maintain such listing as long as the Notes are outstanding, the Issuer cannot assure you that the Notes will become, or remain, listed. If the Issuer can no longer maintain the listing on the Official List of the Luxembourg Stock Exchange and the admission to trading on the Euro MTF Market of that exchange or it becomes unduly burdensome to make or maintain such listing, the issuer may cease to make or maintain such listing on the Official List of the Luxembourg Stock Exchange, provided that it will use reasonable best efforts to obtain and maintain the listing of the Notes on another stock exchange although there can be no assurance that the Issuer will be able to do so. Although no assurance is made as to the liquidity of the Notes as a result of listing on the Official List of the Luxembourg Stock Exchange or another recognized listing exchange for high yield issuers in accordance with the Indenture, failure to be approved for listing or the delisting of the Notes from the Official List of the Luxembourg Stock Exchange or another listing exchange in accordance with the Indenture may have a material adverse effect on a holder’s ability to resell Notes in the secondary market.
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Risks Relating to the Transactions
The Acquisition is subject to significant uncertainties and risks.
On November 1, 2010, PAI entered into a share purchase agreement with Ferrovial to acquire all the issued and outstanding capital stock of the Issuer. The consummation of the Acquisition pursuant to the share purchase agreement is subject to the conditions as set out therein.
Substantially concurrent completion of the Acquisition is one of the conditions to release of the proceeds from the Offering of the Notes from escrow. If the Acquisition is not consummated for any reason prior to March 2, 2011 and, as a result, the proceeds from the sale of the Notes to be held in escrow are not released, the Issuer will be required to redeem the Notes pursuant to the terms of the special mandatory redemption, and you may not obtain the investment return you expect on the Notes. PAI will contribute an amount in cash equal to the interest that would accrue on the Notes from the Issue Date to the special mandatory redemption date. However, there can be no assurance that interest and additional amounts, if any, accrued while the proceeds remain in escrow will be paid in a timely fashion, if at all.
The Issuer does not currently control Swissport and its subsidiaries and will not control Swissport and its subsidiaries until completion of the Acquisition.
Swissport and its subsidiaries are currently controlled by Ferrovial. We will not obtain control until completion of the Acquisition. We cannot assure you that Ferroval will operate the Swissport business during the interim period in the same way that we would. The information contained in this Offering Memorandum has been derived from public sources and, in the case of historical information relating to Swissport and its subsidiaries, has been provided to us by Ferrovial, Swissport and its subsidiaries, and we have relied on such information supplied to us in its preparation. Further, the Transactions themselves have required, and will likely continue to require, substantial amounts of management’s time and focus, which could adversely affect their ability to operate the business. Likewise, other employees may be uncomfortable with the Transaction or feel otherwise affected by it, which could have an impact on work quality and retention.
In addition, prior to the Completion Date, neither Swissport nor any of its subsidiaries will be subject to the covenants described in “Description of Notes” to be included in the Indenture. As such, we cannot assure you that, prior to such date, Swissport or any of its subsidiaries will not take an action that would otherwise have been prohibited by the Indenture had those covenants been applicable.
If the conditions to the escrow are not satisfied, the Issuer will be required to redeem the Notes, which means that you may not obtain the return you expect on the Notes.
The gross proceeds from the offering along with an amount equal to the interest that would accrue on the Notes from the Issue Date to the special mandatory redemption date will be held in escrow pending the satisfaction of certain conditions, some of which are outside of our control. If any of these conditions is not satisfied, the escrow will not be released. Accordingly, there can be no assurance that the escrow will be released. Upon delivery to the escrow agent of an officer’s certificate stating that the conditions to the escrow are satisfied, the escrowed funds will be released to the relevant Issuer and utilized as described in “Use of Proceeds.” See “Description of Notes—Escrow of Proceeds; Special Mandatory Redemption.”
Prior to the satisfaction of the conditions to release of the escrow proceeds, the gross proceeds of the offering of the Notes along with an amount equal to the interest that would accrue on the Notes from the Issue Date to the special mandatory redemption date will be held in an escrow account on behalf of the holders of the Notes. If the Acquisition does not occur by March 2, 2011 or in the event of certain other events that trigger escrow termination, the Notes will be subject to a special mandatory redemption as described in “Description of Notes—Escrow of Proceeds; Special Mandatory Redemption” and you may not obtain the return you expect to receive on the Notes.
Your decision to invest in the Notes is made at the time of purchase. Changes in our business or financial condition, or the terms of the Acquisition or the financing thereof, between the closing of this offering and the Completion Date, will have no effect on your rights as a purchaser of the Notes.
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THE TRANSACTIONS
The Acquisition
On November 1, 2010, Global Lisimaco, S.L., an entity beneficially owned by PAI, entered into a share purchase agreement with Ferrovial to acquire all of the issued and outstanding capital stock of Swissport (the “Acquisition”). On December 23, 2010, the share purchase agreement was amended such that all of Global Lisimaco, S.L.’s rights were assigned to the Issuer. The consummation of the Acquisition pursuant to the Acquisition Agreement is subject to certain conditions.
The Issuer, a société anonyme incorporated and existing under the laws of Luxembourg, is a wholly owned subsidiary of Aguila 2 S.A., a société anonyme incorporated and existing under the laws of Luxembourg. Each of the Issuer and Aguila 2 S.A. were formed to facilitate the Transactions.
The Financing
The Purchase Price in the Acquisition is expected to be approximately CHF 894 million, excluding transaction fees and expenses. The Acquisition will be financed as follows:
• PAI and certain co-investors will contribute indirectly CHF 450 million to the Issuer through a combination of equity and perpetual preferred equity certificates (the “PPECs”) (together, the “Equity Contribution”);
• the Issuer will issue the Notes in the amount of CHF 753.2 million (equivalent); and
• cash on hand at Swissport.
The proceeds from the Equity Contribution, the Notes and such cash will be used to:
• purchase from Ferrovial the outstanding share capital of Swissport as well as certain receivables held by Ferrovial, the counterparties of which are subsidiaries of Swissport;
• repay certain outstanding indebtedness of Swissport and its subsidiaries; and
• pay the fees and expenses in connection with the Acquisition, the Offering and the entry into our new Revolving Credit Facility.
For a description of the PPECs, see “Description of Certain Financing Arrangements—Perpetual Preferred Equity Certificates.”
Pending the consummation of the Acquisition, the initial purchasers will deposit the gross proceeds from the Offering of the Notes into an escrow account and PAI will contribute into the same escrow account an amount in cash equal to the interest that would accrue on the Notes from the Issue Date to the special mandatory redemption date, for the benefit of the holders of the Notes. The holders of the Notes will also benefit from a security interest over the rights of the Issuer, under the escrow agreement and escrow account. The release of escrow proceeds is subject to the satisfaction of certain conditions, including the substantially concurrent closing of the Acquisition and the granting of certain guarantees and security for the Notes. If the Acquisition is not consummated prior to March 2, 2011, the Notes will be subject to a special mandatory redemption. The special mandatory redemption price will be a price equal to 100% of the aggregate issue price of the Notes plus accrued and unpaid interest and additional amounts, if any, from the relevant Issue Date. See “Description of Notes—Escrow of Proceeds; Special Mandatory Redemption.”
We refer to the Acquisition and the Financing collectively as the “Transactions.” See “Use of Proceeds,” “Capitalization,” “Description of Certain Financing Arrangements,” and “Description of Notes.”
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USE OF PROCEEDS
We estimate that the gross proceeds from the sale of the Notes offered hereby will be equivalent to approximately CHF 753.2 million. Pending the consummation of the Acquisition, the initial purchasers will deposit the gross proceeds from the Offering of the Notes into an escrow account.
To finance the acquisition, PAI and certain co-investors, through the use of intermediate holding companies, will make an equity contribution in the amount of CHF 450 million to the Issuer.
Upon release from escrow of the proceeds from the sale of the Notes, the Issuer intends to use the proceeds from the Offering, together with the proceeds from the Equity Contribution and cash on hand at Swissport to (i) fund the consideration to be paid for the capital stock of Swissport as well as certain receivables held by Ferrovial, the counterparties to which are subsidiaries of Swissport, (ii) repay existing indebtedness of Swissport and (iii) pay the estimated fees and expenses incurred in connection with the Acquisition, the Offering and the entry into our new Revolving Credit Facility, including underwriting fees and commissions, financial advisory and other transaction costs and professional fees. See “The Transactions—The Financing.”
Sources and Uses for the Transactions
The expected estimated sources and uses of the funds necessary to consummate the Transactions (including the Acquisition) are shown in the table below. Actual amounts will vary from estimated amounts depending on several factors, including differences from our estimates of fees and expenses on the Completion Date, fluctuations in foreign currency exchange rates and cash flow generated by Swissport up to the Completion Date. Any changes in these amounts may affect the amount of the Equity Contribution.
Sources of Funds Uses of Funds (CHF in millions)
Notes offered hereby(1).............................................. 753 Acquisition purchase price(2) .................................. 894Equity Contribution .................................................. 450 Repayment of existing indebtedness(3) ................... 362Use of existing cash .................................................. 123 Total transaction costs(4)......................................... 70Total sources ........................................................... 1,326 Total uses .............................................................. 1,326
(1) The amounts shown reflect the actual issuance of CHF 350 million in CHF Notes and $425 million in Dollar
Notes. The Dollar Notes have been converted into Swiss francs at a rate of 0.9487 Swiss francs to $1.00, the exchange rate as of the date of this Offering Memorandum.
(2) The acquisition purchase price includes the price paid to purchase the capital stock of Swissport as well as certain receivables held by Ferrovial, the counterparties to which are subsidiaries of Swissport. This price is equivalent to the net of the CHF 900 million payable to Ferrovial to purchase such shares and receivables minus approximately CHF 6 million in intercompany debt owed from Ferrovial to Swissport.
(3) Concurrently with the offering of the Notes, we will terminate Swissport’s existing syndicated credit facility (including the existing revolving credit facility).
(4) Estimated fees and expenses associated with the Acquisition, the Offering and the entry into our new Revolving Credit Facility include underwriting fees and commissions, financial advisory and other transaction costs and professional fees.
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CAPITALIZATION
The following table sets forth, in each case, the consolidated cash and cash equivalents and the capitalization as of September 30, 2010, of:
• Swissport on a historical basis, as of September 30, 2010; and
• adjusted to give pro forma effect to the Transactions as described in “Use of Proceeds” and the treatment of Swissport Israel as an “Unrestricted Subsidiary” for purposes of the Indenture.
You should read this table in conjunction with “The Transactions,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Certain Financing Arrangements,” “Description of Notes,” and the consolidated financial statements and the accompanying notes of Swissport appearing elsewhere in this Offering Memorandum. Except as set forth, there have been no other material changes to our capitalization since September 30, 2010.
As of September 30, 2010 Actual Adjustments As Adjusted
Unaudited
(CHF in thousands) Cash and cash equivalents(1) .................................................................................. 193,016 (123,123) 69,893
Existing indebtedness repaid at closing(2) ................................................................. 361,875 (361,875) —Finance leases(3) ........................................................................................................ 16,348 — 16,348Other indebtedness(4)................................................................................................. 67,542 (39,714) 27,828Shareholder’s loan .................................................................................................... 135,706 (135,706) —Notes offered hereby(5).............................................................................................. — 753,198 753,198Total gross debt(6).................................................................................................... 581,471 215,903 797,374Unamortized funding costs(7) .................................................................................... (7,613) (24,112) (31,725)Total shareholder’s equity(8) ..................................................................................... 10,813 439,187 450,000Total capitalization ................................................................................................. 584,671 630,978 1,215,649
(1) Adjustments concerning cash and cash equivalents includes cash on hand used in connection with the
Transactions and excludes Swissport Israel’s cash and cash equivalents at CHF 0.4 million as of September 30, 2010.
(2) As part of the Transactions, all outstanding indebtedness under Swissport’s existing syndicated credit facility will be repaid (including the existing revolving credit facility).
(3) Includes finance leases primarily related to equipment.
(4) This amount includes amounts outstanding under local facilities that will remain outstanding after the consummation of the Acquisition. Adjustments concerning other indebtedness relates to the treatment of Swissport Israel as an “Unrestricted Subsidiary” (as defined under “Description of Notes”). Swissport Israel’s indebtedness under its credit facility and its third party shareholder loan, amounted to, as of September 30, 2010, respectively, CHF 34.0 million and CHF 5.7 million.
(5) The amounts shown reflect the actual issuance of CHF 350 million in CHF Notes and $425 million in Dollar Notes. The Dollar Notes have been converted into Swiss francs at a rate of 0.9487 Swiss francs to $1.00, the exchange rate as of the date of this Offering Memorandum.
(6) For the purposes of the financial information presented in the table above, we have assumed that the Revolving Credit Facility will remain undrawn. As Adjusted total gross debt amount will not equal the consolidated gross debt of the Issuer due to exclusion of Swissport Israel as discussed in footnote (4).
(7) As Adjusted figure represents capitalization of estimated debt issuance costs in relation to the Senior Secured Notes and the Revolving Credit Facility.
(8) Includes the Equity Contribution, which includes equity and PPECs. See “Description of Certain Financing Arrangements—Perpetual Preferred Equity Certificates.”
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The tables below set forth the following selected consolidated financial information:
• selected consolidated income statement, balance sheet and cash flow information of Swissport as of and for the years ended December 31, 2007, 2008 and 2009; and
• selected unaudited condensed consolidated income statement, balance sheet and cash flow information of Swissport as of and for the nine-month period ended September 30, 2010, comparative summary unaudited condensed consolidated income statement and cash flow information for the nine-month period ended September 30, 2009.
The selected consolidated income statement, balance sheet and cash flow information for Swissport set forth below as of and for the years ended December 31, 2007, 2008 and 2009 was extracted without material adjustment from the audited consolidated financial statements of Swissport, prepared in accordance with IFRS and included elsewhere in this Offering Memorandum. The selected unaudited condensed consolidated income statement, balance sheet and cash flow information set forth below for Swissport as of and for the nine months ended September 30, 2010 and comparative summary unaudited condensed consolidated income statement and cash flow information for the nine-month period ended September 30, 2009 was extracted without material adjustment from the unaudited condensed consolidated interim financial statements of Swissport as of September 30, 2010, prepared in accordance with IAS 34 and included elsewhere in this Offering Memorandum.
The financial information for the nine months ended September 30, 2010 is not necessarily indicative of the results that may be expected for the year ended December 31, 2010, and should not be used as the basis for or prediction of an annualized calculation.
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Selected Income Statement Information:
Year ended December 31, Nine months ended
September 30, 2007(1) 2008(1) 2009 2009 2010 Unaudited (CHF in thousands) (CHF in thousands)
Continuing Operations Revenue ....................................................................... 1,752,920 1,712,559 1,584,550 1,179,326 1,262,072Other operating income ............................................... 63,575 75,951 59,322 44,987 42,383
Total revenue and other operating income............... 1,816,495 1,788,510 1,643,872 1,224,313 1,304,455Goods and services purchased ..................................... (310,766) (300,250) (258,821) (190,887) (208,808)Personnel expenses ...................................................... (1,141,732) (1,109,172) (1,032,970) (783,566) (790,434)Other operating expenses............................................. (268,455) (264,302) (234,441) (170,795) (201,152)Depreciation and impairment of property,
vehicles and equipment............................................ (27,075) (27,752) (32,254) (25,222) (21,272)Amortization and impairment of intangible
assets........................................................................ (3,922) (4,179) (1,326) (1,021) (1,029)Total operating expenses ......................................... (1,751,950) (1,705,655) (1,559,812) (1,171,491) (1,222,695)Operating profit ....................................................... 64,545 82,855 84,060 52,822 81,760
Finance expense........................................................... (38,832) (40,931) (25,751) (18,194) (22,089)Finance income............................................................ 12,004 13,036 20,159 16,680 17,558
Net finance expense ................................................. (26,828) (27,895) (5,592) (1,514) (4,531)Share of (losses)/profits from associates and
jointly controlled entities ......................................... 3,561 2,893 (275) 753 1,955Gain on sale of subsidiary............................................ 457 — — — —Loss on sale of disposal group ..................................... (2,035) — — — —Profit before IFRS 3.65 adjustment to goodwill
and income tax......................................................... 39,700 57,853 78,193 52,061 79,184IFRS 3.65 adjustment to goodwill ............................... (699) (2,260) (9,244) (9,244) —Profit before income tax .............................................. 39,001 55,593 68,949 42,817 79,184Income tax (expense)/credit......................................... (18,998) 7,647 14,003 19,484 (25,013)
Net profit for the period from continuing operations............................................................. 20,003 63,240 82,952 62,301 54,171
Discontinued operations Net loss for the period from discontinued
operations................................................................. (809) (6,163) (11,382) (11,382) —Net profit for the period ........................................... 19,194 57,077 71,570 50,919 54,171
Attributable to: Holder’s of the company’s equity............................ 11,972 51,732 62,744 44,645 48,243Minority interests..................................................... 7,222 5,345 8,826 6,274 5,928
(1) As restated.
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Selected Balance Sheet Information:
As of December 31, As of
September 30, 2007(1) 2008(1) 2009 2010 Unaudited
(CHF in thousands) (CHF in
thousands) Assets Non-current assets Property, vehicles and equipment ............................................................. 146,802 145,722 154,040 154,752Goodwill ................................................................................................... 121,557 104,018 96,750 91,911Other intangible assets .............................................................................. 15,427 11,034 13,385 12,553Investments in associates and jointly controlled entities .......................... 16,389 16,291 14,559 14,094Deferred income tax assets ....................................................................... 26,169 42,980 63,159 51,504Long-term employee benefit assets .......................................................... 102,587 — 33,253 18,745Trade and other receivables ...................................................................... 176,145 196,381 213,350 213,770
Total non-current assets ........................................................................ 605,076 516,426 588,496 557,329Current assets Inventories ................................................................................................ 5,666 5,072 4,486 4,476Trade and other receivables ...................................................................... 382,845 315,279 267,302 272,962Available-for-sale financial assets ............................................................ 950 1,023 1,025 831Derivative financial instruments ............................................................... — — 44 —Cash and cash equivalents ........................................................................ 85,166 123,295 145,729 193,016Assets of disposal group held for sale....................................................... — 8,881 — —
Total current assets ............................................................................... 474,627 453,550 418,586 471,285Total assets ........................................................................................... 1,079,703 969,976 1,007,082 1,028,614
Equity Equity attributable to holders of company’s equity .................................. 61,237 (8,510) 84,073 10,813Minority interests...................................................................................... 21,531 20,066 23,950 25,105
Total equity........................................................................................... 82,768 11,556 108,023 35,918Liabilities Non-current liabilities Borrowings ............................................................................................... 507,555 505,066 401,589 524,103Provisions for other liabilities and charges ............................................... 78,375 56,501 49,589 44,522Long-term employee benefit obligations .................................................. 36,626 42,774 41,275 41,129Deferred income ....................................................................................... 11,292 9,142 5,323 4,832Deferred income tax liabilities.................................................................. 31,994 10,039 10,133 6,814
Total non-current liabilities .................................................................. 665,842 623,522 507,909 621,400Current liabilities Borrowings ............................................................................................... 10,460 19,664 88,699 49,756Derivative Financial Instruments.............................................................. — — — 138Provisions for other liabilities and charges ............................................... 25,524 23,884 26,866 30,936Deferred income ....................................................................................... 545 1,025 2,817 2,790Current income tax liabilities.................................................................... 8,074 5,274 10,027 13,420Trade and other payables .......................................................................... 286,490 276,907 262,741 274,256Liabilities of disposal group held for sale................................................. — 8,144 — —
Total current liabilities.......................................................................... 331,093 334,898 391,150 371,296Total liabilities ...................................................................................... 996,935 958,420 899,059 992,696Total equity and liabilities .................................................................... 1,079,703 969,976 1,007,082 1,028,614
(1) As restated.
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Selected Cash Flow Statement Information:
Year ended December 31, Nine months ended
September 30, 2007(1) 2008(1) 2009 2009 2010 Unaudited (CHF in thousands) (CHF in thousands)
Cash Flow Statement Data: Total cash flow from operating activities ............................................. 32,085 101,720 106,218 81,738 93,228Total cash flow from investing activities.............................................. (55,713) (51,130) (39,638) (29,313) (52,078)Total cash flow from financing activities ............................................. 19,691 (3,032) (45,343) (40,866) (18,391)Net increase (decrease) in unrestricted cash and cash equivalents ....... (3,937) 47,558 21,237 11,559 22,759
(1) As restated.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is based upon our consolidated financial statements prepared in accordance with IFRS, and should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Offering Memorandum. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, which are based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Offering Memorandum, particularly in “Risk Factors” and “Forward-Looking Statements.”
Overview
We are the largest independent ground handler based on revenue and number of stations and the second largest cargo handler based on tons of cargo handled. We offer our customers a full-range of value-added aviation services in our ground handling and cargo handling services and our personnel can be found throughout the airports in which we operate, both in passenger-facing roles, such as at check-in counters and security screening, as well as in logistical roles, such as baggage handling and aircraft services. Our services are innovative and flexible and are designed to meet our customers’ needs on both a local and global scale throughout our network. We believe that we are at the forefront of technological advancements in our industry and were among the first independent global aviation service providers to offer web check-in, mobile check-in, advanced security procedures and various other innovative aviation services. We are also flexible to our customers’ needs and to changes in the aviation landscape. We offer a full suite of aviation services, as well as more bespoke, customized services for clients, such as low cost carriers. For the nine months ended September 30, 2010, our consolidated revenues were CHF 1,262.1 million, a 7.0% increase over the same period in 2009, our EBITDA was CHF 104.1 million, a 31.6% increase over the same period in 2009 and our EBITDA Margin was 8.0%, a 23.5% increase over the same period in 2009.
We group the services that we provide into the following two categories:
• Ground Handling. Our ground handling services generated 77.9% of our total revenue and 84.0% of EBITDA for the nine months ended September 30, 2010. Our core ground handling services include ramp and passenger handling, baggage services, lounge and ticketing supervision, cabin cleaning, deicing, e-services, passenger reduced mobility (“PRM”) handling and executive aviation. We also offer specialty services which are complementary to our ground handling services. These services include fueling, aircraft maintenance and aviation security.
• Cargo Handling. Our cargo handling services generated 22.1% of our total revenue and 16.0% of EBITDA for the nine months ended September 30, 2010. Our cargo handling services include physical import and export handling of cargo, warehousing and storage of cargo, document handling, trucking and mail handling.
Key Factors Affecting Our Businesses
Overview
We generate substantially all of our revenue through service contracts with our customers, in which we offer a range of services through our two lines of business: ground handling and cargo handling. Our operating and financial results are affected by a number of factors, including the fact that our results of operations are highly correlated to the health of the aviation industry, the effect of specific events that affect the aviation industry, the increase of low cost carriers in the market, the increase of deregulation in the aviation industry and the recent trend in outsourcing of ground handling and cargo handling services within the aviation services industry.
Our Results of Operations are Highly Correlated to the Health of the Aviation Industry
Our results of operations are highly correlated to the health of the aviation industry. The health of the aviation industry is highly correlated to general economic conditions, which cause cyclical trends in the aviation industry. Therefore, any cyclical trends on the aviation industry will affect our business as well. In general, revenues in the aviation industry are based on passenger volume and the mixture of premium and economy class seating, with a higher weighting towards premium seating being more profitable for the aviation industry. A substantial portion of our ground handling revenue, however, is correlated to turnaround, or flight frequency. This revenue stream is based on flight frequency primarily because our ground services contracts are based on payment from our customers based on the number of flights, not on the number of travelers on an aircraft or the passenger class mix. Flight frequency is generally less volatile than passenger volume, primarily because airlines are often reluctant to cancel routes, and may instead
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utilize smaller aircraft to adapt to lower passenger volume. Also, airlines may be reluctant to forfeit gate space, which may occur if they cancel flights. Therefore, where cyclical trends may adversely affect the airline industry by reducing the number of travelers and the number of premium class bookings, such factors do not directly impact our results of operations. While a reduction in airline passengers may cause airlines to close routes, we can often foresee this risk because there is generally a delay between the reduction of passengers and the closing of routes. Once such a risk is evident, we can seek to mitigate such risk by appropriate downsizing and other such measures. Unlike a reduction in airline passengers, there is no such delay between an increase in passenger numbers and the need to provide sufficient ground handling personnel to accommodate higher passenger and aircraft volumes. We can quickly respond to these needs by outsourcing certain of our ground and cargo handling services to third parties, a move which we believe allows us to remain flexible throughout any cyclical trends in the aviation industry, thereby allowing us to maximize productivity and workforce utilization.
Certain Events can have a Direct Impact on the Aviation Industry
Certain events, ranging from economic crises, to terrorist attacks, like the September 11, 2001 attacks, to natural disasters and other phenomena like volcanic ash clouds, floods and forest fires, to epidemics such as SARS and swine flu, to employment issues, including airport and air traffic personnel strikes, can have a direct impact on the aviation industry. As mentioned above, our results of operations are highly correlated to the health of the aviation industry and thus any negative impact on the aviation industry caused by these events, can adversely affect our business.
The global economic crisis has had a negative impact on the aviation industry over the past few years, which impact was felt the hardest in 2009. Not all geographic areas suffered to the same degree during the global economic crisis. For instance, the emerging markets have fared better on the whole and are also recovering more quickly than more seasoned markets. Our global diversified presence has helped mitigate some of the effects of the global economic crisis, and, because we have operations in a variety of emerging markets, including South America, Africa, Asia and the Middle East, we have been able to capitalize on that growth and mitigate the effects of the global economic crisis.
The Eyjafjallajökull volcanic eruption in Iceland in 2010 resulted in the grounding of aircraft, flight cancellations and substantial air travel disruptions during the months of April and May. The European Organisation for the Safety of Air Navigation, an intergovernmental organization made up of 38 European member states, reported that air space closures in Europe resulted in the cancellation of over 100,000 flights during a seven-day period. While our ground handling services are insulated from risks associated with decreases in passenger volumes, events such as the Eyjafjallajökull volcanic eruption, that cause flight cancellations, have a direct impact on our results of operations because our businesses and service offerings depend upon the movement of aircraft.
Despite the global economic crisis and other factors that have negatively impacted the aviation industry such as the September 11, 2001 attacks, SARS, swine flu, the volcanic ash cloud that closed European airspace in the spring of 2010, the aviation industry has proven resilient in recent years. Throughout 2010, many carriers have reported rising seat load factors along with more frequencies coupled with rising demand for air flight. We have also seen a continuation in three industry trends that we believe will continue throughout 2011. These trends include an increase in low cost carriers, market liberalization and a focus on productivity and efficiency.
The Increase of Low Cost Carriers
Low cost carriers, such as Ryanair, easyJet and GOL, are gaining market share worldwide and have achieved significant growth in recent years. In Europe, as of December 31, 2009, one seat in three was being sold by a low cost carrier. We have capitalized on the growth in the market of low cost carriers by entering into contracts with Ryanair, easyJet and GOL, who are all among our 10 largest customers. For the nine months ended September 30, 2010, low cost carriers accounted for over 10% of our total ground handling revenues.
The growth of the low cost carrier market is seen by some market participants as a risk to profitability because such carriers require fewer traditional handling services. Notwithstanding, we believe the growth of this market can provide new opportunities for us, upon which we have sought to capitalize and will continue to seek to capitalize. The lean organizational structure of low costs carriers coupled with our customizable service offering and high productivity achievements are a very good match. As a leading global airport and aviation provider with operations in 176 airports and 38 countries worldwide as of December 31, 2009, we are well positioned to offer global contracts with low cost carriers and have sought, and will continue to seek, to do so.
While low cost carriers operate on lower margins and require fewer needs than more traditional multinational carriers, they also create new revenue streams on which we have and will continue to capitalize. The low cost carrier model is based on commissions which aim to increase indirect revenue per passenger through various additional charges related to check-in, boarding and baggage. For example, low cost carriers may charge additional fees for checked baggage, additional carry on baggage or failure to check in electronically prior to arriving at the airport. Swissport provides personnel such as gate agents to various low cost carriers to administer and collect these additional fees and in
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many instances Swissport is eligible to retain a percentage of these fees in the form of a commission. Therefore, the ancillary charges charged by the low cost carriers have become a new and sizeable revenue stream for Swissport.
Deregulation in the Aviation Industry
Deregulation within the aviation industry has opened up new markets for aviation service providers, like ourselves, which has resulted in increased competition in the industry. For example, new markets are being opened in the EU because, under new EU regulations, any EU airport where traffic exceeds 2 million passengers or 50,000 tons of freight per year is now required to have at least two handling operators, at least one of which must be independent from the airport or any dominant carrier at the airport. We believe we are well positioned to take advantage of new markets because many of our customers already operate in those new markets, and our strong customer relationships will allow us to follow those customers into those markets. Further, we believe our global scale and wide range of services also allow us to easily integrate into new markets.
By opening up new markets, deregulation has also played an important role in changing the competitive landscape of the air services industry since the beginning of 2007. In particular, deregulation has increased competition by paving the way for an increase in the number of independent ground and cargo handlers. Such increase is accompanied by a corresponding decrease in the number of airlines and airports that service their own handling needs internally. For instance, in 2006, independent ground handlers made up only 25% of the share of the world handling market, while in 2008, they made up 39%. Although deregulation has led to more competition, we believe we are well placed to capitalize on such deregulation because of our strong reputation as an independent handler as well as our global scale.
Outsourcing
Outsourcing of ground handling and cargo handling services has played an important role in the aviation services industry in recent years. Major international airlines have traditionally serviced their own ground handling and cargo handling operations. However, recent data has shown that more airlines are outsourcing these operations. Outsourcing has increased in recent years primarily because of deregulation, which has resulted in increased competition. This increased competition has resulted in lower ground handling and cargo handling costs provided by third parties.
Ground and cargo handling services are also generally non-core functions of airlines and are considered cost centers, often accounting for between 3% and 5% of airline operating revenue. Many airlines have sought to reduce their cost centers and focus on their core business of passenger transportation, thereby increasing their productivity and efficiency. These airlines have therefore outsourced their handling needs to third party handlers, which have provided a less expensive alternative. They are able to produce a less expensive alternative because ground and cargo handling are their core business, which allows them to operate more efficiently and at a lower cost, which we believe has resulted in material productivity gains for airlines. For example, if a carrier serviced its own handling operations, it may need to purchase its own equipment, including push back tractors, loading lifts, and other expensive goods. This equipment may lay redundant between that airline’s flights, resulting in underutilization and unnecessary costs. In contrast, independent ground handlers are able to fully utilize their equipment because they can allocate it among different airlines.
In 2007, independent cargo handlers accounted for 33% of the world handling market, airlines accounted for 52% and airport operators accounted for the remainder. In 2008, independent cargo handlers accounted for 39% of the world handling market, airlines accounted for 49% and airport operators accounting for the remainder. The industry is expected to grow significantly in the future.
We believe we are well positioned to capitalize on the recent trend of outsourcing because we are able to provide our current and potential customers with a global array of services as well as the ability to provide them with local expertise and knowledge in many of the regions in which they operate. These services are complemented by our sophisticated hub management capabilities, which allow us to respond to airlines at their home bases. Further, some of our largest clients are low cost carriers, most of whom outsource their ground handling services. We have, and will continue in the future, to capitalize on their needs.
Human Resources
In recent years, we have dedicated substantial focus to our human resources and personnel management, which we believe has increased our ability to effectively manage costs by maintaining a flexible workforce, incentivizing productivity and thus improving employee performance. We have sought to maintain a more flexible workforce by outsourcing certain of our ground and cargo handling needs to third parties, a move which we believe allows us to remain flexible throughout any cyclical trends in the aviation industry, thereby allowing us to maximize productivity and workforce utilization. We are also able to maintain a flexible workforce because of the diversity of our global operations.
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Certain regions in which we operate have less stringent labor laws, which allow us to more readily right-size our workforce in those regions.
We have sought to incentivize productivity by starting to implement a global corporate compensation and benefits policy that creates a global broad band salary system within the Swissport group that seeks to value and accurately compensate for each job category. In addition, we have created a “Performance Development Review System” for each of our over 300 senior management positions. We have also dedicated and continue to dedicate a substantial amount of resources toward personnel expenses, which include wages and salary, social security costs, pension costs, staff allowance and other staff costs. Personnel expenses amounted to CHF 790.4 million for the nine months ended September 30, 2010 and CHF 783.6 million for the nine months ended September 30, 2009 and we believe these figures reflect our dedication and willingness to invest in our employees. We believe that these efforts have resulted in a strong and loyal employee base which has put us in a favorable position with unions, evidenced by our constructive labor relationships globally and strong local human resources relationships, which have proven track records and limited occurrences of union actions.
Presentation of Financial Statements
Revenue
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of our activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Swissport group. We recognize revenue when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the entity. Services are recognized in the accounting period the services are provided, as a proportion of the total services to be provided. We base our estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
Ground Handling
Our primary source of revenue in our ground handling service is earned through contracts with passenger airlines, many of which follow the standard IATA Standard Handling Agreement. Revenues from our ground handling services are primarily derived from passenger handling, ramp handling, lounge services, deicing services and cleaning services. The primary metric under our contracts used to determine revenue for our ground handling services is flight volume rather than passenger volume. As a result, our ground handling revenues are somewhat insulated from fluctuations in passenger volumes, although sustained significant decreases in passenger volumes generally lead to a reduced number of flights or changes to aircraft configurations that could lead to a decrease in revenues. Additionally, we are also afforded some protection from flight cancellations because our contracts include a flight cancellation provision that provides us with a cancellation fee for any flight that is cancelled.
We offer our specialty services, which include fueling, aircraft line maintenance and aviation security to complement our ground handling and cargo services, throughout our network. Revenues from specialty services are generally tied to fueling services, maintenance and aviation security, which includes travel document verification, access control, passenger interviewing, baggage reconciliation, aircraft guarding, cargo and hold and hand baggage screening, security training, and threat and vulnerability assessments. These services benefit from airline outsourcing, as more and more airlines are beginning to rely on external providers for ancillary services. Our security service has also benefited from increased security needs in airports, as well as the aviation industry’s expansion into new destinations, primarily in Africa. The expansion of new destinations in Africa that are serviced by U.S. and European passenger airlines and cargo carriers has increased the need for well-trained security personnel.
Cargo Handling
Our cargo handling revenues primarily consist of physical handling of cargo within warehouses, storage charges, documentation fees and income from labor contracts. We provide cargo handling services for over 350 customers, including 165 airlines. In both 2007 and 2008, we handled over 3.0 million tons of cargo each year, while in 2009, we only handled 2.7 million, representing a decrease of 20%. However, in the first nine months ended September 30, 2010, we handled 2.1 million tons of cargo, while for the same period in the previous year we handled 1.7 million tons of cargo, representing an increase of 24%.
We seek to utilize state of the art technology in our cargo handling line of operations, including FreightScan and AirClic/Hand Held Terminals (“HHT”), to streamline the cargo handling process. FreightScan provides a dimensioning system that captures measurements and calculates dimensional weight of cargo items without interfering with workflow. This product automates the process of quickly and accurately gathering dimensional and chargeable weight data, which
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increases productivity and turn around times for collecting and organizing cargo. AirClic/HHT offers mobile software products that create real-time tracking and enhanced monitoring of our people, assets and cargo.
We believe that such automation creates value by decreasing the time needed to measure cargo, thereby streamlining the cargo handling process and allowing us to handle a larger volume of cargo in a shorter period.
Other operating income
Other operating income consists of fueling related services in a cost-plus model, maintenance of equipment services provided to external parties, rental income, consultancy services and any other services that we provide to our customers.
Goods and services purchased
Goods and services purchased consists of subcontracting our ground and cargo handling services to third-party providers, equipment rental costs and related maintenance, product purchases (primarily deicing fluids) and airport and concession fees.
Personnel expenses
Personnel expenses consists of salaries, social security costs, personnel insurance, bonuses, pension costs, staff allowance funds and training costs.
Other operating expenses
Other operating expenses consists of facility rental costs, information technology costs, professional fees, travel costs, insurance costs, office- related expenses, shareholder disbursements, marketing and bad debt.
Depreciation and impairment of property, vehicles and equipment
Depreciation and impairment of property, vehicles and equipment consists of the depreciation and impairment of tangible assets owned and held under finance leases.
Amortization and impairment of intangible assets
Amortization and impairment of intangible assets consists of amortization of software and other intangible assets as well as impairment of goodwill and other intangible assets, and amortization related to contracts in Israel and Kenya under the application of IFRIC 12, which is the International Financial Reporting Interpretations Committee’s interpretation of certain service concession arrangements, whereby a government or other body grants contracts for the supply of public services in exchange for the construction of infrastructure for example warehouses.
IFRS 3.65 adjustment to goodwill
IFRS 3 paragraph 3.65 (“IFRS 3.65”) states that when an acquiree’s future tax benefits (tax loss carry-forwards and other future deductable amounts) do not satisfy the criteria for separate recognition at the time the business combination is initially accounted for, but subsequently are estimated to be realized, the acquirer should recognize the resulting deferred tax income in profit or loss and should record an expense to reduce the carrying amount of goodwill to the amount that would have been recognized if the deferred tax asset had been recorded at the acquisition date.
Net finance expense
Net finance expense consists of interest expense/income, unrealized and realized foreign exchange gains and losses, guarantee fees, bank charges, and valuation adjustments of financial assets.
Income tax (expense)/credit
Income tax (expense)/credit consists of current income taxes and deferred taxes.
Net profit
Net profit for the period is the remaining profit after consideration of income tax expenses/(credit) and represents the results that belongs to the shareholder(s) of the Swissport group as well as the minority shareholder(s).
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Results of Operations
The table below shows our consolidated results of operations for the years ended December 31, 2007, 2008 and 2009 and the nine months ended September 30, 2009 and 2010:
Year ended December 31, Nine months ended
September 30, 2007(1) 2008(1) 2009 2009 2010 Unaudited (CHF in thousands) (CHF in thousands)
Continuing Operations Revenue ........................................................................................... 1,752,920 1,712,559 1,584,550 1,179,326 1,262,072Other operating income ................................................................... 63,575 75,951 59,322 44,987 42,383
Total revenue and other operating income .................................. 1,816,495 1,788,510 1,643,872 1,224,313 1,304,455Goods and services purchased ......................................................... (310,766) (300,250) (258,821) (190,887) (208,808)Personnel expenses .......................................................................... (1,141,732) (1,109,172) (1,032,970) (783,566) (790,434)Other operating expenses................................................................. (268,455) (264,302) (234,441) (170,795) (201,152)Depreciation and impairment of property, vehicles and
equipment.................................................................................... (27,075) (27,752) (32,254) (25,222) (21,272)Amortization and impairment of intangible assets........................... (3,922) (4,179) (1,326) (1,021) (1,029)
Total operating expenses ............................................................. (1,751,950) (1,705,655) (1,559,812) (1,171,491) (1,222,695)Operating profit ........................................................................... 64,545 82,855 84,060 52,822 81,760
Finance expense............................................................................... (38,832) (40,931) (25,751) (18,194) (22,089)Finance income................................................................................ 12,004 13,036 20,159 16,680 17,558
Net finance expense..................................................................... (26,828) (27,895) (5,592) (1,514) (4,531)Share of profits from associates and jointly controlled
companies.................................................................................... 3,561 2,893 (275) 753 1,955Gain on sale of subsidiary................................................................ 457 — — — —Loss on sale of disposal group ......................................................... (2,035) — — — —Profit before IFRS 3.65 adjustment to goodwill and income tax ..... 39,700 57,853 78,193 52,061 79,184IFRS 3.65 adjustment to goodwill ................................................... (699) (2,260) (9,244) (9,244) —Profit before income tax .................................................................. 39,001 55,593 68,949 42,817 79,184Income tax (expense)/credit............................................................. (18,998) 7,647 14,003 19,484 (25,013)Net profit for the period from continuing operations ....................... 20,003 63,240 82,952 62,301 54,171Discontinued operations Net loss for the period from discontinued operations ...................... (809) (6,163) (11,382) (11,382) —
Net profit for the period............................................................... 19,194 57,077 71,570 50,919 54,171
Attributable to: Holder’s of the company’s equity ............................................... 11,972 51,732 62,744 44,645 48,243Minority interests ........................................................................ 7,222 5,345 8,826 6,274 5,928
Other Financial Information: EBITDA(2) ....................................................................................... 95,542 114,786 117,640 79,065 104,061EBITDA Margin.............................................................................. 5.3% 6.4% 7.2% 6.5% 8.0%
(1) As restated.
(2) See reconciliation of EBITDA in “Summary Historical Consolidated Financial and Other Data—Other Financial Information.” EBITDA consists of net profit for the year from continuing operations plus income tax (expense)/credit, IFRS 3.65 adjustment to goodwill, net finance expense, share of profits from associates and jointly controlled companies, loss on sale of disposal group, depreciation and impairment of property, vehicles and equipment, and amortization and impairment of intangible assets.
Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009
Revenue
Revenue increased by CHF 82.8 million, or 7.0%, to CHF 1,262.1 million for the nine months ended September 30, 2010 from CHF 1,179.3 million for the nine months ended September 30, 2009. The increase was primarily attributable to higher cargo handling volumes and the recovery of business in ground handling.
Our revenue by service type was as follows:
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Ground handling
Ground handling revenue increased by 4% for the nine months ended September 30, 2010 in comparison to the nine months ended September 30, 2009. The increase was attributable to significant growth in Spain and Algeria, a higher frequency of deicing operations in Switzerland due to inclement weather, the commencement of operations in Munich in March 2010, higher flight volume in South Africa, driven primarily by the 2010 FIFA World Cup, and the full-year impact of new customers we obtained in the second half of 2009. Ground handling revenue for the nine months ended September 30, 2010 accounted for 77.9% of total consolidated revenues, compared to 80.2% in the same period in 2009.
Cargo handling
Cargo handling revenue increased by 19.1% for the nine months ended September 30, 2010 in comparison to the nine months ended September 30, 2009. The increase was primarily attributable to higher cargo tonnage in comparison to the previous year, reflecting the general recovery and industry restocking after the economic crisis. Cargo handling revenue for the nine months ended September 30, 2010, accounted for 22.1% of total consolidated revenues, compared to 19.8% in the same period in 2009.
Other operating income
Other operating income decreased by CHF 2.6 million, or 5.8%, to CHF 42.4 million for the nine months ended September 30, 2010 from CHF 45.0 million for the nine months ended September 30, 2009. The decrease was primarily attributable to lower equipment rental income in the United States for the rental of ground service equipment. This revenue was previously included in the main ground handling contracts and is now recognized under normal ground handling revenues.
Goods and services purchased
Costs increased by CHF 17.9 million, or 9.4%, to CHF 208.8 million for the nine months ended September 30, 2010 from CHF 190.9 million for the nine months ended September 30, 2009. These costs represent 16.5% of revenue in 2010 versus 16.2% in 2009. The increase was attributable to higher deicing costs corresponding to the increased deicing production and higher equipment rental and maintenance costs, also attributable to the increase in volumes handled.
Personnel expenses
Personnel expenses increased by CHF 6.8 million, or 0.9%, to CHF 790.4 million for the nine months ended September 30, 2010 from CHF 783.6 million for the nine months ended September 30, 2009. Personnel expenses represent 62.6% of revenue in 2010 in comparison to 66.4% in 2009. The increase was attributable to the increase in production but has, however, been offset by productivity gains in our main ground handling stations and throughout our cargo network.
Other operating expenses
Other operating expenses increased by CHF 30.4 million, or 17.8%, to CHF 201.2 million for the nine months ended September 30, 2010 from CHF 170.8 million for the nine months ended September 30, 2009. The increase was attributable to higher revenues in 2010 which increased other operating expenses, an increase in outsourcing services to third parties in an effort to shift to a more variable cost base and an increase in consultation fees attributable to several ongoing and future business projects.
Depreciation and impairment of property, vehicles and equipment
Depreciation and impairment of property, vehicles and equipment decreased by CHF 3.9 million, or 15.5%, to CHF 21.3 million for the nine months ended September 30, 2010 from CHF 25.2 million for the nine months ended September 30, 2009. The net decrease was primarily attributable to additional assets acquired in 2010 relating to the Munich business, which increased depreciation, but such increase was offset by certain impairment charges, resulting in a net decrease. The 2009 figures include the impairment of leasehold properties and cargo handling equipment located in Singapore, which is not included in the 2010 figures. The total depreciation and impairment expense in 2010 would be slightly higher if we excluded the Singapore impairment from the 2009 figures.
Amortization and impairment of intangible assets
Amortization and impairment of intangible assets is in line with the previous year and effectively remained unchanged for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009.
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Net finance expense
Net finance expense increased by CHF 3.0 million, or 200.0%, to CHF 4.5 million for the nine months ended September 30, 2010 from CHF 1.5 million for the nine months ended September 30, 2009. The 2009 financials include a dividend from the liquidation of the old UK ground handling business and net foreign exchange gains on foreign currency denominated loans. The 2010 financials include the full amortization of the remaining borrowing fees related to the old credit facility, which is partially offset by the gain on the sale of the investment in Unitpool and recovery of the related receivable.
Share of profits from associates and jointly controlled companies
Share of profits from associates and jointly controlled companies increased by CHF 1.2 million, or 150.0%, to CHF 2.0 million for the nine months ended September 30, 2010 from CHF 0.8 million for the nine months ended September 30, 2009. The increase was attributable to higher net profits at Swissport Executive Aviation in France and Swissport Japan.
Profit before IFRS 3.65 adjustment to goodwill and income tax
Profit before IFRS 3.65 adjustment to goodwill and income tax increased by CHF 27.1 million, or 52.0%, to CHF 79.2 million for the nine months ended September 30, 2010 from CHF 52.1 million for the nine months ended September 30, 2009. The increase was attributable to the recovery of all business units, especially the Cargo industry, from the global economic crisis, which had a significant impact on the aviation industry in the comparative period.
IFRS 3.65 adjustment to goodwill
IFRS 3.65 adjustment to goodwill decreased by CHF 9.2 million, or 100.0%, to an adjustment of CHF 0.0 million for the nine months ended September 30, 2010 from an adjustment of CHF 9.2 million for the nine months ended September 30, 2009. The decrease was because all unrecognized future tax benefits from acquisitions made by Swissport had been realized as of December 31, 2009. With the adoption of IFRS 3 (revised) and the associated revisions of IAS 12 such adjustments to goodwill are not required for acquisitions made after January 1, 2010.
Income tax (expense)/credit
Income tax expense increased by CHF 44.5 million, or 228.2%, to an expense of CHF 25.0 million for the nine months ended September 30, 2010 from a credit of CHF 19.5 million for the nine months ended September 30, 2009. The increase was attributable to the recording of deferred tax assets in 2009 and the subsequent use of these deferred tax assets in 2010 to offset higher taxable income, as well as generally higher profitability, leading to increased income tax expenses.
Net profit
Net profit for the period increased by CHF 3.3 million, or 6.5%, to CHF 54.2 million for the nine months ended September 30, 2010 from CHF 50.9 million for the nine months ended September 30, 2009. The increase is attributable to higher revenues in our cargo handling business and productivity improvements, which is reflected in the reduction of our personnel costs to revenue figures and partially offset by the reversed deferred tax bookings.
Other financial information
EBITDA
EBITDA increased by CHF 25.0 million, or 31.6%, to CHF 104.1 million for the nine months ended September 30, 2010 from CHF 79.1 million for the nine months ended September 30, 2009. The increase was attributable to a recovery in production over all business units and enhanced by increases in productivity. Ground handling accounted for 84% of the EBITDA for the nine months ended September 30, 2010. In the nine months ended September 30, 2009, ground handling accounted for Swissport’s entire EBITDA. In that same period cargo handling had negative EBITDA.
EBITDA Margin
EBITDA margin increased to 8.0% for the nine months ended September 30, 2010 from 6.5% for the nine months ended September 30, 2009.
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Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
Revenue
Revenue decreased by CHF 128.0 million, or 7.5%, to CHF 1,584.6 million for the year ended December 31, 2009 from CHF 1,712.6 million for the year ended December 31, 2008. The decrease was attributable to volume decline in all lines of operations, which was the result of the global economic crisis, which had a significant impact on the aviation industry. The shortfalls were partially mitigated by revenue growth in Latin America and an increased turnaround in the volume of cargo tonnage in the last quarter of 2009.
Ground handling
Ground handling revenue decreased by 3.6%, for the year ended December 31, 2009, compared to the year ended December 31, 2008. The decrease was attributable to the global economic crisis, which had a significant impact on the aviation industry, resulting in flight cancellations and the downgrading of aircraft types across the network especially in Europe and North America. The reductions were offset by strong deicing revenue at the beginning of 2009 and solid growth in domestic traffic in Brazil. Ground handling revenue accounted for 79.4% of total consolidated revenues for the year ended December 31, 2009, compared to 76.2% in the same period in 2008.
Cargo handling
Cargo handling revenue decreased by 19.8%, for the year ended December 31, 2009 compared to the year ended December 31, 2008. The decrease was attributable to reduced cargo tonnage caused by the global economic crisis, which had a significant impact on the aviation industry. While all regions were affected by the global economic crisis, the losses were partially offset by rebounding volumes of cargo tonnage in North America and Africa in the last quarter of 2009, which was attributable to a rebound in inventory replenishment, especially in the United States of America. Cargo handling revenue accounted for 20.6% of total consolidated revenues for the year ended December 31, 2009, compared to 23.8% in the same period in 2008.
Other operating income
Other operating income decreased by CHF 16.7 million, or 21.9%, to CHF 59.3 million for the year ended December 31, 2009 from CHF 76.0 million for the year ended December 31, 2008. The decrease was attributable to a reduction in Swiss airport fees because the Swiss airports that have charged fees in the past have not charged airlines renewal fees since 2008. We had facilitated the fee payment process and thus had been paid a commission, which has not occurred since 2008.
Goods and services purchased
Goods and services purchased decreased by CHF 41.5 million, or 13.8%, to CHF 258.8 million for the year ended December 31, 2009 from CHF 300.3 million for the year ended December 31, 2008. The decrease was attributable to reduced outsourcing of third-party services, including freight packaging, as well as a result of certain cost-cutting measures.
Personnel expenses
Personnel expenses decreased by CHF 76.2 million, or 6.9%, to CHF 1,033.0 million for the year ended December 31, 2009 from CHF 1,109.2 million for the year ended December 31, 2008. The decrease was attributable to personnel reductions and reduced personnel compensation, especially overtime hours and other personnel costs. As a percentage of revenues, personnel costs remained consistent at approximately 65%, which illustrates our ability to increase the elasticity of these costs, despite restrictions with labor unions.
Other operating expenses
Other operating expenses decreased by CHF 29.9 million, or 11.3%, to CHF 234.4 million for the year ended December 31, 2009 from CHF 264.3 million for the year ended December 31, 2008. The decrease was attributable to our contingency and downsizing measures and successful re-negotiations with landlords concerning facility rental costs. We also applied a disciplined approach to variable costs, including travel, office supplies and communication expense, which further reduced our other operating expenses. As a percentage of revenues, other operating expenses reduced to 14.8% compared to 15.4% in 2008.
Depreciation and impairment of property, vehicles and equipment
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Depreciation and impairment of property, vehicles and equipment increased by CHF 4.5 million, or 16.2%, to CHF 32.3 million for the year ended December 31, 2009 from CHF 27.8 million for the year ended December 31, 2008. The increase was attributable to the impairment of cargo and ground handling equipment used in connection with our prior Singapore business.
Amortization and impairment of intangible assets
Amortization and impairment of intangible assets decreased by CHF 2.9 million, or 69.0%, to CHF 1.3 million for the year ended December 31, 2009 from CHF 4.2 million for the year ended December 31, 2008. The decrease was attributable to the full amortization of customer contracts in Switzerland and the UK in prior years.
Net finance expense
Net financial expenses decreased by CHF 22.3 million, or 80.0%, to CHF 5.6 million for the year ended December 31, 2009 from CHF 27.9 million for the year ended December 31, 2008. The decrease was attributable to lower interest rates as well as a significant debt repayment, which further reduced our financing costs.
Share of profits from associates and jointly controlled companies
Share of profits from associates and jointly controlled companies decreased by CHF 3.2 million, to a loss of CHF 0.3 million for the year ended December 31, 2009 from a profit of CHF 2.9 million for the year ended December 31, 2008. The decrease was attributable to business decline caused by the global economic crisis, which had a significant impact on the aviation industry.
Profit before IFRS 3.65 adjustment to goodwill and income tax
Profit before IFRS 3.65 adjustment to goodwill and income tax increased by CHF 20.3 million, or 35.0%, to CHF 78.2 million for the year ended December 31, 2009 from CHF 57.9 million for the year ended December 31, 2008. The increase was primarily attributable to the increased profitability in the Swissport group including as a result of downsizing measures which offset a reduction in revenues.
IFRS 3.65 adjustment to goodwill
IFRS 3.65 adjustment to goodwill increased by CHF 6.9 million, or 300.0%, to an adjustment of CHF 9.2 million for the year ended December 31, 2009 from an adjustment of CHF 2.3 million for the year ended December 31, 2008. The increase was primarily attributable to the creation of deferred tax assets in the United States from previously unrecognized tax losses, which were incurred prior to the 2002 acquisition of Swissport. Although a significantly larger deferred tax asset was recognized in 2009, a large part of that deferred tax asset was not related to unrecognized tax losses incurred before 2002 and thus no adjustment to goodwill was required.
Income tax (expense)/credit
Income tax credit increased by CHF 6.4 million, or 84.2%, to CHF 14.0 million for the year ended December 31, 2009 from CHF 7.6 million for the year ended December 31, 2008. The increase was attributable to the creation of deferred tax assets.
Net profit
Net profit increased by CHF 14.5 million, or 25.4%, to CHF 71.6 million for the year ended December 31, 2009 from CHF 57.1 million for the year ended December 31, 2008. The increase was attributable to contingency measures, a significant increase in the profitability of the ground handling operations and a continued increase in domestic air travel within Latin America.
Other financial information
EBITDA
EBITDA increased by CHF 2.9 million, or 2.5%, to CHF 117.7 million for the year ended December 31, 2009 from CHF 114.8 million for the year ended December 31, 2008. The increase was attributable to an increase in productivity, which offset revenue shortfalls. Ground handling accounted for 94.2% of consolidated EBITDA for the year ended December 31, 2009, compared to 87.1% in the same period in 2008. Cargo handling accounted for 5.8% of consolidated EBITDA for the year ended December 31, 2009, compared to 12.9% in the same period in 2008.
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EBITDA Margin
EBITDA margin increased to 7.2% for the year ended December 31, 2009 from 6.4% for the year ended December 31, 2008.
Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
Revenue
Revenue decreased by CHF 40.3 million, or 2.3%, to CHF 1,712.6 million for the year ended December 31, 2008 from CHF 1,752.9 million for the year ended December 31, 2007. The decrease was attributable to the global economic crisis, which had a significant impact on the aviation industry and more particularly, on our cargo handling division, which was our first line of operations to show severe losses with cargo handling volumes falling from September of 2008. This decrease in revenue was offset by continued growth in Latin America and an exceptional deicing season in Switzerland as a result of inclement weather.
Ground handling
Ground handling revenue remained flat with a decline of 0.4% for the year ended December 31, 2008 compared to the year ended December 31, 2007. This flat result was attributable to a decline in aviation traffic within North America and Europe at the end of 2008, which was offset by a successful deicing season in Switzerland and Latin America. Ground handling revenue for the year ended December 31, 2008 accounted for 76.2% of total consolidated revenues, compared to 74.8% in the same period in 2007.
Cargo handling
Cargo handling revenue decreased by 7.9% for the year ended December 31, 2008 compared to the year ended December 31, 2007. The decrease was attributable to the global economic crisis, which had a significant impact on the aviation industry and started to adversely impact cargo handling volumes in the second half of 2008. Cargo handling revenue for the year ended December 31, 2008 accounted for 23.8% of total consolidated revenues, compared to 25.2% in the same period in 2007.
Other operating income
Other operating income increased by CHF 12.4 million, or 19.5%, to CHF 76.0 million for the year ended December 31, 2008 from CHF 63.6 million for the year ended December 31, 2007. The increase was attributable to additional services charged to customers in Latin America, which tracked our core revenue growth in that region, additional impact from the application of IFRIC 12 to the construction of a warehouse and the related service concession arrangement in Israel and a general increase in airline services rendered by Swissport in Switzerland.
Goods and services purchased
Goods and services purchased decreased by CHF 10.6 million, or 3.4%, to CHF 300.2 million for the year ended December 31, 2008 from CHF 310.8 million for the year ended December 31, 2007. The decrease was attributable to a reduction in revenues in our cargo business caused by third-party outsourcing of ramp handling services. As a percentage of revenues, goods and services purchased remained constant at around 17.5-17.7%.
Personnel expenses
Personnel expenses decreased by CHF 32.5 million, or 2.8%, to CHF 1,109.2 million for the year ended December 31, 2008 from CHF 1,141.7 million for the year ended December 31, 2007. The decrease was attributable to lower cargo workforce labor hours in the United States and Africa, where more flexible labor laws allow for manpower requirements to be more closely aligned to volumes. Personnel costs as a percentage of revenues remained constant at approximately 65%, with savings in cargo handling offset by increases in the workforce in Latin America due to growth of our business.
Other operating expenses
Other operating expenses decreased by CHF 4.2 million, or 1.5%, to CHF 264.3 million for the year ended December 31, 2008 from CHF 268.5 million for the year ended December 31, 2007. The decrease was attributable to savings on small peripheral costs such as office supplies, which could be easily adjusted to match volume trends. Core fixed costs such as warehouse costs were consistent with 2007 figures. As a percentage of revenues, other operating costs remained flat at 15%.
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Depreciation and impairment of property, vehicles and equipment
Depreciation and impairment of property, vehicles and equipment increased by CHF 0.7 million, or 2.5%, to CHF 27.8 million for the year ended December 31, 2008 from CHF 27.1 million for the year ended December 31, 2007. The increase was primarily attributable to the purchase of new vehicles in Brazil to facilitate the expansion of the business.
Amortization and impairment of intangible assets
Amortization and impairment of intangible assets increased by CHF 0.3 million, or 7.7%, to CHF 4.2 million for the year ended December 31, 2008 from CHF 3.9 million for the year ended December 31, 2007. The increase was primarily attributable to amortization charges relating to our warehouse in Israel.
Net financial expense
Net financial expenses increased by CHF 1.1 million, or 4.1%, to CHF 27.9 million for the year ended December 31, 2008 from CHF 26.8 million for the year ended December 31, 2007. The increase was primarily attributable to increased interest charges on shareholder loans.
Share of profits from associates and jointly controlled companies
Share of profits from associates and jointly controlled companies decreased by CHF 0.7 million, or 19.4%, to CHF 2.9 million for the year ended December 31, 2008 from CHF 3.6 million for the year ended December 31, 2007. The decrease was primarily attributable to the onset of the global economic crisis, which had a significant impact on the aviation industry.
Profit before IFRS 3.65 adjustment to goodwill and income tax
Profit before IFRS 3.65 adjustment to goodwill and income tax increased by CHF 18.2 million, or 45.8%, to CHF 57.9 million for the year ended December 31, 2008 from CHF 39.7 million for the year ended December 31, 2007. The increase was primarily attributable to higher profitability in the Swissport group, solid growth in Latin America.
IFRS 3.65 adjustment to goodwill
IFRS 3.65 adjustment to goodwill increased by CHF 1.6 million, or 228.5%, to an adjustment of CHF 2.3 million for the year ended December 31, 2008 from an adjustment of CHF 0.7 million for the year ended December 31, 2007. The increase was primarily attributable to the increased realization of previously unrecognized tax losses, which were incurred prior to the 2002 acquisition of Swissport.
Income tax (expense)/credit
Income tax credit increased by CHF 26.6 million, to a credit of CHF 7.6 million for the year ended December 31, 2008 from an expense of CHF 19.0 million for the year ended December 31, 2007. The increase was primarily related to the creation of deferred tax assets.
Net profit
Net profit increased by CHF 37.9 million, or 197.4%, to CHF 57.1 million for the year ended December 31, 2008 from CHF 19.2 million for the year ended December 31, 2007. The increase was primarily attributable to the creation of new deferred tax assets and strong growth in our Latin American operations.
Other financial information
EBITDA
EBITDA increased by CHF 19.3 million, or 20.2%, to CHF 114.8 million for the year ended December 31, 2008 from CHF 95.5 million for the year ended December 31, 2007. The increase was attributable to gains in efficiency, most visible in improvement in the percentage of personnel costs to revenue. Ground handling accounted for 87.1% of consolidated EBITDA for the year ended December 31, 2008, compared to 80.5% in the same period in 2007. Cargo handling accounted for 12.9% of consolidated EBITDA for the year ended December 31, 2008, compared to 19.5% in the same period in 2007.
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EBITDA Margin
EBITDA margin increased to 6.4% for the year ended December 31, 2008 from 5.3% for the year ended December 31, 2007.
Liquidity and Capital Resources
Cash Flow
The table below summarizes our consolidated cash flow for the years ended December 31, 2007, 2008 and 2009 and the nine months ended September 30, 2010.
Year ended December 31, Nine months ended
September 30, 2007(1) 2008(1) 2009 2009 2010 Unaudited (CHF in thousands) (CHF in thousands)
Cash Flow Statement Data: Total cash flow from operating activities ............................................. 32,085 101,720 106,218 81,738 93,228Total cash flow from investing activities .............................................. (55,713) (51,130) (39,638) (29,313) (52,078)Total cash flow from financing activities ............................................. 19,691 (3,032) (45,343) (40,866) (18,391)Net increase (decrease) in unrestricted cash and cash equivalents ....... (3,937) 47,558 21,237 11,559 22,759
(1) As restated.
Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009
Total cash flow from operating activities
Total cash flow from operating activities increased by CHF 11.5 million, or 14.1%, to an inflow of CHF 93.2 million for the nine months ended September 30, 2010 from an inflow of CHF 81.7 million for the nine months ended September 30, 2009. The increase was primarily attributable to higher profits throughout the business. The 2009 cash flow also includes a significant reduction of the DSO, which was not as significant in 2010.
Total cash flow from investing activities
Total cash flow from investing activities increased by CHF 22.8 million, or 77.8%, to an outflow of CHF 52.1 million for the nine months ended September 30, 2010 from an outflow of CHF 29.3 million for the nine months ended September 30, 2009. The increase was primarily attributable to a higher restricted cash amount of CHF 29.3 million in 2010. This is a result of certain banks requesting Swissport to provide cash collateral against existing bank guarantees provided by these banks.
Following the Transactions, we expect that most of the restricted cash will be able to be released through new letters of credit provided through the Revolving Credit Facility.
Total cash flow from financing activities
Total cash outflow from financing activities decreased by CHF 22.5 million, or 55.0%, to an outflow of CHF 18.4 million for the nine months ended September 30, 2010 from an outflow of CHF 40.9 million for the nine months ended September 30, 2009. The decrease was primarily attributable to an increase in proceeds from borrowings that were partially used to pay a dividend to Swissport’s shareholders in 2010.
Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
Total cash flow from operating activities
Total cash inflow from operating activities increased by CHF 4.5 million, or 4.4%, to an inflow of CHF 106.2 million for the year ended December 31, 2009 from an inflow of CHF 101.7 million for the year ended December 31, 2008. The increase was primarily attributable to the increased profitability of the Swissport group.
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Total cash flow from investing activities
Total cash outflow from investing activities decreased by CHF 11.5 million, or 22.5%, to an outflow of CHF 39.6 million for the year ended December 31, 2009 from an outflow of CHF 51.1 million for the year ended December 31, 2008. The decrease was primarily attributable to new investments in China and a number of startups in 2008, mainly in the Ukraine.
Total cash flow from financing activities
Total cash outflow from financing activities increased by CHF 42.3 million, or 1,410.0%, to an outflow of CHF 45.3 million for the year ended December 31, 2009 from an outflow of CHF 3.0 million for the year ended December 31, 2008. The main variance is related primarily to drawdowns on the existing revolving credit facility in 2008.
Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
Total cash flow from operating activities
Total cash inflow from operating activities increased by CHF 69.6 million, or 217.0%, to an inflow of CHF 101.7 million for the year ended December 31, 2008 from an inflow of CHF 32.1 million for the year ended December 31, 2007. The increase was primarily attributable to an increase of EBITDA and the Swissport group’s implementation of procedures designed to significantly reduce the DSO, which led to a considerable positive impact on the amount of working capital in 2008.
Total cash flow from investing activities
Total cash outflow from investing activities decreased by CHF 4.6 million, or 8.2%, to an outflow of CHF 51.1 million for the year ended December 31, 2008 from an outflow of CHF 55.7 million for the year ended December 31, 2007. We have been involved in start-ups in 2008, mainly in the Ukraine and China. In 2007, the higher investing cash flow is related to investment in the Spanish operations and Bulgaria.
Total cash flow from financing activities
Total cash flow from financing activities decreased by CHF 22.7 million, or 115.2%, to an outflow of CHF 3.0 million for the year ended December 31, 2008 from an inflow of CHF 19.7 million for the year ended December 31, 2007. The decrease was primarily attributable to increased repayment of borrowings in 2008 compared to 2007.
Contractual Obligations
The information presented in the table below reflects management’s estimates of the contractual maturities of our obligations and summarized the financial payments that we will be obligated to make as of December 31, 2009. These maturities may differ significantly from the actual maturity of these obligations.
Payments due by period
Total Less than
1 Year 1-3 Years 3-5 Years More than
5 Years (CHF in thousands)
As of December 31, 2009 Finance lease obligations .................................................... 12,985 4,370 3,777 4,778 60Operating lease obligations................................................. 321,636 63,863 100,459 88,648 68,666Purchase obligations ........................................................... 6,187 6,187 — — —
Capital Expenditure and Investments
The following table shows our capital expenditures defined as additions of property, vehicles and equipment and intangible assets for the years ended December 31, 2007, 2008 and 2009 and for the nine months ended September 30, 2009 and 2010:
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For the year ended
December 31,
For the nine months ended September 30,
2007 2008 2009 2009 2010 Unaudited (CHF in thousands) (CHF in thousands)
Property, vehicles and equipment ................................................................... 45,018 54,106 43,206 37,541 20,977Intangible assets.............................................................................................. 10,994 860 3,871 378 859Total capital expenditure(1) .......................................................................... 56,012 54,966 47,077 37,919 21,836
(1) Capital expenditures reported here exclude asset retirement obligations and capitalized interest.
We estimate that approximately CHF 20 to 25 million of our annual capital expenditures are related to replacement of equipment. The remaining portion of capital expenditures is utilized to serve additional customers or enter into new locations. In 2007, we started operations in Spain and entered into new business in Bulgaria. During that year, we also invested in the warehouse in Israel. The investments in that warehouse are presented as an intangible asset which reflects our right to use that warehouse. In 2008, we started operations in China and the Ukraine. In 2009, the main additions in property, vehicles and equipment were related to the increased business of our main customers in Brazil. The increase in intangible assets relates to the new warehouse in Kenya. The September 30, 2010 additions mainly related to the replacement of equipment mainly in our cargo handling business as well as new business opportunities in Brazil. The equipment related to the startup of the Munich business is not reflected as a capital expenditure because it was financed with a finance lease line.
Unrestricted Subsidiary
Swissport Israel Cargo Services Ltd. (“Swissport Israel”) is our 51% owned joint venture in Israel that provides ground handling services at the Ben-Gurion International Airport in Tel Aviv. Our joint venture partners in respect of Swissport Israel are C.A.L Air Cargo Lines Ltd., Laufer Aviation Ltd. and Dankner Investments Ltd. To finance the construction of a cargo warehouse, Swissport Israel entered into a 124.0 million Israeli shekel credit facility with Bank Leumi Le-Israel Ltd., of which the equivalent of CHF 34.0 million was outstanding as of September 30, 2010. Swissport Israel also entered into a shareholder loan with a third party, which amounted to CHF 5.7 million as of September 30, 2010. As a result of, among other factors, the global downturn in the air cargo market and certain potential customers not entering the Israeli market, Swissport Israel’s results of operations have been adversely affected since it started operations in 2008. Swissport is currently in default under its credit facility for failing to make interest payments. Bank Leumi Le-Israel Ltd. has not accelerated the credit facility and Swissport Israel continues to operate its business. Swissport Israel has been ring-fenced for purposes of Swissport’s existing debt facilities and, therefore, such default has not resulted in any cross-defaults under such indebtedness. Consistent with Swissport’s historical treatment of Swissport Israel under its financing arrangements, Swissport Israel will be treated as an “Unrestricted Subsidiary” for purposes of the Indenture governing the Notes and the Revolving Credit Facility.
Swissport has entered into performance guarantees with counterparties of Swissport Israel to guarantee liabilities of Swissport Israel, including a construction guarantee with respect to its warehouse and a guarantee for early termination of its concession, up to an aggregate of approximately CHF 6.9 million. However, neither Swissport nor any of its other subsidiaries are guarantors under Swissport Israel’s credit facility.
Off-Balance Sheet Arrangements
Certain third parties require Swissport’s and various of its subsidiaries’ banks to issue guarantees and letters of credit in the ordinary course of business, primarily related to rental payments, licenses, customs and other performance obligations. As of September 30, 2010, these guarantees and letters of credit amounted to CHF 72.4 million, of which CHF 31.0 million were cash collateralized. In connection with the Transactions, a portion of these letters of credit may be rolled-over or replaced through ancillary facilities under our new Revolving Credit Facility. These letters of credit guarantee contingent liabilities that will crystallize to the extent that the letters of credit are drawn or the guarantees enforced and the bank enforces its right to recover the amount drawn.
In addition, we may enter into hedging obligations with respect to the issuance of the Notes.
Quantitative and Qualitative Disclosures about Market Risk
We are, and upon completion of the Transactions will be, exposed to a variety of financial risks, namely market risk (including currency and interest rate risk), credit risk and liquidity risk. Our overall risk management program
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focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance. Financial risk management is carried out by a central treasury department (“Corporate Treasury”), which applies the following principles and policies:
Foreign exchange risk
We operate internationally and are exposed to foreign exchange risk arising from various currency exposures primarily with respect to U.S. dollar, Euro, British pound sterling, Canadian dollar, Brazilian real, Mexican peso, South African rand and Tanzanian shilling. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities, and investments in foreign operations. Our subsidiary companies rarely enter into transactions with third parties that are not denominated in their functional currency. Where they do, our policy does not allow them to use any kind of derivative instruments to hedge their foreign exchange risk. Transactions with our companies are generally not hedged. However, Corporate Treasury may enter into a foreign exchange forward contract to remove the foreign exchange risk on a loan to or from our companies. The net assets of our companies denominated in foreign currencies are also a source of foreign exchange risk. Our policy is to reduce this risk by:
• funding working capital and capital expenditures using local rather than central borrowings, where possible, to provide a natural cash flow hedge in that the subsidiaries are mainly financed in the currency in which they generate the majority of their operational cash flows; and
• otherwise having borrowings denominated in the functional currencies of our companies concerned (principally U.S. Dollar and Euro). Where appropriate, these borrowings are designated as hedges of the net investments in foreign entities and the exchange gains and losses arising on the translation of these borrowings are recognized in other comprehensive income.
At September 30, 2010, if the Euro had weakened/strengthened by 1% against the Swiss franc, with all other variables held constant, post-tax profits for the year would have been CHF 131,000 lower/higher, mainly as a result of foreign exchange losses/gains on translation of Euro denominated intra-company borrowings. At September 30, 2010, if the pound sterling had weakened/strengthened by 1% against the Swiss franc, with all other variables held constant, post-tax profits for the year would have been CHF 100,000 lower/higher, mainly as a result of foreign exchange losses/gains on translation of pound sterling denominated intra-company borrowings. At September 30, 2010, after if the U.S. dollar had weakened/strengthened by 1% against the Swiss franc, with all other variables held constant, post-tax profits for the year would have been CHF 119,000 lower/higher, mainly as a result of foreign exchange losses/gains on translation of U.S. Dollar denominated intra-company borrowings. At September 30, 2010, if the South African rand had weakened/strengthened by 1% against the Swiss franc, with all other variables held constant, post-tax profits for the year would have been CHF 60,000 lower/higher, mainly as a result of foreign exchange losses/gains on translation of Swiss franc denominated intra-company borrowings of units in South Africa. At September 30, 2010, if the U.S. Dollar had weakened/strengthened by 1% against the Canadian dollar, with all other variables held constant, post-tax profits for the year would have been CHF 10,000 higher/lower, mainly as a result of foreign exchange gains/losses on translation of U.S. Dollar denominated intra-company borrowings.
At September 30, 2010, if the U.S. Dollar had weakened/strengthened by 1% against the Tanzanian shilling, with all other variables held constant, post-tax profits for the year would have been CHF 16,000 lower/higher, mainly as a result of foreign exchange losses/gains on translation of U.S. Dollar denominated trade receivables.
Cash flow and fair value interest rate risk
Our interest rate risk arises from external borrowings. Borrowings issued at variable rates expose us to cash flow interest rate risk. Borrowings issued at fixed rates expose us to fair value interest rate risk. The majority of our borrowings have variable interest rates, i.e. the interest expense is subject to changes in market interest rates. We do not hedge interest rates. At September 30, 2010, if the interest rate on Swiss franc denominated borrowings had been 1% lower/higher with all other variables held constant, post-tax profits would have been CHF 1,209,000 higher/lower, mainly as a result of lower/higher interest expense on floating rate borrowings. At September 30, 2010, if the interest rate on U.S. Dollar denominated borrowings had been 1% lower/higher with all other variables held constant, post-tax profits would have been CHF 637,000 higher/lower, mainly as a result of lower/higher interest expense on floating rate borrowings. At September 30, 2010, if the interest rate on Euro denominated borrowings had been 1% lower/higher with all other variables held constant, post-tax profits would have been CHF 131,000 higher/lower, mainly as a result of lower/higher interest expense on floating rate borrowings. At September 30, 2010, if the interest rate on British pound sterling denominated borrowings had been 1% lower/higher with all other variables held constant, post-tax profits would have been CHF 62,000 higher/lower, mainly as a result of lower/higher interest expense on floating rate borrowings.
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Credit risk
Credit risk arises from cash, cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers including outstanding receivables. Our internal policies require that credit exposures with banks and other financial institutions are regularly measured, actively managed and results reported to senior management to ensure relevancy in volatile credit markets. Credit risks related to trade receivables are systematically analyzed, monitored and managed. We have policies in place to ensure that sales of products and services on credit are made to customers with an appropriate credit history. As at September 30, 2010, no customer other than Swiss International Air Lines Ltd., which makes up approximately 15% of our consolidated annual revenue, made up more than 3% of the consolidated annual revenue.
The table below shows the balances for cash and cash equivalents with the banks and financial institutions at the balance sheet date:
For the year ended December 31,
For the ninemonths endedSeptember 30,
2007 2008 2009 2010 Unaudited
(CHF in thousands) (CHF in
thousands) Cash and Cash Equivalents Counterparties external credit rating (Standard and Poor’s) Investment Grade A− and above .................................................................... 60,763 93,617 101,741 128,868Investment grade BBB+, BBB, BBB− ........................................................... 5,311 5,828 14,335 26,311Non-investment grade BB+ and below........................................................... 2,844 3,816 9,779 1,506Not Rated........................................................................................................ 16,248 20,034 19,874 36,331Total ............................................................................................................... 85,166 123,295 145,729 193,016
The maximum exposure to credit risk at the reporting date is the carrying value of the financial assets.
Liquidity risk and investing excess liquidity
We regularly monitor and manage their liquidity to ensure all obligations are met. According to our investment policy, excess cash, which is regularly monitored by Corporate Treasury, is maintained in highly liquid and highly rated investments. The principal way in which we manage our liquidity and investments is the weekly cash management planning and monthly preparation of a treasury report, both include a detailed cash flow forecast.
The following table details the remaining contractual maturity of our non-derivative financial liabilities, after giving effect to the Transactions. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which we can be required to pay.
The tables include both interest and principal cash flows:
< 13 13-24 months 25-60 months > 60 months (CHF in thousands)
As at September 30, 2010 Borrowings ..................................................................................... 71,987 108,010 459,742 12,812Trade and other payables ................................................................ 274,256 — — —Total ............................................................................................... 346,243 108,010 459,742 12,812
As the amounts included in the table are the contractual undiscounted cash flows, these amounts do not reconcile to the amounts disclosed on the balance sheet for borrowings and trade and other payables. For financial guarantee contracts as at December 31, 2009, see Note 24 to the Notes to our audited consolidated financial statements attached to this Offering Memorandum.
Critical Accounting Estimates
The discussion and analysis of our results of operations and financial condition are based on our consolidated financial statements, which have been prepared in accordance with IFRS. The preparation of the consolidated financial statements requires management to make estimates and judgments concerning the future that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements.
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Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. In the future such estimates and judgments will be modified as appropriate in the year in which the circumstances change. Our significant accounting policies are set forth in Note 2 to the Notes to our audited consolidated financial statements attached to this Offering Memorandum.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Estimated impairment of goodwill
We test annually whether goodwill has suffered any impairment, in accordance with the accounting policy. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations, which are influenced by management’s projections of future cash flows (see Note 10 to the Notes to our audited consolidated financial statements attached to this Offering Memorandum).
Income taxes
We are subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and assessing the extent to which deferred tax assets are recoverable, particularly those in connection with tax losses carried forward. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. We recognize liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made (see Notes 7 and 12 to the Notes to our audited consolidated financial statements attached to this Offering Memorandum).
Litigation
The current nature of the business exposes us to a number of proceedings and civil lawsuits. These procedures take, in some cases, years to be resolved and management seeks advice from legal counsel and makes appropriate assumptions on the timing and estimated amounts of cash outflows of such proceedings. Our related provisions are presented in Note 20 to the Notes to our audited consolidated financial statements attached to this Offering Memorandum, related contingent liabilities are presented in Note 24 to the Notes to our audited consolidated financial statements attached to this Offering Memorandum.
Actuarial valuation
Assumptions are used in the preparation of the defined benefit schemes calculations. Management uses the services of external actuaries to perform these calculations. The assumptions used in these calculations are presented in Note 13 to the Notes to our audited consolidated financial statements attached to this Offering Memorandum.
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INDUSTRY OVERVIEW
Introduction
The global ground and cargo handling services industry encompasses a range of activities, which can be broadly divided into ground handling services (e.g., ramp and passenger handling and baggage services) and cargo handling services (e.g., physical handling, warehousing and trucking).
The global ground and cargo handling services industry is characterized by high fragmentation. Ground and cargo handling services are provided by airlines, airports and independent operators, such as ourselves. Changes in the regulatory framework for aviation and airport services over the last years, among other factors, have contributed to independent operators gaining market share and becoming a key provider of ground handling services.
The global ground and cargo handling services industry is also characterized by certain barriers to entry. Incumbent operators benefit from customer loyalty to quality service providers and established brands as well as scale-based cost advantages. Moreover, many operators have long-term contractual relationships with airlines and airports.
Historical and Future Industry Growth
The charts below show (i) the development in the size of the ground and cargo handling market by historic net sales from 2004 to 2009 and expected development from 2009 to 2014, (ii) the historic development in air passenger traffic, which is an indirect driver of the ground handling industry as further described under “—Ground Handling,” from 2004 to 2009 and expected development from 2009 to 2014, and (iii) the historic development in freight traffic, which is the primary driver of the cargo handling industry as further described below under “—Cargo Handling,” from 2004 to 2009 and the expected development from 2010 to 2014.
Ground and Cargo Handling Market: Net sales in USD billions Passenger Traffic Growth: Passengers in millions Freight Traffic Volumes: Volumes in million tons Source: Independent industry consultant
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As of 2010, the size of the ground and cargo handing market was an estimated USD 49 billion, having grown at a CAGR of 7.9% between 2004 and 2007 before experiencing a 0.2% decline between 2007 and 2010. Over the same period, passenger traffic and freight traffic volumes experienced followed a similar trend as evidenced by the above. The total ground and cargo handling market is expected to grow at a CAGR of 6.4% between 2010 and 2014; similarly, passenger traffic and freight traffic volumes are expected to grow at rates of 4.4% and 5.3% respectively over the same period. The future trends for passenger traffic and freight volumes are expected to continue beyond 2020.
Since the 2008 and 2009 global economic downturn, which had a considerable effect on the aviation and airport services industry, airline activity has improved significantly. The improvement in the industry as a whole has been supported by a recovery in airline activity in emerging markets, particularly in Asia Pacific, Latin America and the Middle East.
Industry Cyclicality
As the aviation and airport services industry is intrinsically linked to the airline industry, the aviation and airport services industry follows the cyclical trends of the airline industry. The airline industry is sensitive to the business cycle and generally has higher revenues during periods of economic prosperity and expansion and lower revenues in periods of economic downturn and contraction.
Despite the positive correlation between the performance of the ground handling industry and the airline industry, the ground handling industry and the airline industry have different revenue growth drivers. Airlines rely on passenger growth as well as seat load factors and booking class mix to drive their top line. In contrast, ground handlers rely on aircraft movements/turnarounds. As such, it is the number of take-offs and landings of aircraft at an airport that primarily drives revenue in the ground handling industry. Although year-on-year changes in both passenger volumes and aircraft movements follow changes in GDP, airline movements are more insulated from changes in GDP than passenger volumes.
While aircraft movements are relatively insulated from the economic cycle, cargo volumes closely follow changes in GDP and world trade. Changes in cargo volumes have historically shown an early cycle recovery, largely because air cargo is primarily comprised of finished products that businesses need to restock at the early stage of their inventory cycles. Passenger growth, which exhibits later cycle recovery, generally recovers following improved economic sentiment and consumer confidence.
Ground Handling
Ground handling services comprises a range of activities, which can be broadly divided into ramp services and passenger services. Ramp services include aircraft fueling, de-icing and the loading/unloading of passenger baggage and equipment. Passenger services primarily involve passenger check-in and ticketing services. The majority of ground handling services is charged for on an aircraft turnaround/movement basis. Some ground handling services, such as de-icing, are charged for on a “per service” basis.
Global passenger volume was approximately 5 billion in 2010 and grew at a CAGR of 6.2% between 2004 and 2007 before experiencing a 0.8% decline between 2007 and 2010 as a result of the global recession. Aircraft movement activity is expected to follow an upwards trend, consistent with the expected growth in passenger volumes, despite a general trend towards increasing average aircraft sizes. Globally, the ground handling market is expected to grow at a CAGR of 4.4% between 2010 and 2014 with some variation across regions and to continue to grow beyond 2014. According to an independent industry consultant, passenger volume in the more mature North American and European markets are expected to grow at a CAGR of 1.9% and 4.0%, respectively, between 2010 and 2014, with global growth led by the emerging markets, notably the Middle East and Asia Pacific, which are expected to grow at a CAGR of 7.6% and 6.6%, respectively, between 2010 and 2014.
Local dynamics are also a key driver of the ground handling market. Local players benefit from ‘local scale’ advantages. Where a critical mass of customers and services can be contracted at a local level (i.e. at an airport), it is often possible for an established player to achieve cost savings or drive incremental revenue opportunities. For example, the ability of an established player to implement workload management at an airport can reduce overall staff requirements. In addition, additional customers can be captured at marginal cost and an increased number of services can be provided because fixed costs have already been incurred by such players. Local market leadership also enables the development of local know-how and a better understanding of customers, both of which lead to improved service quality and are particularly important for large hub operations.
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Airlines are particularly focused on reducing their ground handling costs because they are one of the few parts of their cost base that they can control. According to an independent industry consultant, the majority of the airline cost base is either variable and subject to change based on external factors, such fuel price charges (which represent approximately 40-45% of total costs) and policy-driven airport charges, or fixed with limited ability to be reduced, such as staff costs (which represent approximately 20% of total costs). The remaining costs, of which ground handling represents a significant proportion (approximately 10-15% of total costs), can be adjusted by airlines to ensure operations are as cost effective as possible.
Cargo Handling
Cargo handling services comprise a range of activities, including ramp transfer services, load planning, customs services, tracking services, warehousing and postal services. In contrast to ground handling services, revenues in the cargo handling industry are generated on a per ton basis, often with surcharges for additional services provided.
The size of global freight volumes, the primary driver of the cargo handling market, was approximately 81 million tons in 2010 and grew at a CAGR of 3.4% between 2004 and 2007 before experiencing a 4.3% decline between 2007 and 2010 as a result of the global recession. Globally, the market is expected to grow at a CAGR of 5.3% between 2010 and 2014 with only slight variations across regions and to continue to grow beyond 2020. According to an independent industry consultant, the growth expected in regional markets between 2010 and 2014 varies from a CAGR of approximately 5.0% in North America to a CAGR of around 5.9% in the Middle East and Asia Pacific.
Industry Trends
Outsourcing and Deregulation
Outsourcing has played in recent years, and continues to play, an important role in the aviation and airport services industry. As airlines continue to focus on profitability, they are increasingly focusing on their core business, passenger transportation, and eliminating less profitable components of their businesses. When a carrier services its own handling needs, it may need to purchase its own equipment, including load control devices, mobile ramps and other expensive goods. This equipment may go unused between flights, resulting in underutilization and unnecessary costs. In contrast, independent ground handlers are able to fully utilize their equipment because they can allocate it among different airlines.
This outsourcing trend has been strongly supported by increasing airport deregulation, which has played an important role in changing the competitive landscape of the air services industry since the beginning of 2007. Deregulation has had two important effects on the aviation services industry. First, it has opened up new markets in which aviation service providers, like ourselves, may operate. Second, it has resulted in increased competition in the industry. For example, new markets are being opened in the EU as a result of new EU regulations that require EU airports where traffic exceeds 2 million passengers or 50,000 tons of freight per year to have at least two handling operators, at least one of which must be independent from the airport or any dominant carrier at the airport.
This outsourcing trend has also been driven by the continued growth of low cost carriers (“LCCs”), who minimize their costs by, among other things, outsourcing ground handling services. Their success in controlling their costs has led larger carriers to focus on their own cost efficiency, in particular through network optimization and workforce cost efficiencies. From 2000 to 2008, the market share of independent ground and cargo handlers increased from 24% to 39%, as shown in the chart below.
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Source: Independent industry consultant.
Until recently, airlines were reluctant to outsource large hub operations as it could put at risk the safety, efficiency and quality of their flagship airports. As airlines are increasingly focusing on controlling their ground handling costs, partial outsourcing at large hubs or full outsourcing in mid-sized hubs may represent an opportunity to independent operators in the short- to mid-term.
Low Cost Carriers
Over the past ten years, LCCs have experienced significant growth and been able to gain increased market share. According to OAG, a provider of airline information, in 2001 LCCs represented approximately 8% of total worldwide capacity, whereas currently LCCs represent approximately 23% of total worldwide capacity. While the growth in, and increased market share of, LCCs has been observed globally, this trend has been particularly strong in Europe where the market share of LLCs grew to approximately 40% in 2008 from approximately 22% in 2005. According to Centre for Asia Pacific Aviation, a producer of airline reports and analysis, by comparison, in North America and Asia Pacific, LCCs grew to approximately 28% and 16%, respectively, in 2009 from approximately 18% and less than 1%, respectively, in 2001. LCCs are expected to continue to grow.
The expected continuation of LCC penetration into the airline market has particular implications for the ground handling industry. Although LCCs normally outsource their ground handling needs, they generally have fewer service requirements and are increasingly focused on the use of automated services and technology to meet their ground handling needs. LCCs thus typically use their own crew where possible, self-check in procedures and increasingly the internet and mobile technology. The increasing presence of LCCs favors ground handlers that have an established track record of providing high quality services and a prominent local presence allied with a global footprint. It also favors ground handlers that are at the forefront of the use of new technologies and automated services.
Competition
Both the ground handling and cargo handling industries are highly fragmented, with a large number of small players, largely due to the local dynamics driver of the ground handling industry discussed above. The majority of industry players are not comparable as most of the players have specific regional exposure, such as SATS in Asia and Aviapartner in Europe, and positions at single or very few airports or countries or exposure to different businesses within the ground and cargo handling industry.
Despite having local expertise, Swissport is a global player in the ground and cargo handling industry and its primary independent global ground handling competitors are WFS, Menzies and Servisair. Swissport and WFS operate principally in Europe and the Americas with a growing presence in Asia; Menzies operates principally in the United Kingdom; and Servisair operates principally in Europe. Amongst independent ground handlers, Swissport ranks first in terms of number of stations with 176 as of December 2009 and in terms of top-line revenue. Swissport’s primary independent global cargo handling competitors are WFS and Menzies. WFS and Swissport are the first and second largest cargo handlers globally, respectively, by tonnage of cargo handled.
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BUSINESS
Overview
We are the largest independent ground handler based on revenue and number of stations and the second largest cargo handler based on tons of cargo handled. We offer our customers a full-range of value-added aviation services in our ground handling and cargo handling services and our personnel can be found throughout the airports in which we operate, both in passenger-facing roles, such as at check-in counters and security screening, as well as in logistical roles, such as baggage handling and aircraft services. Our services are innovative and flexible and are designed to meet our customers’ needs on both a local and global scale throughout our network. We believe that we are at the forefront of technological advancements in our industry and were among the first independent global aviation service providers to offer web check-in, mobile check-in, advanced security procedures and various other innovative aviation services. We are also flexible to our customers’ needs and to changes in the aviation landscape. We offer a full suite of aviation services, as well as more bespoke, customized services for clients, such as low cost carriers. For the nine months ended September 30, 2010, our consolidated revenues were CHF 1,262.1 million, a 7.0% increase over the same period in 2009, our EBITDA was CHF 104.1 million, a 31.6% increase over the same period in 2009 and our EBITDA Margin was 8.0%, a 23.5% increase over the same period in 2009.
We group the services that we provide into the following two categories:
• Ground Handling. Our ground handling services generated 77.9% of our total revenue and 84.0% of EBITDA for the nine months ended September 30, 2010. Our core ground handling services include ramp and passenger handling, baggage services, lounge and ticketing supervision, cabin cleaning, deicing, e-services, PRM handling and executive aviation. We also offer specialty services which are complementary to our ground handling services. These services include fueling, aircraft maintenance and aviation security.
• Cargo Handling. Our cargo handling services generated 22.1% of our total revenue and 16.0% of EBITDA for the nine months ended September 30, 2010. Our cargo handling services include physical import and export handling of cargo, warehousing and storage of cargo, document handling, trucking and mail handling.
We were founded in 1996 and currently have over 33,000 personnel and, as of December 31, 2009, were active at 176 airports in 38 countries throughout Europe, Africa, Asia, North America and South America. We operate at some of the busiest airports in the world, including Chicago O’Hare International Airport, Los Angeles International Airport, London Heathrow Airport, John F. Kennedy International Airport and Paris-Charles de Gaulle Airport. In 2009, we provided ground handling services for over 70 million passengers on over 2.5 million flights and handled approximately 2.7 million tons of cargo on behalf of approximately 650 airline customers. As of December 31, 2009, we operated 56 stations in Europe, 51 in North America, 43 in South America, 21 in Africa and five in Asia.
Our customers are major commercial airlines, regional air carriers, air cargo carriers and freight forwarders and include Swiss International Air Lines, Lufthansa, United Airlines, Air France/KLM, Ryanair, easyJet, Virgin Atlantic Airways, Great Wall Airlines, British Airways and Swiss WorldCargo, among others.
Our service quality is our hallmark, and we have a strong reputation for the quality of our service offerings and our high levels of customer service, as evidenced by our numerous awards and industry recognition. We were named “Global Aviation Ground Services Company 2010” by the Institute of Transport Management, marking the tenth successive year. At the World Air Cargo Awards, Air Cargo Week named our cargo services division the “Air Cargo Handling Agent of the Year for 2010,” for the second year in a row. Quality of service is fundamental in the aviation services industry because airlines entrust their handling services to be operated by external parties. Poor handling can lead to damaged aircraft, late check-in, lost luggage and delayed schedules, all of which can be costly for airlines, both from a financial and reputational point of view, partially because many customers view handling personnel as airline employees instead of third party employees. We recognize the importance in the quality of our services and seek to ensure that our customers feel confident that their business is in good hands and that their customers will have positive experiences with our services.
We believe our strong reputation, loyal customer base and favorable brand recognition have been achieved because of our global scale, integrated service offerings and local management expertise. Our global scale and integrated service offerings allow us to offer a comprehensive range of services in each of the regions in which we operate. Because of our global scale, we are also able to utilize best practices from each of the regions in which we operate in order to deliver superior service that consistently apply Swissport quality across all of our global stations. Our local management expertise allows us to apply our global and integrated services offerings in a manner that is specifically tailored to the needs of our customers in each of those regions. This local expertise also allows us to respond quickly to changes in local market conditions and adapt our business accordingly. We believe our global scale, integrated service offerings and local
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expertise aid us in attracting and maintaining a strong and loyal customer base. For example, some of our largest customers, including Swiss International Air Lines, Lufthansa, United Airlines, South African Airways, Air France, easyJet and Virgin Atlantic Airways, have been our clients in key locations since our inception in 1996. We have a long service history with each of these customers and established contractual agreements in place with each.
Our Competitive Strengths
We believe we benefit from the following key strengths:
We are a market leader in our industry
We are the largest independent ground handler based on revenue and number of stations and the second largest cargo handler based on tons of cargo handled, making us a recognized leader in ground and cargo handling. We also manage a number of airline hubs in which we handle our customers’ ground and/or cargo needs at certain of the major airports in which they operate, including for Swiss International Air Lines in Zurich, easyJet in Geneva and Madrid, South African Airways in Johannesburg, Ukraine International Airlines in Kiev, Cyprus Airways in Larnaca, Ryanair in London Stansted Airport and Madrid and GOL in Sao Paolo and Rio de Janeiro, as well as United Airlines in Los Angeles, Chicago, Washington D.C. and San Francisco for cargo. Airline hub management solidifies our leading market position at each of those stations and further strengthens our global presence and leading market position.
Our leading market positions and global presence place us at an advantage to other ground and cargo handling companies because they afford us both the capability to be a “one stop shop,” enabling us to deliver a comprehensive range of our services at each station at which we operate, and the capability to deliver the full spectrum of our high quality services on a global level. These services can further be individually tailored to the needs of our specific customers in each region in which we operate, giving us the flexibility to meet each of our customer’s individual needs.
We also believe our market position is sustainable because our scale allows us to reduce certain of the cost burdens associated with entering into new markets. The cost burdens include significant start up costs at each location in which an aviation service provider operates as well as high switching costs borne by airlines when they change service providers. For example, the initial investment costs in any station are substantial, including new equipment purchasing and the hiring and training of new staff. Our global presence allows us to minimize those expenses and capture new customers at lower marginal costs because we already have an extensive equipment and personnel base from which we can draw, allowing for cross-functional staff and equipment utilization. Our global scale also affords us favorable purchasing power, which may lower the costs of new equipment purchases should our equipment needs not be met by our existing fleet. Further, the process for airlines to switch service providers can be cumbersome, costly and time consuming. Such a switch could take up to several months, because air service providers become fully integrated into the daily activities of the airline. We are better positioned than many of our competitors to accept new customers that are switching from other providers because the sophistication of our global knowledge and services allows us to quickly and easily integrate our systems into each new station and for each new customer.
We have high quality service offerings and an established, loyal and diversified customer base
We have a reputation for quality and superior service among our customers in the aviation industry. We were named “Global Aviation Ground Services Company 2010” by the Institute of Transport Management for the tenth successive year. At the World Air Cargo Awards, Air Cargo Week named our cargo services division the “Air Cargo Handling Agent of the Year 2010” for the second year in a row. Zurich Airport was awarded the Best Airport for Baggage Delivery in 2010, a service that is heavily dependant on Swissport’s operations. Additionally, third party consultants have confirmed, through interviews with industry experts and our customers, our high quality reputation and favorable perception of our services. We have achieved this reputation by consistently providing our customers with a high level of service that is strengthened by our technical know-how, the large variety of innovative products we offer, including web and mobile check-in, and our flexibility in addressing the varied and demanding needs of our customers.
Our reputation for quality and superior service is evidenced both by our loyal and diverse customer base and our ability to re-establish business relationships with customers who have previously stopped using our services. We have a strong contract renewal rate, as evidenced by our 95% renewal of contracts by revenue in EMEAA and we serve approximately 650 customers, with no customer other than Swiss International Air Lines, which makes up approximately 15% of our consolidated annual revenue, making up more than 3% of our consolidated annual revenue. These customers range from established multi-national airlines to low cost carriers to regional carriers to airports, some of which have been our customers since our inception and others since their inception. We believe we have achieved a loyal and diverse customer base because we provide each of our customers a leading range of global services with the local expertise to custom tailor a service package for each of their individual needs.
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Our global footprint complemented by local expertise places us at a strategic advantage to our competitors
We currently have over 33,000 employees and, as of December 31, 2009, provided ground handling and cargo handling services at 176 airports in 38 countries worldwide, which is more than any other independent ground handling or cargo handling services provider. In 2009, we handled approximately 650 customer airlines, which operated approximately 2.5 million flights with more than 70 million passengers, and 2.7 million tons of cargo. Our global network enables us to share and deploy our best practices and global knowledge across our vast network, which has led to consistency in the services provided to our customers and a leaner cost structure. The operational effectiveness of our services is actively monitored at all levels by the use of standard key performance indicators, which we believe improve our financial and operational performance. We strengthen our global network by having a key account management team that provides product consistency to our customers across stations and local expert management teams that have the ability to respond quickly to changes in local market conditions. The combination of our global network and regional expertise give us a strategic advantage over our competitors by allowing us both to guide our existing customers as they expand into new locations and to better capture new customers at a local level because of our ability to draw upon our best practices worldwide, which allows us to offer our full range of services to those potential customers. Smaller, less diverse aviation service providers are often not able to offer a full range of products across multiple stations, which we believe decreases their competitiveness.
Our diverse business model helps to mitigate cyclical trends in the aviation industry
We have a diverse business model evidenced by both our global presence within various economic markets and the variety of our service offerings. This business model allows us to diversify market risks and mitigate the cyclical nature of the aviation industry. We operate in various markets, which allows us to diversify economic and market risks that are specific to certain regions. For example, throughout the global economic crisis, the emerging markets have fared better on a whole and are also recovering more quickly than more seasoned markets. Because we have operations in a variety of emerging markets, including South America, Africa, Asia and the Middle East, we believe we have been able, and will continue to be able, to reduce the negative impacts of certain cyclical trends in the aviation industry.
We also provide a variety of services within the aviation industry. This diversity of service offerings allows us to mitigate the negative impact suffered by any specific line of service within the aviation and aviation services industry. Our ground handling revenues and earnings have proven more stable than revenues in other aviation-related sectors that suffer as result of the cyclical nature of the aviation industry. For example, revenue for passenger airlines is primarily correlated to passenger volume and the use of premium class travel, both of which declined during the global economic crisis. However, our ground handling revenue stream is not directly correlated to either passenger volume or the use of premium class travel. Rather, based on our customer contracts, it is primarily correlated to the number of flights. While a reduction in passenger volume may cause airlines to close routes, thereby reducing flights, we can often foresee this risk because there will generally be a delay between the reduction of passengers and the closing of routes. Once such a risk is evident, we can seek to mitigate the risk by downsizing appropriately and implementing other such measures. Also, the air cargo industry as a whole suffered more than the passenger airline industry through the financial crisis, which has caused a decline in our cargo handling revenues. We have been able to mitigate the severity of this decline because our revenue is comprised of not only cargo services, but also ground handling and specialty services, which have fared better as a whole than cargo services. Further, certain events that may cause a decline in the number of airline flights, such as terrorist attacks or epidemics, thereby affecting our ground handling revenue stream, will not necessarily affect cargo volume as adversely.
Further, our diverse customer base, which includes both traditional multinational carriers as well as low cost carriers, allows us to benefit from occurrences that affect one type of carrier. For instance, while flight volume decreased for the airline industry as a whole during the economic crisis, low cost carriers have managed to increase their market share against the more established multinational carriers. We have been able to benefit from their increase in market share because some of our largest clients, including easyJet and Ryanair, are low cost carriers.
We are well positioned to take advantage of current trends in the global aviation industry
We believe we are well positioned to take advantage of current trends in the aviation industry, which include outsourcing of airport services by airlines and airports, local deregulation of aviation services, an increased presence of low cost carriers and the increasing use of technology, including the automation of passenger, ground handling and cargo services. We consider these trends as opportunities and we believe that we are well positioned to take advantage of them because of our large size, global presence and wide variety of service offerings.
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• Deregulation of aviation services. The deregulation of local airport services in many countries and regions has opened new markets to independent handlers and afforded us the opportunity to expand our network and utilize our global knowledge to improve aviation service processes at selected airports. For example, any EU airport where traffic exceeds 2 million passengers or 50,000 tons of freight per year is now required to have at least two handling operators, at least one of which must be independent from the airport or any dominant carrier at the airport. As a global independent operator, we benefit from such deregulation because as the emerging EU countries, such as Bulgaria and Poland, begin to handle more traffic, more markets are open to us.
• Outsourcing of airport services. Many airlines and airports that previously handled their own ground and cargo are in the process of outsourcing those services, including, by way of example, Larnaca and Paphos airports in Cyprus, which have already outsourced these services. Many airlines have sought to reduce their cost centers and focus on their core business of passenger transportation. These airlines have therefore outsourced their handling needs to third party handlers, which have provided a less expensive alternative. They are able to produce a less expensive alternative because ground and cargo handling are their core business, which allows them to operate more efficiently and at a lower cost, which we believe has resulted in material productivity gains for airlines. We believe we are well positioned to capitalize on the recent trend of outsourcing because we are able to provide our current and potential customers with a global array of services as well as the ability to provide them with local expertise and knowledge in many of the regions in which they operate.
• Increased presence of low cost carriers. Low cost carriers, such as Ryanair, easyJet and GOL, are gaining market share worldwide and have achieved significant growth in recent years. In Europe, as of December 31, 2009, one passenger seat in three is being sold by a low cost carrier. We believe we have the necessary infrastructure, resources and operational excellence to serve the growing number of low cost carriers, as is already evidenced by the fact that Ryanair, GOL and easyJet are three of our largest customers.
• Increasing use of technology. The aviation industry has become more dependent on technology, including the automation of passenger, ground and cargo handling services. Technology use and development have been a core priority of our business and we have generally been industry leaders in the development and implementation of technological advancements within our business. Such technology includes self-service applications, such as kiosks, web, mobile and off-airport check-in and common and self bag drops. We also have self-service process consulting services to advise customers and passengers about self-service products. We also seek to utilize state of the art technology in our cargo handling service, including FreightScan and HHTs. We believe that such technology creates value by decreasing the time needed to measure cargo, thereby streamlining the cargo handling process and allowing us to handle a larger volume of cargo in a shorter period.
We have strong cash generation, a successful financial track record and strong financial backing
We have a long record of increasing the cash flow of our business, which we have continued to generate even during the recent economic downturn. We generated EBITDA of CHF 95.5 million, CHF 114.8 million and CHF 117.6 million for the three years ended December 31, 2007, 2008 and 2009, respectively. For the nine-month periods ending September 30, 2009 and 2010, we generated EBITDA of CHF 79.1 million and CHF 104.1 million, respectively. The profitability of the business and the increased focus on working capital management has led to improved cash flow generation. We also managed to reduce our DSO, from 64 days in February 2008 to 41 days in September 2010 and we continue to manage our working capital closely to maximize our cash flow generation. We generated cash flow from operating activities of CHF 32.1 million, CHF 101.7 million and CHF 106.2 million for the years ended December 31, 2007, 2008 and 2009. For the nine-month periods ended September 30, 2009 and 2010, we generated cash flows from operating activity of CHF 81.7 million and CHF 93.2 million, respectively.
We have an experienced, stable and strong management team with a successful track record at Swissport
We have an internationally diverse senior management team with over 100 years of combined industry experience and a proven track record in the air services and logistics operation industries. The international diversity of our management team, which is represented by seven nationalities, reflects the global approach of our company, which we believe has aided us in growing our total revenues, managing costs, introducing new products and acquiring and successfully integrating new businesses. We believe that the collective industry knowledge and leadership of our senior management team and their record of accomplishment in responding to challenging economic conditions and achieving profitable revenue growth will enable them to continue to execute our strategy profitably. Following the Acquisition, we will also benefit from the support of PAI, one of the oldest and most experienced private equity firms in Europe,
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renowned for its wealth of industry-specific expertise and its deep knowledge of the economic drivers of selected industries.
Our Strategy
The key components of our strategy are to:
Maintain and further strengthen our leading market positions by developing new products and service offerings in new locations
We continue to maintain and further strengthen our leading positions within our existing network by continuing to leverage our strong brand and focus on our core strengths. We opened our doors with three locations in Switzerland in 1996 and, as of December 31, 2009, had 176 locations globally. We believe we have achieved such growth as a result of the quality of our services and strong brand name and because we have constantly sought to adapt to market changes by offering state of the art products and services and moving into new markets and regions, a tradition that we will continue to pursue. For example, we were one of the first aviation services providers to provide technological innovations such as web and mobile check-in, and we have also been quick to adapt to changes in the aviation industry, including the increased presence of low cost carriers, a trend on which we have capitalized. In furtherance of our strategy of strengthening our leading market position, we currently have a number of projects in our pipeline, which we believe will yield a positive revenue impact in the next few years. We continue to focus on developing certain of these projects in 2011, including market entries in selected locations in Latin America, the Middle East and Eastern Europe. Throughout our advancements and expansions, we aim to meet and exceed the expectations of our customers with a continuous focus on quality.
Focus on profitable growth and maintenance of strong cash flow
We continue to grow profitably and expand our operations in certain of our key markets and to expand our relationships with other key customers at all of our stations. In particular, we are aiming to expand into high margin sectors and areas such as Eastern Europe and Latin America and other emerging markets. We also recently strengthened our presence in Germany, primarily through our new ground handling hub framework agreement for the regional fleet of Lufthansa in Munich starting in January 2011. In addition, we continue to selectively close the gaps in our existing network in an effort to offer more complete coverage to our customers and to sell all available services at each station at which we operate.
We also continue to focus on maintaining strong cash flow generation by maximizing the utilization of our assets, leveraging existing resources and maintaining a disciplined approach in growth-oriented capital expenditure. This will be undertaken by further optimization and management of working capital and tax outflows as well as the implementation of cash pooling structures. We continue to improve our DSO, which we have already reduced from 64 days in February 2008 to 41 days in September 2010.
Continue to implement the Swissport Formula throughout our businesses
The Swissport Formula is a ten-point initiative that we began implementing in 2008. This initiative yielded tangible results already in 2009 and we are confident it will help us maintain a competitive edge in our industry. The Swissport Formula is based on lean management principles, pursuant to which we introduce standard management practices throughout our businesses in order to achieve operational excellence as well as a leaner cost structure. This initiative is a cultural change built on the principles of centralized planning, daily operational key performance indicator monitoring and steering, establishment of common best-practice standards across our businesses, active management and monitoring of customer and network relationships, and lean organizational structures optimized to each station’s size and operational complexity. We believe these measures provide improved choice and access to innovative services for our clients worldwide. The Swissport Formula provides for optimized solutions for both the global and local requirements of our customers and for interoperability and compatibility of services between multiple stations. These standard practices enable us to provide our customers with consistent quality, reliability and well-trained management and staff. It also allows us to streamline our workforce best practices to create a leaner cost structure, which further drives our financial and operational performance, by, among other things, allowing us to provide superior service to our customers.
The Swissport Formula, according to our internal analysis, has been implemented in more than 70% of our largest ground handling stations. We began implementing the Swissport Formula within our cargo handling operations in 2010 and we intend to complete the implementation of the Swissport Formula within EMEAA and Brazil in 2011. The Swissport Formula is a continuous improvement initiative and will lead to implementation of a Swissport Improved Formula, to ensure further savings and ongoing improvement.
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Focus on human resources management
Ground handling and cargo handling are relatively labor intensive businesses. We currently have over 33,000 employees globally and believe that our workforce management is a key differentiating factor among air services operators. We believe our efforts have resulted in such tangible results as constructive labor relationships globally and strong local human resources relationships with a proven track record, evidenced by very few union and labor related issues. We intend to continue to focus on our human resources management to further differentiate our service offerings from those of our competitors. We are implementing a consistent performance development review system to be used across the Swissport business and, in addition, are in the process of implementing a leadership development program that includes assessment, training and succession planning for our mid-level and senior management. Furthermore, we are in the process of designing and implementing a global corporate compensation and benefits policy that we expect to roll out by the end of 2011, which will closely align compensation and benefits to standardized performance matrices.
We have also sought to maintain a flexible workforce by outsourcing certain of our ground and cargo handling needs to third parties, a move which we believe allows us to remain flexible throughout cyclical trends in the aviation industry, thereby allowing us to maximize productivity and workforce utilization.
Our History
Swissport Milestones
• 1996-1999: We opened our doors with three locations in Switzerland and within three years expanded our global footprint to South Africa, Turkey, the United Kingdom, Germany and Brazil, and we acquired DynAir in the United States and the ground and ramp handling operations of Aer Lingus in London.
• 2000-2003: We further expanded our global footprint to 130 locations in 25 countries and acquired Cargo Service Center B.V.
• 2004-2007: We won a key tender process in Spain for licenses at six locations, acquired Protectas and Groundstar and expanded our global footprint by offering additional services or services for the first time at numerous airports globally. We also had successful entry into Madrid with Ryanair, as well as Ukraine and Bulgaria.
• 2008-2010: We were awarded the Institute of Transport Management award for best “Global Ground Services Company” for the tenth consecutive year (2001-2010), built and opened new cargo facilities in Israel and Kenya, won a ground handling license at the Munich Airport, and were awarded the “Cargo 2000” certification across the cargo business. We also further expanded our global footprint by offering additional services for the first time at numerous airports globally.
Our Services and Business Operations
We provide ground handling services as well as cargo handling.
Ground Handling
Our ground handling services are divided into three categories, aircraft servicing and ramp handling, station management and administration, and passenger services. In 2009, we were the largest independent ground handler based on revenue and number of stations. Our core ground handling services accounted for CHF 983.7 million, or 77.9%, and CHF 1,258.5 million, or 79.4%, of our consolidated revenue for the nine months ended September 30, 2010 and the year ended December 31, 2009, respectively.
We provide individual or combinations of ground handling services to our customers at the majority of the stations at which we operate. We provide certain of our customers with ground handling services at multiple stations across their networks or on a regional basis. Some of our customers employ us to provide all of their ground handling requirements at certain of their hubs, referred to as “hub management”. We perform hub management services for Swiss International Air Lines in Zurich, easyJet in Geneva and Madrid, South African Airways in Johannesburg, Ukraine International Airlines in Kiev, Cyprus Airways in Larnaca, Ryanair in London Stansted Airport and Madrid, GOL in Sao Paolo and Rio de Janeiro, and from January 2011, we will provide hub management services to Lufthansa at the Munich Airport under a long-term framework agreement. We believe the variety of services we offer benefits our customers by offering to them a customized approach that can be individually tailored to each of their needs. The variety of services we offer also allows us to act as a “one stop shop” where all of a customer’s needs can be met through a single provider. Our ground handling services division currently has approximately 27,000 personnel. In 2010, we provided passenger and
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ramp handling at over 135 stations worldwide and served over 70 million passengers throughout each of the regions in which we operate.
Aircraft Servicing and Ramp Handling consists of both aircraft serving and baggage/ramp handling services. Aircraft serving consists of properly cleaning and preparing aircraft for flight by offering cabin cleaning, passenger and crew transport to and from aircraft, deicing, aircraft push-back, toilet and water services and airplane power supply services. Our deicing service ensures each plane is prepared for flight during cold weather by spraying a mixture of heated water and either propylene glycol or ethylene glycol onto an aircraft, which aids in melting ice on the aircraft. Our toilet and water services empty the waste from aircraft lavatories and properly dispose of that waste. Our airplane power supply services supply power to aircraft via ground auxiliary power units, which are vehicles capable of supplying power to aircraft when their engines are turned off.
Baggage/ramp handling services consists of loading and unloading baggage from aircraft and ensuring that all baggage is sorted and organized appropriately through our unit load device control process. Unit load devices are large containers used to load luggage or freight into aircraft. These devices allow a large quantity of cargo to be bundled into a single unit, thus reducing the number of units to load, which aids in reducing the likelihood of delayed flights by saving ground handling time.
Station Management and Administration consists of flight operations assistance, irregularity operations support, which is necessary when flights are delayed or other abnormal flight disruptions occur, liaising with port authorities, load control, station control, station representation and supervision, airline flight plan filings and weather briefings. These services aid our customers by offering our expertise in all areas of airport and flight logistics, as well as offering up-to-date information on flight plans and weather. Our load control services are provided through centralized load planning teams at numerous locations, significant synergies are created by centralizing this function into regional centers and provides additional service benefits for the customer. A good recent example of centralized load planning is the expansion of our load control services through the building of a serviced center near Manchester Airport, which services all of the United Kingdom. Load control involves creating data by calculating the weight and balance of an aircraft to ensure the aircraft flies safely and efficiently while maintaining payload opportunities. This data is then forwarded directly to the aircraft flight deck where it is displayed on a teleprompter, wherever the aircraft is at the time.
Passenger Services consists of airport ticketing sales desk services, arrival and transfer services, check-in services, dedicated passenger services, gate services, lost and found services, PRM services, lounge services and special passenger and VIP services. These services allow us to interact directly with the 70 million passengers that we provide services for annually throughout their traveling experience.
Ground Handling Services by Region
Europe, Middle East, Africa and Asia
We currently provide ground handling services at more than 45 stations in Europe, the Middle East, Africa and Asia servicing 0.6 million departing flights for the period ending October 2010. At these stations, we provide ground handling services for more than 200 airlines. In addition, currently we provide hub management services under long-term framework agreements to Swiss International Air Lines in Zurich, easyJet in Geneva and Madrid, South African Airlines in Johannesburg, Ukraine International Airlines in Kiev, Cyprus Airways in Larnaca, Ryanair in London Stansted Airport and Madrid, GOL in Sao Paolo and Rio de Janeiro, and from January 2011, we will provide hub management services to Lufthansa at the Munich Airport under a long-term framework agreement. After recent developments in regulation changes concerning passengers with reduced mobility (PRM), we have started providing PRM services in Zurich Airport, Geneva International Airport, and various Airports throughout Spain and Cyprus. In Europe, we offer our ground handling services at the vast majority of the stations in which we operate. In Asia, we offer ground handling services in all but one of the stations we operate. In Africa, we offer ground handling services at all airports within the main countries in which we operate, including South Africa, Tanzania, Kenya and Algeria.
Americas
We currently provide ground handling services at 94 stations in North and South America, servicing more than 30 million passengers by the end of October 2010. At these stations, we provide passenger and ramp handling services for more than 380 airlines. As well as traditional ramp and passenger handling in many locations across the two continents, we also handle the hub of Airline GOL in Brazil. The region also appears to be the leader in developing and implementing new environmental services products. One example is the development of a process that collects deicing fluid runoff, enabling us to refine and reuse the deicing fluid for future applications, and prevents the deicing fluid from entering soil and ground water.
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Customers and Sales
We currently have over 500 ground handling customers and believe we have a strong and loyal customer base and favorable brand recognition in the aviation services industry. Our cargo handling services accounted for CHF 278.4 million, or 22.1%, and CHF 326.1 million, or 20.6%, of our consolidated revenue for the nine months ended September 30, 2010 and the year ended December 31, 2009, respectively. Our top 10 ground handling customers by revenue, which accounted for approximately 40% of our consolidated revenue for the year ended December 31, 2009, were:
• Swiss International Air Lines • Linhas Aéreas Inteligentes (GOL)
• Ryanair • South African Airways
• Singapore Airlines • Air France/KLM
• Lufthansa • easyJet
• United Airlines • Virgin Atlantic Airlines
Of these customers, Swiss International Air Lines, Lufthansa, United Airlines, South African Airways, AirFrance/KLM, easyJet and Virgin Atlantic Airways have been our clients in key locations since our inception in 1996, while Ryanair has been our client for over five years, KLM Royal Dutch Airlines since 2003 and GOL since 2003. We have long-term relationships with each of these customers.
We have an experienced international ground handling sales team with an expertise in our business and services. Key account managers are responsible for managing the relationship with and developing business with our larger customers. Our key account managers play a crucial role in maintaining long-term business relationships with our larger customers.
Our sales policy also includes local and regional sales representatives who are on site to deal with customers’ local needs and expectations in terms of service and delivery. It is supported by our global account management teams who can deal with customers at a global level and protect their needs over their entire network.
Specialty Services
In addition to ground handling services and cargo handling services, we also provide a number of other complementary services, including maintenance, fueling, executive aviation, aviation security and e-Services. Many of the specialty services are provided as a compliment to our pre-existing ground handling and cargo handling stations and the revenues for specialty services are included under our ground handling and cargo handling divisions to prevent any distortion to our historical reporting of revenue development.
Maintenance Services. We currently provide aircraft maintenance services at sixteen airports in the United States and at six airports outside of the United States. Our aircraft maintenance services include line maintenance support on a scheduled and on-call basis, engineering support and warranty administration. We also provide ground support equipment unit and unit load device maintenance services at various airports worldwide, and we manage and maintain a substantial ground support equipment fleet worldwide.
Fueling Services. We provide into-plane fueling services and ground support refueling services as well as the maintenance and operation of on- and off-airport fuel storage and distribution systems. We currently provide fueling services at 16 airports in the United States and one in the United Kingdom. We refuel all types of aircraft with fixed hydrant carts, hydrant trucks and tankers utilizing electronic data capture providing customers with real-time information.
Executive Aviation. We provide executive aviation services to the international community of operators and executives who rely on corporate or private jets. Our executive aviation services include domestic and international handling, fast turnarounds, passenger and crew assistance, flight planning and weather, catering, hotel and restaurant reservations, limousine and car rental, aircraft charter reservation, customs and immigration assistance, traffic rights and landing permits, airport and airway slot coordination and fuelling. We currently provide certain executive aviation services at approximately 47 stations worldwide.
Aviation Security. We provide aviation security services consisting of travel documentation verification, access control, passenger screening, baggage reconciliation, aircraft guarding, cargo and hold and hand baggage screening, security training and threat and vulnerability assessments. We currently provide aviation security services in 29 locations.
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e-Services. We have recently expanded our e-Services offering, which includes self-service applications, including kiosks and the internet, mobile and off-airport check-in, common and self bag drops and self-service process consulting services to advise clients about self-service products. In addition, together with a leading industry business partner, we intend to develop web and mobile check-in as well as common language facility solutions. Common language facilities are state-of-the-art workstations that enable agents to check in and board passengers on multiple departure control systems using a single graphical user interface. These systems replace less sophisticated devices that require the agent to be trained to operate many different hosts. The implementation of common language facilities will both reduce the training time of agents as well as streamline the check-in process, both of which we believe will result in favorable business impacts for our customers.
We are also working with the high-tech movement known as the “IATA Simplifying the Business” campaign, which is focusing on the increased use and simplification of e-ticketing, common use self-service devices, radio frequency identification and bar-coded boarding passes. We believe that we are one of the pioneers in the e-Services trade and that our focus on e-Services will reduce cost pressures on a going forward basis and ensure that we are utilizing state of the art technologies in our business.
Cargo Handling Services
We were the world’s second largest air cargo ground services company in 2009, based on metric tons of cargo handled. Our cargo handling services accounted for 22.1% of our consolidated revenue for the nine months ended September 30, 2010. Our cargo handling services include physical import and export handling of cargo, warehousing and storage of cargo, document handling, trucking and mail handling. The table below sets forth a list of additional cargo handling services that we offer:
• freighter ramp handling • trucking
• ramp transportation • offline handling
• freight services • import and export documentation
• warehousing • call center and airline customer services
• integrator handling • tailor-made solutions
• mail handling • value-added services
Our cargo handling services division currently has over 4,528 personnel. We currently provide cargo handling services at 83 stations in 22 countries, and we handled 2.7 million tons of cargo in 2009 in approximately 320,000 square meters of warehouse space.
Integrator Handling Management
We provide integrator handling management to integrators worldwide. Integrators are premium shipping providers that provide door-to-door transportation of freight, such as Federal Express, UPS, DHL and TNT in addition to general freight. Integrator handling management differs from traditional handling management because integrator handling management uses automated conveyor belts, capable of handling higher volumes and different types of packages that cannot typically be handled as efficiently by traditional handling management in addition to general freight. Additionally, the operational cargo handling peaks that occur throughout a given day differ for traditional handling management compared to integrator handling management and by merging the two forms of management, Swissport is able to better utilize staffing. Integrators also have strict deadlines to meet as they offer a high value delivery product with guaranteed short delivery times. When they out-source their handling they select vendors who they can trust to meet their strict delivery requirements as a delay at one station can disrupt their whole network of deliveries. Due to the high quality demands of their business, they seldom change handling partners and often have long term relationships with their 3rd party suppliers.
Customers and Sales
We currently have over 350 customers, including 165 airlines. Our top 10 cargo handling customers in 2009 by revenue were:
• United Airlines • Delta Airlines • British Airways • China Airlines • Swiss International Air Lines • Lufthansa • Air France/KLM • Cathay Pacific Airways • Singapore Airlines • Jade Cargo
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We currently have cargo framework agreements with the following customers:
• United Airlines (outsourcing cargo handling services at six stations, including Chicago O’Hare International Airport)
• Air France/KLM Cargo (global framework agreement for over 50 stations)
• Swiss World Cargo (global framework agreement for over 32 stations)
• Virgin Atlantic Airways (off-line network Europe)
• Great Wall Airlines (off-line network Europe)
• Etihad Airways (off-line network)
We have had cargo framework agreements in place with three major airlines, Air France/KLM, Swiss World Cargo and Jade Cargo and we have other similar agreements with major customers including United Airlines and Great Wall Airlines, covering a network of over fifty stations. These framework agreements generally range in duration from two to five years and payment for our services is typically based upon volume of cargo tonnage handled by our operations.
Our direct cargo handling sales force consists of approximately fourteen regional sales executives and approximately four global account managers, who account for our primary sales channel to our customers. We also have a number of key sales representatives for each region in which we operate. These representatives have extensive knowledge of our global product offerings as well as local expertise, which we believe puts them in a position to offer our existing and potential customers tailored cargo service offerings that meet their individual needs.
Customer Relationship Management
In order to further differentiate our cargo handling services from our competitors and bring value-added benefits to our customers, we recently began to implement a customer relationship management, or CRM, initiative. Our CRM initiative is focused on customer retention by providing extra reporting and information services to customers to help them monitor the services we are offering against Cargo 2000 standards. A dedicated team works closely with our key customers to ensure we cover their needs in terms of product offering and service delivery and support this with suitable tools.
Material Contracts
Customer Contracts
Most of our customer contracts follow the Air Transport Association, IATA, Standard Ground Handling Contract, which includes standard provisions related to passenger services, ramp services, load control, flight operations, cargo and mail services, support services, security and aircraft maintenance, among others. This contract is an internationally recognized agreement that provides the basis for contracts between a commercially scheduled aviation operator and its ground handling agent. While the duration of the contract can vary, most contracts are three years in duration and usually entail a termination clause with two to three months’ notice by either party.
Our longer-term contracts are generally indexed to CPI, with a small minority being indexed to an alternative index that seeks to take into account inflation or other economic changes. Our short term contracts are generally not indexed to a specific metric, but these may generally be terminated and renegotiated at our discretion.
Many of our contracts with our key customers are longer-term contracts, which we believe mitigates the risk of dependence on key accounts and airline consolidation. We also have a number of multi-stational framework agreements in which we provide services at more than one airport or location for the same customer, many of which are with our larger customers, including Swiss International Air Lines, Jade Cargo International, United Airlines, easyJet and Ryanair.
Competition
The airport and aviation service industries are competitive, and we face significant competition from established and new competitors in these areas. Primarily, we face competition from other independent ground handlers, as well as airlines and airports that satisfy their ground handling needs internally. Our primary independent ground handling competitors are Servisair, Menzies and WFS, each of which has ground and cargo handling services on a global scale.
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See “Risk Factors—We face high levels of competition in the airport services industry generally and at many of the stations at which we operate” and “Industry Overview—Competition.”
Information Technology
We have a significant number of state-of-the art information technology applications and infrastructures, including hand-held terminals in the ground handling and cargo businesses, which allow for faster scanning of cargo and luggage, mobile offices with wireless internet equipped cars and mobile/web check-in platforms and common language facilities. We also have a license to use the software “Cargospot”. Cargospot offers a comprehensive cargo operating system that seeks to capitalize on the fact that most carriers now outsource their cargo sales and services. Cargospot fully integrates the processing of all cargo management activities, is easy to integrate with existing or new third party systems and improves speed and accuracy of invoicing and reporting.
Intellectual Property and Trademarks
We have also developed and we maintain a portfolio of registered trademarks. Proprietary protection of our processes, apparatuses and other technology and inventions is important to our business.
In addition to our own proprietary trade secrets and know-how, we are a party to certain licensing arrangements and other agreements authorizing us to use trade secrets, know-how and related technology and/or operate within the scope of certain patents owned by other entities. We have licensed or sub-licensed intellectual property rights to third parties.
Because of the breadth and nature of our intellectual property rights and our business, we do not believe that any single intellectual property right (other than certain trademarks for which we intend to maintain the applicable registrations) is material to our business. Moreover, we do not believe that the termination of intellectual property rights expected to occur over the next several years, either individually or in the aggregate, will materially adversely affect our business, financial condition or results of operations.
We are not aware of any threatened, proposed or actual proceedings that have or will be brought against us for infringement of third party rights or any infringement of our rights by third parties that if successfully prosecuted would have a materially adverse effect on our business.
Employees
The table below sets forth the number of full-time employees we employed as of the dates indicated.
As of
December 31, 2009 2010
Business line Ground Handling .................................................................................................................................... 27,673 28,816Cargo Handling....................................................................................................................................... 4,287 4,528
Total.................................................................................................................................................... 31,960 33,344
Human Resource Management
We are implementing a performance development review system to achieve and maintain management excellence. It focuses on performance objective planning, performance evaluations with reviews against competency skills, performance improvement plans and aligning career aspirations and personal development plans. In addition, we are in the process of implementing a leadership development program that includes active development through academies and mentor programs, and training and succession planning for our mid-level and senior management. Furthermore, we are in the process of designing a global corporate compensation and benefits policy that we expect to implement in 2011, which will closely align compensation and benefits to standardized performance matrices.
Labor Unions
We have a number of collective bargaining agreements in place with a number of unions in many of the jurisdictions in which we operate. We believe that our employee relations are good and despite threats of strikes, only one considerable strike occurred in 2010.
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Employee Pension and Retirement Programs
As of September 30, 2010, substantially all of our employees were covered by a pension program. We cooperate with third party pension insurance organizations. Under these programs, we have no obligation for pension plan deficits other than higher future pension insurance premiums.
From January 1, 2004, Swissport has had an independent pension scheme in Switzerland covering the following Swiss entities: Swissport International Ltd., Swissport Baggage Sorting AG, Privat Port S.A., Careport AG, GVAssistance AG and Swissport Group Services GmbH and Personalvorsorge Swissport/PVS. The scheme received assets from APK, one of our subsidiaries, corresponding to the sum of individual vested benefits of our current employees. However, all the pensions already in payment remained the liability of APK.
Under Swiss law the scheme is considered a defined contribution scheme; however, under IAS 19 it is considered a defined benefit scheme and therefore an independent actuarial valuation has been performed using the projected unit credit method.
In the United States, Swissport offers a 401k retirement plan through Prudential Financial in which employees are eligible to contribute from 1% to 50% of their pay per pay period. To be eligible for this program, employees must be at least twenty-one years of age and have a minimum of 6 months of service with us. We will also match 7.5 cents per dollar contributed by the employee, up to 6%.
Government Approvals
We operate on a global scale and in certain locations that are government owned. Accordingly, at times we need to obtain consents or approvals from government entities to enable us to provide our services and operations, even if the properties on which we operate are not government owned. These consents vary from jurisdiction to jurisdiction, but are typically in the form of lease agreements or concession agreements. While we take every step that we believe is necessary to ensure we obtain any government consents, there can be no assurance that we shall obtain further consents on favorable terms.
Licenses, Permits, Authorizations, Concessions and Certifications
As a global company, we are subject to a number of licenses, permits, authorizations, concessions and certifications in each of the jurisdictions in which we operate, and such certifications can vary widely between jurisdictions. We believe that we hold all licenses, permits, authorizations, concessions and certifications necessary to operate our business. See “—Regulation”. We are also committed to maintaining the highest quality of management systems and seek to be in compliance with both voluntary and mandatory certification programs. We are currently ISO 9001 certified in many jurisdictions in which we operate, which means that we have been formally audited by the International Organization for Standardization and that such organization found our management systems to demonstrate our ability to consistently provide a product that meets customer, statutory and regulatory requirements, and that we satisfactorily address customer satisfaction through effective application of our management systems. We are also Cargo 2000 compliant. Cargo 2000 is an initiative in the air freight industry aimed at implementing a quality management system for the worldwide air cargo industry. To implement quality management systems, Cargo 2000 has created a master operating plan that reduces the number of individual processes in the air cargo supply chain, which is meant to improve processing time for managing shipments. The Cargo 2000 group operates as an industry group through the IATA and is composed of approximately 50 major airlines, freight forwarders, ground handling agents, trucking companies and IT providers in over 350 sites.
Our Swissport Aviation Security (checkport) product also complies with the United States Transportation Security Administration’s requirements, which allows us to work within the European security market for U.S. carriers. This certification has aided us by allowing us to offer more of our services to U.S. carriers outside of the United States.
Regulation
The aviation and airline services industry is highly regulated on the local, national and international (including bilateral and multilateral) level. In the EU, the ground handling services market is covered by the Directive 96/67/EC dating from October 1996 (the “Directive”) which gradually opened up the services to competition. The Directive stipulates that at the larger EU airports access to the market by suppliers of ground handling services is free and that for certain categories of services the number of suppliers may be no fewer than two for each category of service. Moreover, at least one of these suppliers should be entirely independent of the airport or the dominant air carrier at that airport. Similar provisions exist with regard to self-handling. For these services there should at least be two air carriers admitted. The European Commission on Mobility & Transport is considering the launch of a proposal to modify the Directive. This
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proposal would aim at a gradual increase of competition in the ground handling market while taking into account the protection of ground handling staff, and at a clarification and simplification of a number of provisions where necessary.
Further regulations apply to the airline services industry in each jurisdiction in which we operate, which regulations can vary substantially from location to location. We believe that we currently comply with these regulations in all material respects, but we cannot assure you that new and more stringent government regulations will not be adopted in the future or that any such new regulations, if enacted, will not materially adversely affect our business, financial condition or results of operations.
Further, the aviation industry in general is regulated by a number of agencies worldwide, including the European Aviation Safety Agency and the Joint Aviation Authorities in Europe and the Federal Aviation Administration and other agencies in the United States of America and by similar agencies in other countries. While the aviation services industry is not currently directly and materially regulated by these agencies, there is no guarantee that the aviation industry in general or our business in particular will not be regulated by these agencies in the future and that any such regulation, if enacted, will not materially adversely affect our business, financial condition or results of operations.
Environmental
We are subject to a broad range of environmental laws and regulations in each of the jurisdictions in which we operate, including those governing the discharge of pollutants into the air or water, the uses, transport, storage, processing, discharge, management and disposal of hazardous substances and wastes and the responsibility to investigate and clean-up contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Such laws and regulations impose increasingly stringent environmental obligations regarding, among other things, fuel handling, zoning and the protection of employee health and safety. We could therefore be exposed to costs and liabilities, including liabilities associated with past activities. Our operations are subject to obligations to obtain environmental permits, licenses and/or authorizations, or to provide notification to the appropriate authorities.
Our objective is to comply in all material respects, and we believe that our operations generally are in material compliance, with applicable environmental and health control laws and regulations, and all related permit requirements. Historically, the costs of achieving and maintaining such compliance, and curing any non-compliance, have not been material; however, the operation our business entails risks in these areas, and a failure by us to comply with applicable environmental laws, regulations, or permits could result in civil or criminal fines, penalties, enforcement actions, third party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures. We believe that the principal environmental risks arising from our current operations relate to the potential for pollution and for damage to cultural and environmental assets. In extreme cases, the penalty for repeat violations of the applicable environmental laws in Switzerland could result in administrative sanction, suspension and even revocation of one or more of our licenses.
In the United States, some environmental laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) , provide for strict, joint and several strict liability related to spills and releases of hazardous substances for damages to the environment and natural resources or threats to public health and safety, although such liability is often allocated among multiple responsible parties. Under CERCLA and similar state laws, a potentially responsible party can be liable for damages without regard to negligence or fault on the part of the party at property currently or formerly owned or operated by the party or to which the party may have sent waste for recycling. We have received notices pursuant to CERCLA related to cleanup costs associated with offsite waste recycling or disposal facilities at which wastes associated with its operations have allegedly come to be located.
There is an outstanding insurance claim under our environmental insurance policy with Chartis, the carrier, brought by the Arizona Fueling Facility Consortium (the “AFF”), a customer of Swissport Fueling at Phoenix Arizona Sky Harbour Airport and an additional insured under our insurance policy. The claim was brought in 2007 and related to a slow fuel leak in the pipeline linking AFF’s off-site storage facility to its main facilities. The leak was discovered on December 21, 2006 after AFF conducted its regularly scheduled integrity inspection of the pipeline and found some suspect anomalies. Chartis accepted defense of this claim, however Chartis is reviewing for a determination of indemnity obligation. There is a $100,000 policy deductible.
Health & Safety
We have global health and safety guidelines that are applicable to each station in which we operate. In addition to our health and safety requirements, we are also subject to additional local and country-specific laws and regulations that we also have a policy of adhering to, and which we entrust with our local management teams. We believe that we currently comply in all material respects both with our internal health and safety guidelines as well as any local regulations, but we cannot assure you that new and more stringent health and safety regulations will not be adopted in the
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future or that any such new regulations, if enacted, will not materially adversely affect our business, financial condition or results of operations.
Insurance
We have insurance coverage under various liability, property and environmental insurance policies for, among other things, property damage and business interruption, war and terrorism, aviation liability and environmental liability. Our aviation liability insurance program, which covers property and personal injury claims, is our most prominent insurance policy and the policy under which we experience the greatest number of claims. These policies are generally entered into via worldwide master policies, which are supplemented with local policies where necessary.
We also provide directors’ and officers’ liability insurance to all members of the Issuer’s board of directors, as well as certain other persons within the Swissport group. See “Management.”
We believe that our existing insurance coverage, including the amounts of coverage and the conditions, provides reasonable protection, taking into account the costs for the insurance coverage and the potential risks to business operations. However, we cannot guarantee that no losses will be incurred or that no claims will be filed against us that go beyond the type and scope of the existing insurance coverage.
Property
We currently do not own any material real property. We lease the vast majority of our facilities and rely on “build own operate transfer”, or BOOT, contracts in certain of our facilities in Israel and Kenya. BOOT contracts are a type of arrangement in which a private entity builds an infrastructure project, operates it and transfers ownership of the project to the government. In both Israel and Kenya, we have transferred ownership of the facilities we built, but we have retained the right to use such facilities for 20 years from the time of transfer.
Legal Proceedings
We are involved in a number of legal proceedings that have arisen in the ordinary course of our business. These claims include, but are not limited to, allegations of breach of contract, breach of warranty, property damage, and violation of employment rights and similar causes of action. Below is a description of the pending legal proceedings we consider material.
Acciona Airport Services
Acciona Airport Services Frankfurt GmbH (“Acciona”) has filed legal proceedings challenging a license issued by the Bavarian Aviation Authority in respect of ground handling works at the Munich airport to one of our subsidiaries, a partnership between Swissport Cargo Deutschland GmbH and Losch Airport Services Stuttgart GmbH in November 2009. These proceedings were filed on the grounds that the tender proceedings were in violation of applicable regulations. Acciona lost summary proceedings against the Aviation Authority. The case is now being tried before the administrative court. Should the challenge be successful and the license be revoked, Swissport’s respective subsidiary will be barred from working at Munich airport. The administrative court is expected to hand down its judgment at some point in 2011.
South African Airways
Swissport SA, a Swissport subsidiary, was awarded a tender with South African Airways (“SAA”) and a third party claimant has subsequently brought a successful claim against SAA for failing to provide the claimant with the same bargaining information given to other tender parties. The court set aside the tender and related contract between Swissport SA and SAA.
Employment Related Claims
We are party to numerous employment related claims in the United Kingdom and the United States. One particular claim in the United Kingdom has been brought on behalf of 204 employees in respect of a salary dispute. We are also subject to approximately 15 employment-based lawsuits and a small number of additional workers’ compensation claims in the United States. The potential damages associate with these types of claims can be substantial and can include actual damages, attorneys’ fees and punitive damages. Below is a brief description of two of the pending employment related lawsuits.
Marroquin, X. Zavalza, Galvez vs. Swissport North America, Inc. and Swissport USA, Inc.
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In June 2008, Swissport was served with a class action lawsuit allegedly representing current and former employees of Swissport who, for a specific time period, were employed as passenger service employees at Mexicana Airlines at California airports. The lawsuit alleges wage and hour violations.
Equal Employment Opportunity Commission vs. Swissport Fueling, Inc.
The Equal Employment Opportunity Commission filed a suit against Swissport in January 2011, alleging unlawful work place employment practice violations including, allegedly, retaliation, race and national origin discrimination.
We feel that many of these claims, including the two described above, are meritless and will likely be unsuccessful, but we still may incur costs to manage, defend and/or settle such matters. The outcome of legal proceedings, however, can be extremely difficult to predict with certainty, and we can offer no assurance in this regard.
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MANAGEMENT
The Issuer
The Issuer is a société anonyme incorporated and existing under the laws of Luxembourg and was formed to facilitate the Transactions. The Issuer is a wholly owned subsidiary of Aguila 2 S.A. and is not controlled by Swissport or any of Swissport’s direct or indirect shareholders or subsidiaries. The directors of the Issuer are set forth in the table below and the Issuer’s registered office are located at 12, Rue Guillaume Schneider L-2522 Luxembourg.
Name Age
Ricardo de Serdio ........................................................................................................................................................... 41Alexandre Prost Gargoz.................................................................................................................................................. 35David Richy.................................................................................................................................................................... 31Benoit Cheron................................................................................................................................................................. 30
Swissport
Board of Directors
The current board of directors of Swissport (the “Board”) as of September 30, 2010 consists of the following representatives:
Name Age
Dr Thomas Staehelin (Chairman) ................................................................................................................................... 64Santiago Olivares Blázquez (Vice-Chairman)................................................................................................................ 44Per Utnegaard (Delegate)................................................................................................................................................ 52Fidel López Soria............................................................................................................................................................ 44Clemente Cebrian Ara .................................................................................................................................................... 66Klaus Herms ................................................................................................................................................................... 70Urs Sieber ....................................................................................................................................................................... 63
These appointments will expire following the successful completion of the Acquisition. They will be replaced with members appointed by PAI, although the Board’s exact composition thereafter had not yet been determined as of September 30, 2010. The address for each of the directors and executive officers of Swissport is Flughoffstrasse 55, Opfikon, Zürich, Switzerland.
Executive Officers
Set forth below is information concerning certain executive officers of Swissport as of September 30, 2010.
Name Age Position Per H. Utnegaard ....................................................... 51 Chief Executive Officer Alvaro Gómez-Reino Lago de Lanzos ...................... 37 EVP Finance & Chief Financial Offer Juan José Andrés Alvez ............................................. 42 EVP Ground Handling EMEAA Richard van Bruygom................................................ 50 EVP Ground Handling Americas John Batten ................................................................ 50 EVP Global Cargo Johannes Spindler ...................................................... 41 EVP General Legal & General Secretary Peter Moser................................................................ 49 EVP Human Resources Management Philipp Joeinig ........................................................... 35 EVP Business Development & Corporate Operations Erich Bodenmann ...................................................... 55 EVP Strategic Projects
Per H. Utnegaard joined Swissport as CEO in July of 2007. Prior to joining Swissport, Mr. Utnegaard was a management consultant for the firm Per Utnegaard & Partners from 2005-2007. Mr. Utnegaard is also a member of the boards of Berendsen Plc, Envirotainer International AB and Palletways Europe GmbH. Mr. Utnegaard graduated with a bachelor of science degree from Northern Michigan University.
Alvaro Gómez-Reino Lago de Lanzos joined Swissport as Chief Financial Officer and EVP Finance in April 2009. Prior to jointing Swissport, Mr. Gomez-Reino served as the Financial Controller of Amey plc from November 2005 until March 2009. Mr. Gómez-Reino is also a member of Swissport’s group Executive Management team. Mr. Gómez-Reino graduated with a degree in business administration from the Universidad Pontificia Comillas (ICADE E-2).
Juan José Andrés Alvez joined Swissport in November of 2005 as Deputy Executive Vice President of Ground Handling Worldwide. In 2007, Mr. Andrés was promoted to Senior Vice President of Ground Handling Europe. In June
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2009, Mr. Andrés was promoted to Executive Vice President Ground Handling EMEAA. Mr. Andrés received a degree in Superior Industrial Engineering at Polytechnic University of Madrid and completed the Executive Development Programme PDD at IESE Business School in Madrid.
Richard van Bruygom joined Swissport as Executive Vice President Ground Handling Americas in April of 2006. Prior to joining Swissport, Mr. van Bruygom worked at Serviceair as the COO Europe & ROW. Mr. van Bruygom received his college degree from Champlain College and a Master in Entrepreneurship at Grenoble Management School.
John Batten joined Swissport as EVP Global Cargo in August of 2008. Prior to joining Swissport, from 2007 to 2008, Mr. Batten was worked at Qatar Airways as SVP Cargo. Before that, Mr. Batten was a Managing Director at TNT Express Worldwide, where he worked from 1982. Mr. Batten has a degree from the Southern Tenchical College.
Dr. Johannes C. Spindler joined Swissport as EVP Swissport group General Counsel & Secretary General in March of 2010. Prior to joining Swissport, Dr. Spindler served as Group General Counsel & Compliance Officer of Kuoni Travel Holding Ltd from 2006. Before that position, Dr. Spindler served as Senior Legal Counsel at Swiss International Air Lines from 2002-2005. Dr. Spindler graduated with distinction from the University of Heidelberg in 1996 with a degree in legal studies. He also received a PhD at the University of Heidelberg in 2001, where he graduated magna cum laude and an Executive Master in International and European Business Law, MBL-HSG at the University of St. Gallen in 2004.
Peter Moser joined Swissport as EVP Human Resources Management in March 2009. Prior to joining Swissport, Mr. Moser was in various positions at Leica Geosystems, beginning in April 1982, including as SVP Human Resources from October 2005 until February 2009. Mr. Moser received a degree in applied business administration at University Innsbruck in Austria, in cooperation with the Hochschule St. Gallen in Switzerland. He also received a post-graduate MSc in human resources management from the University of Wales, in cooperation with the GSBA Zürich.
Philipp Joeinig joined Swissport in January 2007 and has held since then an EVP position in charge of Business Development & Corporate Operations. Prior to joining Swissport, Mr. Joeinig was a Director at Lausanne Consulting Group Ltd. based in Monaco and the UK. Mr. Joeinig is also the chairman of the board of directors of Swissport Losch LLC and the Chief Executive Officer of Swissport Group Services LLC. Mr. Joeinig received a master degree in International Business Relations and Economics from Studiengang Internationale Wirtschaftsbeziehungen in Austria and EHSAL, Belgium.
Erich Bodenmann joined Swissport in 1998 and was President and CEO of Swissport North America from 2000. He was promoted as EVP Division Americas in 2004. In 2006, Mr. Bodenmann was promoted to EVP Division Aviation Specialty Services, which he held through 2009. In 2010, Mr. Bodenmann was promoted to Executive Vice President Strategic Products. Mr. Bodenmann has also been the chairman of the board of Checkport Switzerland Ltd. since 2006 and DAPSCO Inc. since 2000 and is a member of the board of uemis AG, Adliswil, Switzerland. Mr. Bodenmann received a master degree science (engineering) from the Federal Institute of Technology (ETH) in Zurich and studied finance for non-financial managers at the University of Limerick in Ireland.
Board of Directors’ Practices
The Board is entrusted with the ultimate direction of the Company, as well as the supervision and control of the management. The Board has historically convened approximately 10 times per year or as required. Meetings may also be called upon the request of any member of the Board setting forth the reasons for the request. Majority vote is required to pass a resolution.
Supervisory Board
Following the completion of the Acquisition, it is anticipated that a supervisory board will be created to monitor and advise Swissport’s management team. The supervisory board will likely include both independent members and members who are appointed by PAI.
Board Committees
Audit Committee
Swissport has an audit committee comprised of all of the members of the Swissport Board of Directors.
The terms of reference of the audit committee cover such issues as monitoring the effectiveness of internal control and risk management systems and operational controls, providing accurate and informative financial reporting and overseeing, reviewing fraud, theft and ethics compliance assessments and reporting of effective risk management. The audit committee is authorized by the board of directors of Swissport to investigate any activities within its terms of
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reference, including seeking any information it requires from any employee (and all employees are directed to cooperate with any request made by the audit committee) and obtaining legal or other professional advice from within the company or from outside advisors.
The audit committee also ensures that the external and internal auditors remain independent of the Swissport group and assesses the external auditors’ independence and objectivity.
Compensation of Directors and Officers
In the year ended December 31, 2009, Swissport’s directors received fees of CHF 151,000 for their services as directors. Those directors who have executive positions within the Swissport group also receive salaries and other benefits. We have no standard arrangements under which our executive offers receive compensation. For the year ended December 31, 2009, we paid CHF 3.0 million in salaries and other short-term employee benefits to our executive officers. We also provide bonuses to offer incentives to executive officers to achieve annual performance targets for us as a whole as well as within specific areas of responsibility of our executive officers. For the year ended December 31, 2009, we paid our executive officers CHF 1.4 million in total bonuses. They also received an additional CHF 313,000 in pension contributions, for a total compensation in the year ended December 31, 2009 of CHF 4.7 million.
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PRINCIPAL SHAREHOLDERS
Following the Transactions, Swissport International Ltd. will be wholly owned by the Issuer, which will be wholly owned by Aguila 2 S.A., which will be wholly-owned (through one or more holding entities) by PAI along with certain co-investors and certain senior members of Swissport’s management team.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In connection with the Transactions, the Issuer will issue PPECs to Aguila 2 S.A. in exchange for the Equity Contribution. These PPECs will be subordinated to the Notes pursuant to the Intercreditor Agreement. See “The Transactions” and “Description of Certain Financing Arrangements—Perpetual Preferred Equity Certificates.”
Following completion of the Acquisition, the Issuer is expected to enter into certain management agreements with PAI partners SAS or an affiliated company, pursuant to which PAI or such affiliated company will be entitled to certain payments according to the terms of the Indenture and the Intercreditor Agreement.
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DESCRIPTION OF CERTAIN FINANCING ARRANGEMENTS
The following is a summary of the material terms of our principal financing arrangements. The following summaries do not purport to describe all of the applicable terms and conditions of such arrangements and are qualified in their entirety by reference to the actual agreements. We recommend you refer to the actual agreements for further details, copies of which are available upon request.
Revolving Credit Facility
On January 17, 2011, we entered into a revolving credit facility agreement (the “Revolving Credit Facility Agreement”) among, inter alios, Barclays Bank PLC as agent (“Facility Agent”) and Security Agent. We will be a guarantor, and certain of our subsidiaries will be borrowers and guarantors, under the Revolving Credit Facility Agreement. The Revolving Credit Facility Agreement will provide for a revolving facility (the “Revolving Credit Facility”) of up to CHF 200 million, which will be used for the general corporate purposes of the Group (as defined in the Revolving Credit Facility) (including, without limitation, refinancing, replacing, acquiring and/or collateralizing certain existing debt), but not for repaying, purchasing or otherwise acquiring any Notes.
Repayments and Prepayments
The Revolving Credit Facility will mature six years from the Closing Date. Any amount still outstanding at that time will be immediately due and payable.
Subject to certain conditions, we may voluntarily prepay our utilisations and/or permanently cancel all or part of the available commitments under the Revolving Credit Facility in a minimum amount of CHF 1,000,000 by giving five business days’ (or such shorter period as the required majority of lenders under the Revolving Credit Facility Agreement agree) prior notice to the Facility Agent. We may reborrow amounts repaid, subject to certain conditions, until one month prior to maturity.
In addition to voluntary prepayments, the Revolving Credit Facility requires mandatory prepayment (or, as the case may be, an offer to do so) in full or in part in certain circumstances, including:
(1) with respect to any lender under the Revolving Credit Facility (a “Lender” and, collectively, the “Lenders”), if it becomes unlawful for such Lender to perform any of its obligations under the Revolving Credit Facility Agreement or to maintain its participation in any utilisation of the Revolving Credit Facility;
(2) with respect to any Lender which has issued a letter of credit or guarantee (an “Issuing Bank”), if it becomes unlawful for such Issuing Bank to leave outstanding any such letter of credit or guarantee;
(3) upon the occurrence of a change of control. Change of control means a “Change of Control” as defined under “Description of Notes” or:
(a) prior to an initial public offering of the Issuer or any other member of the Group, investors (excluding management of the Issuer and any other investors for whom PAI does not directly or indirectly control the underlying voting rights in the Issuer) (the “PAI Controlled Investors) cease to beneficially own, directly or indirectly, more than 50% of the issued voting share capital of the Issuer and/or the ability to appoint directors or equivalent officers of the Issuer which control the majority of the votes which may be cast at a meeting of the board of directors or equivalent body of the Issuer;
(b) following an initial public offering, either (i) the PAI Controlled Investors cease to beneficially own, directly or indirectly, more than 30% of the issued voting share capital of the Issuer; or (ii) a person or group of persons acting in concert acquire, directly or indirectly, beneficially own more of the voting shares in the Issuer than is held by the PAI Controlled Investors; or
(c) the Issuer ceases to hold, directly or indirectly, 100% of the voting shares and capital in Aguila Bid AG.
Interest and Fees
The Revolving Credit Facility will initially bear interest at a rate per annum equal to LIBOR or (for loans in euro) EURIBOR plus certain mandatory costs and a margin of 4.00% per annum. The margin may be reduced by reference to a Leverage Ratio (as defined in the Revolving Credit Facility). We are also required to pay a commitment fee, quarterly in arrears, on available but unused commitments under the Revolving Credit Facility at a rate of 40% of the
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applicable margin. We are also required to pay an arrangement fee and certain fees to the Facility Agent and the Security Agent in connection with the Revolving Credit Facility.
Security and Guarantees
Aguila Bid AG will be the original borrower under the Revolving Credit Facility. The Revolving Credit Facility will be guaranteed by the Guarantors, and (subject to certain agreed security principles set out in the Revolving Credit Facility Agreement) secured by a first lien on substantially all of the material assets of the Issuer and the Guarantors, the shares in Guarantors held by members of the Group, and certain other security over the assets of the Issuer and the Guarantors.
Covenants
The Revolving Credit Facility Agreement will contain customary positive and negative covenants (including restrictive covenants that largely replicate those contained in the indenture governing the Notes), subject to certain agreed exceptions. The Revolving Credit Facility Agreement will also require the Group to observe a leverage covenant. In this respect, the Group’s financial and operating performance will be monitored by a financial covenant, which requires us to ensure that the Group’s Leverage Ratio (as defined in the Revolving Credit Facility Agreement) does not exceed certain agreed levels. This financial covenant will be tested quarterly on a rolling 12-month basis.
In addition, each set of financial statements provided by us under the Revolving Credit Facility Agreement will include a balance sheet (other than monthly statements, which will include a statement of consolidated total net debt), profit and loss account and cash flow statement.
Events of Default
The Revolving Credit Facility will contain customary events of default (subject in certain cases to agreed grace periods, thresholds and other qualifications), including a cross default with respect to an Event of Default under, and as defined in, the indenture governing the Notes, the occurrence of which would allow the lenders to accelerate all or part of the outstanding utilizations and/or terminate their commitments and/or declare all or part of their utilizations are payable on demand and/or declare that cash cover in respect of ancillary facilities and outstanding letters of credit is immediately due and payable or is payable on demand and/or instruct the Security Agent to enforce the Transaction Security.
Governing Law
The Revolving Credit Facility will be governed by English law although the restrictive covenants and certain events of default, which are included in the Revolving Credit Facility and largely replicate those contained in the indenture governing the Notes, will be interpreted in accordance with New York law (without prejudice to the fact that the Revolving Credit Facility is governed by English law).
Intercreditor Agreement
In connection with entering into the Revolving Credit Facility Agreement and the Indenture, Aguila 2 S.A., the immediate parent company of the Issuer (referred to as the “Subordinated Creditor”), and the Issuer, the Revolving Credit Facility borrowers and the Guarantors from time to time in their capacity as “Debtors” (as referred to below), among others, will enter into an intercreditor agreement (the “Intercreditor Agreement”) to govern the relationships and relative priorities among: (i) the lenders under the Revolving Credit Facility Agreement (the “Lenders”) and the other parties to the Revolving Credit Facility Agreement; (ii) persons that accede to the Intercreditor Agreement as counterparties to certain hedging agreements (the “Hedging Agreements”, and such persons, which shall include the Lenders and their affiliates acting in such capacity, the “Hedge Counterparties”); (iii) the Trustee on behalf of the holders of the Notes; (iv) the Security Agent and (v) certain intra-group creditors and debtors, including certain permitted refinancings and replacements of some or all of the foregoing.
In addition, the Intercreditor Agreement regulates the relationship between the Issuer and its subsidiaries, on the one hand, and the Subordinated Creditor, on the other hand.
In connection with the issuance of Notes, the Trustee on behalf of the holders of the Notes, the Issuer and each Guarantor will be or become (as the case may be) parties to the Intercreditor Agreement. The Issuer and each of its subsidiaries that incurs any liability or provides any guarantee under the Revolving Credit Facility Agreement or the Indenture is referred to in this description as a “Debtor” and are referred to collectively as the “Debtors.”
The Intercreditor Agreement will set out:
• the relative ranking of certain indebtedness of the Debtors (including pursuant to their guarantees of the Notes and the Revolving Credit Facility);
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• the relative ranking of certain security granted by the Debtors;
• when payments can be made in respect of certain indebtedness of the Debtors;
• when enforcement actions can be taken in respect of that indebtedness;
• the terms pursuant to which intra-group indebtedness and claims of the Subordinated Creditor will be subordinated upon the occurrence of certain insolvency events;
• turnover provisions; and
• when security and guarantees will be released to permit a sale of the Collateral.
Unless expressly stated otherwise in the Intercreditor Agreement, the provisions of the Intercreditor Agreement will override anything in the Revolving Credit Facility Agreement or the Indenture to the contrary. The preceding sentence as between any Senior Creditor and any Debtor or any member of the Group will not cure, postpone, waive or negate any default or event of default (however described) under any debt document as provided for in the relevant debt document.
By accepting a Note, holders of the Notes shall be deemed to have agreed to, and accepted the terms and conditions of, the Intercreditor Agreement and to have instructed the Trustee to enter into the Intercreditor Agreement on their behalf. The Lenders and the Hedge Counterparties to the extent that they are owed Priority Hedging Liabilities (as defined below) are “Super Senior Creditors.” The Hedge Counterparties to the extent that they are owed Non-Priority Hedging Liabilities (as defined below), holders of Senior Secured Notes (which includes the Notes and certain other indebtedness which is permitted under the Notes and/or used to refinance the Notes in whole or in part (the “Senior Secured Notes”)), the Trustee and certain additional senior secured creditors (if any) and related trustee (if any), are the “Senior Secured Creditors” and, together with the Super Senior Creditors, are the “Senior Creditors.”
The following description is a summary of certain provisions, among others, contained in the Intercreditor Agreement. It does not restate the Intercreditor Agreement and you are advised to read that document in its entirety because it, and not the discussion that follows, defines certain rights of the holders of the Notes.
Ranking and Priority
The Intercreditor Agreement will provide that the liabilities of the Debtors under or in respect of the Revolving Credit Facility Agreement (the “Revolving Creditor Liabilities”), the Hedging Agreements (the “Hedging Liabilities”) and the Senior Secured Notes (the “Senior Secured Liabilities”) and certain other liabilities will rank in right and priority of payment pari passu and without any preference between them.
The Intercreditor Agreement will also provide that certain intra-group claims and claims of the Subordinated Creditor are subordinated to the claims of the Senior Creditors.
The parties to the Intercreditor Agreement will agree in the Intercreditor Agreement that the security provided by the Debtors and the other parties that will provide security for the Senior Creditors will rank and secure the following liabilities (but only to the extent that such security is expressed to secure those liabilities) in the following order:
• first, the fees, costs and expenses owed to any agent for the Lenders including the Security Agent (the “Revolving Agent”) and the Trustee and/or any Additional Senior Secured Trustee (together, the “Senior Secured Trustees”) pari passu and without any preference between them;
• second, the Revolving Creditor Liabilities (other than the liabilities to any Revolving Agent referred to above) and certain Hedging Liabilities to the extent incurred for the purpose of hedging currency exchange risks in relation to the Notes and/or certain permitted refinancings or replacements of the Notes and interest rate hedging in relation to the Revolving Credit Facility and/or certain permitted refinancings of the Revolving Credit Facility (the “Priority Hedging Liabilities”) pari passu and without any preference between them; and
• third, the Senior Secured Liabilities (other than liabilities to the Senior Secured Trustees referred to above) and the Hedging Liabilities that are not Priority Hedging Liabilities (the “Non Priority Hedging Liabilities”).
Under the Intercreditor Agreement, all proceeds from enforcement of the security will be applied as provided below under “—Application of Proceeds.”
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Permitted Payments
The Intercreditor Agreement will permit, inter alia:
• in respect of Revolving Creditor Liabilities, Debtors to make payments at any time under the Revolving Credit Facility in accordance with the Revolving Credit Facility Agreement and related documents;
• in respect of Hedging Liabilities, Debtors to make payments to Hedge Counterparties in accordance with the relevant Hedging Agreement, provided that no payment will be made to a Hedge Counterparty if any scheduled payment due from that Hedge Counterparty to that Debtor under a Hedging Agreement to which they are both party is due and unpaid;
• in respect of the Notes, at any time in accordance with the Senior Secured Documents;
• in respect of payments by the Parent to the Subordinated Creditor, any payment that is permitted under the Revolving Credit Facility Agreement and each Senior Secured Indenture, or if the Majority Senior Creditors consent to that payment;
• to lenders under any intra-group loan agreement (together, the “Intra- Group Liabilities”) if at the time of payment no acceleration event has occurred in respect of the Revolving Credit Facility or the Notes or if such an acceleration event occurs prior to the Senior Discharge Date, with the consent of the Majority Senior Creditors or if that payment is made solely to facilitate the payment of the Senior Liabilities.
For the purposes of the Intercreditor Agreement, the “Majority Senior Creditors” are the Super Senior Creditors and Senior Secured Creditors holding more than 50.1% of the aggregate of: (i) commitments under the Revolving Credit Facility, (ii) any amount which has become due following the termination or close-out of any Hedging Agreement which is permitted under the Intercreditor Agreement, (iii) after the Revolving Facility Discharge Date and the Notes Discharge Date, the amount that would be payable under any of the Hedging Agreements which has not terminated or been closed-out if the date of calculation were an early termination date under such Hedging Agreements (where the relevant Debtor is the Defaulting Party) and (iv) the Senior Secured Liabilities at that time; “Majority Super Senior Creditors” are Super Senior Creditors having more than 66.66% of the aggregate amount of commitments under: (i) the Revolving Credit Facility Agreement, (ii) any amount which has become due to a Super Senior Creditor following the termination or close-out of any Hedging Agreement which constitutes a Priority Hedging Liability, (iii) after the Revolving Facility Discharge Date and the Notes Discharge Date, any amount that would be payable under any of the Hedging Agreements which constitutes a Priority Hedging Liability and which has not terminated or been closed-out if the date of calculation were an early termination date under such Hedging Agreements; and “Majority Secured Noteholders” are holders of not less than a simple majority in aggregate principal amount of Senior Secured Notes then outstanding under the Indenture and/or (in the case of Senior Secured Notes other than the Notes) each other applicable indenture (the indenture and such other indentures referred to as the “Senior Secured Indentures”).
No payments may be made on liabilities owed by the Issuer to the Subordinated Creditor, which are subordinated in right of payment to the Senior Creditors (“Subordinated Liabilities”), without the consent of the Majority Senior Creditors or except as expressly permitted by the Revolving Credit Facility Agreement and each Senior Secured Indenture.
Security for Noteholders and other Senior Secured Creditors
At any time prior to the Super Senior Discharge Date (as defined in the Intercreditor Agreement), the Senior Secured Creditors may not take, accept or receive from any member of the Group (as defined in the Intercreditor Agreement) the benefit of any security (“Transaction Security”), guarantee, indemnity or other assurance against loss in respect of the Senior Secured Liabilities other than: the common transaction security; any guarantee, indemnity or other assurance against loss contained in the Indenture or any other Senior Secured Indenture (in its relevant form), the Intercreditor Agreement, any common assurance given to all the secured parties in relation to their liabilities, and as otherwise contemplated in the context of security permitted to be granted to secure the Revolving Creditor Liabilities; or with the consent of the Majority Super Senior Creditors.
Amendments
Except as permitted under the Debt Documents, no amendments, variations or waivers may be made or granted to, under or in respect of the Senior Secured Documents which would result in the final scheduled maturity or other scheduled maturity dates of the relevant Senior Secured Liabilities being earlier than initially provided; result in the guarantees or security granted in respect of the relevant Senior Secured Liabilities or the order of priority in respect thereof being altered, or any additional guarantees or security being granted in respect of the relevant Senior Secured
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Liabilities from the guarantees and security granted in respect of such Senior Secured Liabilities initially; or alter the prepayment provisions (whether mandatory or optional) of the relevant Senior Secured Documents from those included in such Senior Secured Documents initially.
Enforcement
Entitlement to Enforce
The Intercreditor Agreement will provide that the Security Agent may refrain from enforcing the security interests in the collateral unless instructed otherwise either by the Majority Super Senior Creditors or the Majority Secured Noteholders and subject to any specific exclusions in the Intercreditor Agreement.
Subject as provided below, prior to taking any enforcement action, the Revolving Agent, the Senior Secured Trustee and any other representative which has duly acceded to the Intercreditor Agreement (each a “Representative”) must deliver a copy of its proposed enforcement instructions to the other Representatives and the Security Agent at least 10 business days (or such shorter period as may be agreed) prior to the proposed date for the issuance of such enforcement instructions. If the Security Agent receives conflicting enforcement instructions from the Representatives, then the Representatives must consult with each other in good faith for a period of up to 30 days (or such shorter period as they may agree) from the date of receipt of the latest of such conflicting instructions and, upon the expiry of such consultation period, in the event the Representatives are unable to agree on the manner of enforcement instructions may be provided to the Security Agent by the Trustee (or the Senior Facility Agent if agreed by the Trustee or if the Trustee is unable to provide instructions). The Representatives (acting on behalf of the Majority Super Senior Creditors or the Majority Senior Secured Noteholders, as the case may be) may at any time provide immediate enforcement instructions to the Security Agent and will not be obliged to consult (as described above) if the security interests in the collateral have become enforceable as a result of an Insolvency Event (as defined in the Intercreditor Agreement) or if the relevant Representative determines in good faith that to do so and thereby delay enforcement could reasonably be expected to have a material adverse effect on its ability to enforce the security interests in the Transaction Security or on the proceeds of realisation of the security interests in the Transaction Security. If the Security Agent receives conflicting instructions from the Revolving Agent and the Senior Secured Trustee, then the Security Agent shall comply with the enforcement instructions received from the Senior Secured Trustee. If, however, the Lenders have not been fully repaid within six months of the date of issuance of enforcement instructions, or the Security Agent has not commenced any enforcement action within three months of the date of issuance of enforcement instructions, or an Insolvency Event occurs and the Security Agent has not commenced any enforcement action, then the instructions of the Majority Super Senior Creditors will prevail (with effect from the date of the earliest to occur of such events).
Exercise of voting rights
Without prejudice to certain set-off rights, including set-off rights in relation to multi-account overdraft balances, and close-out netting and payment-netting rights of hedge counterparties, after the occurrence of an Insolvency Event in relation to any member of the Group, each Senior Creditor and the Subordinated Creditor:
• irrevocably authorises the Security Agent (on the relevant instructions of the Majority Super Senior Creditors or the Majority Secured Noteholders (as relevant) or in their absence as the Security Agent sees fit), on its behalf, to: take any enforcement action (in accordance with the terms of the Intercreditor Agreement) against that member of the Group; demand, sue, prove and give receipt for any or all of that member of the Group’s liabilities; collect and receive all distributions on, or on account of, any or all of that member of the Group’s liabilities; and file claims, take proceedings and do all other things the Security Agent considers reasonably necessary to recover that member of the Group’s liabilities;
• will do all things that the Security Agent (in each case on the relevant instructions referred to above or in their absence as the Security Agent sees fit) reasonably requests in order to give effect to this paragraph including in certain cases to grant a power of attorney to the Security Agent to enable the Security Agent to take the relevant action.
Turnover
The Intercreditor Agreement will provide that if at any time prior to the Senior Discharge Date, subject to certain exceptions, any intra-group creditor, the Subordinated Creditor or any Senior Creditor receives or recovers (in the case of a revolving creditor or a Senior Secured Creditor only in the case of the fourth bullet point below):
• any payment or distribution of, or on account of or in relation to, any liability owed by a Debtor which is not a permitted payment under the Intercreditor Agreement or made in accordance with “—Application of Proceeds” below;
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• (except with respect to certain set-off rights, including set-off rights in relation to multi-account overdraft balances, and close-out netting and payment-netting rights of hedge counterparties), any amount by way of set off in respect of any liability owed by a Debtor which does not give effect to a permitted payment under the Intercreditor Agreement;
• any amount (i) on account of or in relation to any liability owed by a Debtor after the occurrence of an acceleration event under the Revolving Credit Facility Agreement or the Indenture or as a result of the enforcement of any Transaction Security (each, a “Distress Event”) or as a result of proceedings against a member of the Group (other than after the occurrence of an Insolvency Event in respect of that member of the Group), or (ii) by way of set off in respect of any liability of a Debtor after the occurrence of a Distress Event;
• the proceeds of any enforcement of any Transaction Security except in accordance with “—Application of Proceeds” below; or
• (other than in relation to certain set-off rights) any distribution in cash or in kind or payment of, or on account of or in relation to, any liability owed by any member of the Group which is not in accordance with “—Application of Proceeds” below and which is made as a result of, or after, the occurrence of an Insolvency Event in respect of that member of the Group,
then the Senior Creditor or the Subordinated Creditor, as the case may be:
• in relation to receipts or recoveries not received or recovered by way of set off, (i) must hold that amount on trust for the Security Agent and promptly pay that amount to the Security Agent for application in accordance with the terms of the Intercreditor Agreement; and
• in relation to receipts and recoveries received or recovered by way of set off, must promptly pay an amount equal to that receipt or recovery to the Security Agent for application in accordance with the terms of the Intercreditor Agreement.
Application of Proceeds
The Intercreditor Agreement will provide that amounts received by the Security Agent (acting on the instructions of an Instructing Group) in connection with the realization or enforcement of all or any part of the Transaction Security or a transaction in lieu of the enforcement of Transaction Security will be applied in the following order of priority:
• first, (i) in discharging any sums owing to the Security Agent and any receiver or any delegate appointed, (ii) in payment to the Revolving Agent for application towards the discharge of the fees, costs and expenses and other indemnification amounts owed to the Revolving Agent under the Revolving Credit Facility Agreement and (iii) in payment to each Senior Secured Trustee for application towards the discharge of the fees, costs and expenses and other indemnification amounts owed to that Senior Secured Trustee under the Indenture, on a pro rata basis and ranking pari passu between (i), (ii) and (iii) above and, in the case of (ii) and (iii) above, including any amounts arising in connection with any realization or enforcement of the Transaction Security taken in accordance with the terms of the Intercreditor Agreement or any action taken at the request of the Security Agent in accordance with the Intercreditor Agreement;
• second, in payment to the Revolving Agent and the Hedge Counterparties for application towards the discharge of the Arrangers’ Liabilities, the Revolving Creditor Liabilities and the Priority Hedging Liabilities, on a pro rata basis and pari passu between them;
• third, in payment to each Senior Secured Trustee on behalf of the holders of the Senior Secured Notes and the Hedge Counterparties for application towards the discharge of the Notes Liabilities (in accordance with the terms of the Senior Secured Documents) and of the Non-Priority Hedging Liabilities, on a pro rata basis and pari passu between them;
• fourth, if none of the Debtors is under any further actual or contingent liability under the Revolving Credit Facility Agreement, the Hedging Agreements or the Senior Secured Documents, in payment to any person whom the Security Agent is obliged to pay in priority to any Debtor; and
• fifth, the balance, if any, in payment to the relevant Debtor.
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Release of the Guarantees and the Security
Disposals
The Intercreditor Agreement will provide that in relation to the disposal of an asset which is being effected: on instructions from the requisite majority of Senior Creditors in circumstances where the Transaction Security is enforceable; by an enforcement of the Transaction Security; or after the occurrence of a Distress Event by a Debtor to a person outside of the Group, the Security Agent is authorized to (i) release the Transaction Security over the relevant asset; (ii) if the relevant asset consists of shares in the capital of a Debtor to release that Debtor and any of its subsidiaries from its liabilities in its capacity as a guarantor or a borrower (and certain other liabilities) under the Revolving Credit Facility and the Senior Secured Notes to release any Transaction Security granted by that Debtor over any of its assets; (iii) if the relevant asset consists of shares in the capital of a holding company of a Debtor, to release that holding company and any of its subsidiaries from their liabilities in their capacity as a guarantor or a borrower under the Revolving Credit Facility and the Senior Secured Notes, and certain other liabilities, and to release any Transaction Security granted by that subsidiary or holding company over any of its assets and any other claims; (iv) if the relevant asset consists of shares in the capital of a Debtor or holding company of a Debtor (the “Disposed Entity”) and the Security Agent decides to dispose to another entity (the “Receiving Entity”) all or any part of the liabilities of that Disposed Entity, then the Security Agent shall enter into any relevant documentation provided that, if it is intended that the Receiving Entity should not be a Senior Creditor or secured party, the Receiving Entity shall not be treated as a Senior Creditor or secured party, and if it is intended that the Receiving Entity should be a Senior Creditor or secured party, then all (and not part) of the liabilities owed to Senior Creditors, and all or part of any other liabilities and Debtor liabilities should be disposed; and (v) if the relevant asset consists of shares in the capital of a Debtor or holding company of a Debtor (the “Disposed Entity”) and the Security Agent decides to transfer to another Debtor (the “Receiving Entity”) all or any part of the Disposed Entity or its obligations or any obligations of any subsidiary of that Disposed Entity in respect of liabilities owed to a Debtor or intra-group lender, transfer all or part of such obligations on behalf of the person to which they are owed and accept the transfer of those obligations on behalf of the Receiving Entity:
• in the case of clause (ii) to (v) above as effected by the Security Agent, with the agreement of the Majority Super Senior Creditors or of the Majority Secured Noteholders (as applicable) in circumstances where the transaction security has become enforceable, in accordance with “—Entitlement to Enforce” above; or in the absence of any instructions, as the Security Agent sees fit; and
• absent of such agreement, effected subject to certain exceptions, ensuring that the proceeds of the disposal are received in cash, the disposal is effected by public auction or other competitive sale process and the claims of Senior Creditors against any Disposed Entity and its subsidiaries are unconditionally released and discharged concurrently with such disposal and not assumed by the purchaser or any affiliate thereof.
In addition, if (a) a disposal relates to an asset of a Debtor or an asset which is subject to Transaction security to a person or persons within or outside the Group, (b) that disposal is not prohibited by or permitted under respectively (prior to the Revolving Facility Discharge Date) the Revolving Facility Documents and (prior to the Discharge Date for the Senior Secured Notes) the Senior Secured Documents, and (c) that disposal is not a disposal being effected in the circumstances described above, the Security Agent is irrevocably authorised (provided such disposal is notified to the Revolving Agent and each Senior Secured Trustee in the case of a disposal to an entity outside the Group), at the cost of the relevant Debtor or the Subordinated Creditor and without any consent, sanction, authority or further confirmation from any other party to the Intercreditor Agreement, (i) to release the Transaction Security over that asset, (ii) where that asset consists of shares in the capital of a Debtor, to release the Transaction Security over that Debtor’s assets, or, to the extent they are at such time being disposed of, the assets of any subsidiary of that Debtor, and (iii) to execute and deliver or enter into any release of security and any claim described in (i) and (ii) above and issue any certificates of non-crystallisation of any floating charge or any consent to dealing that the Security Agent considers to be necessary or desirable.
New debt
If subject to certain qualifications (i) additional Revolving Creditor Liabilities, or additional Senior Secured Liabilities, incurred in accordance with the Intercreditor Agreement cannot be secured pari passu with the then existing Revolving Creditor Liabilities, or as applicable the additional Senior Secured Liabilities, under the applicable existing security documents without the security under such existing security documents first being released or (ii) if security over any asset under the applicable security documents is released, whether by operation of law or otherwise, in connection with a refinancing or replacement of Revolving Creditor Liabilities or Senior Secured Liabilities, (provided that, if an event of default under the Revolving Credit Facility Agreement is continuing at that time, the requisite consent under the Revolving Credit Facility Agreement is obtained) the Security Agent is authorised to release the security granted pursuant to such existing security documents provided that:
• immediately on such release, security shall be provided in favour of the providers of such Revolving Creditor Liabilities, or as applicable the additional Senior Secured Creditors in respect of such additional
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Senior Secured Liabilities or as applicable the providers of such refinancing or replacement indebtedness, and the Senior Creditors on terms substantially the same as the terms of the security documents released and subject to the same ranking as set out in “—Ranking and Priority” above; and
• each Senior Secured Trustee and the Revolving Agent receives opinions satisfactory to it (acting reasonably) in relation to such security (in the case of the incurrence of additional Revolving Creditor Liabilities or such refinancing or replacement of the Revolving Credit Facility, excluding as to any new hardening periods in respect of any new security securing the Senior Secured Liabilities provided that such period is no longer than the hardening periods in respect of such new security securing such additional Revolving Creditor Liabilities or as applicable the refinancing or replacement of such liabilities).
Each party to the Intercreditor Agreement agrees that it shall promptly execute and each secured party authorizes the Security Document all such documents as may reasonably be considered necessary in order to give effect to the refinancing of the Revolving Creditor Liabilities, the issuance of additional Notes and/or the refinancing of any of the liabilities contemplated under this paragraph “New debt”, and to give effect to providing security as contemplated by this paragraph “New debt” in respect of such additional or refinanced liabilities, including any amendment required to the terms of the Intercreditor Agreement and any amendment, consent, waiver or release in respect of any security document and any grant of security pursuant to a new security document.
Amendment
The Intercreditor Agreement will provide that it may only be amended with the consent of the Issuer, the Majority Super Senior Creditors, the Security Agent and each Senior Secured Trustee unless (i) such amendments are made to cure defects, resolve ambiguities or reflect changes of a minor, technical or administrative nature, which amendments may be made by the Issuer and the Security Agent or (ii) such amendments are made to meet the requirements of any person proposing to act as the Revolving Agent or a Senior Secured Trustee which are customary for persons acting in such capacity, which amendments may be made by the Issuer and the Security Agent. No amendment or waiver of the Intercreditor Agreement may impose new or additional obligations on any Senior Creditor without their prior written consent other than in the case of Hedge Counterparties where the amendment does not adversely affect their rights, or where the rights of the other Senior Creditors are also amended or waived.
The Security Agent may amend the terms of, waive any of the requirements of, or grant consents under, any of the Security Documents acting on the instructions of each of the Senior Secured Trustees and the Revolving Agent, with the consent of the Issuer, unless provided otherwise under the relevant documents. No such amendment, waiver or consent may affect the nature or scope of the obligations, the security or the manner in which the proceeds of enforcement of the security are distributed without the consent of the relevant party, save where such amendment would affect the rights of Senior Creditors generally or save as provided under “Disposals” above. Notwithstanding the foregoing, the prior consent of the Revolving Agent only is required to authorize any amendment or waiver of, or consent under, any Security Document that is entered into only for the benefit of the Super Senior Creditors.
Governing Law
The Intercreditor Agreement is governed by English law.
Perpetual Preferred Equity Certificates
In connection with the Transactions, the Equity Contribution of PAI, certain co-investors and senior members of Swissport’s management team into the Issuer will be effected through the issuance by the Issuer of PPECs to Aguila 2 S.A. The PPECs have the following features:
• they are structurally and contractually subordinated to all debt, including the Notes;
• they have no events of default and no right to security/guarantees;
• they may be redeemed at any time by the Issuer;
• there are no acceleration rights;
• the PPECs have no determined maturity;
• any action relating to redemption or payments under the PPECs is restricted by the Intercreditor Agreement; and
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• the PPECs are interest-bearing, but interest is capitalized and payable only to the extent the Issuer will have sufficient funds available to pay or repay all other of its creditors in full all amounts due under certain of its finance documents or as permitted by the Intercreditor Agreement.
Local Facilities and Finance Leases
Certain of Swissport’s subsidiaries are borrowers under local credit facilities, some of which are guaranteed by Swissport. These facilities have customary terms and in some cases are secured on the equipment financed therewith and trade receivables of the relevant subsidiary. As of September 30, 2010, CHF 27.8 million was outstanding under these facilities and the largest local facility relates to Swissport Cyprus Ltd. accounted for CHF 7.3 million.
In addition, a number of our subsidiaries have entered into finance leases with respect to equipment. As of September 30, 2010, we had indebtedness under finance leases of CHF 16.3 million.
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DESCRIPTION OF NOTES
Aguila 3 S.A. (the “Company”) will issue the Notes (denominated in CHF (the “CHF Notes”) and U.S. dollars (the “Dollar Notes”)) under an indenture (the “Indenture”) between, among others, the Company and Citibank, N.A., London Branch, as the trustee (the “Trustee”), in a private transaction that is not subject to the registration requirements of the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”).
The gross proceeds of the offering of the Notes sold on the Issue Date will be used by the Company, together with the proceeds of the Equity Contribution, to fund the purchase price for the Acquisition, refinance certain indebtedness and pay costs and expenses related to the Transactions as set forth in this offering memorandum under the caption “Use of Proceeds.” Pending consummation of the Acquisition and the satisfaction of certain other conditions as described below, the initial purchasers will deposit the gross proceeds of this offering of the Notes into an escrow account (the “Escrow Account”) pursuant to the terms of an escrow agreement (the “Escrow Agreement”) dated as of the Issue Date among the Company, the Trustee and Citibank, N.A., London Branch, as Escrow Agent (the “Escrow Agent”). The Escrow Agreement, including the conditions to the release of the Escrowed Property (as defined below), are more fully described below under “—Escrow of Proceeds; Special Mandatory Redemption.” In the event the Completion Date (as defined below under “—Escrow of Proceeds; Special Mandatory Redemption”) has not occurred on or before March 2, 2011 (the “Escrow Longstop Date”), or upon the occurrence of certain other events, the Notes will be redeemed at a price equal to 100% of the initial issue price of the Notes plus accrued and unpaid interest and additional amounts, if any, from the Issue Date (the “Special Mandatory Redemption Price”). See “—Escrow of Proceeds; Special Mandatory Redemption.”
Upon the initial issuance of the Notes, the Notes will be obligations solely of the Company, and will not be obligations of any of the Guarantors. Assuming the Completion Date occurs on or prior to the Escrow Longstop Date and the funds are released from the Escrow Account, as of the Completion Date, the Initial Guarantors will become parties to the Indenture and will guarantee the Notes on a senior basis and the Post-Completion Guarantors will become a party to the Indenture and will guarantee the Notes on a senior basis at the same time as such Post-Completion Guarantors become obligors under the Revolving Credit Facility Agreement, which is expected to be no later than 60 days from the Completion Date. Prior to the consummation of the Acquisition, we will not control the Target or its Subsidiaries, and neither the Target nor any of its Subsidiaries will be subject to the covenants described in this Description of Notes. As such, we cannot assure you that prior to the Completion Date the Target and its Subsidiaries will not engage in activities that would otherwise have been prohibited by the Indenture had those covenants been applicable to such entities after the Issue Date and prior to the Completion Date.
Unless the context otherwise requires, in this “Description of Notes”, references to the “Notes” include the Notes and any additional Notes having identical terms and conditions as any series of the Notes (“Additional Notes”) that are issued. The terms of the Notes include those set forth in the Indenture, which is incorporated by reference herein. The Indenture will not incorporate or include any of the provisions of the U.S. Trust Indenture Act of 1939, as amended. The Security Documents referred to below under the caption “—Security” define the terms of the security that will secure the Notes.
The following description is a summary of the material provisions of the Indenture, the Notes and the Security Documents and refers to the Intercreditor Agreement and the Escrow Agreement. This does not restate those agreements in their entirety. We urge you to read the Indenture, the Notes, the Security Documents, the Intercreditor Agreement and the Escrow Agreement because they, and not this description, define your rights as holders of the Notes. Copies of the Indenture, the form of Notes, the Security Documents, the Intercreditor Agreement and the Escrow Agreement are available as set forth below under “—Additional Information.”
Certain defined terms used in this description but not defined below under “—Certain Definitions” have the meanings assigned to them in the Indenture. You can find the definitions of certain terms used in this description under the subheading “—Certain Definitions.” In this description, references to (i) the “Company” refer only to Aguila 3 S.A. and not to any of its Subsidiaries and (ii) “we,” “our,” “us” refer to the Company and its Restricted Subsidiaries.
The registered holder of a Note will be treated as the owner of it for all purposes. Only registered holders will have rights under the Indenture.
Brief Description of the Notes and the Note Guarantees
The Notes
The Notes:
• will be general obligations of the Company;
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• will be guaranteed by the Initial Guarantors as of the Completion Date and by the Post-Completion Guarantors following the Completion Date on the date such Post-Completion Guarantors become obligors under the Revolving Credit Facility Agreement;
• will be secured on a first-priority basis by the Collateral, as described below under “—Security”;
• will be effectively subordinated to any existing and future Indebtedness of the Company that is secured by property or assets that do not secure the Notes, to the extent of the value of the property and assets securing such Indebtedness;
• will be pari passu in right of payment to any future Indebtedness of the Company that is not subordinated in right of payment to the Notes (including the guarantee given by the Company in favor of the Revolving Credit Facility Agreement);
• will be senior to any future Indebtedness of the Company that is subordinated in right of payment to the Notes, including any Subordinated Shareholder Debt; and
• will be effectively subordinated to any existing and future Indebtedness of Subsidiaries of the Company that do not guarantee the Notes.
The Note Guarantees
The Notes will be guaranteed by the Initial Guarantors as of the Completion Date and by the Post-Completion Guarantors at the same time as such Post-Completion Guarantors become obligors under the Revolving Credit Facility Agreement.
The Note Guarantee of each Guarantor:
• will be a general obligation of that Guarantor;
• will be respectively secured on a first-priority basis by the Collateral owned by the relevant Guarantor, as described below under “—Security”;
• will be effectively subordinated to any existing and future Indebtedness of the relevant Guarantor that is secured by property or assets that do not secure such Note Guarantee, to the extent of the value of the property and assets securing such Indebtedness;
• will be pari passu in right of payment with all existing and future Indebtedness of such Guarantor that is not subordinated in right of payment to such Note Guarantee (including Indebtedness under or guarantees of the Revolving Credit Facility Agreement);
• will be full and unconditional, subject to the limitations contained herein; and
• will be senior in right of payment to all existing and future Indebtedness of such Guarantor that is subordinated in right of payment to such Note Guarantee.
General
“Restricted Subsidiary” for purposes of the Indenture will be defined as any Subsidiary of the Company that is not an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject to any of the restrictive covenants in the Indenture and will not guarantee the Notes. As of the Completion Date, only Swissport Israel Cargo Services Ltd., our ground handling Israeli subsidiary, will be an Unrestricted Subsidiary. All of the Company’s other Subsidiaries will be “Restricted Subsidiaries.”
For the twelve months ended September 30, 2010, on a pro forma basis after giving effect to the Transactions, the Company and the Initial Guarantors represented approximately 30.1% of the Target’s consolidated revenues and 20.6% of the Target’s consolidated EBITDA, and, as at September 30, 2010, the Company and the Initial Guarantors represented approximately 18.8% of the Target’s consolidated total assets, in each case excluding the revenues, EBITDA and assets of Unrestricted Subsidiaries.
For the twelve months ended September 30, 2010, on a pro forma basis after giving effect to the Transactions, the Company, the Initial Guarantors and the Post-Completion Guarantors represented approximately 72.6% of the Target’s consolidated revenues and 67.1% of the Target’s consolidated EBITDA, and, as at September 30, 2010, the Company, the Initial Guarantors and the Post-Completion Guarantors represented approximately 80.8% of the Target’s consolidated total assets, in each case excluding the revenues, EBITDA and assets of Unrestricted Subsidiaries.
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As of September 30, 2010, after giving pro forma effect to the Transactions and after excluding intercompany balances and guarantees:
• the Company and the Guarantors would have had on a combined basis approximately CHF 762.5 million of Indebtedness outstanding of which CHF 753.2 million would have been represented by the Notes; and
• the Company’s Restricted Subsidiaries that have not guaranteed the Notes would have had approximately CHF 34.9 million of Indebtedness outstanding.
Although the Indenture will contain limitations on the amount of additional Indebtedness that the Company and its Restricted Subsidiaries may incur, the amount of such additional Indebtedness could be substantial.
Not all of the Company’s Restricted Subsidiaries will guarantee the Notes. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor Restricted Subsidiaries, the non-guarantor Subsidiaries will likely be required to repay financial and trade creditors before distributing any assets to the Company or a Guarantor. For the nine months ended September 30, 2010, on a pro forma basis after giving effect to the Transactions, the Company and the Guarantors represented approximately 72.4% of the Target’s consolidated EBITDA, and, as at September 30, 2010, the Company and the Guarantors represented approximately 81.4% of the Target’s consolidated total assets.
The Company is a holding company without operations, and, therefore, the Company depends on the cash flow of the Target and its Subsidiaries to meet its obligations, including its obligation under the Notes. The Notes will be effectively subordinated to all Indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Company’s Subsidiaries that do not provide Note Guarantees.
Principal, Maturity and Interest
The Company will issue CHF 350 million in aggregate principal amount of CHF Notes and $425 million in aggregate principal amount of Dollar Notes in this offering. Each of the CHF Notes and the Dollar Notes constitute a separate series of Notes but will be treated as a single class of securities for purposes of the Indenture, including for purposes of voting and other actions by holders of the Notes, except as otherwise specified in the Indenture. The Company may issue an unlimited principal amount of Additional Notes under the Indenture from time to time after this offering. Any issuance of Additional Notes is subject to all of the covenants in the Indenture, including the covenant described below under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock.” The Notes and any Additional Notes subsequently issued under the Indenture will be treated as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase, except as otherwise provided in the Indenture. The Company will issue Notes in denominations of CHF 150,000 and integral multiples of CHF 1,000 in excess thereof in the case of the CHF Notes and of $150,000 and integral multiples of $1,000 in excess thereof in the case of the Dollar Notes. The Notes will mature on January 31, 2018 and will be repaid at 100% principal amount.
Interest on the CHF Notes will accrue at the rate of 7.875% per annum and interest on the Dollar Notes will accrue at a rate of 7.875% per annum. Interest on the Notes will be payable semi-annually in arrears on January 31 and July 31, commencing on July 31, 2011. The Company will make each interest payment to the holders of record on the immediately preceding January 15 and July 15.
Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Escrow of Proceeds; Special Mandatory Redemption
Substantially concurrently with the closing of the initial offering of the Notes on the Issue Date, the Company will enter into the Escrow Agreement with the Trustee and the Escrow Agent, pursuant to which the initial purchasers will deposit with the Escrow Agent an amount equal to the gross proceeds of the offering of the Notes sold on the Issue Date. The gross proceeds of the offering of the Notes deposited in the Escrow Account are referred to as the “Escrowed Property.”
In order to cause the Escrow Agent to release the Escrowed Property to the Company (the “Release”), the Escrow Agent shall have received from the Company, at a time that is on or before the Escrow Longstop Date, an Officer’s Certificate to the effect that:
(i) prior to or concurrently with the release of the proceeds of the Notes, the Equity Contribution will be made;
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(ii) those documents, legal opinions and certificates attached as exhibits to the Escrow Agreement that are required to be delivered on the relevant date of Release have been delivered in accordance with the terms of the Escrow Agreement;
(iii) (a) the Acquisition will be consummated, promptly upon release of the Escrowed Property, on substantially the same terms as described in this offering memorandum under the heading “The Transactions” and in accordance with the terms of the sale and purchase agreement between Ferrovial Servicios, S.A., as seller, and Global Lisimaco, S.L, as purchaser, which is an affiliate of PAI, dated November 1, 2010, as amended (the “Stock Purchase Agreement”), and (b) no provision of the Stock Purchase Agreement shall have been amended or waived in any manner which would be materially adverse to the holders of the Notes without the consent of the holders of a majority in principal amount of the Notes outstanding; and
(iv) immediately after consummation of the Acquisition, the Company will own directly or indirectly 100% of the Capital Stock of the Target (subject to notarization of the share transfer).
The Release shall occur promptly upon the satisfaction of the conditions set forth above (the date of such satisfaction, the “Completion Date”).
In the event that (a) the Completion Date does not take place on or prior to the Escrow Longstop Date, (b) at any time prior to the Escrow Longstop Date, the Permitted Holders cease to beneficially own and control a majority of the issued and outstanding Capital Stock of the Company, (c) at any time prior to the Escrow Longstop Date, any conditions to the Release of the proceeds can not reasonably be deemed by the Company to be capable of being satisfied on or prior to the Escrow Longstop Date or (d) at any time prior to the Escrow Longstop Date, the Stock Purchase Agreement terminates (the date of any such event being the “Escrow Termination Date”), the Company will redeem all of the Notes (the “Special Mandatory Redemption”) at the Special Mandatory Redemption Price as defined above, plus accrued but unpaid interest and additional amounts, if any, to the Special Mandatory Redemption Date (as defined below and subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Notice of the Special Mandatory Redemption will be mailed by the Company, within one Business Day following the earlier of the Escrow Termination Date and the Escrow Longstop Date, to the Trustee and to each holder of the Notes and the Escrow Agent, and will provide that the Notes shall be redeemed on a date that is no later than the fifth Business Day after such notice is mailed (the “Special Mandatory Redemption Date”). On the Special Mandatory Redemption Date, the Escrow Agent shall pay to the Principal Paying Agent (as defined below) for payment to each holder the Special Mandatory Redemption Price for such holder’s Notes and, concurrently with the payment to such holders, deliver any excess Escrowed Property (if any) to the Company.
On or before the Issue Date, the Equity Investors will deposit into the Escrow Account an amount in cash equal to the interest that would accrue on the Notes from the Issue Date to the Special Mandatory Redemption Date (assuming the Completion Date has not occurred prior to the Escrow Longstop Date). On the closing date for the offering of Notes, the Issuer will convert a portion of the proceeds of the Dollar Notes into Swiss francs that will be used to pay a portion of the purchase price for the Acquisition, to repay certain indebtedness of the Target and to pay certain fees related to the offering, in each case, that are denominated in Swiss francs. In the event the Acquisition does not occur and the value of the Swiss franc decreases against the U.S. dollar between the closing date of the offering of the Notes and the date of the Special Mandatory Redemption, PAI partners SAS has undertaken to draw its investor funds to make up any difference between the value of the Escrowed Property and the Special Mandatory Redemption Price resulting from any such decrease in the value of the Swiss franc.
To secure the payment of the Special Mandatory Redemption Price, the Company will grant to the Trustee for the benefit of the holders of the Notes a security interest in the Escrow Account.
If at the time of such Special Mandatory Redemption, the Notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, the Company will notify the Luxembourg Stock Exchange that the Special Mandatory Redemption has occurred and any relevant details relating to such special mandatory redemption.
Paying Agent and Registrar for the Notes
The Company will maintain one or more paying agents (each, a “Paying Agent”) for the Notes in the City of London (the “Principal Paying Agent”). The Company will ensure that it maintains a Paying Agent in a member state of the European Union that will not be obliged to withhold or deduct tax pursuant to the European Union Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council meeting of 26 and 27 November 2000 on the taxation of savings income, or any law implementing, or complying with or introduced in
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order to conform to, such directive. The initial Principal Paying Agent will be Citibank, N.A., London Branch, in London.
The Company will also maintain one or more registrars (each, a “Registrar”) for so long as the Notes are listed on the Luxembourg Stock Exchange and its rules so require. The Company will also maintain a transfer agent (each, a “Transfer Agent”). The initial Registrar will be Citigroup Global Markets Deutschland AG in Frankfurt. The initial Transfer Agent will be Citibank, N.A., London Branch. The Registrar and the Transfer Agent will maintain a register reflecting ownership of Definitive Registered Notes (as defined under “Book-Entry, Delivery and Form”) outstanding from time to time and will make payments on and facilitate transfer of Definitive Registered Notes on behalf of the Company.
The Company may change the Paying Agents, the Registrars or the Transfer Agents without prior notice to the holders of Notes. For so long as the Notes are listed on the Luxembourg Stock Exchange and its rules so require, the Company will publish a notice of any change of Paying Agent, Registrar or Transfer Agent in a newspaper having a general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or, to the extent and in the manner permitted by such rules, post such notice on the official website of the Luxembourg Stock Exchange (www.bourse.lu).
Transfer and Exchange
Notes sold within the United States to qualified institutional buyers pursuant to Rule 144A under the U.S. Securities Act will initially be represented by one or more global Notes in registered form without interest coupons attached (the “144A Global Notes”), and Notes sold outside the United States pursuant to Regulation S under the U.S. Securities Act will initially be represented by one or more global Notes in registered form without interest coupons attached (the “Reg S Global Notes” and together with the 144A Global Notes, the “Global Notes”).
Ownership of interests in the Global Notes (the “Book-Entry Interests”) will be limited to persons that have accounts with Euroclear or Clearstream, Luxembourg or Persons that may hold interests through such participants. Ownership of interests in the Book-Entry Interests and transfers thereof will be subject to the restrictions on transfer and certification requirements summarized below and described more fully under “Transfer Restrictions.” In addition, transfers of Book-Entry Interests between participants in Euroclear or Clearstream, Luxembourg will be effected by Euroclear or Clearstream, Luxembourg pursuant to customary procedures and subject to the applicable rules and procedures established by Euroclear or Clearstream, Luxembourg and their respective participants.
Book-Entry Interests in the 144A Global Note, or the “Restricted Book-Entry Interest,” may be transferred to a person who takes delivery in the form of Book-Entry Interests in the 144A Global Note, as applicable, or the “Reg S Book-Entry Interests,” only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Regulation S under the U.S. Securities Act.
Any Book-Entry Interest (as defined under “Book-Entry, Delivery and Form”) that is transferred as described in the immediately preceding paragraphs will, upon transfer, cease to be a Book-Entry Interest in the Global Note from which it was transferred and will become a Book-Entry Interest in the Global Note to which it was transferred. Accordingly, from and after such transfer, it will become subject to all transfer restrictions, if any, and other procedures applicable to Book-Entry Interests in the Global Note to which it was transferred.
If Definitive Registered Notes are issued, they will be issued only in minimum denominations of CHF 150,000 principal amount and integral multiples of CHF 1,000 in excess thereof in the case of the CHF Notes and of $150,000 principal amount and integral multiples of $1,000 in excess thereof in the case of the Dollar Notes, upon receipt by the applicable Registrar of instructions relating thereto and any certificates and other documentation required by the Indenture. It is expected that such instructions will be based upon directions received by Euroclear or Clearstream, Luxembourg, as applicable, from the participant that owns the relevant Book-Entry Interests. Definitive Registered Notes issued in exchange for a Book-Entry Interest will, except as set forth in the Indenture or as otherwise determined by the Company in compliance with applicable law, be subject to, and will have a legend with respect to, the restrictions on transfer summarized below and described more fully under “Notice to Investors.”
Subject to the restrictions on transfer referred to above, Notes issued as Definitive Registered Notes may be transferred or exchanged, in whole or in part, in minimum denominations of CHF 150,000 in principal amount and integral multiples of CHF 1,000 in excess thereof in the case of the CHF Notes and of $150,000 in principal amount and integral multiples of $1,000 in excess thereof in the case of the Dollar Notes, to persons who take delivery thereof in the form of Definitive Registered Notes. In connection with any such transfer or exchange, the Indenture will require the transferring or exchanging holder to, among other things, furnish appropriate endorsements and transfer documents, furnish information regarding the account of the transferee at DTC, Euroclear or Clearstream where appropriate, furnish certain certificates and opinions and pay any Taxes in connection with such transfer or exchange. Any such transfer or exchange will be made without charge to the holder, other than any Taxes payable in connection with such transfer or
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exchange; provided that, if the Company or any Guarantor is a party to the transfer or exchange, the holder will not be required to pay such Taxes.
Notwithstanding the foregoing, the Company is not required to register the transfer of any Definitive Registered Notes:
(1) for a period of 15 days prior to any date fixed for the redemption of the Notes;
(2) for a period of 15 days immediately prior to the date fixed for selection of Notes to be redeemed in part;
(3) for a period of 15 days prior to the record date with respect to any interest payment date; or
(4) which the holder has tendered (and not withdrawn) for repurchase in connection with a Change of Control Offer or an Asset Sale Offer.
The Company, the Trustee and the Paying Agents will be entitled to treat the holder of a Note as the owner of it for all purposes.
Additional Amounts
All payments made by or on behalf of the Company under or with respect to the Notes or any of the Guarantors with respect to any Note Guarantee will be made free and clear of and without withholding or deduction for, or on account of, any present or future Taxes unless the withholding or deduction of such Taxes is then required by law. If any deduction or withholding for, or on account of, any Taxes imposed or levied by or on behalf of (1) any jurisdiction in which the Company or any Guarantor is then incorporated or organized, engaged in business for tax purposes or otherwise resident for tax purposes or any political subdivision thereof or therein or (2) any jurisdiction from or through which payment is made by or on behalf of the Company or any Guarantor (including the jurisdiction of any Paying Agent) or any political subdivision thereof or therein (each, a “Tax Jurisdiction”) will at any time be required to be made from any payments made by or on behalf of the Company under or with respect to the Notes or any of the Guarantors with respect to any Note Guarantee, including payments of principal, redemption price, interest or premium, the Company or the relevant Guarantor, as applicable, will pay such additional amounts (the “Additional Amounts”) as may be necessary in order that the net amounts received in respect of such payments by each holder after such withholding, deduction or imposition (including any such withholding, deduction or imposition from such Additional Amounts) will equal the respective amounts that would have been received in respect of such payments in the absence of such withholding or deduction; provided, however, that no Additional Amounts will be payable with respect to:
(1) any Taxes, to the extent such Taxes would not have been imposed but for the existence of any present or former connection between the holder or the beneficial owner of the Notes (or between a fiduciary, settlor, beneficiary, partner of, member or shareholder of, or possessor of a power over, the relevant holder, if the relevant holder is an estate, trust, nominee, partnership, limited liability company or corporation) and the relevant Tax Jurisdiction (including being or having been a citizen, resident, or national thereof or being or having been present or engaged in a trade or business therein or having or having had a permanent establishment therein), but excluding any connection arising merely from the holding of such Note, the enforcement of rights under such Note or under a Note Guarantee or the receipt of any payments in respect of such Note or a Note Guarantee;
(2) any Taxes, to the extent such Taxes were imposed as a result of the presentation of a Note for payment (where presentation is required) more than 30 days after the relevant payment is first made available for payment to the holder (except to the extent that the holder would have been entitled to Additional Amounts had the Note been presented on the last day of such 30 day period);
(3) any estate, inheritance, gift, sales, excise, transfer, personal property or similar Taxes;
(4) any Taxes withheld, deducted or imposed on a payment to an individual that are required to be made pursuant to European Council Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council meeting of November 26 and 27, 2000 on the taxation of savings income, or any law implementing or complying with or introduced in order to conform to, such directive;
(5) Taxes imposed on or with respect to a payment made to a holder or beneficial owner of Notes who would have been able to avoid such withholding or deduction by presenting the relevant Note to another Paying Agent in a member state of the European Union;
(6) any Taxes payable other than by deduction or withholding from payments under, or with respect to, the Notes or with respect to any Note Guarantee;
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(7) any Taxes to the extent such Taxes are imposed or withheld by reason of the failure of the holder or beneficial owner of Notes, following the Company’s written request addressed to the holder or beneficial owner (and made at a time that would enable the holder or beneficial owner acting reasonably to comply with that request), to comply with any certification, identification, information or other reporting requirements, whether required by statute, treaty, regulation or administrative practice of a Tax Jurisdiction, as a precondition to exemption from, or reduction in the rate of deduction or withholding of, Taxes imposed by the Tax Jurisdiction (including, without limitation, a certification that the holder or beneficial owner is not resident in the Tax Jurisdiction), but in each case, only to the extent the holder or beneficial owner is legally entitled to provide such certification or documentation);
(8) any Taxes imposed on or with respect to any payment by the Company or Guarantor to the holder if such holder is a fiduciary or partnership or any person other than the sole beneficial owner of such payment to the extent that Taxes would not have been imposed on such payment had such holder been the sole beneficial owner of such Note; or
(9) any combination of items (1) through (8) above.
In addition to the foregoing, the Company and the Guarantors will also pay and indemnify the holder for any present or future stamp, issue, registration, court or documentary taxes, or any other excise or property taxes, charges or similar levies (including penalties, interest and any other reasonable expenses related thereto) which are levied by any Tax Jurisdiction on the execution, delivery, issuance or registration of any of the Notes, the Indenture, any Note Guarantee or any other document referred to therein (other than a transfer of the Notes other than the initial resale by the initial purchasers) or the receipt of any payments with respect thereto (limited, solely in the case of taxes attributable to the receipt of any payments with respect thereto, to any such taxes imposed in a Tax Jurisdiction that are not excluded under clauses (1) through (5) or (8) above or any combination thereof), or any such taxes, charges or similar levies imposed by any jurisdiction as a result of, or in connection with, the enforcement of any of the Notes or any Note Guarantee.
If the Company or any Guarantor, as the case may be, becomes aware that it will be obligated to pay Additional Amounts with respect to any payment under or with respect to the Notes or any Note Guarantee, each of the Company or the relevant Guarantor, as the case may be, will deliver to the Trustee on a date that is at least 30 days prior to the date of that payment (unless the obligation to pay Additional Amounts arises less than 45 days prior to that payment date, in which case the Company or the relevant Guarantor shall notify the Trustee promptly thereafter) an Officer’s Certificate stating the fact that Additional Amounts will be payable and the amount estimated to be so payable. The Officer’s Certificates must also set forth any other information reasonably necessary to enable the Paying Agents to pay Additional Amounts to holders on the relevant payment date. The Trustee shall be entitled to rely solely on such Officer’s Certificate as conclusive proof that such payments are necessary.
The Company or the relevant Guarantor will make all withholdings and deductions required by law and will timely remit the full amount deducted or withheld to the relevant Tax authority in accordance with applicable law. The Company or the relevant Guarantor will use its reasonable efforts to obtain Tax receipts from each Tax authority evidencing the payment of any Taxes so deducted or withheld. The Company or the relevant Guarantor will furnish to the Trustee, within a reasonable time after the date the payment of any Taxes so deducted or withheld is made, certified copies of Tax receipts evidencing payment by the Company or a Guarantor, as the case may be, or if, notwithstanding such entity’s efforts to obtain receipts, receipts are not obtained, other evidence of payments (reasonably satisfactory to the Trustee) by such entity. If reasonably requested by the Trustee, the Company or the Guarantors will provide to the Trustee such information as may be in the possession of the Company or the Guarantors (and not otherwise in the possession of the Trustee) to enable the Trustee to determine the amount of withholding taxes attributable to any particular holder, provided, however, that in no event shall the Company or the Guarantors be required to disclose any information that it reasonably deems to be confidential.
Whenever in the Indenture or in this “Description of Notes” there is mentioned, in any context, the payment of amounts based upon the principal amount of the Notes or of principal, interest or of any other amount payable under, or with respect to, any of the Notes or any Note Guarantee, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof.
The above obligations will survive any termination, defeasance or discharge of the Indenture, any transfer by a holder or beneficial owner of its Notes, and will apply, mutatis mutandis, to any jurisdiction in which any successor Person to the Company or any Guarantor is incorporated, engaged in business for tax purposes or resident for tax purposes or any jurisdiction from or through which such Person makes any payment on the Notes (or any Note Guarantee) and any department or political subdivision thereof or therein.
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The Guarantees
The Notes will be guaranteed by each Initial Guarantor as of the Completion Date and by the Post-Completion Guarantors at the same time as such Post-Completion Guarantors become obligors under the Revolving Credit Facility Agreement, which is expected to be no later than 60 days from the Completion Date. The Note Guarantees will be joint and several obligations of the Guarantors.
Each of the guarantees and the amounts recoverable thereunder will be limited to the maximum amount that can be guaranteed by a particular Guarantor without rendering its guarantee voidable or otherwise ineffective under applicable law, including laws relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally, or otherwise to reflect applicable laws, including laws relating to capital maintenance and the liability of directors and officers. See “Risk Factors—Risks Relating to Our Indebtedness, including the Notes—Corporate benefit and financial assistance laws and other limitations on the obligations under the Guarantees may adversely affect the validity and enforceability of the Guarantees” and “Limitations on Validity and Enforceability of the Guarantees, the Notes Security and Certain Insolvency Law Considerations.”
The operations of the Company are conducted through its Subsidiaries and, therefore the Company depends on the cash flow of its Subsidiaries to meet its obligations, including its obligations under the Notes. Not all of the Company’s Subsidiaries will guarantee the Notes. The Notes will be effectively subordinated in right of payment to all Indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Company’s non-guarantor Subsidiaries. Any right of the Company or any Guarantor to receive assets of any of its non-guarantor Subsidiaries upon that non-guarantor Subsidiary’s liquidation or reorganization (and the consequent right of the holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that non-guarantor Subsidiary’s creditors, except to the extent that the Company or such Guarantor is itself recognized as a creditor of the non-guarantor Subsidiary, in which case the claims of the Company or such Guarantor, as the case may be, would still be subordinated in right of payment to any security in the assets of the non-guarantor Subsidiary and any Indebtedness of the non-guarantor Subsidiary senior to that held by the Company or such Guarantor. See “Risk Factors—Risks Relating to our Indebtedness, including the Notes—The Notes will be structurally subordinated to the indebtedness and other obligations of our non-guarantor subsidiaries.”
For a description of such contractual limitations, see “Risk Factors—Risks Relating to Our Indebtedness, including the Notes—Corporate benefit and financial assistance laws and other limitations on the obligations under the Guarantees may adversely affect the validity and enforceability of the Guarantees.”
Release of the Note Guarantees
The Note Guarantees will be released:
(1) in connection with any sale, disposition, exchange or other transfer of all or substantially all of the assets of that Guarantor (including by way of merger, consolidation, amalgamation or combination) to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary, if the sale or other disposition does not violate the “Asset Sale” provisions of the Indenture;
(2) in connection with any sale, disposition, exchange or other transfer of Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary, if the sale or other disposition does not violate the “Asset Sale” provisions of the Indenture and the Guarantor ceases to be a Restricted Subsidiary as a result of the sale or other disposition;
(3) if the Company designates any Restricted Subsidiary that is a Guarantor to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture;
(4) upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture as provided below under the captions “—Legal Defeasance and Covenant Defeasance” and “—Satisfaction and Discharge”;
(5) in accordance with an enforcement sale in compliance with the Intercreditor Agreement or any Additional Intercreditor Agreement, or as otherwise provided for under the Intercreditor Agreement or any Additional Intercreditor Agreement;
(6) upon the full and final payment and performance of all obligations of the Company under the Indenture and the Notes;
(7) in the case of any Restricted Subsidiary that after the Issue Date is required to guarantee the Notes pursuant to the covenant described under “—Certain Covenants—Limitation on Issuances of
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Guarantees of Indebtedness,” upon the release or discharge of the guarantee of Indebtedness by such Restricted Subsidiary which resulted in the obligation to guarantee such Notes; or
(8) as described under “—Amendment, Supplement and Waiver.”
Upon any occurrence giving rise to a release as specified above, the Trustee or the Security Agent, as applicable, will execute any documents reasonably required in order to evidence or effect such release, discharge and termination in respect of such guarantee. Neither the Company nor any Guarantor will be required to make a notation on the Notes to reflect any such release, termination or discharge.
Security
The Notes will initially be secured by first-priority liens on the Escrowed Property deposited in the Escrow Account, as described above under “—Escrow of Proceeds; Special Mandatory Redemption”. The Escrowed Property that is deposited in the Escrow Account will not be pledged to secure any obligations other than the Company’s obligations under the Notes. Upon the Release, the first-priority liens over the Escrowed Property will be released.
At the Completion Date, the obligations of the Company under the Notes and the obligations of the Guarantors under their respective Guarantees will be secured, on a first-priority basis, by all assets that secure from time to time the Company’s and the Guarantors’ obligations under the Revolving Credit Facility Agreement.
The Collateral (as defined below), at the Completion Date, will consist of:
(1) pledges of Aguila 2 S.A.’s shares in the share capital of the Company; and
(2) pledges of the Company’s and the Restricted Subsidiaries’ shares in the share capital of the Initial Guarantors (other than the share capital of the Target, which will be pledged promptly after the Completion Date); and
(3) substantially all the other assets of the Company and the Initial Guarantors.
In addition, the Post-Completion Guarantors will pledge certain assets when they become Guarantors, which assets will consist of:
(1) pledges of the Company’s and the Restricted Subsidiaries’ shares in the share capital of the Post-Completion Guarantors; and
(2) certain other property and assets that will also be pledged to secure the Revolving Credit Facility Agreement, which assets are expected to include, taking into account the jurisdiction of incorporation and assets of the relevant Guarantor as well as the cost of granting security interest over certain assets, (i), certain receivables of the Company and the Post-Completion Guarantors, (ii) certain rights under insurance policies, (iii) certain intellectual property rights and (iv) certain stock, inventory and machinery.
The Liens securing the Notes and the Guarantees will also secure the obligations of the Company and the Guarantors under the Revolving Credit Facility Agreement and certain hedging obligations. Pursuant to the terms of the Intercreditor Agreement, the obligations of the Company and the Guarantors under the Revolving Credit Facility Agreement and certain hedging obligations will be entitled to receive payment from the proceeds of enforcement of the Security Documents prior to the Trustee for the benefit of the holders of the Notes. The assets and property of the Company and its subsidiaries that are from time to time subject to, or required to be subject to, a Lien pursuant to the Security Documents are referred to as the “Collateral.” The security and other agreements in respect of the Collateral are referred to as the “Security Documents.”
Under the Security Documents, the Collateral will be pledged by the Company and the Guarantors to secure the payment when due of the Company’s and the Guarantors’, as applicable, payment obligations under the Notes, the Guarantees and the Indenture. The Security Documents will be entered into by, inter alios, the Security Agent or its nominee(s), who will act as Security Agent for the lenders under the Revolving Credit Facility Agreement and for the Trustee and the holders of Notes.
Each holder of Notes, by accepting a Note, shall be deemed (i) to have authorized the Trustee to enter into the Intercreditor Agreement and the Security Agent to enter into the Security Documents and the Intercreditor Agreement and (ii) to be bound thereby. Each holder of Notes, by accepting a Note, appoints the Trustee or the Security Agent, as the case may be, as its agent under the Security Documents and the Intercreditor Agreement and authorizes it to act as such.
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The holders of the Notes are not a party to the Security Documents, and therefore holders may not, individually or collectively, take any direct action to enforce any rights in their favor under the Security Documents. The holders may only act through the Trustee or the Security Agent, as applicable. The Security Agent will agree to any release of the security interest created by the Security Documents that is in accordance with the Indenture and the Intercreditor Agreement without requiring any consent of the holders. The Trustee will have the ability to direct the Security Agent to commence enforcement action under the Security Documents. However, the ability to so direct the Security Agent will be limited by the Intercreditor Agreement in the following manner: the Security Agent will take direction from 662/3% of the lenders under the Revolving Credit Facility Agreement and the counterparties to Hedging Obligations that are permitted to share the Collateral (“Priority Hedge Counterparties”) or a majority of the Notes, subject to mandatory consultation periods of up to 30 days. In the case that the Security Agent receives conflicting directions from the lenders under the Revolving Credit Facility Agreement and the Priority Hedge Counterparties on the one hand and the holders of the Notes on the other, the Security Agent will be required under the Intercreditor Agreement to act on the instruction of the majority of the Notes, subject to certain exceptions. See “Description of Certain Financing Arrangements—Intercreditor Agreement.”
Subject to the terms of the Security Documents, the Company and the Guarantors, as the case may be, will be entitled to exercise any and all voting rights and to receive and retain any and all cash dividends, stock dividends, liquidating dividends, non-cash dividends, shares of stock resulting from stock splits or reclassifications, rights issue, warrants, options and other distributions (whether similar or dissimilar to the foregoing) in respect of the shares that are part of the Collateral.
The value of the Collateral securing the Notes and the Note Guarantees may not be sufficient to satisfy the Company’s and the Guarantors’ obligations under the Notes and the Note Guarantees, and the Collateral securing the Notes and the Note Guarantees may be reduced or diluted under certain circumstances, including the issuance of Additional Notes and the disposition of assets comprising the Collateral, subject to the terms of the Indenture. Please see “Risk Factors—Risks Relating to Our Indebtedness, including the Notes—The collateral may not be sufficient to secure the obligations under the Notes”, “—Your ability to recover under the collateral may be limited. Before any amounts are available to repay the Notes, lenders under our Revolving Credit Facility Agreement and certain hedge counterparties will have a right to be repaid with the proceeds realized following the enforcement of all or part of the collateral” and “—There are circumstances other than repayment or discharge of the Notes under which the collateral securing the Notes and the Guarantees will be released automatically and under which the Guarantees will be released automatically, without your consent or the consent of the Trustee.”
No appraisals of the Collateral have been prepared by or on behalf of the Company or the Guarantors in connection with this offering of the Notes. There can be no assurance that the proceeds of any sale of the Collateral, in whole or in part, pursuant to the Indenture and the Security Documents following an Event of Default, would be sufficient to satisfy amounts due on the Notes or the Guarantees. By its nature, some or all the Collateral may be illiquid and may have no readily ascertainable market value. Accordingly, there can be no assurance that the Collateral would be sold in a timely manner or at all.
The Security Documents are governed by English laws or the laws of the other jurisdictions to which the Collateral is subject and provide that the rights with respect to the Notes and the Indenture must be exercised by the Security Agent and in respect of the entire outstanding amount of the Notes. The term “Security Interests” refers to the Liens in the Collateral.
Release of the security
The Company and the Guarantors will be entitled to release the Liens in respect of the Collateral securing the Notes and/or the Note Guarantees under any one or more of the following circumstances:
(1) in connection with any sale, assignment, transfer, conveyance or other disposition of such property or assets to a Person that is not (either before or after giving effect to such transaction) the Company or any of its Restricted Subsidiaries, if the sale or other disposition does not violate the “Asset Sale” provisions of the Indenture;
(2) in the case of a Guarantor that is released from its Note Guarantee pursuant to the terms of the Indenture, the release of the property and assets, and Capital Stock, of such Guarantor;
(3) if the Company designates any of its Restricted Subsidiaries to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture, the release of the property and assets of such Restricted Subsidiary;
(4) upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture as provided below under the captions “—Legal Defeasance and Covenant Defeasance” and “—Satisfaction and Discharge”;
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(5) upon the full and final payment and performance of all obligations of the Company under the Indenture and the Notes; or
(6) as described under “—Amendment, Supplement and Waiver.”
In addition, the Liens created by the Security Documents will be released (a) in accordance with the Intercreditor Agreement or any Additional Intercreditor Agreement and (b) as may be permitted by the covenant described under “Certain Covenants—Impairment of Security Interest.”
The Security Agent and the Trustee will take all necessary action required to effectuate any release of Collateral securing the Notes and the Note Guarantees, in accordance with the provisions of the Indenture, the Intercreditor Agreement or any Additional Intercreditor Agreement and the relevant Security Document. Each of the releases set forth above shall be affected by the Security Agent without the consent of the holders or any action on the part of the Trustee.
Optional Redemption
At any time prior to January 31, 2014, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of CHF Notes issued under the Indenture at a redemption price equal to 107.875% of the principal amount of the CHF Notes redeemed and/or up to 35% of the aggregate principal amount of the Dollar Notes issued under the Indenture at a redemption price equal to 107.875% of the principal amount of the Dollar Notes redeemed, in each case, upon not less than 30 nor more than 60 days’ notice, plus accrued and unpaid interest and Additional Amounts, if any, to the date of redemption (subject to the rights of holders of Notes on the relevant record date to receive interest on the relevant interest payment date), with the net cash proceeds of an Equity Offering of (i) the Company or (ii) any direct or indirect Parent Entity of the Company to the extent the proceeds from such Equity Offering are contributed to the Company’s common equity capital or are paid to the Company as consideration for the issuance of ordinary shares of the Company; provided that:
(1) at least 65% of the aggregate principal amount of the CHF Notes and at least 65% of the aggregate principal amount of the Dollar Notes (in each case calculated after giving effect to any issuance of Additional Notes but excluding Notes held by the Company and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and
(2) the redemption occurs within 90 days of the date of the closing of such Equity Offering.
In addition, at any time prior to January 31, 2014, the Company may during each 12-month period commencing with the Issue Date redeem up to 10% of the aggregate principal outstanding amount of the CHF Notes and/or the Dollar Notes at its option, from time to time, upon not less than 30 nor more than 60 days’ prior notice, at a redemption price equal to 103% of the principal amount of Notes redeemed, plus accrued and unpaid interest and Additional Amounts, if any, to the date of redemption (subject to the rights of holders of Notes on the relevant record date to receive interest on the relevant interest payment date).
At any time prior to January 31, 2014, the Company may on any one or more occasions redeem all or a part of the CHF Notes and/or the Dollar Notes upon not less than 30 nor more than 60 days’ notice, at a redemption price equal to 100% of the principal amount of the Notes redeemed, plus the Applicable Premium as of, and accrued and unpaid interest and Additional Amounts, if any, to the date of redemption, subject to the rights of holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date.
Except pursuant to the preceding three paragraphs and except pursuant to “—Redemption for Changes in Taxes” or “—Escrow of Proceeds; Special Mandatory Redemption,” the Notes will not be redeemable at the Company’s option prior to January 31, 2014.
On or after January 31, 2014, the Company may on any one or more occasions redeem all or a part of the CHF Notes and/or the Dollar Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and Additional Amounts, if any, on the Notes redeemed, to the applicable date of redemption, if redeemed during the twelve-month period beginning on January 31 of the years indicated below, subject to the rights of holders of Notes on the relevant record date to receive interest on the relevant interest payment date:
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Redemption Price Year CHF Notes Dollar Notes
2014 ................................................................................................................................................. 105.906% 105.906%2015 ................................................................................................................................................. 103.938% 103.938%2016 ................................................................................................................................................. 101.969% 101.969%2017 ................................................................................................................................................. 100.000% 100.000%
Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date.
Any redemption or notice may, in the Company’s discretion, be subject to the satisfaction of one or more conditions precedent.
Redemption for Changes in Taxes
The Company may redeem the Notes, in whole but not in part, at its discretion at any time upon giving not less than 30 nor more than 60 days’ prior notice to the holders of the Notes (which notice will be irrevocable and given in accordance with the procedures described in “—Selection and Notice”), at a redemption price equal to 100% of the aggregate principal amount thereof, together with accrued and unpaid interest, if any, to the date fixed by the Company for redemption (a “Tax Redemption Date”) and all Additional Amounts (if any) then due and which will become due on the Tax Redemption Date as a result of the redemption or otherwise (subject to the right of holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date and Additional Amounts (if any) in respect thereof), if on the next date on which any amount would be payable in respect of the Notes or any Note Guarantee, the Company under or with respect to the Notes or any of the Guarantors with respect to any Note Guarantee, as the case may be, is or would be required to pay Additional Amounts (but, in the case of the relevant Guarantor, only if such amount cannot be paid by the Company or another Guarantor who can pay such amount without the obligation to pay Additional Amounts), and the Company or Guarantor, as applicable, cannot avoid any such payment obligation by taking reasonable measures available (including making payment through a paying agent located in another jurisdiction) and the requirement arises as a result of:
(1) any amendment to, or change in, the laws or any regulations or rulings promulgated thereunder of a relevant Tax Jurisdiction which change or amendment has not been publicly announced as formally proposed before and which becomes effective on or after the date of this offering memorandum (or, if the applicable Tax Jurisdiction became a Tax Jurisdiction on a date after the date of this offering memorandum, such later date); or
(2) any amendment to, or change in, an official written interpretation or application of such laws, regulations or rulings (including by virtue of a holding, judgment, order by a court of competent jurisdiction or a change in published administrative practice) which amendment or change has not been publicly announced as formally proposed before and which becomes effective on or after the date of this offering memorandum (or, if the applicable Tax Jurisdiction became a Tax Jurisdiction on a date after the date of this offering memorandum, such later date) (each of the foregoing clauses (1) and (2), a “Change in Tax Law”).
The Company will not give any such notice of redemption earlier than 60 days prior to the earliest date on which the Company or the Guarantor, as applicable, would be obligated to make such payment or withholding if a payment in respect of the Notes were then due, and the obligation to pay Additional Amounts must be in effect at the time such notice is given. Prior to the publication or, where relevant, mailing of any notice of redemption of the Notes pursuant to the foregoing, the Company will deliver to the Trustee an opinion of independent tax counsel (the choice of such counsel to be subject to the prior written approval of the Trustee (such approval not to be unreasonably withheld)) to the effect that there has been such Change in Tax Law which would entitle the Company to redeem the Notes hereunder. In addition, before the Company publishes or mails notice of redemption of the Notes as described above, it will deliver to the Trustee an Officer’s Certificate to the effect that it cannot avoid its obligation to pay Additional Amounts by the Company taking reasonable measures available to it.
Absent manifest error, the Trustee will accept and shall be entitled to rely on such Officer’s Certificate and opinion of counsel as sufficient evidence of the existence and satisfaction of the conditions precedent as described above, in which event it will be conclusive and binding on the holders.
The foregoing provisions shall apply (a) to a Guarantor only after such time as such Guarantor is obligated to make at least one payment on the Notes and (b) mutatis mutandis to any successor Person, after such successor Person
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becomes a party to the Indenture, with respect to a Change in Tax Law occurring after the time such successor Person becomes a party to the Indenture.
Mandatory Redemption
Except pursuant to “—Escrow of Proceeds; Special Mandatory Redemption,” the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of Notes will have the right to require the Company to repurchase all or any part (equal to CHF 150,000 or an integral multiple of CHF 1,000 in excess thereof in the case of CHF Notes and to $150,000 or an integral multiple of $1,000 in excess thereof in the case of the Dollar Notes) of that holder’s Notes pursuant to a Change of Control Offer on the terms set forth in the Indenture. In the Change of Control Offer, the Company will offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid interest and Additional Amounts, if any, on the Notes repurchased to the date of purchase (the “Change of Control Payment”), subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date.
Unless the Company has unconditionally exercised its right to redeem all the Notes of a series as described under “—Optional Redemption” or all conditions to such redemption have been satisfied or waived, within 30 days following any Change of Control, the Company will mail a notice to each holder of the Notes at such holder’s registered address or otherwise deliver a notice in accordance with the procedures described under “—Selection and Notice,” stating that a Change of Control Offer is being made and offering to repurchase Notes on the date (the “Change of Control Payment Date”) specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed or delivered, pursuant to the procedures required by the Indenture and described in such notice. The Company will comply, to the extent applicable, with the requirements of Rule 14e-1 under the U.S. Securities-Exchange Act of 1934, as amended (the “U.S. Exchange Act”) and any other applicable securities laws and regulations to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Indenture, the Company will comply with any applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue of such compliance.
On the Change of Control Payment Date, the Company will, to the extent lawful:
(1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer;
(2) deposit with the Principal Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officer’s Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company.
The Principal Paying Agent will promptly mail (or cause to be delivered) to each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee (or its authenticating agent) will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture will not contain provisions that permit the holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The existence of a holder of the Notes’ right to require the Company to repurchase such holder’s Notes upon the occurrence of a Change of Control may deter a third party from seeking to acquire the Company or its Subsidiaries in a transaction that would constitute a Change of Control.
The Company will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) a notice of redemption has been given pursuant to the Indenture as described above under the caption “—Optional Redemption,” unless and until there is a default in
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payment of the applicable redemption price. Notwithstanding anything to the contrary contained herein, a Change of Control Offer may be made in advance of a Change of Control, conditioned upon the consummation of such Change of Control, if a definitive agreement is in place for the Change of Control at the time the Change of Control Offer is made.
The Revolving Credit Facility Agreement will provide that the occurrence of a Change of Control would require the repayment of such debt. Future debt of the Company or its Subsidiaries may prohibit the Company from purchasing Notes in the event of a Change of Control or provide that a Change of Control is a default or requires repurchase upon a Change of Control. Moreover, the exercise by the holders of the Notes of their right to require the Company to purchase the Notes could cause a default under, or require a repurchase of, other debt, even if the Change of Control itself does not, due to the financial effect of the purchase on the Company.
Finally, the Company’s ability to repurchase Notes pursuant to a Change of Control Offer following the occurrence of a Change of Control may be limited by the Company’s then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make the required purchase of the Notes. See “Risk Factors—Risks Relating to our Indebtedness, including the Notes—We may not be able to obtain sufficient funds to finance an offer to repurchase the Notes upon the occurrence of certain events constituting a change of control as required by the Indenture.”
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Company to repurchase its Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Restricted Subsidiaries taken as a whole to another Person or group may be uncertain. In addition, you should note that case law suggests that, in the event that incumbent directors are replaced as a result of a contested election, issuers may nevertheless avoid triggering a change of control under a clause similar to clause (4) of the definition of “Change of Control” if the outgoing directors were to approve the new directors for the purpose of such change of control clause.
The provisions under the Indenture relating to the Company’s obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified with the consent of the holders of a majority in principal amount of the Notes prior to the occurrence of the Change of Control.
If and for so long as the Notes are listed on the Luxembourg Stock Exchange and admitted for trading and the rules of the Luxembourg Stock Exchange so require, the Company will publish a public announcement with respect to the results of any Change of Control Offer in a leading newspaper of general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or, to the extent and in the manner permitted by such rules, post such notice on the official website of the Luxembourg Stock Exchange (www.bourse.lu).
Asset Sales
The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and
(2) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following will be deemed to be cash:
(a) any liabilities, as recorded on the balance sheet of the Company or any Restricted Subsidiary (other than contingent and subordinated liabilities), that are assumed by the transferee of any such assets and as a result of which the Company and its Restricted Subsidiaries are no longer obligated with respect to such liabilities or are indemnified against further liabilities;
(b) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash or Cash Equivalents within 90 days following the closing of the Asset Sale, to the extent of the cash or Cash Equivalents received in that conversion;
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(c) any Capital Stock or assets of the kind referred to in clauses (1)(e) or (f) of the next paragraph of this covenant;
(d) any Designated Non-Cash Consideration received by the Company or any Restricted Subsidiary in such Asset Sales having an aggregate Fair Market Value, taken together with all other Designated Non-Cash Consideration received pursuant to this clause (d) that is at that time outstanding, not to exceed the greater of CHF 15.0 million and 1.5% of Total Assets at the time of the receipt of such Designated Non-Cash Consideration (with the Fair Market Value of each item of Designated Non-Cash Consideration being measured at the time received and without giving effect to subsequent changes in value);
(e) Indebtedness of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Sale, to the extent that the Company and each other Restricted Subsidiary are released from any guarantee of such Indebtedness in connection with such Asset Sale; and
(f) consideration consisting of Indebtedness of the Company or any Guarantor received from Persons who are not the Company or any Restricted Subsidiary.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company (or the applicable Restricted Subsidiary, as the case may be) may:
(1) apply such Net Proceeds (at the option of the Company or Restricted Subsidiary):
(a) to purchase the Notes in an offer to all holders of Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Additional Amounts, if any, to the date of purchase (a “Notes Offer”);
(b) to repay Indebtedness and other Obligations under a Credit Facility that is secured by a Lien on the Collateral and, if the Indebtedness repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto;
(c) to purchase or permanently prepay or redeem or repay (i) any Indebtedness that is secured by a Lien on assets or property which do not constitute Collateral and, if the Indebtedness prepaid, redeemed or repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto or (ii) any Indebtedness of a Restricted Subsidiary that is not Guarantor;
(d) to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary;
(e) to make a capital expenditure; or
(f) to acquire other assets (other than Capital Stock) not classified as current assets under IFRS that are used or useful in a Permitted Business; or
(2) enter into a binding commitment to apply the Net Proceeds pursuant to clause (c), (d) or (e) of paragraph (1) above; provided that such binding commitment shall be treated as a permitted application of the Net Proceeds from the date of such commitment until the earlier of (x) the date on which such acquisition or expenditure is consummated, and (y) the 180th day following the expiration of the aforementioned 365 day period.
Pending the final application of any Net Proceeds, the Company (or the applicable Restricted Subsidiary) may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second paragraph of this covenant will constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds CHF 25 million, within ten Business Days thereof, the Company will make an offer (an “Asset Sale Offer”) to all holders of Notes and, to the extent the Company elects, to all holders of other Indebtedness that is pari passu with the Notes or any Note Guarantee, to purchase, prepay or redeem the maximum principal amount of Notes and such other pari passu Indebtedness (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith) that may be purchased, prepaid or redeemed out of the Excess Proceeds. The offer
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price for the Notes in any Asset Sale Offer will be equal to 100% of the principal amount, plus accrued and unpaid interest and Additional Amounts, if any, to the date of purchase, prepayment or redemption, subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into (or to be prepaid or redeemed in connection with) such Asset Sale Offer exceeds the amount of Excess Proceeds or if the aggregate amount of Notes tendered pursuant to a Notes Offer exceeds the amount of the Net Proceeds so applied, the Trustee will select the Notes and such other pari passu Indebtedness, if applicable, to be purchased on a pro rata basis (or in the manner described under “—Selection and Notice”), based on the amounts tendered or required to be prepaid or redeemed. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.
To the extent that any portion of Net Proceeds payable in respect of the Notes is denominated in a currency other than CHF or U.S. dollars, as the case may be, the amount thereof payable in respect of such Notes shall not exceed the net amount of funds in CHF or U.S. dollars, as the case may be, that is actually received by the Company upon converting such portion of the Net Proceeds into CHF or U.S. dollars, as the case may be.
The Company will comply, to the extent applicable, with the requirements of Rule 14e-1 under the U.S. Exchange Act and any other applicable securities laws and regulations to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to a Change of Control Offer, an Asset Sale Offer or a Notes Offer. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control, Asset Sale or Notes Offer provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue of such compliance.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption on a pro rata basis (or, in the case of Notes issued in global form as discussed under “—Book-Entry, Delivery and Form,” based on a method that most nearly approximates a pro rata selection as the Trustee deems fair and appropriate), unless otherwise required by law or applicable stock exchange or depository requirements. The Trustee shall not be liable for selections made by it in accordance with this paragraph.
No Notes of CHF 150,000 or less or $150,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture.
If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount of that Note that is to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the holder of Notes upon cancellation of the original Note. In the case of a Global Note, an appropriate notation will be made on such Note to decrease the principal amount thereof to an amount equal to the unredeemed portion thereof. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of Notes called for redemption.
For Notes which are represented by global certificates held on behalf of Euroclear or Clearstream, Luxembourg, notices may be given by delivery of the relevant notices to Euroclear or Clearstream, Luxembourg for communication to entitled account holders in substitution for the aforesaid mailing. So long as any Notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, any such notice to the holders of the relevant Notes shall also be published in a newspaper having a general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or, to the extent and in the manner permitted by such rules, posted on the official website of the Luxembourg Stock Exchange (www.bourse.lu) and, in connection with any redemption, the Company will notify the Luxembourg Stock Exchange of any change in the principal amount of Notes outstanding.
Certain Covenants
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, “incur”) any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and the Guarantors may incur Indebtedness (including Acquired Debt) or issue preferred stock, if:
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(a) the Fixed Charge Coverage Ratio for the Company’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or such preferred stock is issued, as the case may be, would have been at least 2.0 to 1.00, in each case determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or the preferred stock had been issued, as the case may be, and the application of proceeds therefrom had occurred at the beginning of such four-quarter period; and
(b) if such Indebtedness is Senior Secured Indebtedness, the Company and the Guarantors may incur such Senior Secured Indebtedness if the Consolidated Senior Secured Leverage Ratio for the Company’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Senior Secured Indebtedness is incurred would have been less than 4.25 to 1.0, in each case determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or the preferred stock had been issued, as the case may be, and the application of proceeds therefrom had occurred at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, “Permitted Debt”):
(1) the incurrence by the Company and the Guarantors of additional Indebtedness under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) not to exceed CHF 200 million, plus, in the case of any refinancing of any Indebtedness permitted under this clause (1) or any portion thereof, the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing;
(2) Indebtedness of the Company or any Restricted Subsidiary outstanding on the Completion Date after giving effect to the use of proceeds of the Notes;
(3) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes issued on the Issue Date and the related Note Guarantees;
(4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property (real or personal), plant or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets) used in the business of the Company or any of its Restricted Subsidiaries, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (4), not to exceed the greater of CHF 30 million and 2.0% of Total Assets at any time outstanding;
(5) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge any Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under (a) the first paragraph of this covenant or (b) clauses (2), (3), (5), (16) or (17) of this paragraph;
(6) the incurrence by the Company or any Restricted Subsidiary of intercompany Indebtedness between or among the Company or any Restricted Subsidiary; provided that:
(a) if the Company or any Guarantor is the obligor on such Indebtedness and the payee is not the Company or a Guarantor, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Obligations then due with respect to the Notes, in the case of the Company, or the Note Guarantee, in the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary, will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6);
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(7) the issuance by any Restricted Subsidiary to the Company or to any of its Restricted Subsidiaries of preferred stock; provided that:
(a) any subsequent issuance or transfer of Equity Interests that results in any such preferred stock being held by a Person other than the Company or a Restricted Subsidiary; and
(b) any sale or other transfer of any such preferred stock to a Person that is not either the Company or a Restricted Subsidiary,
will be deemed, in each case, to constitute an issuance of such preferred stock by such Restricted Subsidiary that was not permitted by this clause (7);
(8) the incurrence by the Company or any Restricted Subsidiary of Hedging Obligations for bona fide hedging purposes of the Company and its Restricted Subsidiaries and not for speculative purposes;
(9) the guarantee by the Company or any Restricted Subsidiary of Indebtedness of the Company or any Restricted Subsidiary to the extent that the guaranteed Indebtedness was permitted to be incurred by another provision of this covenant; provided that if the Indebtedness being guaranteed is subordinated to the Notes or subordinated to or pari passu with a Note Guarantee, then the guarantee must be subordinated, in the case of the Notes, or subordinated or pari passu, as applicable, in the case of a Note Guarantee, in each case to the same extent as the Indebtedness guaranteed;
(10) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of workers’ compensation claims, self-insurance obligations, captive insurance companies, bankers’ acceptances, performance and surety bonds in the ordinary course of business and consistent with past practice;
(11) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five Business Days of such incurrence;
(12) the incurrence by the Company and its Restricted Subsidiaries of Indebtedness arising from agreements of the Company or a Restricted Subsidiary providing for customary indemnification, obligations in respect of earnouts or other adjustments of purchase price or, in each case, similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business or assets or Person or any Equity Interests of a Subsidiary, provided that the maximum liability of the Company and its Restricted Subsidiaries in respect of all such Indebtedness shall at no time exceed the gross proceeds, including the Fair Market Value of non-cash proceeds (measured at the time received and without giving effect to any subsequent changes in value), actually received by the Company and its Restricted Subsidiaries in connection with such disposition;
(13) the incurrence by the Company and its Restricted Subsidiaries of Indebtedness in respect of (A) letters of credit, surety, performance, completion or appeal bonds, instruments, guarantees or other obligations obligations, judgment, advance payment, customs, VAT or other tax guarantees or similar instruments issued in the ordinary course of business of such Person and not in connection with the borrowing of money, including letters of credit or similar instruments in respect of self-insurance, workers compensation obligations and rent payment obligations, provided, however, that upon the drawing of such letters of credit or other instrument, such obligations are reimbursed within 30 days following such drawing; and (B) any customary cash management, cash pooling or netting or setting off arrangements;
(14) Indebtedness of the Company of any of its Restricted Subsidiaries in respect of Management Advances;
(15) customer deposits and advance payments received in the ordinary course of business from customers for goods and services purchased in the ordinary course of business;
(16) Indebtedness in an aggregate outstanding principal amount that, when taken together with any Permitted Refinancing Indebtedness in respect thereof and the principal amount of all other Indebtedness incurred pursuant to this clause (16) and then outstanding, will not exceed 100% of the Net Proceeds received by the Company from the issuance or sale (other than to a Restricted Subsidiary) of its Capital Stock (other than, in connection with the Equity Contribution, Disqualified Stock, or an Excluded Contribution) or otherwise contributed to the equity (other than through the issuance of
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Disqualified Stock, an Excluded Contribution or in connection with the Equity Contribution) of the Company, in each case, subsequent to the Completion Date; provided, however, that (i) any such Net Proceeds that are so received or contributed shall be excluded for purposes of making Restricted Payments under the first paragraph and clauses (2), (4) and (9) of the second paragraph of the covenant described below under “—Restricted Payments” to the extent the Company and its Restricted Subsidiaries incur Indebtedness in reliance thereon and (ii) any Net Proceeds that are so received or contributed shall be excluded for purposes of incurring Indebtedness pursuant to this clause (16) to the extent the Company or any of its Restricted Subsidiaries makes a Restricted Payment under the first paragraph and clauses (2), (4) and (9) of the second paragraph of the covenant described below under “—Restricted Payments” in reliance thereon;
(17) Indebtedness of any Person outstanding on the date on which such Person becomes a Restricted Subsidiary of the Company or is merged, consolidated, amalgamated or otherwise combined with (including pursuant to any acquisition of assets and assumption of related liabilities) the Company or any of its Restricted Subsidiaries (other than Indebtedness incurred to provide all or any portion of the funds used to consummate the transaction or series of related transactions pursuant to which such Person became a Restricted Subsidiary of the Company or was otherwise acquired by the Company or any of its Restricted Subsidiaries); provided, however, with respect to this clause (17), that at the time of the acquisition or other transaction pursuant to which such Indebtedness was deemed to be incurred (x) the Company would have been able to incur CHF 1.00 of additional Indebtedness pursuant to the first paragraph of this covenant after giving pro forma effect to the incurrence of such Indebtedness pursuant to this clause (17) or (y) the Fixed Charge Coverage Ratio of the Company would not be less than it was immediately prior to giving pro forma effect to the incurrence of such Indebtedness pursuant to this clause (17);
(18) Indebtedness incurred in any Qualified Securitization Financing not to exceed CHF 50 million at any one time outstanding; and
(19) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (19) not to exceed CHF 50 million.
The Company will not incur any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or any Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes or the relevant Note Guarantee on substantially identical terms; provided, however, that no Indebtedness will be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company or any Guarantor solely by virtue of being unsecured or by virtue of being secured with different collateral or by virtue of being secured on a junior priority basis or by virtue of the application of waterfall or other payment-ordering provisions affecting different tranches of Indebtedness under Credit Facilities.
For purposes of determining compliance with this “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Indebtedness described in this covenant, the Company, in its sole discretion, will be permitted to classify such item of Indebtedness on the date of its incurrence and only be required to include the amount and type of such Indebtedness in one of such clauses and will be permitted on the date of such incurrence to divide and classify an item of Indebtedness in more than one of the types of Indebtedness described in the first and second paragraphs of this covenant, and from time to time to reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant, provided that Indebtedness incurred pursuant to clause (1) of the definition of Permitted Debt may not be reclassified. Indebtedness under the Revolving Credit Facility Agreement outstanding on the Issue Date will be deemed to have been incurred on such date in reliance on the exception provided in clause (1) of the definition of Permitted Debt.
The accrual of interest or preferred stock dividends, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness, the reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on preferred stock or Disqualified Stock in the form of additional shares of the same class of preferred stock or Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of preferred stock or Disqualified Stock for purposes of this covenant. For purposes of determining compliance with any CHF-denominated restriction on the incurrence of Indebtedness, the CHF Equivalent principal amount of Indebtedness denominated in a different currency shall be utilized, calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term Indebtedness, or first committed, in the case of Indebtedness incurred under a revolving credit facility; provided, however, that (i) if such Indebtedness denominated in non-CHF currency is subject to a Currency Exchange Protection Agreement with respect to CHF, the amount of such Indebtedness expressed in CHF will be calculated so as to take
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account of the effects of such Currency Exchange Protection Agreement; and (ii) the CHF Equivalent of the principal amount of any such Indebtedness outstanding on the Issue Date shall be calculated based on the relevant currency exchange rate in effect on the Issue Date. The principal amount of any refinancing Indebtedness incurred in the same currency as the Indebtedness being refinanced will be the CHF-Equivalent of the Indebtedness refinanced determined on the date such Indebtedness was originally incurred, except that to the extent that:
(1) such CHF Equivalent was determined based on a Currency Exchange Protection Agreement, in which case the refinancing Indebtedness will be determined in accordance with the preceding sentence; and
(2) the principal amount of the refinancing Indebtedness exceeds the principal amount of the Indebtedness being refinanced, in which case the CHF Equivalent of such excess will be determined on the date such refinancing Indebtedness is being incurred.
Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Company or any Restricted Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.
The amount of any Indebtedness outstanding as of any date will be:
(1) in the case of any Indebtedness issued with original issue discount, the amount of the liability in respect thereof determined in accordance with IFRS;
(2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
(3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:
(i) the Fair Market Value of such assets at the date of determination; and
(ii) the amount of the Indebtedness of the other Person.
Restricted Payments
The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on account of the Company’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as holders, other than (i) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company and (ii) dividends or distributions payable to the Company or a Restricted Subsidiary;
(2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect Parent Entity of the Company;
(3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company or any Guarantor that is contractually subordinated in right of payment to the Notes or to any Note Guarantee (excluding any intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries), except (i) a payment of interest or principal at the Stated Maturity thereof or (ii) the purchase, repurchase or other acquisition of Indebtedness purchased in anticipation of satisfying a scheduled sinking fund obligation, principal installment or scheduled maturity, in each case due within one year of the date of such purchase, repurchase or other acquisition;
(4) make any cash payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Shareholder Debt; or
(5) make any Restricted Investment,
(all such payments and other actions set forth in these clauses (1) through (5) above being collectively referred to as “Restricted Payments”), unless, at the time of any such Restricted Payment:
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(a) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment;
(b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least CHF 1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock”; and
(c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since the Issue Date (excluding Restricted Payments permitted by clauses (2), (3), (5), (6), (7), (8), (11), (12), (13), (14), (17) and (18) of the next succeeding paragraph), is less than the sum, without duplication, of:
(i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the fiscal quarter commencing immediately prior to the Issue Date to the end of the Company’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus
(ii) 100% of the aggregate net cash proceeds and the Fair Market Value of marketable securities received by the Company since the Issue Date as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than the Equity Contribution, Disqualified Stock and Excluded Contributions) or from the issue or sale of convertible or exchangeable Disqualified Stock of the Company or convertible or exchangeable debt securities of the Company, in each case that have been converted into or exchanged for Equity Interests of the Company (other than Equity Interests and convertible or exchangeable Disqualified Stock or debt securities sold to a Subsidiary of the Company) or from the issuance or sale of Subordinated Shareholder Debt (other than an issuance or sale to a Subsidiary of the Company); plus
(iii) to the extent that any Restricted Investment that was made after the Issue Date is (a) sold, disposed of or otherwise cancelled, liquidated or repaid, 100% of the aggregate amount received in cash and the Fair Market Value of the property and marketable securities received by the Company or any Restricted Subsidiary (other than from a Person that is the Company or a Restricted Subsidiary), or (b) made in an entity that subsequently becomes a Restricted Subsidiary, 100% of the Fair Market Value of the Restricted Investment of the Company and its Restricted Subsidiaries as of the date such entity becomes a Restricted Subsidiary; plus
(iv) to the extent that any Unrestricted Subsidiary of the Company designated as such after the Issue Date is redesignated as a Restricted Subsidiary or is merged or consolidated into the Company or a Restricted Subsidiary, or all of the assets of such Unrestricted Subsidiary are transferred to the Company or a Restricted Subsidiary, the Fair Market Value of the property received by the Company or Restricted Subsidiary or the Company’s Restricted Investment in such Subsidiary as of the date of such redesignation, merger, consolidation or transfer of assets, to the extent such Investments reduced the Restricted Payments capacity under this clause (c) and were not previously repaid or otherwise reduced; plus
(v) upon the full and unconditional release of a Restricted Investment that is a guarantee made by the Company or one of its Restricted Subsidiaries to any Person, an amount equal to the amount of such guarantee; plus
(vi) 100% of any cash dividends or distributions received by the Company or a Restricted Subsidiary after the Issue Date from an Unrestricted Subsidiary, to the extent that such dividends or distributions were not otherwise included in the Consolidated Net Income of the Company for such period.
The preceding provisions will not prohibit:
(1) the payment of any dividend or the consummation of any redemption within 60 days after the date of declaration of the dividend or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or redemption payment would have complied with the provisions of the Indenture;
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(2) the making of any Restricted Payment in exchange for, or out of or with the net cash proceeds of the substantially concurrent sale or issuance (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock), Subordinated Shareholder Debt or from the substantially concurrent contribution of common equity capital to the Company; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will be excluded from the calculation of amounts under clause (c)(ii) of the preceding paragraph, shall not constitute Excluded Contributions and will not be considered to be net cash proceeds from an Equity Offering for purposes of the “Optional Redemption” provisions of the Indenture;
(3) the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Company or any Guarantor that is contractually subordinated to the Notes or any Note Guarantee with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary held by any current or former officer, director, employee or consultant of the Company or any of its Restricted Subsidiaries pursuant to any equity subscription agreement, stock option agreement, restricted stock grant, shareholders’ agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed CHF 5.0 million in any calendar year; and provided, further, that such amount in any calendar year may be increased by an amount not to exceed (A) the cash proceeds from the sale of Equity Interests of the Company or a Restricted Subsidiary received by the Company or a Restricted Subsidiary during such calendar year, in each case to members of management, directors or consultants of the Company, any of its Restricted Subsidiaries or any of its direct or indirect parent companies and (B) the cash proceeds of key man life insurance policies, in each case to the extent the cash proceeds have not otherwise been applied to the making of Restricted Payments pursuant to clause (c)(ii) of the preceding paragraph or clause (2) of this paragraph;
(5) the repurchase of Equity Interests deemed to occur upon the exercise of stock options or warrants to the extent such Equity Interests represent a portion of the exercise price of those stock options or warrants;
(6) the declaration and payment of regularly scheduled or accrued dividends to holders of any class or series of Disqualified Stock of the Company or any preferred stock of any Restricted Subsidiary issued on or after the Issue Date in accordance with the covenant described above under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock”;
(7) payments of cash, dividends, distributions, advances or other Restricted Payments by the Company or any of its Restricted Subsidiaries to allow the payment of cash in lieu of the issuance of fractional shares upon (x) the exercise of options or warrants or (y) the conversion or exchange of Capital Stock of any such Person;
(8) payments pursuant to any tax sharing agreement or arrangement among the Company and its Subsidiaries and other Persons with which the Company or any of its Subsidiaries is required or permitted to file a consolidated tax return or with which the Company or any of its Restricted Subsidiaries is a part of a group for tax purposes; provided, however, that such payments will not exceed the amount of tax that the Company and its Subsidiaries would owe on a stand-alone basis and the related tax liabilities of the Company and its Subsidiaries are relieved by the payment of such amounts to a relevant taxing authority;
(9) so long as no Default has occurred and is continuing or would be caused thereby, following an Initial Public Offering of the Capital Stock of the Company or a Parent Entity, the payment of dividends on the Capital Stock of the Company in an amount per annum not to exceed 5% of the Market Capitalization, provided that after giving pro forma effect to the payment of any such dividend or making of any such distribution, the Consolidated Leverage Ratio of the Company would not exceed 3.5 to 1.0; provided, that if such Initial Public Offering was of Capital Stock of a Parent Entity, the net proceeds of any such dividend are used to fund a corresponding dividend in equal or greater amount on the Capital Stock of such Parent Entity;
(10) advances or loans to (a) any future, present or former officer, director, employee or consultant of the Company or a Restricted Subsidiary to pay for the purchase or other acquisition for value of Equity Interests of the Company (other than Disqualified Stock), or any obligation under a forward sale agreement, deferred purchase agreement or deferred payment arrangement pursuant to any management equity plan or stock option plan or any other management or employee benefit or incentive plan or other agreement or arrangement or (b) any management equity plan or stock option
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plan or any other management or employee benefit or incentive plan or unit trust or the trustees of any such plan or trust to pay for the purchase or other acquisition for value of Equity Interests of the Company (other than Disqualified Stock); provided that the total aggregate amount of Restricted Payments made under this clause (10) does not exceed CHF 5.0 million in any calendar year;
(11) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary to the holders of its Equity Interests on no more than a pro rata basis;
(12) so long as no Default or Event of Default has occurred and is continuing, the payment of Management Fees;
(13) Permitted Parent Payments;
(14) Restricted Payments that are made with Excluded Contributions;
(15) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Company or any Guarantor that is subordinated in right of payment to the Notes or any Note Guarantee (other than any Indebtedness so subordinated and held by Affiliates of the Company) upon a Change of Control or Asset Sale to the extent required by the agreements governing such Indebtedness at a purchase price not greater than 101% of the principal amount of such Indebtedness, in the case of a Change of Control, and 100%, in the case of an Asset Sale, but only if the Company has complied with its obligations under the covenants described under “Repurchase at the Option of Holders—Change of Control” and “—Asset Sales” and the Company repurchased all Notes tendered pursuant to the offer required by such covenants prior to offering to purchase, purchasing or repaying such Indebtedness;
(16) the distribution, as a dividend or otherwise, of shares of Capital Stock of, or Indebtedness owed to the Company or a Restricted Subsidiary of the Company by, Unrestricted Subsidiaries;
(17) the Transactions, including but not limited to any Restricted Payment pursuant to or in connection with, the Transactions;
(18) the payment of any Securitization Fees and purchases of Securitization Assets and related assets pursuant to a Securitization Repurchase Obligation in connection with a Qualified Securitization Financing; or
(19) so long as no Default or Event of Default has occurred and is continuing, other Restricted Payments in an aggregate amount not to exceed CHF 30 million since the Issue Date.
The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Liens
The Company will not and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien (the “Initial Lien”) of any kind securing Indebtedness upon any of their property or assets, now owned or hereafter acquired, except Permitted Liens, unless all payments due under the Indenture and the Notes are secured on an equal and ratable basis (or in the case of Indebtedness which is subordinated in right of payment to the Notes or any Note Guarantees, prior or senior thereto, with the same relative priority as the Notes or such Note Guarantee, as applicable, shall have with respect to such subordinated Indebtedness) with the obligations so secured. Notwithstanding the foregoing, no Indebtedness of the Company or any Restricted Subsidiary or Parent Entity, other than the Notes and the Note Guarantees, may be secured by a Lien over the Collateral other than Permitted Collateral Liens.
Any Lien created for the benefit of the holders pursuant to this covenant will provide by its terms that such Lien will be automatically and unconditionally released and discharged (a) upon the release and discharge of the Initial Lien other than as a consequence of an enforcement action with respect to the assets subject to such Lien or (b) as set forth under the heading “—Security.”
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Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to the Company or any Restricted Subsidiary, or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to the Company or any Restricted Subsidiary;
(2) make loans or advances to the Company or any Restricted Subsidiary; or
(3) sell, lease or transfer any of its properties or assets to the Company or any Restricted Subsidiary,
provided that (x) the priority of any preferred stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on common stock and (y) the subordination of (including the application of any standstill period to) loans or advances made to the Company or any Restricted Subsidiary to other Indebtedness incurred by the Company or any Restricted Subsidiary, in each case, shall not be deemed to constitute such an encumbrance or restriction.
However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:
(1) agreements governing Indebtedness and Credit Facilities as in effect on the Completion Date and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the Completion Date;
(2) the Indenture, the Notes, the Note Guarantees, the Intercreditor Agreement, the Security Documents and any Additional Intercreditor Agreement;
(3) any encumbrance or restriction arising pursuant to an agreement or instrument relating to any Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under “—Incurrence of Indebtedness and Issuance of Preferred Stock” if the encumbrances and restrictions contained in any such agreement or instrument taken as a whole are not materially less favorable to the holders of the Notes than the encumbrances and restrictions contained in the Revolving Credit Facility Agreement, the Intercreditor Agreement, in each case, as in effect on the Issue Date (as determined in good faith by the Company);
(4) applicable law, rule, regulation or order or the terms of any license, authorization, concession or permit;
(5) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred;
(6) customary non-assignment and similar provisions in contracts, leases and licenses entered into in the ordinary course of business;
(7) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of the Capital Stock or all or substantially all of the property and assets of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition;
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(9) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
(10) Liens permitted to be incurred under the provisions of the covenant described above under the caption “—Liens” that limit the right of the debtor to dispose of the assets subject to such Liens;
(11) customary provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements in the ordinary course of business (including agreements entered into in connection with a Restricted Investment), which limitation is applicable only to the assets that are the subject of such agreements;
(12) restrictions on cash or other deposits or net worth imposed by customers or suppliers or required by insurance, surety or bonding companies, in each case, under contracts entered into in the ordinary course of business; and
(13) any encumbrance or restriction existing under any agreement that extends, renews, refinances or replaces the agreements containing the encumbrances or restrictions in the foregoing clauses (1) through (12), or in this clause (13); provided that the terms and conditions of any such encumbrances or restrictions are no more restrictive in any material respect than those under or pursuant to the agreement so extended, renewed, refinanced or replaced.
Merger, Consolidation or Sale of Assets
The Company will not directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation), or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole in one or more related transactions, to another Person, unless:
(1) either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance, lease or other disposition has been made is an entity organized or existing under the laws of any member state of the Pre-Expansion European Union, Switzerland, Canada, any state of the United States or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger with the Company (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance, lease or other disposition has been made assumes all the obligations of the Company under the Notes, the Indenture, the Intercreditor Agreement and the Security Documents;
(3) immediately after such transaction, no Default or Event of Default exists;
(4) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance, lease or other disposition has been made would, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period (i) be permitted to incur at least CHF 1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock” or (ii) have a Fixed Charge Coverage Ratio no less than it was immediately prior to giving effect to such transaction; and
(5) the Company delivers to the Trustee an Officer’s Certificate and opinion of counsel, in each case, stating that such consolidation, merger or transfer and such supplemental indenture comply with this covenant; provided that in giving an opinion of counsel, counsel may rely on an Officer’s Certificate as to any matters of fact, including as to satisfaction of clauses (3) and (4) above.
A Guarantor (other than a Guarantor whose Note Guarantee is to be released in accordance with the terms of Note Guarantee and the Indenture) will not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not such Guarantor is the surviving corporation), or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of such Guarantor and its Subsidiaries which are Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person, unless:
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(1) immediately after giving effect to that transaction, no Default or Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger assumes all the obligations of that Guarantor under its Note Guarantee, the Indenture and the Security Documents to which such Guarantor is a party pursuant to a supplemental indenture and appropriate Security Documents reasonably satisfactory to the Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture.
In addition, the Company will not, directly or indirectly, lease all or substantially all of the properties and assets of it and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to any other Person.
Clauses (3) and (4) of the first paragraph of this “Merger, Consolidation or Sale of Assets” covenant will not apply to any sale or other disposition of all or substantially all of the assets or merger or consolidation of the Company with or into any other Guarantor and clause (4) of the first paragraph of this “Merger, Consolidation or Sale of Assets” covenant will not apply to any sale or other disposition of all or substantially all of the assets or merger or consolidation of the Company with or into an Affiliate solely for the purpose of reincorporating the Company in another jurisdiction for tax reasons.
Transactions with Affiliates
The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, make any payment to or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each, an “Affiliate Transaction”) involving aggregate payments or consideration in excess of CHF 5.0 million, unless:
(1) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of CHF 10 million, a resolution of the Board of Directors of the Company set forth in an Officer’s Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of the Company; and, in addition;
(b) with respect to (i) any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of CHF 20 million or (ii) any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of CHF 10 million in which there are no disinterested members of the Board of Directors of the Company, an opinion of an accounting, appraisal or investment banking firm of international standing, or other recognized independent expert of international standing with experience appraising the terms and conditions of the type of transaction or series of related transactions for which an opinion is required, stating that the transaction or series of related transactions is (i) fair from a financial point of view taking into account all relevant circumstances or (ii) on terms not less favorable than might have been obtained in a comparable transaction at such time on an arm’s length basis from a Person who is not an Affiliate.
The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement, collective bargaining agreement, consultant, employee benefit arrangements with any employee, consultant, officer or director of the Company or any Restricted
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Subsidiary, including under any stock option, stock appreciation rights, stock incentive or similar plans, entered into in the ordinary course of business;
(2) transactions between or among the Company and any Restricted Subsidiary, or between or among Restricted Subsidiaries;
(3) transactions in the ordinary course of business with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person;
(4) payment of reasonable and customary fees and reimbursements of expenses (pursuant to indemnity arrangements or otherwise) of Officers, directors, employees or consultants of the Company or any of its Restricted Subsidiaries;
(5) any issuance of Equity Interests (other than Disqualified Stock) of the Company or Subordinated Shareholder Debt to Affiliates of the Company;
(6) any Investment (other than a Permitted Investment) or other Restricted Payment, in either case, that does not violate the provisions of the Indenture described above under the caption “—Restricted Payments”;
(7) Management Advances;
(8) any Permitted Investments (other than Permitted Investments described in clauses (3), (9) and (16) of the definition thereof) and any Permitted Investment in any Unrestricted Subsidiary;
(9) the incurrence of any Subordinated Shareholder Debt;
(10) transactions pursuant to, or contemplated by any agreement in effect on the Issue Date and transactions pursuant to any amendment, modification or extension to such agreement, so long as such amendment, modification or extension, taken as a whole, is not more disadvantageous to the holders of the Notes in any material respect than the original agreement as in effect on the Issue Date;
(11) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services or providers of employees or other labor, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture that are fair to the Company or the Restricted Subsidiaries, in the reasonable determination of the members of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated Person;
(12) any payments or other transactions pursuant to a tax sharing agreement between the Company and any other Person or a Restricted Subsidiary of the Company and any other Person with which the Company or any of its Restricted Subsidiaries files a consolidated tax return or with which the Company or any of its Restricted Subsidiaries is part of a group for tax purposes or any tax advantageous group contribution made pursuant to applicable legislation; provided, however, that any such tax sharing or arrangement and payment does not permit or require payments in excess of the amounts of tax that would be payable by the Company and its Restricted Subsidiaries on a stand- alone basis;
(13) any contribution to the capital of the Company in exchange for Capital Stock of the Company (other than Disqualified Stock and preferred stock);
(14) transactions between the Company or any of its Restricted Subsidiaries and any Person, a director of which is also a director of the Company or any direct or indirect parent of the Company; provided, however, that such director abstains from voting as a director of the Company or such direct or indirect parent, as the case may be, on any matter involving such other Person;
(15) pledges of Equity Interests of Unrestricted Subsidiaries;
(16) any transaction in the ordinary course of business between or among the Company or any Restricted Subsidiary and any Affiliate of the Company or an Associate or similar entity that would contribute an Affiliate Transaction solely because the Company or a Restricted Subsidiary or any Affiliate of the Company or a Restricted Subsidiary or any Affiliate of any Permitted Holder owns an equity interest in or otherwise controls such Affiliate, Associate or similar entity;
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(17) any transaction effected as part of a Qualified Securitization Financing; and
(18) the Transactions.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors of the Company may designate any Restricted Subsidiary (including any newly acquired or newly formed Restricted Subsidiary) to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary designated as an Unrestricted Subsidiary will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the covenant described above under the caption “—Restricted Payments” or under one or more clauses of the definition of Permitted Investments, as determined by the Company. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Company may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default.
Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a copy of a resolution of the Board of Directors giving effect to such designation and an Officer’s Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption “—Restricted Payments.” If, at any time, any Unrestricted Subsidiary would fail to meet the requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock,” the Company will be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock,” calculated on a pro forma basis as if such designation had occurred at the beginning of the applicable reference period; and (2) no Default or Event of Default would be in existence following such designation.
Maintenance of Listing
The Company will use its commercially reasonable efforts to obtain and maintain the listing of the Notes on the Luxembourg Stock Exchange for so long as such Notes are outstanding; provided that if the Company is unable to obtain admission to listing of the Notes on the Luxembourg Stock Exchange or if at any time the Company determines that it will not maintain such listing, it will use its commercially reasonable efforts to obtain and maintain a listing of such Notes on another recognized stock exchange.
Limitation on Issuances of Guarantees of Indebtedness
The Company will not permit any of its Restricted Subsidiaries, directly or indirectly, to guarantee the payment of any other Indebtedness of the Company or any Guarantor unless such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for the Guarantee of the payment of the Notes by such Restricted Subsidiary, which Guarantee will be pari passu with or senior to such Restricted Subsidiary’s guarantee of such other Indebtedness.
Each additional Guarantee will be limited as necessary to recognise certain defences generally available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable preference, financial assistance, corporate purpose, capital maintenance or similar laws, regulations or defences affecting the rights of creditors generally) or other considerations under applicable law.
The first preceding of this covenant will not be applicable to any Guarantees of any Restricted Subsidiary:
(1) existing on the Issue Date;
(2) given to a bank or trust company having combined capital and surplus and undivided profits of not less than €250 million, whose debt has a rating, at the time such guarantee was given, of at least A or the equivalent thereof by S&P and at least A2 or the equivalent thereof by Moody’s, in connection with the operation of cash management programs established for the benefit of the Company or any of its Restricted Subsidiaries; or
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(3) any Guarantee arising as a result of (i) any Dutch Restricted Subsidiary being or having been part of a fiscal unity (fiscale eenheid) for VAT, corporate tax or other purposes and (ii) a declaration of joint and several liability (hoofdelijke aansprakelijkheid) as referred to in Article 2:403 of the Dutch Civil Code.
Notwithstanding the foregoing, the Company shall not be obligated to cause such Restricted Subsidiary to Guarantee the payment of the Notes to the extent that such Guarantee by such Restricted Subsidiary would reasonably be expected to give rise to or result in:
(1) a violation of applicable law which, in any case, cannot be prevented or otherwise avoided through measures reasonably available to the Company or the Restricted Subsidiary; or
(2) any liability for the officers, directors or shareholders of such Restricted Subsidiary.
Payments for Consent
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms of the provisions of the Indenture or the Notes unless such consideration is offered to be paid and is paid to all holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Notwithstanding the foregoing, the Company and its Restricted Subsidiaries shall be permitted, in any offer or payment of consideration for, or as an inducement to, any consent, waiver or amendment of any of the terms or provisions of the Indenture, to exclude holders of Notes in any jurisdiction where (i) the solicitation of such consent, waiver or amendment, including in connection with an offer to purchase for cash, or (ii) the payment of the consideration therefor would require the Company or any of its Restricted Subsidiaries to file a registration statement, prospectus or similar document under any applicable securities laws (including, but not limited to, the United States federal securities laws and the laws of the European Union or its member states), which the Company in its sole discretion determines (acting in good faith) (A) would be materially burdensome (it being understood that it would not be materially burdensome to file the consent document(s) used in other jurisdictions, any substantially similar documents or any summary thereof with the securities or financial services authorities in such jurisdiction); or (B) such solicitation would otherwise not be permitted under applicable law in such jurisdiction.
Impairment of Security Interest
The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, take or knowingly or negligently omit to take, any action which action or omission would have the result of materially impairing the security interest with respect to the Collateral (it being understood that the incurrence of Liens on the Collateral permitted by the definition of Permitted Collateral Liens shall under no circumstances be deemed to materially impair the security interest with respect to the Collateral) for the benefit of the Trustee and the holders of the Notes, and the Company will not, and will not cause or permit any of its Restricted Subsidiaries to, grant to any Person other than the Security Agent, for the benefit of the Trustee and the holders of the Notes and the other beneficiaries described in the Security Documents and the Intercreditor Agreement, any interest whatsoever in any of the Collateral; provided that (a) nothing in this provision shall restrict the discharge or release of the Collateral in accordance with the Indenture, the Security Documents and the Intercreditor Agreement and (b) the Company and its Restricted Subsidiaries may incur Permitted Collateral Liens; and provided further, however, that no Security Document may be amended, extended, renewed, restated, supplemented or otherwise modified, replaced, or released (followed by an immediate retaking of a Lien of at least equivalent ranking over the same assets) unless contemporaneously with such amendment, extension, replacement, restatement, supplement, modification, renewal or release (followed by an immediate retaking of a Lien of at least equivalent ranking over the assets), the Company delivers to the Trustee either (1) a solvency opinion from an internationally recognized investment bank or accounting firm, in form and substance reasonably satisfactory to the Trustee confirming the solvency of the Company and its Subsidiaries, taken as a whole, after giving effect to any transactions related to such amendment, extension, renewal, supplement, modification, replacement or release and retaking, (2) a certificate from the board of directors or chief financial officer of the relevant Person (acting in good faith) that confirms the solvency of the Person granting such Lien after giving effect to any transactions related to such amendment, extension, renewal, restatement, replacement, supplement, modification or release, or (3) an opinion of counsel, in form and substance reasonably satisfactory to the Trustee (subject to customary exceptions and qualifications), confirming that, after giving effect to any transactions related to such amendment, extension, renewal, restatement, supplement, modification, replacement or release and retaking, the Lien or Liens securing the Notes created under the Security Documents so amended, extended, renewed, restated, supplemented, modified, replaced or released and retaken are valid and perfected Liens not otherwise subject to any limitation imperfection or new hardening period, in equity or at law, and that such Lien or Liens were not otherwise subject to immediately prior to such amendment, extension, renewal, restatement, supplement, modification, replacement or release and retaking.
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At the direction of the Company and without the consent of the holder of Notes, the Security Agent may from time to time enter into one or more amendments to the Security Documents to: (i) cure any ambiguity, omission, defect or inconsistency therein, (ii) (but subject to compliance with paragraph (a) above) provide for Permitted Collateral Liens, (iii) add to the Collateral or (iv) make any other change thereto that does not adversely affect the rights of the holders of the Notes in any material respect.
In the event that the Company complies with this covenant, the Trustee and the Security Agent shall (subject to customary protections and indemnifications) consent to such amendment, extension, renewal, restatement, supplement, modification, replacement or release with no need for instructions from holders of the Notes.
Additional Intercreditor Agreements
At the request of the Company, without the consent of holders of the Notes, and at the time of, or prior to, the incurrence by the Company or a Guarantor of Indebtedness permitted pursuant to (x) the first paragraph of the covenant described under “—Incurrence of Indebtedness and Issuance of Preferred Stock” or clause (1), (4) (other than with respect to Capital Lease Obligations), (8), (16) and (19) of the second paragraph of the covenant described under “—Incurrence of Indebtedness and Issuance of Preferred Stock” and (y) any Permitted Refinancing Indebtedness in respect of Indebtedness referred to in the foregoing clause (x) the Company or the relevant Guarantor and the Trustee shall enter into with the holders of such Indebtedness (or their duly authorized representatives) an intercreditor agreement (an “Additional Intercreditor Agreement”) on substantially the same terms as the Intercreditor Agreement, including terms with respect to the limitation on enforcement and release of guarantees and priority as set forth in the Intercreditor Agreement (or on terms more favorable to the holders of the Notes); provided, that such Additional Intercreditor Agreement will not impose any personal obligations on the Trustee or adversely affect the rights, duties, liabilities or immunities of the Trustee under the Indenture or the Intercreditor Agreement.
At the request of the Company, without the consent of holders of the Notes, and at the time of, or prior to, the incurrence by the Company or a Guarantor of Indebtedness permitted to be incurred pursuant to the preceding paragraph, the Company or the relevant Guarantor and the Trustee shall enter into one or more amendments to any Intercreditor Agreement or Additional Intercreditor Agreement to: (1) cure defects, resolve ambiguities or reflect changes, in each case, of a minor, technical or administrative nature, (2) increase the amount or types of Indebtedness covered by any Intercreditor Agreement or Additional Intercreditor Agreement that may be incurred by the Company or a Guarantor that is subject to any Intercreditor Agreement or Additional Intercreditor Agreement (provided that such amendment is consistent with the preceding paragraph), (3) add new Guarantors to the Intercreditor Agreement or an Additional Intercreditor Agreement, (4) further secure the Notes, (5) make provision for the security securing Additional Notes to rank pari passu with the Collateral or (6) make any other change to any such Intercreditor Agreement or an Additional Intercreditor Agreement that does not adversely affect the rights of holders of the Notes in any material respect.
The Company shall not otherwise direct the Trustee to enter into any amendment to the Intercreditor Agreement or any Additional Intercreditor Agreement without the consent of the holders of the majority in aggregate principal amount of the Notes then outstanding, except as otherwise permitted by “Amendment, Supplement and Waiver” and the Company may only direct the Trustee to enter into any amendment to the extent such amendment does not impose any personal obligations on the Trustee or adversely affect the rights, duties, liabilities or immunities of the Trustee under the Indenture, the Intercreditor Agreement or such Additional Intercreditor Agreement.
In relation to the Intercreditor Agreement or, to the extent applicable, an Additional Intercreditor Agreement, the Trustee shall be deemed to have consented on behalf of the holders of the Notes to any payment, repayment, purchase, repurchase, defeasance, acquisition, retirement or redemption of any obligations subordinated to the Notes thereby; provided that such transaction would comply with the covenant described under “—Restricted Payments.”
Each holder of the Notes shall be deemed to have agreed to and accepted the terms and conditions of the Intercreditor Agreement or any Additional Intercreditor Agreement (whether then entered into or entered into in the future pursuant to the provisions described herein) and to have consented to and directed the Trustee to enter into any Additional Intercreditor Agreement or any amendment of the Intercreditor Agreement or any Additional Intercreditor Agreement which compiles with the foregoing provision and the conditions contained therein.
Suspension of Covenants When Notes Rated Investment Grade
If on any date following the Issue Date:
(1) the Notes have achieved Investment Grade Status; and
(2) no Default or Event of Default shall have occurred and be continuing on such date,
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then, the Company will notify the Trustee and beginning on that day and continuing until such time, if any, at which the Notes cease to have Investment Grade Status (such period, the “Suspension Period”), the covenants specifically listed under the following captions in this offering memorandum will no longer be applicable to the Notes and any related default provisions of the Indenture will cease to be effective and will not be applicable to the Company and its Restricted Subsidiaries:
(1) “—Repurchase at the Option of Holders—Asset Sales”;
(2) “—Incurrence of Indebtedness and Issuance of Preferred Stock”;
(3) “—Restricted Payments”;
(4) “—Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries”;
(5) clause (4) of the first paragraph of the covenant described under “—Merger, Consolidation or Sale of Assets”;
(6) “—Transactions with Affiliates”; and
(7) “—Designation of Restricted and Unrestricted Subsidiaries.”
Such covenants will not, however, be of any effect with regard to the actions of Company and the Restricted Subsidiaries properly taken during the continuance of the Suspension Period; provided that (1) with respect to the Restricted Payments made after any such reinstatement, the amount of Restricted Payments will be calculated as though the covenant described under the caption “—Restricted Payments” had been in effect prior to, but not during, the Suspension Period and (2) all Indebtedness incurred, or Disqualified Stock or preferred stock issued, during the Suspension Period will be classified to have been incurred or issued pursuant to clause (2) of the second paragraph of the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock.” Upon the occurrence of a Suspension Period, the amount of Excess Proceeds shall be reset at zero. There can be no assurance that the Notes will ever achieve or maintain an Investment Grade Status.
Reports
So long as any Notes are outstanding, the Company will furnish to the Trustee:
(1) within 120 days after the end of the Company’s fiscal year beginning with the fiscal year ending December 31, 2011, annual reports containing the following information with a level of detail that is substantially comparable and similar in scope to this offering memorandum: (a) audited consolidated balance sheet of the Company as of the end of the most recent fiscal year (and comparative information for the end of the prior fiscal year) and audited consolidated income statement and statement of cash flow of the Company for the most recent fiscal year (and comparative information for the prior fiscal year), including footnotes to such financial statements and the report of the independent auditors on the financial statements; (b) pro forma income statement and balance sheet information of the Company, together with explanatory footnotes, for any material acquisitions or dispositions (including, without limitation, any acquisitions or disposition that, individually or in the aggregate when considered with all other acquisition or dispositions that have occurred since the beginning of the most recently completed fiscal year as to which such annual report relates, represent greater than 20% of the consolidated revenues, EBITDA, or assets of the Company on a pro forma basis) or recapitalizations that have occurred since the beginning of the most recently completed fiscal year as to which such annual report relates, in each case unless pro forma information has been provided in a previous report pursuant to clause (2) or (3) below; (c) an operating and financial review of the audited financial statements, including a discussion of the results of operations (including a discussion by business segment, if any), financial condition and liquidity and capital resources, and a discussion of material commitments and contingencies and critical accounting policies; (d) a description of the industry, business, management and shareholders of the Company, all material affiliate transactions, Indebtedness and material financing arrangements and a description of all material contractual arrangements, including material debt instruments; and (e) material risk factors and material recent developments;
(2) within 60 days following the end of each of the first three fiscal quarters in each fiscal year of the Company beginning with the fiscal quarter ending March 31, 2011, quarterly reports containing the following information: (a) an unaudited condensed consolidated balance sheet as of the end of such quarter and unaudited condensed statements of income and cash flow for the quarterly and year to date
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periods ending on the unaudited condensed balance sheet date, and the comparable prior year periods for the Company, together with condensed footnote disclosure; (b) pro forma income statement and balance sheet information, together with explanatory footnotes, for any material acquisitions or dispositions (including, without limitation, any acquisition or disposition that, individually or in the aggregate when considered with all other acquisitions or dispositions that have occurred since the beginning of the most recent completed fiscal quarter as to which such quarterly report relates, represents greater than 20% of the consolidated revenues, EBITDA or assets of the Company on a pro forma basis) or recapitalizations that have occurred since the beginning of the most recently completed fiscal quarter as to which such quarterly report relates, in each case unless pro forma information has been provided in a previous report pursuant to clause (1), (2) or (3) of this covenant; (c) an operating and financial review of the unaudited financial statements (including a discussion by business segment, if any), including a discussion of the consolidated financial condition and results of operations of the Company and any material change between the current year to date period and the corresponding period of the prior year; (d) material recent developments in the business of the Company and its Subsidiaries; and (e) any material changes to the risk factors disclosed in the most recent annual report with respect to the Company; and
(3) promptly after the occurrence of (a) a material acquisition, disposition or restructuring (including any acquisition or disposition that would require the delivery of pro forma financial information pursuant to clause (1) or (2) above); (b) any senior management change at the Company; (c) any change in the auditors of the Company; (d) the entering into an agreement that will result in a Change of Control; or (e) any material events that the Company announces publicly, in each case, a report containing a description of such events,
provided, however, that the reports set forth in clauses (1), (2) and (3) above will not be required to (i) contain any reconciliation to U.S. generally accepted accounting principles or (ii) include separate financial statements for any Guarantors or non-guarantor Subsidiaries of the Company.
If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries and such Subsidiaries are Significant Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.
All financial statements shall be prepared in accordance with IFRS. Except as provided for above, no report need include separate financial statements for the Company or Subsidiaries of the Company or any disclosure with respect to the results of operations or any other financial or statistical disclosure not of a type included in this offering memorandum.
In addition, for so long as any Notes remain outstanding and during any period during which the Company is not subject to Section 13 or 15(d) of the U.S. Exchange Act nor exempt therefrom pursuant to Rule 12g3-2(b), the Company has agreed that it will furnish to the holders of the Notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the U.S. Securities Act.
The Company will also make available copies of all reports required by clauses (1) through (3) of the first paragraph of the covenant (i) on Swissport’s website and (ii) if and so long as the Notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, at the specified office of the Principal Paying Agent in London.
Events of Default and Remedies
Each of the following is an “Event of Default”:
(1) default for 30 days in the payment when due of interest or Additional Amounts, if any, with respect to the Notes;
(2) default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on, the Notes;
(3) failure by the Company or relevant Guarantor to comply with the provisions described under the caption “—Certain Covenants—Merger, Consolidation or Sale of Assets”;
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(4) failure by the Company or relevant Guarantor for 60 days after written notice to the Company by the Trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class to comply with any of the agreements in the Indenture (other than a default in performance, or breach, or a covenant or agreement which is specifically dealt with in clauses (1), (2) or (3) or the Notes, the Note Guarantees or the Security Documents);
(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the Issue Date, if that default:
(a) is caused by a failure to pay principal of, or interest or premium, if any, on, such Indebtedness at the Stated Maturity thereof prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a “Payment Default”); or
(b) results in the acceleration of such Indebtedness prior to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates CHF 25 million or more;
(6) failure by the Company or any Restricted Subsidiary to pay final judgments entered by a court or courts of competent jurisdiction aggregating in excess of CHF 25 million (exclusive of any amounts that a solvent insurance company has acknowledged liability for), which judgments shall not have been discharged or waived and there shall have been a period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of an appeal, waiver or otherwise, shall not have been in effect;
(7) (i) any security interest created by the Security Documents with respect to Collateral having a Fair Market Value in excess of CHF 5.0 million ceases to be in full force and effect (except as permitted by the terms of the Indenture, the Security Documents, the Intercreditor Agreement or any Additional Intercreditor Agreement), or an assertion by the Company or any of its Restricted Subsidiaries that any Collateral having a Fair Market Value in excess of CHF 5.0 million is not subject to a valid, perfected security interest (except as permitted by the terms of the Indenture, the Security Documents, the Intercreditor Agreement or any Additional Intercreditor Agreement); or (iii) the repudiation by the Company of any of its material obligations under the Security Documents;
(8) except as permitted by the Indenture, if any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any Guarantor, or any Person acting on behalf of any Guarantor, denies or disaffirms its obligations under its Note Guarantee and such Default continues for 20 days;
(9) certain events of bankruptcy or insolvency described in the Indenture with respect to the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of its Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary; and
(10) failure by the Company to consummate the Special Mandatory Redemption as described under the caption “—Escrow of Proceeds; Special Mandatory Redemption.”
In the case of an Event of Default specified in clause (9) and (10), all outstanding Notes will become due and payable immediately without further action or notice; provided that, in the case of an Event of Default specified in clause (10), the amount due and payable shall be equal to the aggregate gross proceeds of the offering of the Notes, plus accrued and unpaid interest and additional amounts, if any. If any other Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes may and, if directed by holders of at least 25% in aggregate principal amount of the then outstanding Notes, the Trustee shall, declare all the Notes to be due and payable immediately.
Subject to certain limitations, holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest or Additional Amounts or premium, if any.
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Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any holders of Notes unless such holders have offered to the Trustee, and the Trustee has received, indemnity and/or security satisfactory to it against any loss, liability or expense. Except (subject to the provisions described under “—Amendment, Supplement and Waiver”) to enforce the right to receive payment of principal, premium, if any, or interest or Additional Amounts when due, no holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless:
(1) such holder has previously given the Trustee notice that an Event of Default is continuing;
(2) holders of at least 25% in aggregate principal amount of the then outstanding Notes have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee, and the Trustee has received, security and/or indemnity satisfactory to it against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security and/or indemnity; and
(5) holders of a majority in aggregate principal amount of the then outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period.
The holders of not less than a majority in aggregate principal amount of the Notes outstanding may, on behalf of the holders of all outstanding Notes, waive any past default under the Indenture and its consequences, except a continuing default in the payment of the principal of premium, if any, any Additional Amounts or interest on any Note held by a non-consenting holder (which may only be waived with the consent of each holder of Notes affected).
The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under applicable securities laws.
Legal Defeasance and Covenant Defeasance
The Company may at any time, at the option of its Board of Directors evidenced by a resolution set forth in an Officer’s Certificate, elect to have all of its obligations discharged with respect to the outstanding Notes and all obligations of the Guarantors discharged with respect to their Note Guarantees (“Legal Defeasance”) except for:
(1) the rights of holders of outstanding Notes to receive payments in respect of the principal of, or interest (including Additional Amounts) or premium, if any, on, such Notes when such payments are due from the trust referred to below;
(2) the Company’s obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and the Company’s and the Guarantors’ obligations in connection therewith; and
(4) the Legal Defeasance and Covenant Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and the Guarantors released with respect to certain covenants (including its obligation to make Change of Control Offers and Asset Sale Offers) that are described in the Indenture (“Covenant Defeasance”) and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, all Events of Default described under “—Events of Default and Remedies” (except those relating to
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payments on the Notes or, solely with respect to the Company, bankruptcy or insolvency events) will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, cash in CHF, non-callable CHF-denominated Swiss Government Obligations or a combination of cash in CHF and non-callable CHF-denominated Swiss Government Obligations (in the case of the CHF Notes) or cash in U.S. dollars, non-callable U.S. Government Obligations, or a combination of cash in U.S. dollars and non-callable U.S. Government Obligations (in the case of the Dollar Notes), in each case, in amounts as will be sufficient, in the opinion of an internationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest (including Additional Amounts and premium, if any) on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to such stated date for payment or to a particular redemption date;
(2) in the case of Legal Defeasance, the Company must deliver to the Trustee an opinion reasonably acceptable to the Trustee of United States counsel confirming that (a) the Company has received from, or there has been published by, the U.S. Internal Revenue Service a ruling or (b) since the Issue Date, there has been a change in the applicable U.S. Federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such Legal Defeasance and will be subject to tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company must deliver to the Trustee an opinion reasonably acceptable to the Trustee of United States counsel confirming that the holders of the outstanding Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) the Company must deliver to the Trustee an Officer’s Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any creditors of the Company or others; and
(5) the Company must deliver to the Trustee an Officer’s Certificate and an opinion of counsel, subject to customary assumptions and qualifications, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided otherwise in the succeeding paragraphs, the Indenture, the Notes, the Note Guarantees, the Security Documents, the Intercreditor Agreement or any Additional Intercreditor Agreement may be amended or supplemented with the consent of the holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing Default or Event of Default or compliance with any provision of the Indenture, the Notes, the Note Guarantees, the Security Documents, the Intercreditor Agreement or any Additional Intercreditor Agreement may be waived with the consent of the holders of a majority in aggregate principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes).
Unless (i) consented to by the holders of at least 90% of the aggregate principal amount of the then outstanding Notes or (ii) consented to by each holder of Notes adversely affected thereby (in each case including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), an amendment, supplement or waiver may not:
(1) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver;
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(2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption “—Repurchase at the Option of Holders”);
(3) reduce the rate of or change the time for payment of interest, including default interest, on any Note;
(4) impair the right of any holder of Notes to receive payment of principal of and interest on such holder’s Notes on or after the due dates therefore or to institute suit for the enforcement of any payment on or with respect to such holder’s Notes or any Note Guarantee in respect thereof;
(5) waive a Default or Event of Default in the payment of principal of, or interest, Additional Amounts or premium, if any, on, the Notes (except a rescission of acceleration of the Notes by the holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the Payment Default that resulted from such acceleration);
(6) make any Note payable in money other than that stated in the Notes;
(7) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of Notes to receive payments of principal of, or interest, Additional Amounts or premium, if any, on, the Notes;
(8) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption “—Repurchase at the Option of Holders”);
(9) release any Guarantor from any of its obligations under its Note Guarantee or the Indenture, except in accordance with the terms of the Indenture and the Intercreditor Agreement;
(10) release any Collateral granted for the benefit of the holders of the Notes, except in accordance with the terms of the Indenture, the Intercreditor Agreement or the Security Documents; or
(11) make any change in the preceding amendment and waiver provisions.
For the purpose of calculating the aggregate principal amount of Notes that have consented to or voted in favor of any amendment, supplement or waiver, the CHF Equivalent of the principal amount of any Dollar Notes shall be as of the Issue Date.
Notwithstanding the preceding, without the consent of any holder of Notes, the Company, the Security Agent and the Trustee (as applicable) may amend or supplement the Indenture, the Notes, any Note Guarantee, any of the Security Documents or the Intercreditor Agreement:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
(3) to provide for the assumption of the Company’s or a Guarantor’s obligations to holders of Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Company’s or such Guarantor’s assets, as applicable;
(4) to make any change that would provide any additional rights or benefits to the holders of Notes or that does not adversely affect the legal rights under the Indenture of any such holder in any material respect;
(5) to conform the text of the Indenture, the Note Guarantees, the Security Documents or the Notes to any provision of this Description of Notes to the extent that such provision in this Description of Notes was intended to be a verbatim recitation of a provision of the Indenture, the Note Guarantees, the Security Documents or the Notes;
(6) to enter into additional or supplemental Security Documents;
(7) to release any Note Guarantee in accordance with the terms of the Indenture;
(8) to release the Collateral in accordance with the terms of the Indenture and the Security Documents;
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(9) to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture as of the Issue Date;
(10) to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes; or
(11) to evidence and provide the acceptance of the appointment of a successor Trustee under the Indenture.
The consent of the holders of Notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment.
In formulating its opinion on such matters, the Trustee shall be entitled to rely absolutely on such evidence as it deems appropriate, including an opinion of counsel and an Officer’s Certificate.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when:
(1) either:
(a) all Notes that have been authenticated, except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has been deposited in trust and thereafter repaid to the Company, have been delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the holders, cash in CHF, non-callable CHF-denominated Swiss Government Obligations or a combination of cash in CHF and non-callable CHF-denominated Swiss Government Obligations (in the case of the CHF Notes) or cash in U.S. dollars, non-callable U.S. Government Obligations, or a combination of cash in U.S. dollars and non-callable U.S. Government Obligations (in the case of the Dollar Notes), in each case, in amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Additional Amounts, if any, and accrued interest to the date of maturity or redemption;
(2) the Company or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture; and
(3) the Company has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the Notes at maturity or on the redemption date, as the case may be.
In addition, the Company must deliver an Officer’s Certificate and an opinion of counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied; provided that any such counsel may rely on any Officer’s Certificate as to matters of fact (including as to compliance with the foregoing clauses (1), (2) and (3)).
Judgment Currency
Any payment on account of an amount that is payable in CHF or U.S. dollars, as the case may be, which is made to or for the account of any holder or the Trustee in lawful currency of any other jurisdiction (the “Judgment Currency”), whether as a result of any judgment or order or the enforcement thereof or the liquidation of the Company or any Guarantor, shall constitute a discharge of the Company or the Guarantor’s obligation under the Indenture and the Notes, the Note Guarantee, as the case may be, only to the extent of the amount of CHF or U.S. dollars, as the case may be, with such holder or the Trustee, as the case may be, could purchase in the London foreign exchange markets with the amount of the Judgment Currency in accordance with normal banking procedures at the rate of exchange prevailing on the first Business Day following receipt of the payment in the Judgment Currency. If the amount of CHF or U.S. dollars, as the case may be, that could be so purchased is less than the amount of CHF or U.S. dollars, as the case may be, originally due to such holder or the Trustee, as the case may be, the Company and the Guarantors shall indemnify and hold harmless the holder or the Trustee, as the case may be, from and against all loss or damage arising out of, or as a result of, such deficiency. This indemnity shall constitute an obligation separate and independent from the other obligations contained in the Indenture or the Notes, shall give rise to a separate and independent cause of action, shall apply irrespective of any
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indulgence granted by any holder or the Trustee from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due hereunder or under any judgment or order.
Concerning the Trustee
The Company shall deliver written notice to the Trustee within thirty (30) days of becoming aware of the occurrence of a Default or an Event of Default. If the Trustee becomes a creditor of the Company or any Guarantor, the Indenture limits the right of the Trustee to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days or resign as Trustee.
The holders of a majority in aggregate principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default occurs and is continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless such holder has offered to the Trustee security, and the Trustee has received, and indemnity satisfactory to it against any loss, liability or expense.
The Company and (following the Completion Date) the Guarantors will indemnify the Trustee for certain claims, liabilities and expenses incurred without negligence, willful misconduct or bad faith on its part, arising out of or in connection with its duties.
Listing
Application has been made to list the Notes on the Official List of the Luxembourg Stock Exchange and to admit the Notes to trading on the Euro MTF Market of the Luxembourg Stock Exchange. There can be no assurance that the application to list the Notes on the Official List of the Luxembourg Stock Exchange and to admit the Notes on the Euro MTF Market of the Luxembourg Stock Exchange will be approved and settlement of the Notes is not conditioned on obtaining this listing.
Consent to Jurisdiction and Service of Process
The Indenture will provide that the Company and each Guarantor (other than any Guarantor incorporated in the United States) will appoint an agent for service of process in any suit, action or proceeding with respect to the Indenture, the Notes and the Note Guarantees brought in any U.S. federal or New York state court located in the City of New York and will submit to such jurisdiction.
Enforceability of Judgments
Substantially all of the assets of the Company and the non-U.S. Guarantors are outside the United States. As a result, any judgment obtained in the United States against the Company or any such Guarantor may not be collectable within the United States. See “Enforcement of Judgments.”
Prescription
Claims against the Company or any Guarantor for the payment of principal or Additional Amounts, if any, on the Notes will be prescribed ten years after the applicable due date for payment thereof. Claims against the Company or any Guarantor for the payment of interest on the Notes will be prescribed five years after the applicable due date for payment of interest.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all defined terms used therein, as well as any other capitalized terms used herein for which no definition is provided.
“Acquired Debt” means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in
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connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
“Acquisition” means the acquisition, directly or indirectly, of all the issued and outstanding capital stock of the Target, as further described in “The Transactions”.
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” have correlative meanings.
“Applicable Premium” means, with respect to any Note on any redemption date, the greater of:
in the case of the CHF Notes:
(1) 1.0% of the principal amount of the CHF Note; or
(2) the excess of:
(a) the present value at such redemption date of (i) the redemption price of the CHF Note at January 31, 2014 (such redemption price being set forth in the table appearing above under the caption “—Optional Redemption”), plus (ii) all required interest payments due on the CHF Note through January 31, 2014 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Swiss Government Bond Rate as of such redemption date plus 50 basis points; over
(b) the principal amount of the CHF Note, or
in the case of the Dollar Notes:
(1) 1.0% of the principal amount of the Dollar Note; or
(2) the excess of:
(a) the present value at such redemption date of (i) the redemption price of the Dollar Note at January 31, 2014 (such redemption price being set forth in the table appearing above under the caption “—Optional Redemption”), plus (ii) all required interest payments due on the Dollar Note through January 31, 2014 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over
(b) the principal amount of the Dollar Note.
For the avoidance of doubt, calculation of the Applicable Premium shall not be an obligation or duty of the Trustee or the Paying Agents.
“Asset Sale” means:
(1) the sale, lease, conveyance or other disposition of any assets by the Company or any of its Restricted Subsidiaries; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption “—Repurchase at the Option of Holders—Change of Control” and/or the provisions described above under the caption “—Certain Covenants—Merger, Consolidation or Sale of Assets” and not by the provisions described under the caption “—Repurchase at the Option of Holders—Asset Sales”; and
(2) the issuance of Equity Interests by any Restricted Subsidiary or the sale by the Company or any of its Restricted Subsidiaries of Equity Interests in any of the Company’s Subsidiaries (in each case, other than directors’ qualifying shares).
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Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than CHF 5.0 million;
(2) a transfer of assets or Equity Interests between or among the Company and any Restricted Subsidiary;
(3) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to a Restricted Subsidiary;
(4) the sale, lease or other transfer of accounts receivable, inventory, trading stock, communications capacity and other assets (including any real or personal property) in the ordinary course of business (including the abandonment or other disposition of intellectual property that is, in the reasonable judgment of the Company, no longer economically practicable to maintain or useful in the conduct of business of the Company and its Restricted Subsidiaries taken as a whole);
(5) licenses and sublicenses by the Company or any of its Restricted Subsidiaries of software or intellectual property in the ordinary course of business;
(6) any surrender or waiver of contract rights or the settlement, release, recovery on or surrender of contract, tort or other claims in the ordinary course of business;
(7) the granting of Liens not prohibited by the covenant described above under the caption “—Liens”;
(8) the sale or other disposition of cash or Cash Equivalents;
(9) a Restricted Payment that does not violate the covenant described above under the caption “—Certain Covenants—Restricted Payments,” a Permitted Investment or any transaction specifically excluded from the definition of Restricted Payment;
(10) the disposition of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or similar arrangements;
(11) the foreclosure, condemnation or any similar action with respect to any property or other assets or a surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other claims of any kind;
(12) the disposition of assets to a Person who is providing services (the provision of which have been or are to be outsourced by the Company or any Restricted Subsidiary to such Person) related to such assets;
(13) any sale or other disposition of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary;
(14) any exchange of assets (including a combination of assets and Cash Equivalents) for assets related to a Permitted Business of comparable or greater market value or usefulness to the business of the Company and its Restricted Subsidiaries as a whole, as determined in good faith by the Company;
(15) any sale, transfer or other disposition of Securitization Assets and related assets in connection with any Qualified Securitization Financing; and
(16) any disposition of Capital Stock of a Restricted Subsidiary pursuant to an agreement or other obligation with or to a Person (other than the Company or a Restricted Subsidiary) from whom such Restricted Subsidiary was acquired or from whom such Restricted Subsidiary acquired its business and assets (having been newly formed in connection with such acquisition), made as part of such acquisition and in each case comprising all or a portion of the consideration in respect of such sale or acquisition.
“Associate” means (i) any Person engaged in a Permitted Business of which the Company or its Restricted Subsidiaries are the legal and beneficial owners of between 20% and 50% of all outstanding Voting Stock and (ii) any joint venture entered into by the Company or any Restricted Subsidiary of the Company.
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“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the U.S. Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the U.S. Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.
“Board of Directors” means:
(1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
(2) with respect to a partnership, the board of directors of the general partner of the partnership;
(3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such Person serving a similar function.
“Business Day” means a day other than a Saturday, Sunday or other day on which banking institutions in London, Zurich or New York or a place of payment under the Indenture are authorized or required by law to close.
“Capital Lease Obligation” means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet (excluding the footnotes thereto) prepared in accordance with IFRS, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
“Capital Stock” means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
“Cash Equivalents” means:
(1) direct obligations (or certificates representing an interest in such obligations) issued by, or unconditionally guaranteed by, the government of a member state of the Pre-Expansion European Union, the United States of America, Switzerland or Canada (including, in each case, any agency or instrumentality thereof), as the case may be, the payment of which is backed by the full faith and credit of the relevant member state of the European Union or the United States of America, Switzerland, Canada or Japan, as the case may be, and which are not callable or redeemable at the Company’s option;
(2) overnight bank deposits, time deposit accounts, certificates of deposit, banker’s acceptances and money market deposits with maturities (and similar instruments) of 12 months or less from the date of acquisition issued by a bank or trust company which is organized under, or authorized to operate as a bank or trust company under, the laws of a member state of the Pre-Expansion European Union or of the United States of America or any state thereof, Switzerland, Canada or Japan; provided that such bank or trust company has capital, surplus and undivided profits aggregating in excess of €250 million (or the foreign currency equivalent thereof as of the date of such investment) and whose long-term debt is rated “A-2” or higher by Moody’s or A or higher by S&P or the equivalent rating category of another internationally recognized rating agency, as of the date of the investment;
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(3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (1) and (2) above entered into with any financial institution meeting the qualifications specified in clause (2) above;
(4) commercial paper having one of the two highest ratings obtainable from Moody’s or S&P on the date of the investment and, in each case, maturing within one year after the date of acquisition; and
(5) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (4) of this definition.
“Change of Control” means the occurrence of any of the following:
(1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Subsidiaries taken as a whole to any Person (including any “person” (as that term is used in Section 13(d)(3) of the U.S. Exchange Act)) other than one or more Permitted Holders;
(2) the adoption of a plan relating to the liquidation or dissolution of the Company;
(3) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any Person (including any “person” as defined above) other than one or more Permitted Holders becomes the Beneficial Owner, directly or indirectly, of more than 50% of the issued and outstanding Voting Stock of the Company measured by voting power rather than number of shares; or
(4) during any period of two consecutive years, individuals who at the beginning of such period constituted the majority of the shareholder representatives on the Board of Directors of the Company (together with any new directors whose election by the majority of the shareholder representatives on such Board of Directors of the Company as applicable, or whose nomination for election by shareholders of the Company, as applicable, was approved by a vote of the majority of the shareholder representatives on the Board of Directors of the Company, as applicable, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) ceased for any reason to constitute the majority of the shareholder representatives on the Board of Directors of the Company, as applicable, then in office.
“Change of Control Offer” has the meaning assigned to that term in the Indenture governing the Notes.
“CHF” means Swiss francs, the lawful currency of Switzerland.
“CHF Equivalent” means, with respect to any monetary amount in a currency other than sterling, at any time of determination thereof by the Company or the Trustee, the amount of Swiss francs obtained by converting such currency other than Swiss francs involved in such computation into Swiss francs at the spot rate for the purchase of Swiss francs with the applicable currency other than Swiss francs as published in The Financial Times in the “Currency Rates” section (or, if The Financial Times is no longer published, or if such information is no longer available in The Financial Times, such source as may be selected in good faith by the Company) on the date of such determination.
“Collateral” means the rights, property and assets securing the Notes and the Note Guarantees as described in the section entitled “—Security” and any rights, property or assets over which a Lien has been granted to secure the Obligations of the Company and the Guarantors under the Notes, the Note Guarantees and the Indenture.
“Consolidated EBITDA” means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus the following to the extent deducted in calculating such Consolidated Net Income, without duplication:
(1) provision for taxes based on income, profits or capital, in each case of such Person and its Subsidiaries which are Restricted Subsidiaries for such period; plus
(2) the Fixed Charges of such Person and its Subsidiaries which are Restricted Subsidiaries for such period; plus
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(3) depreciation, amortization (including, without limitation, amortization of intangibles and deferred financing fees) and other non-cash charges and expenses (including without limitation write-downs and impairment of property, plant, equipment and intangibles and other long-lived assets and the impact of purchase accounting on the Company and its Restricted Subsidiaries for such period) of the Company and its Restricted Subsidiaries (excluding any such non-cash charge or expense to the extent that it represents an accrual of or reserve for cash charges or expenses in any future period or amortization of a prepaid cash charge or expense that was paid in a prior period) for such period; plus
(4) the amount of any minority interest expense consisting of subsidiary income attributable to minority equity interests of third parties in any non-wholly owned Restricted Subsidiary in such period or any prior period, except to the extent of dividends declared or paid on, or other cash payments in respect of, Equity Interests held by such parties; plus
(5) Management Fees; plus
(6) any income or charge attributable to a post-employment benefit scheme other than the current service costs and any past service costs and curtailments and settlements attributable to the scheme; plus
(7) any expenses, charges or other costs related to any Equity Offering, acquisition (including amounts paid in connection with the acquisition or retention of one or more individuals comprising part of a management team retained to manage the acquired business; provided that such payments are made at the time of such acquisition and are consistent with the customary practice in the industry at the time of such acquisition), joint venture, disposition, recapitalization, Indebtedness permitted to be incurred by the Indenture, or the refinancing of any other Indebtedness of such Person or any of its Restricted Subsidiaries (whether or not successful) (including such fees, expenses or charges related to the Transactions) and, in each case, deducted in such period in computing Consolidated Net Income; plus
(8) any expenses, costs or other charges (including any non-cash charges) related to the Transactions; plus
(9) all expenses incurred directly in connection with any early extinguishment of Indebtedness; minus
(10) non-cash items increasing such Consolidated Net Income for such period (other than any non-cash items increasing such Consolidated Net Income pursuant to clauses (1) through (12) of the definition of Consolidated Net Income), other than the reversal of a reserve for cash charges in a future period in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with IFRS.
“Consolidated Leverage” means, with respect to any Person as of any date of determination, the sum without duplication of the total amount of Indebtedness of such Person and its Restricted Subsidiaries on a consolidated basis (but not giving effect to any additional Indebtedness to be incurred on the date of determination as part of the same transaction or series of transactions pursuant to the second paragraph under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock”).
“Consolidated Leverage Ratio” means, with respect to any specified Person as of any date of determination, the ratio of (a) the Consolidated Leverage of such Person on such date to (b) the Consolidated EBITDA of such Person for such Person’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding such date. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems Disqualified Stock or preferred stock subsequent to the commencement of the period for which the Consolidated Leverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Consolidated Leverage Ratio is made (the “Calculation Date”), then the Consolidated Leverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Disqualified Stock or preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period.
For purposes of calculating the Consolidated EBITDA for such period:
(1) acquisitions of any Person, business or group of assets that constitutes an operating unit or division of a business that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers, consolidations, amalgamations or otherwise, or by any Person or any of its Restricted Subsidiaries acquired by the specified Person or any of its Restricted Subsidiaries, and including any
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related financing transactions and including increases in ownership of Restricted Subsidiaries (including Persons who become Restricted Subsidiaries as a result of such increase), during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date (including transactions giving rise to the need to calculate such Consolidated Leverage Ratio) will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period;
(2) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of on or prior to the Calculation Date (including transactions giving rise to the need to calculate such Consolidated Leverage Ratio), will be excluded;
(3) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; and
(4) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period.
For purposes of this definition, whenever pro forma effect is to be given to an Asset Sale, Investment or acquisition, the amount of income or earnings relating thereto or the amount of Consolidated EBITDA associated therewith, the pro forma calculation shall be determined in good faith by a responsible financial or accounting Officer of the Company or the Target. In determining the amount of Indebtedness outstanding on any date of determination, pro forma effect will be given to any incurrence, repayment, repurchase, defeasance or other acquisition, retirement or discharge or Indebtedness on such date.
“Consolidated Net Income” means, with respect to any specified Person for any period, the aggregate of the net income (loss) of such Person and its Restricted Subsidiaries for such period, on a consolidated basis (excluding the net income (loss) of any Unrestricted Subsidiaries), determined in accordance with IFRS and without any reduction in respect of preferred stock dividends; provided that:
(1) (i) any extraordinary, exceptional or unusual gain, loss or charge, (ii) any asset impairments charges, the financial impacts of natural disasters (including fire, flood and storm and related events), (iii) any non-cash charges or reserves in respect of any restructuring, redundancy, integration or severance or (iv) any expenses, charges, reserves or other costs related to the Transactions, in each case, will be excluded;
(2) the net income or loss of any Person that is not a Restricted Subsidiary or that is accounted for under the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary which is a Subsidiary of the Person;
(3) solely for the purpose of determining the amount available for Restricted Payments under clause (c)(i) of the first paragraph under the caption “—Certain Covenants—Restricted Payments,” any net income or loss of any Restricted Subsidiary (other than any Guarantor) will be excluded if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company (or any Guarantor that holds the Equity Interests of such Restricted Subsidiary, as applicable), by operation of the terms of such Restricted Subsidiary’s charter or any agreement, instrument, judgment, decree, order, statute or governmental rule or regulation applicable to the Restricted Subsidiary or its shareholders (other than (a) restrictions that have been waived or otherwise released, (b) restrictions pursuant to the Notes or the Indenture and (c) contractual restrictions in effect on the Issue Date with respect to the Restricted Subsidiary and other restrictions with respect to such Restricted Subsidiary that taken as a whole, are not materially less favorable to the holders of the Notes than such restrictions in effect on the Issue Date, except that the Company’s equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up to the aggregate amount of cash or Cash Equivalents actually distributed or that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend to another Restricted Subsidiary (other than any Guarantor), to the limitation contained in this clause);
(4) any net after-tax income or loss from discontinued operations and any net after-tax gains or losses on disposal of discontinued operations shall be excluded;
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(5) any net gain (or loss) realized upon the sale or other disposition of any asset or disposed operations of the Company or any Restricted Subsidiaries (including pursuant to any sale leaseback transaction) which is not sold or otherwise disposed of in the ordinary course of business (as determined in good faith by the Company) will be excluded;
(6) any one time non-cash charges or any increases in amortization or depreciation resulting from purchase accounting, in each case, in relation to any acquisition of another Person or business or resulting from any reorganization or restructuring involving the Company or its Subsidiaries will be excluded;
(7) the cumulative effect of a change in accounting principles will be excluded;
(8) any unrealized gains or losses in respect of Hedging Obligations or any ineffectiveness recognized in earnings related to qualifying hedge transactions or the fair value or changes therein recognized in earnings for derivatives that do not qualify as hedge transactions, in each case, in respect of Hedging Obligations will be excluded;
(9) any non-cash compensation charge or expenses arising from any grant of stock, stock options or other equity based awards will be excluded;
(10) any goodwill or other intangible asset impairment charges will be excluded;
(11) all deferred financing costs written off and premium paid in connection with any early extinguishment of Indebtedness and any net gain or loss from any write-off or forgiveness of Indebtedness will be excluded; and
(12) any capitalized interest on any Subordinated Shareholder Debt will be excluded.
“Consolidated Senior Secured Indebtedness” means, as of any date of determination, the sum of the total amount of Senior Secured Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis (but not giving effect to any additional Indebtedness to be incurred on the date of determination as part of the same transaction or series of transactions pursuant to the second paragraph under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock”).
“Consolidated Senior Secured Leverage Ratio” means, as of any date of determination, the ratio of (a) the Consolidated Senior Secured Indebtedness of the Company on such date to (b) the Consolidated EBITDA of the Company for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness, is incurred. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems Disqualified Stock or preferred stock subsequent to the commencement of the period for which the Consolidated Senior Secured Leverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Consolidated Senior Secured Leverage Ratio is made (the “Calculation Date”), then the Consolidated Senior Secured Leverage Ratio will be calculated giving pro forma effect (as determined in good faith by a responsible accounting or financial officer of the Company or the Target) to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Disqualified Stock or preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Consolidated EBITDA for such period:
(1) acquisitions that have been made by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, including through mergers or consolidations, or by any Person or any of its Subsidiaries which are Restricted Subsidiaries acquired by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, and including all related financing transactions and including increases in ownership of Subsidiaries which are Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect (as determined in good faith by a responsible accounting or financial officer of the Company or the Target and may include anticipated expense and cost reduction synergies) as if they had occurred on the first day of the four-quarter reference period;
(2) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
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(3) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; and
(4) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period.
“Contingent Obligations” means, with respect to any Person, any obligation of such Person guaranteeing in any manner, whether directly or indirectly, any operating lease, dividend or other obligation that, in each case, does not constitute Indebtedness (“primary obligations”) of any other Person (the “primary obligor”), including any obligation of such Person, whether or not contingent:
(1) to purchase any such primary obligation or any property constituting direct or indirect security therefor;
(2) to advance or supply funds:
(a) for the purchase or payment of any such primary obligation; or
(b) to maintain the working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; or
(3) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.
“continuing” means, with respect to any Default or Event of Default, that such Default or Event of Default has not been cured or waived.
“Credit Facilities” means, one or more debt facilities, instruments or arrangements incurred by any Restricted Subsidiary or any Finance Subsidiary (including the Revolving Credit Facility Agreement or commercial paper facilities and overdraft facilities) or commercial paper facilities or indentures or trust deeds or note purchase agreements, in each case, with banks, other institutions, funds or investors, providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such institutions or to special purpose entities formed to borrow from such institutions against such receivables), letters of credit, bonds, notes debentures or other corporate debt instruments or other Indebtedness, in each case, as amended, restated, modified, renewed, refunded, replaced, restructured, refinanced, repaid, increased or extended in whole or in part from time to time (and whether in whole or in part and whether or not with the original administrative agent and lenders or another administrative agent or agents or trustees or other banks or institutions and whether provided under the Revolving Credit Facility Agreement or one or more other credit or other agreements, indentures, financing agreements or otherwise) and in each case including all agreements, instruments and documents executed and delivered pursuant to or in connection with the foregoing (including any notes and letters of credit issued pursuant thereto and any guarantee and collateral agreement, patent and trademark security agreement, mortgages or letter of credit applications and other guarantees, pledges, agreements, security agreements and collateral documents). Without limiting the generality of the foregoing, the term “Credit Facilities” shall include any agreement or instrument (1) changing the maturity of any Indebtedness incurred thereunder or contemplated thereby, (2) adding Subsidiaries of the Company as additional borrowers, issuers or guarantors thereunder, (3) increasing the amount of Indebtedness incurred thereunder or available to be borrowed thereunder or (4) otherwise altering the terms and conditions thereof.
“Currency Exchange Protection Agreement” means, in respect of any Person, any foreign exchange contract, currency swap agreement, currency option, cap, floor, ceiling or collar or agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates as to which such Person is a party.
“Default” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
“Designated Non-Cash Consideration” means the Fair Market Value of non-cash consideration received by the Company or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as “Designated Non-cash Consideration” pursuant to an Officer’s Certificate, setting forth the basis of such valuation, less the amount of cash or Cash Equivalents received in connection with a subsequent sale of such Designated Non-cash Consideration.
“Disqualified Stock” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
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redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the six-month anniversary of the date that the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the issuer thereof to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the issuer thereof may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption “—Certain Covenants—Restricted Payments.” For purposes hereof, the amount of Disqualified Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Disqualified Stock, such Fair Market Value to be determined as set forth herein.
“Equity Contribution” means the amount of Equity Interests and Subordinated Shareholder Debt of the Company subscribed directly or indirectly by the Equity Investors in connection with the Transactions on or before the Completion Date.
“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
“Equity Investors” means (i) PAI and its Affiliates or any trust, fund, company or partnership owned, managed or advised by PAI or of which PAI is the general partner or any limited partner of any such trust, fund, company or partnership and (ii) senior management of the Company, the Target or their respective businesses participating through a management equity program.
“Equity Offering” means a sale of Capital Stock (other than to the Company or any of its Subsidiaries) (x) that is a sale of Capital Stock of the Company (other than Disqualified Stock) other than offerings registered on Form S-8 (or any successor form) under the U.S. Securities Act or any similar offering in other jurisdictions, or (y) the proceeds of which are contributed as Subordinated Shareholder Debt or to the equity (other than through the issuance of Disqualified Stock) of the Company or any of its Restricted Subsidiaries.
“Escrowed Proceeds” means the proceeds from the offering of any debt securities or other Indebtedness paid into an escrow account with an independent escrow agent on the date of the applicable offering or incurrence pursuant to escrow arrangements that permit the release of amounts on deposit in such escrow account upon satisfaction of certain conditions or the occurrence of certain events. The term “Escrowed Proceeds” shall include any interest earned on the amounts held in escrow.
“Excluded Contributions” means the net cash proceeds received by the Company after the Issue Date from:
(1) contributions to its common equity capital; and
(2) the sale (other than to a Subsidiary of the Company) of Capital Stock (other than Disqualified Stock) of the Company,
in each case designated as “Excluded Contributions” pursuant to an Officer’s Certificate of the Company (which shall be designated no later than the date on which such Excluded Contribution has been received by the Company), the net cash proceeds of which are excluded from the calculation set forth in the clause (c)(ii) of the covenant described under “—Certain Covenants—Restricted payments” hereof.
“Fair Market Value” means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress of either party, determined in good faith by the Company’s Chief Executive Officer, Chief Financial Officer or responsible accounting or financial officer of the Company.
“Finance Subsidiary” means a wholly owned subsidiary that is formed for the purpose of borrowing funds or issuing securities and lending the proceeds to the Company or a Guarantor and that conducts no business other than as may be reasonably incidental to, or related to, the foregoing.
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“Fixed Charges” means, with respect to any specified Person for any period, the sum, without duplication, of:
(1) the consolidated interest expense (net of interest income) of such Person and its Subsidiaries which are Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt discount (but not debt issuance costs, commissions, fees and expenses), non-cash interest payments (but excluding any non-cash interest expense attributable to the movement in the mark to market valuation of Hedging Obligations or other derivative instruments), the interest component of deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings; plus
(2) the consolidated interest expense (but excluding such interest on Subordinated Shareholder Debt) of such Person and its Subsidiaries which are Restricted Subsidiaries that was capitalized during such period; plus
(3) any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Subsidiaries which are Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries which are Restricted Subsidiaries; plus
(4) net payments and receipts (if any) pursuant to interest rate Hedging Obligations (excluding amortization of fees) with respect to Indebtedness; plus
(5) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of any Restricted Subsidiary, other than dividends on Equity Interests payable to the Company or a Restricted Subsidiary, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined national, state and local statutory tax rate of such Person, expressed as a decimal, as estimated in good faith by a responsible accounting or financial officer of the Company.
“Fixed Charge Coverage Ratio” means, with respect to any specified Person for any period, the ratio of the Consolidated EBITDA of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Subsidiaries which are Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”) (but not giving effect to any additional Indebtedness to be incurred on the Calculation Date as part of the same transaction or series of transactions pursuant to the second paragraph under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock”), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect (as determined in good faith by the Company’s Chief Financial Officer or a responsible financial or accounting officer of the Company or the Target) to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions of business entities or property and assets constituting a division or line of business of any Person, acquisitions that have been made by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, including through mergers or consolidations, or any Person or any of its Subsidiaries which are Restricted Subsidiaries acquired by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, and including all related financing transactions and including increases in ownership of Subsidiaries which are Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect (as determined in good faith by the Company’s or the Target’s Chief Financial Officer or Chief Accounting Officer and may include anticipated expense and cost reduction synergies) as if they had occurred on the first day of the four-quarter reference period;
(2) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
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(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries which are Restricted Subsidiaries following the Calculation Date;
(4) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and
(6) if any Indebtedness bears a floating rate of interest and such Indebtedness is to be given pro forma effect, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months, or, if shorter, at least equal to the remaining term of such Indebtedness).
“guarantee” means a guarantee other than by endorsement of negotiable instruments for collection or deposit in the ordinary course of business, of all or any part of any Indebtedness (whether arising by agreements to keep-well, to take or pay or to maintain financial statement conditions, pledges of assets or otherwise).
“Guarantors” means, collectively, the Initial Guarantors and any other Subsidiary of the Company that executes a Note Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of the Indenture.
“Hedging Obligations” means, with respect to any specified Person, the obligations of such Person under:
(1) interest rate swap agreements, (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;
(2) other agreements or arrangements designed to manage interest rates or interest rate risk; and
(3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates, including Currency Exchange Protection Agreements, or commodity prices.
“IFRS” means the International Financial Reporting Standards promulgated by the International Accounting Standards Board or any successor board or agency as endorsed by the European Union and in effect on the date hereof, or, with respect to the covenant described under the caption “Reports” as in effect from time to time.
“Indebtedness” means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables):
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments for which such Person is responsible or liable;
(3) representing reimbursement obligations in respect of letters of credit, bankers’ acceptances or similar instruments (except to the extent such reimbursement obligations relate to trade payables and such obligations are satisfied within 30 days of incurrence);
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; and
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet (excluding the footnotes thereto) of the specified Person prepared in accordance with IFRS. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a Lien on any asset of the specified
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Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the guarantee by the specified Person of any Indebtedness of any other Person to the extent guaranteed by such Person; provided, however, that in the case of Indebtedness secured by a Lien, the amount of such Indebtedness will be the lesser of (a) the fair market value of such asset at such date of determination (as determined in good faith) by the Company and (b) the amount of such Indebtedness of such other Person.
The term “Indebtedness” shall not include:
(1) Subordinated Shareholder Debt;
(2) any lease of property which would be considered an operating lease under IFRS;
(3) Contingent Obligations in the ordinary course of business;
(4) in connection with the purchase by the Company or any Restricted Subsidiary of any business, any post-closing payment adjustments to which the seller may become entitled to the extent such payment is determined by a final closing balance sheet or such payment depends on the performance of such business after the closing; provided however, that, at the time of closing, the amount of any such payment is not determinable and, to the extent such payment thereafter becomes fixed and determined, the amount is paid within 30 days thereafter;
(5) the avoidance of doubt, any contingent obligations in respect of workers’ compensation claims, early retirement or termination obligations, pension fund obligations or contributions or similar claims, obligations or contributions or social security or wage Taxes;
(6) deferred or prepaid revenues;
(7) Indebtedness or other obligations incurred upon closing of the Acquisition to the extent such Indebtedness or other obligations are repaid, extinguished or otherwise discharged on the Completion Date;
(8) Indebtedness in respect of the incurrence by the Company or any if its Restricted Subsidiaries of Indebtedness in respect of standby letters of credit, performance guarantees or bonds or surety bonds provided by or at the request of the Company or any of its Restricted Subsidiaries in the ordinary course of business (including standby letters of credit, performance guarantees or bonds or surety bonds in respect of such standby letters of credit, performance guarantees or bonds or surety bonds) to the extent such letters of credit, guarantees or bonds are not drawn upon or, if and to the extent drawn upon are honored in accordance with their terms and if, to be reimbursed, are reimbursed no later than the fifth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit, guarantee or bond; and
(9) Indebtedness incurred by the Company or one of its Restricted Subsidiaries in connection with a transaction where (x) such Indebtedness is borrowed from a bank or trust company, having a combined capital and surplus and undivided profits of not less than €250 million, whose debt has a rating immediately prior to the time such transaction is entered into, of at least A or the equivalent thereof by S&P and A2 or the equivalent thereof by Moody’s and (y) a substantially concurrent Investment is made by the Company or a Restricted Subsidiary of the Company in the form of cash deposited with the lender of such Indebtedness, or a Subsidiary or Affiliate thereof, in amount equal to such Indebtedness.
“Initial Guarantors” means, collectively, Swissport Ltd., Aguila Bid AG, Swissport UK Holding Limited, Swissport Cargo Services UK Ltd., Swissport North America Holdings, Inc., Swissport Holdings, Inc., Swissport USA, Inc., Swissport North America, Inc., Swissport Fueling, Inc., Swissport Cargo Holdings, Inc. and Swissport Cargo Services, Inc.
“Initial Public Offering” means the first Public Equity Offering of common stock or common equity interests of the Company or any Parent Entity (the “IPO Entity”) following which there is a Public Market.
“Intercreditor Agreement” means the intercreditor agreement dated on or about the Issue Date made between, among others, the Company, the Trustee, the Security Agent and the facility agent under the Revolving Credit Facility Agreement, as amended, restated or otherwise modified or varied from time to time.
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“Investment Grade Status” shall occur when the Notes are rated Baa3 or better by Moody’s and BBB− or better by S&P (or, if either such entity ceases to rate the Notes, the equivalent investment grade credit rating from any other Rating Agency).
“Investments” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including guarantees or other obligations, but excluding advances or extensions of credit to customers or suppliers made in the ordinary course of business), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as Investments on a balance sheet (excluding the footnotes) prepared in accordance with IFRS. If the Company or any Restricted Subsidiary sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary, the Company will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company’s Investments in such Restricted Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption “—Certain Covenants—Restricted Payments.” The acquisition by the Company or any Restricted Subsidiary of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Company or such Restricted Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption “—Certain Covenants—Restricted Payments.” Except as otherwise provided in the Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value and, to the extent applicable, shall be determined based on the equity value of such Investment.
“Issue Date” means January 28, 2011.
“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement or any lease in the nature thereof.
“Management Advances” means loans or advances made to, or guarantees with respect to loans or advances made to, directors, officers, employees or consultants of the Company or any Restricted Subsidiary:
(1) in respect of travel, entertainment or moving related expenses incurred in the ordinary course of business;
(2) in respect of moving related expenses incurred in connection with any closing or consolidation of any facility or office; or
(3) (in the case of this clause (3)) not exceeding CHF 7.5 million in the aggregate outstanding at any time.
“Management Fees” means:
(a) customary annual fees for the performance of monitoring services by PAI or any of its Affiliates for the Company or any Restricted Subsidiary; provided that such fees will not, in the aggregate, exceed CHF 1.0 million per annum (exclusive of out-of-pocket expenses); and
(b) customary fees and related expenses for the performance of transaction, management, consulting, financial or other advisory services or underwriting, placement or other investment banking activities, including in connection with mergers, acquisitions, dispositions or joint ventures, by PAI or any of its Affiliates for the Company or any of its Restricted Subsidiaries, which payments in respect of this clause (b) have been approved by a majority of the disinterested members of the Board of Directors of the Company.
“Market Capitalization” means an amount equal to (i) the total number of issued and outstanding shares of common stock or common equity interests of the IPO Entity on the date of the declaration of the relevant dividend multiplied by (ii) the arithmetic mean of the closing prices per share of such common stock or common equity interests for the 30 consecutive trading days immediately preceding the date of declaration of such dividend.
“Moody’s” means Moody’s Investors Service, Inc.
“Net Proceeds” means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any Designated Non-Cash Consideration or other consideration received in non-cash form or Cash
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Equivalents substantially concurrently received in any Asset Sale), net of the direct costs relating to such Asset Sale and the sale of such Designated Non-Cash Consideration or other consideration received in non-cash form, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, and all distributions and other payments required to be made to minority interest holders (other than the Company or any Subsidiary) in Subsidiaries or joint ventures as a result of such Asset Sale, and any reserve for adjustment or indemnification obligations in respect of the sale price of such asset or assets established in accordance with IFRS.
“Non-Recourse Debt” means Indebtedness as to which neither the Company nor any of its Restricted Subsidiaries (1) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) or (2) is directly or indirectly liable as a guarantor or otherwise.
“Note Guarantee” means the guarantee by each Guarantor of the Company’s obligations under the Indenture and the Notes, executed pursuant to the provisions of the Indenture.
“Obligations” means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.
“Officer” means, with respect to any Person, the Chief Executive Officer, Chief Financial Officer, President, any Executive Vice President, Senior Vice President, Vice President, the Treasurer, the Secretary, Director or member of the Board of Directors of such Person or any other person that the Board of Directors of such Person shall designate for such purpose.
“Officer’s Certificate” means a certificate signed by an Officer.
“PAI” means PAI partners S.A.S.
“Parent Entity” means any direct or indirect parent company or entity of the Company.
“Permitted Business” means (i) any business, services or activities engaged in by the Company or any of its Restricted Subsidiaries on the Issue Date, and (ii) any businesses, services and activities that are related, complementary, incidental, ancillary or similar to any of the foregoing, or are extensions or developments of any thereof.
“Permitted Collateral Liens” means:
(1) Liens securing the Notes (including any Additional Notes) and any Permitted Refinancing Indebtedness (and Permitted Refinancing Indebtedness in respect of such Permitted Refinancing Indebtedness) incurred to refinance such Notes incurred in compliance with clause (5) of the definition of Permitted Debt, and the related Note Guarantees or guarantees of such Permitted Refinancing Indebtedness;
(2) Liens on the Collateral to secure Senior Secured Indebtedness of the Company and the Guarantors permitted by the first paragraph of the covenant entitled “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock” and Permitted Refinancing Indebtedness in respect thereof (and Permitted Refinancing Indebtedness in respect of such Permitted Refinancing Indebtedness);
(3) Liens on the Collateral to secure Indebtedness permitted under clauses (1), (2), (4) (other than with respect to Capital Lease Obligations), (8), (9) (to the extent such guarantee is in respect of Indebtedness otherwise permitted to be secured and is specified in this definition of “Permitted Collateral Liens”), (16) and (19) of the definition of Permitted Debt and any Permitted Refinancing Indebtedness in respect of any of the Indebtedness referred to in this clause (3) (and Permitted Refinancing Indebtedness in respect of such Permitted Refinancing Indebtedness); and
(4) Liens described in clauses (3), (6), (7), (8), (12), (13), (14), (16), (17), (18), (19), (20), (21), (28) and (31) of the definition of “Permitted Liens” and that, in each case, would not materially interfere with the ability of the Security Agent to enforce any Lien over the Collateral,
provided, that, in each case, such Lien ranks equal or junior to the Liens on such Collateral securing the Notes; provided further that Liens on the Collateral to secure Indebtedness permitted under clause (1) of the definition of Permitted Debt and any guarantees thereof and clause (8) of the definition of Permitted Debt with respect to Hedging Obligations related to Indebtedness incurred under clauses (1) and (3) of the definition of Permitted Debt and any Permitted Refinancing Indebtedness in respect thereof may rank senior to the Notes and the Note Guarantees with respect to distributions of proceeds of any enforcement of Collateral and any Permitted Refinancing Indebtedness in respect thereof.
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“Permitted Holders” means the Equity Investors and Related Parties. Any person or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of the Indenture will thereafter, together with its Affiliates, constitute an additional Permitted Holder.
“Permitted Investments” means:
(1) any Investment in the Company or in a Restricted Subsidiary;
(2) any Investment in cash and Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary; or
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary;
(4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales”;
(5) any Investments received in compromise or resolution of (a) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (b) litigation, arbitration or other disputes;
(6) Investments in receivables owing to the Company or any Restricted Subsidiary created or acquired in the ordinary course of business;
(7) Investments represented by Hedging Obligations, which obligations are permitted by clause (8) of the second paragraph of the covenant entitled “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock”;
(8) Investments in the Notes (including any Additional Notes) and any other Indebtedness of the Company or any Restricted Subsidiary;
(9) any guarantee of Indebtedness permitted to be incurred by the covenant described above under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock”;
(10) any Investment existing on, or made pursuant to binding commitments existing on, the Completion Date and any Investment consisting of an extension, modification or renewal of any Investment existing on, or made pursuant to a binding commitment existing on, the Completion Date; provided that the amount of any such Investment may be increased (a) as required by the terms of such Investment as in existence on the Completion Date or (b) as otherwise permitted under the Indenture;
(11) Investments acquired after the Issue Date as a result of the acquisition by the Company or any Restricted Subsidiary of another Person, including by way of a merger, amalgamation or consolidation with or into the Company or any of its Restricted Subsidiaries in a transaction that is not prohibited by the covenant described above under the caption “—Certain Covenants—Merger, Consolidation or Sale of Assets” after the Issue Date to the extent that such Investments were not made in contemplation of such acquisition, merger, amalgamation or consolidation and were in existence on the date of such acquisition, merger, amalgamation or consolidation;
(12) pledges or deposits (x) with respect to leases or utilities provided to third parties in the ordinary course of business or (y) otherwise described in the definition of “Permitted Liens” or made in connection with Liens permitted under the covenant described under “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock”;
(13) any Investment to the extent made using as consideration Capital Stock of the Company (other than Disqualified Stock), Subordinated Shareholder Debt or Capital Stock of any Parent Entity;
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(14) Management Advances;
(15) any Investment made in connection with a Qualified Securitization Financing, including Investments of funds held in accounts permitted or required by the arrangements governing such Qualified Securitization Financing or any Related Indebtedness;
(16) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (16) that are at the time outstanding not to exceed CHF 20 million; provided that if an Investment is made pursuant to this clause in a Person that is not a Restricted Subsidiary at the date of the making of such Investment and such Person subsequently becomes a Restricted Subsidiary or is subsequently designated a Restricted Subsidiary pursuant to the covenant described above under the caption “—Certain Covenants—Restricted Payments,” such Investment shall thereafter be deemed to have been made pursuant to clause (1) or (3) of the definition of “Permitted Investments” and not this clause (16);
(17) Investments by the Company or any of its Restricted Subsidiaries in joint ventures having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (17) that are at the time outstanding not to exceed CHF 30 million; provided, however, that if any Investment pursuant to this clause is made in a Person that is not a Restricted Subsidiary at the date of the making of such Investment and such Person subsequently becomes a Restricted Subsidiary or is subsequently designated a Restricted Subsidiary pursuant to the covenant described above under the caption “—Certain Covenants—Restricted Payments,” such Investment shall thereafter be deemed to have been made pursuant to clause (1) or (3) of the definition of “Permitted Investments” and not this clause (17).
“Permitted Liens” means:
(1) Liens in favor of the Company or any of the Restricted Subsidiaries;
(2) Liens on property (including Capital Stock) of a Person existing at the time such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company or any Restricted Subsidiary; provided that such Liens were in existence prior to the contemplation of such Person becoming a Restricted Subsidiary or such merger or consolidation, were not incurred in contemplation thereof and do not extend to any assets other than those of the Person that becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company or any Restricted Subsidiary;
(3) Liens to secure the performance of statutory obligations, trade contracts, insurance, surety or appeal bonds, workers’ compensation obligations, leases, performance bonds, guarantees or other obligations of a like nature incurred in the ordinary course of business (including Liens to secure letters of credit issued to assure payment of such obligations letters of credit that assure payment of such letters of credit);
(4) Liens to secure Indebtedness permitted by clause (4) of the second paragraph of the covenant entitled “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock” covering only the assets acquired with or financed by such Indebtedness;
(5) Liens existing on the Completion Date;
(6) Liens for taxes, assessments or governmental charges or claims that (x) are not yet due and payable or (y) are being contested in good faith by appropriate proceedings and for which a reserve or other appropriate provision, if any, as will be required in conformity with IFRS will have been made;
(7) Liens imposed by law, such as carriers’, warehousemen’s, landlord’s and mechanics’ Liens, in each case, incurred in the ordinary course of business;
(8) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
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(9) Liens created for the benefit of (or to secure) the Notes (or any Note Guarantee);
(10) Liens securing Indebtedness under Hedging Obligations, which obligations are permitted by clause (8) of the second paragraph of the covenant described above under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock”;
(11) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under the Indenture; provided, however, that:
(a) the new Lien is limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and
(b) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged with such Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge;
(12) Liens on insurance policies and proceeds thereof, or other deposits, to secure insurance premium financings;
(13) filing of Uniform Commercial Code financing statements under U.S. state law (or similar filings under other applicable jurisdictions) in connection with operating leases in the ordinary course of business;
(14) bankers’ Liens, rights of setoff or similar rights and remedies as to deposit accounts, Liens arising out of judgments or awards not constituting an Event of Default and notices of lis pendens and associated rights related to litigation being contested in good faith by appropriate proceedings and for which adequate reserves have been made;
(15) Liens on cash, Cash Equivalents or other property arising in connection with the defeasance, discharge or redemption of Indebtedness;
(16) Liens on specific items of inventory or other goods (and the proceeds thereof) of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created in the ordinary course of business for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(17) leases, licenses, subleases and sublicenses of assets in the ordinary course of business;
(18) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of assets entered into in the ordinary course of business;
(19) (a) mortgages, liens, security interests, restrictions, encumbrances or any other matters of record that have been placed by any developer, landlord or other third party on property over which the Company or any Restricted Subsidiary has easement rights or on any real property leased by the Company or any Restricted Subsidiary and subordination or similar agreements relating thereto and (b) any condemnation or eminent domain proceedings or compulsory purchase order affecting real property;
(20) Liens on property or assets under construction (and related rights) in favor of a contractor or developer or arising from progress or partial payments by a third party relating to such property or assets;
(21) Liens securing or arising by reason of any netting or set-off arrangement entered into in the ordinary course of banking or other trading activities;
(22) Liens (including put and call arrangements) on Capital Stock or other securities of any Unrestricted Subsidiary that secure Indebtedness of such Unrestricted Subsidiary;
(23) limited recourse Liens in respect of the ownership interests in, or assets owned by, any joint ventures which are not Restricted Subsidiaries securing obligations of such joint ventures;
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(24) Liens on any proceeds loan made by the Company or any Restricted Subsidiary in connection with any future incurrence of Indebtedness permitted under the Indenture and securing that Indebtedness;
(25) Liens on property at the time the Company or a Restricted Subsidiary acquired the property, including any acquisition by means of a merger or consolidation with or into the Company or any Restricted Subsidiary; provided that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such acquisition and do not extend to any other property owned by the Company or any Restricted Subsidiary;
(26) Liens incurred in the ordinary course of business of the Company and its Restricted Subsidiaries with respect to obligations (other than Indebtedness) that do not exceed CHF 20 million at any one time outstanding;
(27) Permitted Collateral Liens;
(28) any interest or title of a lessor under any operating lease;
(29) Liens on Securitization Assets and related assets incurred in connection with any Qualified Securitization Financing;
(30) Liens on Escrowed Proceeds for the benefit of the related holders of debt securities or other Indebtedness (or the underwriters or arrangers thereof) or on cash set aside at the time of the incurrence of any Indebtedness or government securities purchased with such cash, in either case to the extent such cash or government securities prefund the payment of interest on such Indebtedness and are held in an escrow account or similar arrangement to be applied for such purpose; and
(31) Liens incurred in connection with a cash management program established in the ordinary course of business.
“Permitted Parent Payments” means the declaration and payment of dividends or other distributions, or the making of loans, by the Company or any of its Restricted Subsidiaries to any Parent Entity in amounts and at times required to pay:
(1) franchise fees and other fees, taxes and expenses required to maintain the corporate existence of any Parent Entity of the Company;
(2) general corporate overhead expenses of any Parent Entity to the extent such expenses are attributable to the ownership or operation of the Company and its Restricted Subsidiaries or related to the proper administration of such Parent Entity (including fees and expenses properly incurred in the ordinary course of business to auditors and legal advisors and payments in respect of services provided by directors, officers, consultants, or employees of any such Parent Entity) not to exceed CHF 5.0 million in any 12 month period;
(3) any income taxes, to the extent such income taxes are attributable to the income of the Company and any of its Restricted Subsidiaries, taking into account any net operating loss carryovers and other tax attributes, and, to the extent of the amount actually received in cash from its Unrestricted Subsidiaries, in amounts required to pay such taxes to the extent attributable to the income of such Unrestricted Subsidiaries; provided that such Parent Entity shall promptly pay such taxes or refund such amount to the Company;
(4) costs (including all professional fees and expenses) incurred by any Parent Entity in connection with reporting obligations under or otherwise incurred in connection with compliance with applicable laws, rules or regulations of any governmental, regulatory or self-regulatory body or stock exchange, the Indenture or any other agreement or instrument relating to Indebtedness of the Company or any of its Restricted Subsidiaries, including in respect of any reports filed with respect to the U.S. Securities Act, U.S. Exchange Act or the respective rules and regulations promulgated thereunder; and
(5) fees and expenses of any Parent Entity incurred in relation to any public offering or other sale of Capital Stock or Indebtedness (whether or not completed) (a) where the net proceeds of such offering or sale are intended to be received by or contributed to the Company or any of its Restricted Subsidiaries; (b) in a prorated amount of such expenses in proportion to the amount of such net proceeds intended to be so received or contributed; or (c) otherwise on an interim basis prior to completion of such offering so long as any Parent Entity will cause the amount of such expenses to be repaid to the Company or the relevant Restricted Subsidiary out of the proceeds of such offering promptly if completed.
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“Permitted Refinancing Indebtedness” means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, exchange, defease or discharge other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness (other than any proceeds loan)); provided that:
(1) the aggregate principal amount (or accreted value, if applicable), or if issued with original issue discount, aggregate issue price) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable, or if issued with original issue discount, aggregate issue price) of the Indebtedness renewed, refunded, refinanced, replaced, exchanged, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has (a) a final maturity date that is either (i) no earlier than the final maturity date of the Indebtedness being renewed, refunded, refinanced, replaced, exchanged, defeased or discharged or (ii) after the final maturity date of the Notes and (b) has a Weighted Average Life to Maturity that is equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged;
(3) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is expressly, contractually, subordinated in right of payment to the Notes or any Note Guarantee, as the case may be, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes or such Note Guarantee, as the case may be, on terms at least as favorable to the holders of Notes or the Note Guarantee, as the case may be, as those contained in the documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, exchanged, defeased or discharged; and
(4) if the Company or any Guarantor was the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged, such Indebtedness is incurred either by the Company, a Finance Subsidiary or by a Guarantor.
“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
“Post-Completion Guarantors” means, collectively, Swissport International Ltd., Swissport Group Services GmbH, Swissport Cargo Services Holding B.V., Swissport Cargo Services The Netherlands B.V., Cargo Service Center East Africa B.V., Swissport Nederland B.V., Swissport CFE, Inc., Swissport Canada Handling Inc., 9230-4948 Québec Inc., Swissport Brasil Ltda., Swissport Aviation Services de México S.A. de C.V., Cargo Service Center de México S.A. de C.V., Swissport México Holding, S. de R.L. de C.V., Swissport Cargo Services Deutschland GmbH, Swissport Deutschland GmbH and Swissport Germany Holding GmbH.
“Pre-Expansion European Union” means the European Union as of January 1, 2004, including the countries of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden and the United Kingdom, but not including any country which became or becomes a member of the European Union after January 1, 2004.
“Public Equity Offering” means, with respect to any Person, a bona fide underwritten primary public offering of the shares of common stock or common equity interests of such Person, either:
(1) pursuant to a flotation on the main market of the London Stock Exchange or any other nationally recognized regulated stock exchange or listing authority in a member state of the Pre-Expansion European Union; or
(2) pursuant to an effective registration statement under the U.S. Securities Act (other than a registration statement on Form S-8 or otherwise relating to Equity Interests issued or issuable under any employee benefit plan).
“Public Market” means any time after:
(1) a Public Equity Offering of the IPO Entity has been consummated; and
(2) at least 20% of the total issued and shares of common stock or common equity interests of the IPO Entity has been distributed to investors other than the Permitted Holders or their Related Parties or any other direct or indirect shareholders of the Company as of the Issue Date.
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“Qualified Securitization Financing” means any financing pursuant to which the Company or any of its Restricted Subsidiaries may sell, convey or otherwise transfer to any other Person or grant a security interest in, any Securitization Assets (and related assets) in any aggregate principal amount equivalent to the Fair Market Value of such Securitization Assets (and related assets) of the Company or any of its Restricted Subsidiaries; provided that (a) the covenants, events of default and other provisions applicable to such financing shall be on market terms (as determined in good faith by the Company’s Board of Directors or senior management) at the time such financing is entered into, (b) the interest rate applicable to such financing shall be a market interest rate (as determined in good faith by the Company’s Board of Directors or senior management) at the time such financing is entered into and (c) such financing shall be non-recourse to the Company or any of its Restricted Subsidiaries except to a limited extent customary for such transactions.
“Rating Agencies” means Moody’s and S&P or, in the event Moody’s or S&P no longer assigns a rating to the Notes, any other “nationally recognized statistical rating organization” within the meaning of Section 3(a)(62) under the U.S. Exchange Act selected by the Company as a replacement agency.
“Related Party” means:
(1) any controlling stockholder, partner or member, or any 50% (or more) owned Subsidiary, or immediate family member (in the case of an individual), of any Equity Investor; or
(2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a 50% or more controlling interest of which consist of any one or more Equity Investors and/or such other Persons referred to in the immediately preceding clause.
“Restricted Investment” means an Investment other than a Permitted Investment.
“Restricted Subsidiary” means any Subsidiary of the Company that is not an Unrestricted Subsidiary.
“Revolving Credit Facility Agreement” means the revolving credit facility agreement dated January 17, 2011, between, among others, the Company, Barclays Bank PLC as agent and the Security Agent, as amended, restated or otherwise modified or varied from time to time.
“S&P” means Standard & Poor’s Ratings Group.
“Securitization Assets” means any accounts receivable, inventory, royalty or revenue streams from sales of inventory subject to a Qualified Securitization Financing.
“Securitization Fees” means distributions or payments made directly or by means of discounts with respect to any participation interest issued or sold in connection with, and other fees paid to a Person that is not the Company or any of its Restricted Subsidiaries in connection with any Qualified Securitization Financing.
“Securitization Repurchase Obligation” means any obligation of a seller of Securitization Assets in a Qualified Securitization Financing to repurchase Securitization Assets arising as a result of a breach of a representation, warranty or covenant or otherwise, including as a result of a receivable or portion thereof becoming subject to any asserted defence, dispute, off-set or counterclaim of any kind as a result of any action taken by, any failure to take action by or any other event relating to the seller.
“Security Agent” means Barclays Bank PLC, until a successor replaces it in accordance with the applicable provisions of the Indenture or the Intercreditor Agreement and thereafter means the successor thereof.
“Security Documents” means the share pledges and any other instrument and document executed and delivered pursuant to the Indenture or otherwise or any of the foregoing, as the same may be amended, supplemented or otherwise modified from time to time and pursuant to which the Collateral is pledged, assigned or granted to or on behalf of the Security Agent for the benefit of the holders of the Notes and the Trustee or notice of such pledge, assignment or grant is given.
“Senior Secured Indebtedness” means, with respect to any Person, the sum of the aggregate outstanding Indebtedness (other than (i) Capital Lease Obligations, mortgage financings or purchase money obligations incurred pursuant to clause (4) of the definition of Permitted Debt and (ii) Indebtedness of the type specified in clauses (6), (8), (10), (11), (12), (13) and (15) of the definition of Permitted Debt) of that Person and its Restricted Subsidiaries that is secured by Lien and Indebtedness of a Restricted Subsidiary of the Company that is not a Guarantor.
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“Significant Subsidiary” means, at the date of determination, any Restricted Subsidiary that together with its Subsidiaries which are Restricted Subsidiaries (i) for the most recent fiscal year, accounted for more than 10% of the consolidated revenues of the Company or (ii) as of the end of the most recent fiscal year, was the owner of more than 10% of the consolidated assets of the Company.
“Stated Maturity” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Issue Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
“Subordinated Shareholder Debt” means, collectively, any debt provided to the Company by any direct or indirect parent of the Company or any Permitted Holder or Related Party, in exchange for or pursuant to any security, instrument or agreement other than Capital Stock, together with any such security, instrument or agreement and any other security or instrument other than Capital Stock issued in payment of any obligation under any Subordinated Shareholder Debt; provided that such Subordinated Shareholder Debt:
(1) does not (including upon the happening of any event) mature or require any amortization or other payment of principal prior to the first anniversary of the Stated Maturity of the Notes (other than through conversion or exchange of any such security or instrument for Equity Interests of the Company (other than Disqualified Stock) or for any other security or instrument meeting the requirements of the definition);
(2) does not (including upon the happening of any event) require the payment of cash interest prior to the first anniversary of the Stated Maturity of the Notes;
(3) does not (including upon the happening of any event) provide for the acceleration of its maturity nor confers on its shareholders any right (including upon the happening of any event) to declare a default or event of default or take any enforcement action, in each case, prior to the first anniversary of the Stated Maturity of the Notes;
(4) is not secured by a lien on any assets of the Company or a Restricted Subsidiary and is not guaranteed by any Subsidiary of the Company;
(5) is subordinated in right of payment to the prior payment in full in cash of the Notes in the event of any default, bankruptcy, reorganization, liquidation, winding up or other disposition of assets of the Company at least to the same extent as the Notes are subordinated to “Senior Debt” (as defined in the Intercreditor Agreement) under the Intercreditor Agreement;
(6) does not (including upon the happening of any event) restrict the payment of amounts due in respect of the Notes or compliance by the Company with its obligations under the Notes and the Indenture;
(7) does not (including upon the happening of an event) constitute Voting Stock; and
(8) is not (including upon the happening of any event) mandatorily convertible or exchangeable, or convertible or exchangeable at the option of the holder, in whole or in part, prior to the date on which the Notes mature other than into or for Capital Stock (other than Disqualified Stock) of the Company,
provided, however, that any event or circumstance that results in such Indebtedness ceasing to qualify as Subordinated Shareholder Debt, such Indebtedness shall constitute an incurrence of such Indebtedness by the Company, and any and all Restricted Payments made through the use of the net proceeds from the incurrence of such Indebtedness since the date of the original issuance of such Subordinated Shareholder Debt shall constitute new Restricted Payments that are deemed to have been made after the date of the original issuance of such Subordinated Shareholder Debt.
“Subsidiary” means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
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(2) any partnership or limited liability company of which (a) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general and limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, whether in the form of membership, general, special or limited partnership interests or otherwise, and (b) such Person or any Subsidiary of such Person is a controlling general partner or otherwise controls such entity.
“Swiss Government Bond Rate” means the yield to maturity at the time of computation of direct obligations of the Swiss Confederation (Staatsanleihen) with a constant maturity (as officially compiled and published in the most recent financial statistics that has become publicly available at least two Business Days (but not more than five Business Days) prior to the redemption date (or, if such financial statistics are not so published or available, any publicly available source of similar market data selected by the Company in good faith)) most nearly equal to the period from the redemption date to January 31, 2014; provided, however, that if the period from the redemption date to January 31, 2014 is not equal to the constant maturity of a direct obligation of the Swiss Confederation for which a weekly average yield is given, the Swiss Government Bond Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of direct obligations of the Swiss Confederation for which such yields are given, except that if the period from such redemption date to January 31, 2014 is less than one year, the weekly average yield on actually traded direct obligations of the Swiss Confederation adjusted to a constant maturity of one year shall be used.
“Swiss Government Obligations” means any security that is (1) a direct obligation of Switzerland for the payment of which the full faith and credit of Switzerland is pledged or (2) an obligation of a person controlled or supervised by and acting as an agency or instrumentality of Switzerland the payment of which is unconditionally guaranteed as a full faith and credit obligation by Switzerland, which, in either case under the preceding clause (1) or (2), is not callable or redeemable at the option of the issuer thereof.
“Target” means Swissport International Ltd.
“Tax” means any tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and any other additions thereto, and, for the avoidance of doubt, including any withholding or deduction for or on account of Tax). “Taxes” and “Taxation” shall be construed to have corresponding meanings.
“Total Assets” means the consolidated total assets of the Company and its Restricted Subsidiaries, as shown on the most recent balance sheet of the Company.
“Transactions” means the Acquisition and the related transactions, including the offering of the Notes.
“Treasury Rate” means the yield to maturity at the time of computation of U.S. Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two Business Days (but not more than five Business Days) prior to the redemption date (or, if such statistical release is not so published or available, any publicly available source of similar market date selected by the Company in good faith)) most nearly equal to the period from the redemption date to January 31, 2014; provided, however, that if the period from the redemption date to January 31, 2014 is not equal to the constant maturity of a U.S. Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by a linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of U.S. Treasury securities for which such yields are given, except that if the period from the redemption date to January 31, 2014 is less than one year, the weekly average yield on actually traded U.S. Treasury securities adjusted to a constant maturity of one year shall be used.
“Unrestricted Subsidiary” means any Subsidiary of the Company (other than the Company or any successor to the Company) that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) except as permitted by the covenant described above under the caption “—Certain Covenants—Transactions with Affiliates,” is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; and
(3) is a Person with respect to which neither the Company nor any Restricted Subsidiary has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results.
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“U.S. Government Obligations” means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit.
“Voting Stock” of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(2) the then outstanding principal amounts of such Indebtedness.
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BOOK-ENTRY, DELIVERY AND FORM
General
Notes sold to qualified institutional buyers in reliance on Rule 144A under the U.S. Securities Act will initially be represented by a global note in registered form without interest coupons attached (the “Rule 144A Global Note”). Notes sold to persons outside the United States in reliance on Regulation S under the U.S. Securities Act will initially be represented by a global note in registered form without interest coupons attached (the “Regulation S Global Note” and, together with the Rule 144A Global Note, the “Global Notes”). The Global Notes representing the CHF Notes (“CHF Global Notes”) will be deposited, on the closing date, with a common depository and registered in the name of the nominee of the common depository for the accounts of Euroclear and Clearstream. The Global Notes representing the Dollar Notes (“Dollar Global Notes”) will be deposited upon issuance with the Trustee as custodian for DTC and registered in the name of Cede & Co., as nominee of DTC.
Ownership of interests in the Rule 144A Global Note (“Rule 144A Book-Entry Interests”) and ownership of interests in the Regulation S Global Note (the “Regulation S Book-Entry Interests” and, together with the Rule 144A Book-Entry Interests, the “Book-Entry Interests”) will be limited to persons that have accounts with DTC, Euroclear and/or Clearstream or persons that hold interests through such participants. DTC, Euroclear and Clearstream will hold interests in the Global Notes on behalf of their participants through customers’ securities accounts in their respective names on the books of their respective depositories. Except under the limited circumstances described below, Book-Entry Interests will not be issued in definitive form. The Book-Entry Interests will be issued only in denominations of CHF 150,000 and in integral multiples of CHF 1,000 in excess thereof or in denominations of $150,000 and in integral multiples of $1,000 in excess thereof, as the case may be.
Book-Entry Interests will be shown on, and transfers thereof will be effected only through, records maintained by DTC, Euroclear and Clearstream and their participants. The laws of some jurisdictions, including certain states of the United States, may require that certain purchasers of securities take physical delivery of those securities in definitive form. The foregoing limitations may impair your ability to own, transfer or pledge Book-Entry Interests. In addition, while the Notes are in global form, holders of Book-Entry Interests will not be considered the owners or “holders” of Notes for any purpose.
So long as the Notes are held in global form, DTC, Euroclear and/or Clearstream (or their respective nominees), as applicable, will be considered the sole holders of the Global Notes for all purposes under the Indenture. In addition, participants must rely on the procedures of DTC, Euroclear and Clearstream, and indirect participants must rely on the procedures of DTC, Euroclear and Clearstream and the participants through which they own Book-Entry Interests, to transfer their interests or to exercise any rights of holders of Notes under the Indenture.
Neither we nor the Trustee will have any responsibility, or be liable, for any aspect of the records relating to the Book-Entry Interests.
Definitive Registered Notes
Under the terms of the Indenture, owners of the Book-Entry Interests will receive definitive registered notes (“Definitive Registered Notes”):
(1) if DTC (with respect to the Dollar Global Notes), Euroclear or Clearstream (with respect to the CHF Global Notes) notifies us that it is unwilling or unable to continue to act as depositary and a successor depositary is not appointed by the Issuer within 120 days; or
(2) if the owner of a Book-Entry Interest requests such exchange in writing delivered through DTC, Euroclear or Clearstream following an Event of Default under the Indenture and enforcement action is being taken in respect thereof under the Indenture.
DTC, Euroclear and Clearstream have advised us that upon request by an owner of a Book-Entry Interest described in the immediately preceding clause (2), their current procedure is to request that we issue or cause to be issued Notes in definitive registered form to all owners of Book-Entry Interests.
In such an event, the Registrar will issue Definitive Registered Notes, registered in the name or names and issued in any approved denominations, requested by or on behalf of DTC, Euroclear, Clearstream or us, as applicable (in accordance with their respective customary procedures and based upon directions received from participants reflecting the beneficial ownership of Book-Entry Interests), and such Definitive Registered Notes will bear the restrictive legend as provided in the Indenture, unless that legend is not required by the Indenture or applicable law.
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To the extent permitted by law, we, the Trustee, the Paying Agent and the Registrar shall be entitled to treat the registered holder of any Global Note as the absolute owner thereof and no person will be liable for treating the registered holder as such. Ownership of the Global Notes will be evidenced through registration from time to time at the registered office of the Issuer, and such registration is a means of evidencing title to the Notes.
We will not impose any fees or other charges in respect of the Notes; however, owners of the Book-Entry Interests may incur fees normally payable in respect of the maintenance and operation of accounts in DTC, Euroclear and Clearstream.
Redemption of the Global Notes
In the event that any Global Note (or any portion thereof) is redeemed, DTC, Euroclear and/or Clearstream, as applicable, will redeem an equal amount of the Book-Entry Interests in such Global Note from the amount received by them in respect of the redemption of such Global Note. The redemption price payable in connection with the redemption of such Book-Entry Interests will be equal to the amount received by DTC, Euroclear and Clearstream, as applicable, in connection with the redemption of such Global Note (or any portion thereof). We understand that, under the existing practices of DTC, Euroclear and Clearstream, if fewer than all of the Notes are to be redeemed at any time, DTC, Euroclear and Clearstream will credit their participants’ accounts on a proportionate basis (with adjustments to prevent fractions), by lot or on such other basis as they deem fair and appropriate, provided, however, that no Book-Entry Interest of less than CHF 150,000 or $150,000, as applicable, principal amount may be redeemed in part.
Payments on Global Notes
We will make payments of any amounts owing in respect of the Global Notes (including principal, premium, if any, interest and additional amounts, if any) to the common depositary or its nominee for Euroclear and Clearstream. The common depositary will distribute such payments to participants in accordance with their customary procedures. We will make payments of all such amounts without deduction or withholding for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature, except as may be required by law and as described under “Description of Notes—Additional Amounts.” If any such deduction or withholding is required to be made, then, to the extent described under “Description of Notes—Additional Amounts”, we will pay additional amounts as may be necessary in order for the net amounts received by any holder of the Global Notes or owner of Book-Entry Interests after such deduction or withholding will equal the net amounts that such holder or owner would have otherwise received in respect of such Global Note or Book-Entry Interest, as the case may be, absent such withholding or deduction. We expect that standing customer instructions and customary practices will govern payments by participants to owners of Book-Entry Interests held through such participants.
Under the terms of the Indenture, we and the Trustee will treat the registered holders of the Global Notes (e.g., DTC, Euroclear or Clearstream (or their respective nominee)) as the owner thereof for the purpose of receiving payments and for all other purposes. Consequently, none of us, the Trustee or any of its agents has or will have any responsibility or liability for:
• aspect of the records of DTC, Euroclear, Clearstream or any participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest or for maintaining, supervising or reviewing the records of DTC, Euroclear or Clearstream or any participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest;
• DTC, Euroclear, Clearstream or any participant or indirect participant; or
• the records of the common depositary.
Currency of Payment for the Global Notes
The principal of, premium, if any, and interest on, and all other amounts payable in respect of, the Global Notes will be paid (i) to holders of CHF Notes of interests to such CHF Notes through Euroclear or Clearstream in Swiss francs and (ii) to holders of Dollar Notes of interests to such Dollar Notes through DTC in U.S. dollars, as the case may be.
Action by Owners of Book-Entry Interests
DTC, Euroclear and Clearstream have advised us that they will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described above) only at the direction of one or more participants to whose account the Book-Entry Interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. DTC, Euroclear and Clearstream will not exercise any discretion in the granting of consents, waivers or the
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taking of any other action in respect of the Global Notes. However, if there is an Event of Default under the Notes, DTC, Euroclear and Clearstream, at the request of the holders of the Notes, reserve the right to exchange the Global Notes for definitive registered Notes in certificated form (the “Definitive Registered Notes”), and to distribute such Definitive Registered Notes to their participants.
Transfers
Transfers between participants in DTC, Euroclear or Clearstream will be effected in accordance with DTC, Euroclear and Clearstream’s rules and will be settled in immediately available funds. If a holder of Notes requires physical delivery of Definitive Registered Notes for any reason, including to sell Notes to persons in states that require physical delivery of such securities or to pledge such securities, such holder of Notes must transfer its interests in the Global Notes in accordance with the normal procedures of DTC, Euroclear and Clearstream and in accordance with the procedures set forth in the Indenture governing the Notes.
The Rule 144A Global Note will bear a legend to the effect set forth under “Notice to Investors.” Book-Entry Interests in the Global Notes will be subject to the restrictions on transfers and certification requirements discussed under “Notice to Investors.”
Transfers of Rule 144A Book-Entry Interests to persons wishing to take delivery of Rule 144A Book-Entry Interests will at all times be subject to such transfer restrictions.
Rule 144A Book-Entry Interests may be transferred to a person who takes delivery in the form of a Regulation S Book-Entry Interest only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Regulation S or Rule 144 under the U.S. Securities Act or any other exemption (if available under the U.S. Securities Act).
In connection with transfers involving an exchange of a Regulation S Book-Entry Interest for a Rule 144A Book-Entry Interest, appropriate adjustments will be made to reflect a decrease in the principal amount of the Regulation S Global Note and a corresponding increase in the principal amount of the Rule 144A Global Note.
Definitive Registered Notes may be transferred and exchanged for Book-Entry Interests in a Global Note only as described under “Description of Notes—Transfer and Exchange” and, if required, only if the transferor first delivers to the trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such Notes. See “Notice to Investors.”
Any Book-Entry Interest in one of the Global Notes that is transferred to a person who takes delivery in the form of a Book-Entry Interest in any other Global Note will, upon transfer, cease to be a Book-Entry Interest in the first mentioned Global Note and become a Book-Entry Interest in such other Global Note, and accordingly will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to Book-Entry Interests in such other Global Note for as long as it remains such a Book-Entry Interest.
Information Concerning DTC, Euroclear and Clearstream
All Book-Entry Interests will be subject to the operations and procedures of DTC, Euroclear and Clearstream, as applicable. We provide the following summaries of those operations and procedures solely for the convenience of investors. The operations and procedures of the settlement system are controlled by the settlement system and may be changed at any time. Neither we nor the initial purchasers are responsible for those operations or procedures. DTC has advised the Issuer that it is:
• a limited purpose trust company organized under New York Banking Law;
• a “banking organization” under New York Banking Law;
• a member of the Federal Reserve System;
• a “clearing corporation” within the meaning of the New York Uniform Commercial Code; and
• a “clearing agency” registered under Section 17A of the U.S. Exchange Act.
DTC was created to hold securities for its participants and to facilitate the clearance and settlement of transactions among its participants. It does this through electronic book-entry changes in the accounts of securities participants, eliminating the need for physical movement of securities certificates. DTC participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC’s owners are the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities
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Dealers, Inc. and a number of its direct participants. Others, such as banks, brokers and dealers and trust companies that clear through or maintain a custodial relationship with a direct participant, also have access to the DTC system and are known as indirect participants.
Like DTC, Euroclear and Clearstream hold securities for participating organizations. They facilitate the clearance and settlement of securities transactions between their participants through electronic book-entry changes in accounts of such participants. Euroclear and Clearstream provide various services to their participants, including the safekeeping, administration, clearance, settlement, lending and borrowing of internationally traded securities. Euroclear and Clearstream interface with domestic securities markets. Euroclear and Clearstream participants are financial institutions such as underwriters, securities brokers and dealers, banks, trust companies and certain other organizations. Indirect access to Euroclear and Clearstream is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Euroclear and Clearstream participant, either directly or indirectly.
Because DTC, Euroclear and Clearstream can only act on behalf of participants, who in turn act on behalf of indirect participants and certain banks, the ability of an owner of a beneficial interest to pledges such interest to persons or entities that do not participate in the DTC, Euroclear and/or Clearstream system, or otherwise take actions in respect of such interest, may be limited by the lack of a definitive certificate for that interest. The laws of some jurisdictions require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests to such persons may be limited. In addition, owners of beneficial interests through the DTC, Euroclear or Clearstream systems will receive distributions attributable to the 144A Global Notes only through DTC, Euroclear or Clearstream participants.
Global Clearance and Settlement Under the Book-Entry System
The Notes represented by the Global Notes are expected to be listed on the Official List of the Luxembourg Stock Exchange and admitted for trading on the Euro MTF Market. Transfers of interests in the Global Notes between participants in DTC, Euroclear or Clearstream will be effected in the ordinary way in accordance with their respective system’s rules and operating procedures.
Although DTC, Euroclear and Clearstream currently follow the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants in DTC, Euroclear or Clearstream, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued or modified at any time. None of us, any Guarantor, the trustee or the paying agent will have any responsibility for the performance by DTC, Euroclear, Clearstream or their participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
Initial Settlement
Initial settlement for the Notes will be made in Swiss francs and U.S. dollars, as applicable. Book-Entry Interests owned through DTC, Euroclear or Clearstream accounts will follow the settlement procedures applicable to conventional bonds in registered form. Book-Entry Interests will be credited to the securities custody accounts of DTC, Euroclear and Clearstream holders on the business day following the settlement date against payment for value of the settlement date.
Secondary Market Trading
The Book-Entry Interests will trade through participants of DTC, Euroclear and Clearstream and will settle in same-day funds. Since the purchase determines the place of delivery, it is important to establish at the time of trading of any Book-Entry Interests where both the purchaser’s and the seller’s accounts are located to ensure that settlement can be made on the desired value date.
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CERTAIN TAX CONSIDERATIONS
European Union Directive on the Taxation of Savings Interest
The European Union has adopted a directive (Council Directive 2003/48/EC, the “Directive”) regarding the taxation of savings income. The Directive provides for Member States of the European Union to provide to the tax authorities of another Member State details of certain payments of interest and other similar income paid by a person to an individual in that other Member State, except that Austria and Luxembourg may instead impose a withholding system for a transitional period unless during such period they elect otherwise. The Directive does not preclude Member States from levying other types of withholding tax. A number of non-European Union countries, and certain dependent or associated territories of certain Member States, have agreed to adopt similar measures (either provision of information or transitional withholding).
The European Commission has published proposals for amendments to the Directive, which, if implemented, would amend and broaden the scope of the requirements above.
If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any paying agent nor any other person would be obliged to pay additional amounts to the holder of the Notes or to otherwise compensate the holder of Notes for the reduction in the amounts that they will receive as a result of the imposition of such withholding tax. However, the Issuer is required to maintain a Paying Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to the Directive (if such a state exists).
Certain general Luxembourg tax considerations
No Luxembourg withholding tax applies on repayment of principal or premium as well as payment of fixed or floating rate interest. Since no paying agent established in Luxembourg makes payments on the Notes, no Luxembourg withholding tax applies under the Directive.
United States Federal Income Tax Considerations
TO COMPLY WITH INTERNAL REVENUE SERVICE CIRCULAR 230, PROSPECTIVE INVESTORS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES CONTAINED OR REFERRED TO IN THIS OFFERING MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED BY PROSPECTIVE INVESTORS, FOR THE PURPOSES OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THEM UNDER THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”); (B) SUCH DISCUSSION IS BEING USED IN CONNECTION WITH THE PROMOTION OR MARKETING BY US OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) PROSPECTIVE INVESTORS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
The following discussion is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of the Notes by a U.S. holder (defined below), but does not purport to be a complete analysis of all potential tax effects. This summary is based upon Code, Treasury regulations issued thereunder, and judicial and administrative interpretations thereof, each as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. No rulings from the Internal Revenue Service (“IRS”) have been or are expected to be sought with respect to the matters discussed below. There can be no assurance that the IRS will not take a different position concerning the tax consequences of the purchase, ownership or disposition of the Notes or that any such position would not be sustained.
This discussion does not address all of the U.S. federal income tax consequences that may be relevant to a holder in light of such holder’s particular circumstances or to holders subject to special rules, such as financial institutions, U.S. expatriates, insurance companies, dealers in securities or currencies, traders in securities, U.S. holders whose functional currency is not the U.S. dollar, tax-exempt organizations, regulated investment companies, real estate investment trusts, partnerships or other pass through entities (or investors in such entities), persons liable for alternative minimum tax and persons holding the Notes as part of a “straddle,” “hedge,” “conversion transaction” or other integrated transaction. In addition, this discussion is limited to persons who purchase the Notes for cash at original issue and at their “issue price” (as defined below) and who hold the Notes as capital assets within the meaning of section 1221 of the Code.
For purposes of this discussion, a “U.S. holder” is a beneficial owner of a Note that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States; (ii) a corporation or any entity taxable as a corporation created or organized under the laws of the United States, any state thereof or the District of Columbia; (iii) any estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more
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U.S. persons have the authority to control all substantial decisions of the trust, or if a valid election is in place to treat the trust as a U.S. person. If any entity treated as a partnership for U.S. federal income tax purposes holds the Notes, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A holder that is a partnership, and partners in such partnerships, should consult their tax advisors regarding the tax consequences of the purchase, ownership and disposition of the Notes.
Prospective purchasers of the Notes should consult their tax advisors concerning the tax consequences of holding Notes in light of their particular circumstances, including the application of the U.S. federal income tax considerations discussed below, as well as the application of U.S. federal estate and gift tax laws and state, local, foreign or other tax laws.
Payments of Stated Interest
Payments of stated interest on the Notes (including any non-U.S. tax withheld on such payments) generally will be taxable to a U.S. holder as ordinary income at the time that such payments are received or accrued, in accordance with such U.S. holder’s method of accounting for U.S. federal income tax purposes.
A U.S. holder of a Note denominated in a single foreign currency (a “Foreign Currency Note”) that uses the cash method of accounting for U.S. federal income tax purposes and that receives a payment of stated interest will be required to include in ordinary income the U.S. dollar value of the foreign currency interest payment (translated at the “spot rate” on the date such payment is received) regardless of whether the payment is in fact converted to U.S. dollars. A cash method U.S. holder will not recognize exchange gain or loss with respect to the receipt of such payment, but may have exchange gain or loss attributable to the actual disposition of the foreign currency so received.
A U.S. holder of a Foreign Currency Note that uses the accrual method of accounting for U.S. federal income tax purposes will be required to include in income the U.S. dollar value of the amount of interest income in foreign currency that has accrued with respect to a Foreign Currency Note during an accrual period. The U.S. dollar value of such accrued income will be determined by translating such income at the average rate of exchange for the accrual period or, with respect to an accrual period that spans two taxable years, at the average rate for the partial period within each taxable year. A U.S. holder of a Foreign Currency Note may elect, however, to translate such accrued interest income using the rate of exchange on the last day of the accrual period or, with respect to an accrual period that spans two taxable years, using the rate of exchange on the last day of the portion of the accrual period within each taxable year. If the last day of an accrual period is within five business days of the date of receipt of the accrued interest, a U.S. holder may translate such interest at the “spot rate” on the date of receipt. The above election will apply to other obligations held by the U.S. holder and may not be changed without the consent of the IRS. A U.S. holder of a Foreign Currency Note that uses the accrual method of accounting for U.S. federal income tax purposes will recognize exchange gain or loss with respect to accrued interest income on the date such interest is received. The amount of exchange gain or loss recognized will equal the difference, if any, between the U.S. dollar value of the foreign currency payment received (translated at the “spot rate” on the date such payment is received) in respect of such accrual period and the U.S. dollar value of interest income that has accrued during such accrual period (as determined above), regardless of whether the payment is in fact converted to U.S. dollars. Such gain or loss will generally constitute ordinary income or loss and be treated as U.S. source income or as an offset to U.S. source income, respectively.
Foreign Tax Credit
Subject to the discussion of exchange gain or loss, interest income on a Note generally will constitute foreign source income and generally will be considered “passive category income” or, in the case of certain U.S. holders, “general category income” in computing the foreign tax credit allowable to U.S. holders under U.S. federal income tax laws. Any non-U.S. withholding tax paid by a U.S. holder at a rate applicable to such holder may be eligible for foreign tax credits (or deduction in lieu of such credits) for U.S. federal income tax purposes, subject to applicable limitations. The calculation of foreign tax credits involves the application of complex rules that depend on a U.S. holder’s particular circumstances. U.S. holders should consult their independent tax advisors regarding the availability of foreign tax credits.
Sale, Exchange, Redemption, Retirement or Other Taxable Disposition of Notes
Generally, upon the sale, exchange, redemption, retirement or other taxable disposition of a Note, a U.S. holder will recognize taxable gain or loss equal to the difference between the amount realized (in the case of a Foreign Currency Note, the U.S. dollar value of such amount) on the disposition (less any amount attributable to accrued but unpaid interest not previously included in income, which will be taxable as such) and such U.S. holder’s adjusted tax basis in the Note. If a Foreign Currency Note is traded on an established securities market, a cash basis U.S. holder and, if it so elects, an accrual basis U.S. holder will determine the U.S. dollar value of the amount realized by translating such amount at the “spot rate” on the settlement date of the disposition. If a U.S. holder is an accrual basis taxpayer that is not able to make or has not made the settlement date election described in the preceding sentence, such holder will recognize foreign
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currency exchange gain or loss (taxable as ordinary income or loss) to the extent that the U.S. dollar value of the foreign currency received (based on the spot rate on the settlement date) differs from the U.S. dollar value of the amount realized (based on the spot rate on the disposition date).
A U.S. holder’s adjusted tax basis in a Note will generally equal the cost of such Note to such U.S. holder, decreased by any principal payments previously received by such U.S. holder. If a U.S. holder uses foreign currency to purchase a Foreign Currency Note, the cost of the Foreign Currency Note will be the U.S. dollar value of the foreign currency purchase price on the date of purchase. A U.S. Holder who purchases a Foreign Currency Note with previously owned foreign currency will recognize ordinary income or loss in an amount equal to the difference, if any, between such U.S. Holder’s tax basis in the foreign currency and the U.S. dollar fair market value of the Foreign Currency Note on the date of purchase. In the case of a Foreign Currency Note that is traded on an established securities market, a cash basis U.S. holder, and, if it so elects, an accrual basis U.S. holder, will determine the U.S. dollar value of the cost of such Foreign Currency Note by translating the amount paid at the “spot rate” of exchange on the settlement date of the purchase. The conversion of U.S. dollars to a foreign currency and the immediate use of that currency to purchase a Foreign Currency Note generally will not result in taxable gain or loss for a U.S. holder.
The special election available to accrual basis U.S. holders in regard to the purchase and sale of Foreign Currency Notes traded on an established securities market, which is discussed in the preceding paragraphs, must be applied consistently to all debt instruments from year to year and cannot be changed without the consent of the IRS.
Subject to the discussion of exchange gain or loss below, gain or loss recognized upon the sale, exchange, redemption, retirement or other taxable disposition of a Note (i) generally will be U.S. source gain or loss and (ii) generally will be capital gain or loss and will be long-term capital gain or loss if at the time of the sale, exchange, redemption, retirement or other disposition the Note has been held by such U.S. holder for more than one year. Long-term capital gain realized by a non-corporate U.S. holder will generally be subject to taxation at a reduced rate. The deductibility of capital losses is subject to limitation. Prospective purchasers should consult their tax advisors as to the foreign tax credit implications of the sale, exchange, redemption or other taxable disposition of the Notes.
Upon the sale, exchange, redemption, retirement or other taxable disposition of a Foreign Currency Note, a U.S. holder may recognize gain or loss that is attributable to fluctuations in currency exchange rates with respect to the principal amount of such Foreign Currency Note. For these purposes, the principal amount of a Foreign Currency Note is the U.S. holder’s purchase price of the Foreign Currency Note in the relevant foreign currency. Gain or loss attributable to fluctuations in exchange rates with respect to the principal amount of such Foreign Currency Note generally will equal the difference between (i) the U.S. dollar value of the principal amount of the Foreign Currency Note, determined on the date such payment is received from us for the Foreign Currency Note or such Foreign Currency Note is disposed of, and (ii) the U.S. dollar value of the principal amount of the Foreign Currency Note, determined on the date the U.S. holder acquired such Foreign Currency Note. Such gain or loss will be treated as ordinary income or loss and generally will be treated as U.S. source income or as an offset to U.S. source income, respectively. In addition, exchange gain or loss may be realized with respect to accrued interest as discussed under “—Payments of Stated Interest.” However, upon a sale, exchange, redemption, retirement or other taxable disposition of a Foreign Currency Note, a U.S. holder will realize exchange gain or loss with respect to principal and accrued interest only to the extent of the total gain or loss realized on the disposition.
Exchange Gain or Loss with Respect to Foreign Currency
A U.S. holder will have a tax basis in any foreign currency received as interest or upon the sale, exchange, redemption, retirement or other taxable disposition of a Foreign Currency Note, equal to the U.S. dollar value thereof at the “spot rate” on the date the interest is received or, in the case of a payment received in consideration of the sale or other disposition, on the date used to compute exchange gain or loss with respect to such disposition (as discussed under “—Sale, Exchange, Redemption, Retirement or Other Taxable Disposition of Notes”). Any gain or loss realized by a U.S. holder on a sale or other disposition of the foreign currency, including their exchange for U.S. dollars, will be ordinary income or loss and generally will be income from sources within the United States for U.S. foreign tax credit purposes.
Tax Return Disclosure Requirement
Treasury regulations issued under the Code meant to require the reporting of certain tax shelter transactions cover transactions generally not regarded as tax shelters, including certain foreign currency transactions. Under the Treasury regulations, certain transactions are required to be reported to the IRS, including, in certain circumstances, a sale, exchange, retirement or other taxable disposition of a foreign currency note or foreign currency received in respect of a foreign currency note to the extent that any such sale, exchange, retirement or other taxable disposition results in a tax loss in excess of a threshold amount. U.S. holders should consult their tax advisors to determine the tax return
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obligations, if any, with respect to an investment in the Foreign Currency Notes, including any requirement to file IRS Form 8886 (Reportable Transaction Disclosure Statement).
Certain Information Reporting Requirements
For taxable years beginning after March 18, 2010, new legislation requires certain U.S. holders who are individuals to report information relating to an interest in our Notes, subject to certain exceptions (including an exception for Notes held in accounts maintained by certain financial institutions). Under certain circumstances, an entity may be treated as an individual for purposes of the foregoing rules. U.S. holders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of the Notes.
Backup Withholding and Related Information Reporting Requirements
In general, payments of interest and the proceeds from sales or other dispositions (including retirements or redemptions) of Notes held by a U.S. holder may be required to be reported to the IRS unless the U.S. holder is an exempt recipient and, when required, demonstrates this fact. In addition, a U.S. holder that is not an exempt recipient may be subject to backup withholding unless it provides a taxpayer identification number and otherwise complies with applicable certification requirements.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s U.S. federal income tax liability and may entitle the holder to a refund, provided that the appropriate information is timely furnished to the IRS.
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ERISA CONSIDERATIONS
General
The U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”), imposes certain requirements on employee benefit plans subject to Title I of ERISA and on entities that are deemed to hold the assets of such plans (collectively, “ERISA Plans”), and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA’s general fiduciary requirements, including, but not limited to, the requirement of investment prudence and diversification and the requirement that an ERISA Plan’s investments be made in accordance with the documents governing the plan.
Section 406 of ERISA and Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, “Plans”)) and certain persons (referred to as “parties in interest” or “disqualified persons”) having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code.
Any Plan fiduciary which proposes to cause a Plan to purchase the Notes should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such an investment, and to confirm that such purchase and holding will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA.
Non-U.S. plans, governmental plans and certain church plans, while not subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to non-U.S., state, local or other federal laws or regulations that are substantially similar to the foregoing provisions of ERISA and the Code (“Similar Law”). Fiduciaries of any such plans should consult with their counsel before purchasing the Notes to determine the need for, and the availability, if necessary, of any exemptive relief under any such law or regulations.
Prohibited Transaction Exemptions
The fiduciary of a Plan that proposes to purchase and hold any Notes should consider, among other things, whether such purchase and holding may involve (i) the direct or indirect extension of credit to a party in interest or a disqualified person, (ii) the sale or exchange of any property between a Plan and a party in interest or a disqualified person, or (iii) the transfer to, or use by or for the benefit of, a party in interest or disqualified person, of any Plan assets. Such parties in interest or disqualified persons could include, without limitation, the Issuer, the Guarantors, the underwriters, Trustee, the agents, the lenders under the Issuer’s Revolving Credit Facility or any of their respective affiliates. Depending on the satisfaction of certain conditions which may include the identity of the Plan fiduciary making the decision to acquire or hold the Notes on behalf of a Plan, Section 408(b)(17) of ERISA, Section 4975(d)(20) of the Code or Prohibited Transaction Class Exemption (“PTCE”) 84-14 (relating to transactions effected by a “qualified professional asset manager”), PTCE 90-1 (relating to investments by insurance company pooled separate accounts), PTCE 91-38 (relating to investments by bank collective investment funds), PTCE 95-60 (relating to investments by insurance company general accounts) or PTCE 96-23 (relating to transactions directed by an in-house asset manager) (collectively, the “Class Exemptions”) could provide an exemption from the prohibited transaction provisions of ERISA and Section 4975 of the Code. However, there can be no assurance that any of these Class Exemptions or any other exemption will be available with respect to any particular transaction involving the Notes.
By its purchase of any Note, the purchaser thereof will be deemed to have represented and warranted that either:
(1) no assets of a Plan or non-U.S., governmental or church plan have been used to acquire such Notes or an interest therein; or
(2) the purchase and holding of such Notes or an interest therein by such person do not constitute a non-exempt prohibited transaction under ERISA or the Code or violation of Similar Law.
Each Plan fiduciary (and each fiduciary for non-U.S., governmental or church plans subject to Similar Law) should consult with its legal advisor concerning the potential consequences to the plan under ERISA, the Code or such Similar Laws of an investment in the Notes.
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NOTICE TO INVESTORS
You are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of any of the Notes offered hereby.
The Notes and the Guarantees have not been and will not be registered under the U.S. Securities Act, or any state securities laws, and, unless so registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws. Accordingly, the Notes offered hereby are being offered and sold only to qualified institutional buyers (as defined in Rule 144A under the U.S. Securities Act) in reliance on Rule 144A under the U.S. Securities Act and outside the United States in reliance on Regulation S under the U.S. Securities Act.
In addition, until 40 days after the later of the commencement of the offering and the closing date, an offer or sale of the Notes within the United States by a dealer (whether or not participating in the Offering) may violate the registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than pursuant to Rule 144A.
We have not registered and will not register the Notes or the Guarantees under the U.S. Securities Act and, therefore, the Notes may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act. Accordingly, we are offering and selling the Notes to the initial purchasers for re-offer and resale only:
• in the United States to “qualified institutional buyers,” commonly referred to as “QIBs,” as defined in Rule 144A in compliance with Rule 144A; and
• outside the United States in accordance with Regulation S.
We use the terms “offshore transaction” and “United States” with the meanings given to them in Regulation S.
Each purchaser of Notes, by its acceptance thereof, will be deemed to have acknowledged, represented to and agreed with us and the initial purchasers as follows:
(1) You understand and acknowledge that the Notes and the Guarantees have not been registered under the U.S. Securities Act or any other applicable securities laws and that the Notes are being offered for resale in transactions not requiring registration under the U.S. Securities Act or any other securities laws, including sales pursuant to Rule 144A under the U.S. Securities Act, and, unless so registered, may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the U.S. Securities Act or any other applicable securities laws, pursuant to an exemption therefrom or in any transaction not subject thereto and in each case in compliance with the conditions for transfer set forth in paragraphs (4) and (5) below.
(2) You are not our “affiliate” (as defined in Rule 144 under the U.S. Securities Act) or acting on our behalf and that either:
• you are a QIB, within the meaning of Rule 144A under the U.S. Securities Act, and are aware that any sale of these Notes to you will be made in reliance on Rule 144A under the U.S. Securities Act, and such acquisition will be for your own account or for the account of another QIB; or
• you are purchasing the Notes in an offshore transaction in accordance with Regulation S under the U.S. Securities Act.
(3) You acknowledge that none of us, the Issuer, the Guarantors, or the initial purchasers, nor any person representing any of them, has made any representation to you with respect to us, the Issuer and its subsidiaries or the offer or sale of any of the Notes, other than the information contained in this Offering Memorandum, which Offering Memorandum has been delivered to you and upon which you are relying in making your investment decision with respect to the Notes. You acknowledge that neither the initial purchasers nor any person representing the initial purchasers make any representation or warranty as to the accuracy or completeness of this Offering Memorandum. You have had access to such financial and other information concerning us, the Issuer and its subsidiaries and the Notes as you have deemed necessary in connection with your decision to purchase any of the Notes, including an opportunity to ask questions of, and request information from, us and the initial purchasers.
(4) You are purchasing the Notes for your own account, or for one or more investor accounts for which you are acting as a fiduciary or agent, in each case for investment, and not with a view to, or for offer
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or sale in connection with, any distribution thereof in violation of the U.S. Securities Act or any state securities laws, subject to any requirement of law that the disposition of your property or the property of such investor account or accounts be at all times within its or their control and subject to your or their ability to resell such Notes pursuant to Rule 144A, Regulation S or any other exemption from registration available under the U.S. Securities Act.
(5) In the case of a Rule 144A Note, you agree on your own behalf and on behalf of any investor account for which you are purchasing the Notes, and each subsequent holder of the Notes by its acceptance thereof will be deemed to agree, to offer, sell or otherwise transfer such Notes prior to the date (the “Resale Restriction Termination Date”) that is one year after the later of the date of the original issue and the last date on which we or any of our affiliates were the owner of such Notes (or any predecessor thereto) only (i) to the Issuer, (ii) pursuant to a registration statement that has been declared effective under the U.S. Securities Act, (iii) for so long as the Notes are eligible for resale pursuant to Rule 144A under the U.S. Securities Act, to a person you reasonably believe is a QIB that purchases for its own account or for the account of a QIB to whom notice is given that the transfer is being made in reliance on Rule 144A under the U.S. Securities Act, (iv) pursuant to offers and sales that occur outside the United States in compliance with Regulation S under the U.S. Securities Act or (v) pursuant to any other available exemption from the registration requirements of the U.S. Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control and to compliance with any applicable state securities laws, and any applicable local laws and regulations, and further subject to our and the trustee’s rights prior to any such offer, sale or transfer (I) pursuant to clause (v) to require the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them and (II) in each of the foregoing cases, to require that a certificate of transfer in the form appearing on the reverse of the security is completed and delivered by the transferor to the Trustee. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date.
(6) You agree that either (i) no assets of a Plan or non-U.S., governmental or church plan have been used to acquire the Notes or an interest therein or (ii) the purchase and holding of the Notes or an interest therein by you do not constitute a non-exempt prohibited transaction under ERISA or the Code or violation of Similar Law.
Each purchaser acknowledges that each Rule 144A Note will contain a legend substantially to the following effect:
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE “RESALE RESTRICTION TERMINATION DATE”) THAT IS IN ONE YEAR AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) ONLY (A) TO THE ISSUER, THE GUARANTORS OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE U.S. SECURITIES ACT (“RULE 144A”), TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY
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OF SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL AND TO COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, AND ANY APPLICABLE LOCAL LAWS AND REGULATIONS AND FURTHER SUBJECT TO THE ISSUER’S AND THE TRUSTEE’S RIGHTS PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE AND (III) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
If you purchase Notes, you will also be deemed to acknowledge that the foregoing restrictions apply to holders of beneficial interests in these Notes as well as to holders of these Notes.
(7) You agree that you will give to each person to whom you transfer the Notes notice of any restrictions on the transfer of such Notes.
(8) You acknowledge that the Registrar will not be required to accept for registration or transfer any Notes acquired by you except upon presentation of evidence satisfactory to us and the Registrar that the restrictions set forth therein have been complied with.
(9) You acknowledge that we, the initial purchasers and others will rely upon the truth and accuracy of your acknowledgements, representations, warranties and agreements and agrees that if any of the acknowledgements, representations, warranties and agreements deemed to have been made by your purchase of the Notes are no longer accurate, it shall promptly notify the initial purchasers. If you are acquiring any Notes as a fiduciary or agent for one or more investor accounts, you represent that you have sole investment discretion with respect to each such investor account and that you have full power to make the foregoing acknowledgements, representations and agreements on behalf of each such investor account.
(10) You understand that no action has been taken in any jurisdiction (including the United States) by us or the initial purchasers that would result in a public offering of the Notes or the possession, circulation or distribution of this Offering Memorandum or any other material relating to us or the Notes in any jurisdiction where action for such purpose is required. Consequently, any transfer of the Notes will be subject to the selling restrictions set forth under “Plan of Distribution.”
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PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in a purchase agreement (the “Purchase Agreement”) to be dated as of the date of this Offering Memorandum, the Issuer has agreed to sell to each initial purchaser, and each initial purchaser has agreed, severally and not jointly, to purchase from the Issuer the CHF Notes in an aggregate principal amount of CHF 350,000,000 and Dollar Notes in an aggregate principal amount of $425,000,000. The initial purchasers are Citigroup Global Markets Limited, Barclays Bank PLC, BNP Paribas, Royal Bank of Canada Europe Limited and UBS Limited.
The Purchase Agreement provides that the obligations of the initial purchasers to pay for and accept delivery of the Notes are subject to, among other conditions, the delivery of certain legal opinions by counsel.
The initial purchasers propose to offer the Notes initially at the price indicated on the cover page hereof. After the initial Offering, the offering price and other selling terms of the Notes may from time to time be varied by the initial purchasers without notice.
Persons who purchase Notes from the initial purchasers may be required to pay stamp duty, taxes and other charges in accordance with the laws and practice of the country of purchase in addition to the offering price set forth on the cover page hereof.
The Purchase Agreement provides that we will indemnify and hold harmless the initial purchasers against certain liabilities, including liabilities under the U.S. Securities Act, and will contribute to payments that the initial purchasers may be required to make in respect thereof. We have agreed, subject to certain limited exceptions, not to offer, sell, contract to sell or otherwise dispose of, except as provided under the Purchase Agreement, any securities of, or guaranteed by, the Issuer or any of the Guarantors or affiliates that are substantially similar to the Notes during the period from the date of the Purchase Agreement through and including the date 120 days after the date of the Purchase Agreement.
The Notes and the Guarantees have not been and will not be registered under the U.S. Securities Act and may not be offered or sold within the United States except to qualified institutional buyers in reliance on Rule 144A under the U.S. Securities Act and outside the United States in reliance on Regulation S under the U.S. Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the U.S. Securities Act. Resales of the Notes are restricted as described under “Notice to Investors.”
Each initial purchaser has represented, warranted and agreed that it:
• has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to us or the Guarantors; and
• has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.
No action has been taken in any jurisdiction, including the United States and the United Kingdom, by us or the initial purchasers that would permit a public offering of the Notes or the possession, circulation or distribution of this Offering Memorandum or any other material relating to us or the Notes in any jurisdiction where action for this purpose is required. Accordingly, the Notes may not be offered or sold, directly or indirectly, and neither this Offering Memorandum nor any other offering material or advertisements in connection with the Notes may be distributed or published, in or from any country or jurisdiction, except in compliance with any applicable rules and regulations of any such country or jurisdiction. This Offering Memorandum does not constitute an offer to sell or a solicitation of an offer to purchase in any jurisdiction where such offer or solicitation would be unlawful. Persons into whose possession this Offering Memorandum comes are advised to inform themselves about and to observe any restrictions relating to the Offering, the distribution of this Offering Memorandum and resale of the Notes. See “Notice to Certain European Investors.”
The Notes are a new issue of securities for which there currently is no market. We have applied, through our listing agent, to list the Notes on the Official List of the Luxembourg Stock Exchange and trade the Notes on the Euro MTF Market, however, we cannot assure you that the Notes will be approved for listing or that such listing will be maintained.
The initial purchasers are not obligated, however, to make a market in the Notes, and any market-making activity may be discontinued at any time at the sole discretion of the initial purchasers without notice. In addition, any such market-making activity will be subject to the limits imposed by the U.S. Securities Act and the U.S. Securities Exchange Act of 1934, as amended, or the U.S. Exchange Act. Accordingly, we cannot assure you that any market for
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the Notes will develop, that it will be liquid if it does develop, or that you will be able to sell any Notes at a particular time or at a price which will be favorable to you. See “Risk Factors—Risks Relating to our Indebtedness, including the Notes—There may not be an active trading market for the Notes in which case your ability to sell the Notes will be limited.”
We expect that delivery of the Notes will be made against payment on the Notes on or about the date specified on the cover page of this Offering Memorandum, which will be four business days following the date of pricing of the Notes (this settlement cycle is being referred to as “T + 4”). Trades in the secondary market generally settle in three business days unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the Notes on the date of this Offering Memorandum or the next succeeding business day will be required to specify an alternative settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of the Notes who wish to make such trades should consult their own advisors.
In connection with the Offering, the Stabilizing Manager, or persons acting on its behalf, may engage in transactions that stabilize, maintain or otherwise affect the price of the Notes. Specifically, the Stabilizing Manager, or persons acting on its behalf, may bid for and purchase Notes in the open markets to stabilize the price of the Notes. The Stabilizing Manager, or persons acting on its behalf, may also over allot the Offering, creating a syndicate short position, and may bid for and purchase Notes in the open market to cover the syndicate short position. In addition, the Stabilizing Manager, or persons acting on its behalf, may bid for and purchase Notes in market making transactions as permitted by applicable laws and regulations and impose penalty bids. These activities may stabilize or maintain the respective market price of the Notes above market levels that may otherwise prevail. The Stabilizing Manager is not required to engage in these activities, and may end these activities at any time. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Notes. See “Risk Factors—Risks Relating to our Indebtedness, including the Notes—There may not be an active trading market for the Notes in which case your ability to sell the Notes will be limited.”
The initial purchasers or their respective affiliates from time to time have provided in the past and may provide in the future investment banking, financial advisory and commercial banking services to us and our affiliates in the ordinary course of business for which they have received or may receive customary fees and commissions.
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LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon for us by Latham & Watkins (London) LLP, as to matters of United States federal and New York law and English law, by Homburger AG, as to matters of Swiss law, and by Elvinger, Hoss & Prussen to matters of Luxembourg law. Certain legal matters in connection with the Offering will be passed upon for the initial purchasers by Shearman & Sterling LLP, as to certain matters relating to the validity of the Notes and Guarantees, by Pestalozzi Attorneys at Law Ltd, as to matters of Swiss law and by Linklaters LLP, as to matters of Luxembourg law.
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INDEPENDENT AUDITORS
The independent auditors of Swissport International Ltd. for the years ended December 31, 2007, 2008 and 2009 were PricewaterhouseCoopers AG, Birchstrasse 160, 8050 Zurich, Switzerland. The consolidated financial statements of Swissport International Ltd. as of December 31, 2007, 2008 and 2009 and for each of the years ended December 31, 2007, 2008 and 2009, included in this Offering Memorandum have been audited by PricewaterhouseCoopers AG, independent auditors, as stated in their report appearing herein.
The current independent auditors of Swissport International Ltd. are Deloitte AG, General Guisan-Quai 38, 8022 Zurich, Switzerland.
The current independent auditors of the Issuer are Deloitte S.A., 560, route de Neudorf, L-2220 Luxembourg.
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WHERE YOU CAN FIND MORE INFORMATION
We are not currently subject to the periodic reporting and other information requirements of the U.S. Exchange Act.
We have agreed in the Indenture governing these Notes that, if at any time we are not subject to Section 13 or 15(d) of the U.S. Exchange Act, or are exempt from reporting pursuant to Rule 12g3-2(b) of the U.S. Exchange Act, we will, upon request by a holder of the Notes, furnish to such holder or beneficial owner or to the Trustee or any relevant paying agent for delivery to such holder or beneficial owner or prospective purchaser of the Notes, as the case may be, the information required to be delivered pursuant to Rule 144A(d)(4) under the U.S. Securities Act, to permit compliance with Rule 144A thereunder in connection with resales of the Notes. Any such request should be directed to us at Flughoffstrasse 55, 8152 Opfikon, Zürich, Switzerland.
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ENFORCEMENT OF JUDGMENTS
Switzerland
There is doubt as to the enforceability in the Switzerland of civil liabilities based on the securities laws of the United States, either in an original action or in an action to enforce a judgment obtained in U.S. courts. The United States and Switzerland currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. Consequently, a final judgment for payment given by a court in the United States, whether or not predicated solely upon U.S. securities laws, may not be enforceable in Switzerland. However, if a person has obtained a final and conclusive judgment rendered by a U.S. court which is enforceable in the United States and files a claim with the competent Swiss court, the Swiss court may be expected to acknowledge the judgment rendered by the U.S. court, provided that such judgment has not been rendered in violation of elementary principles of fair trial and is not contrary to the public policy of Switzerland and has been rendered by a court which has established its jurisdiction vis-à-vis the relevant party on the basis of a valid submission by such party to the jurisdiction of such U.S. court. In particular, a Swiss court or authority will refuse recognition and enforcement for the following reasons only and may not otherwise review the non-Swiss judgment, including a U.S. judgment, as to its merits: (i) if recognition and enforcement would be irreconcilable with Swiss public policy; or (ii) if a party proves that: it was not duly summoned pursuant to the law of its domicile or ordinary residence unless it made an appearance in the proceedings without objecting to jurisdiction; or (iii) the decision was rendered in violation of fundamental principles of Swiss procedural law, in particular the right to be heard; or (iv) a proceeding between the same parties in the same subject matter was first brought or adjudicated in Switzerland, or that it was earlier adjudicated in a third country and such decision is recognizable in Switzerland. Further, valid submission to the jurisdiction of the U.S. court or authority is established (i) if a provision of the Swiss Federal Act on Private International Law (Bundesgesetz vom 18. Dezember 1987 über das Internationale Privatrecht) so provides or, in the absence of such provision, the defendant had his legal domicile in the country in which the decision was rendered; or (ii) if the parties, in a pecuniary dispute, entered into an agreement valid under the Swiss Federal Act on Private International Law submitting their dispute to the jurisdiction of the court or authority which rendered the judgment; or (iii) if the defendant, in a pecuniary dispute, proceeded on the merits without objecting to jurisdiction; or (iv) if, in the event of a counterclaim, the court or authority which rendered the decision had jurisdiction over the principal claim and if there is a factual connection between the principal claim and the counterclaim. It is uncertain whether this practice extends to default judgments as well. Swiss courts may deny the recognition and enforcement of punitive damages or other awards. Moreover, a Swiss court may reduce the amount of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Enforcement and recognition of judgments of U.S. courts in Switzerland are solely governed by the provisions of the Swiss Civil Procedure Code.
Swiss civil procedure differs substantially from U.S. civil procedure in a number of respects. Insofar as the production of evidence is concerned, U.S. law and the laws of several other jurisdictions based on common law provide for pre-trial discovery, a process by which parties to the proceedings may prior to trial compel the production of documents by adverse or third parties and the deposition of witnesses. Evidence obtained in this manner may be decisive in the outcome of any proceeding. No such pre-trial discovery process exists under Swiss law.
The Netherlands
Recognition and enforcement of judgments obtained in the courts of New York or the United States
Since there is no execution treaty on judgments in civil and commercial matters (other than arbitration awards) between the Netherlands and the United States, New York or any other state of the United States, a judgment obtained in any federal or state court in the United States is not recognized and cannot automatically be enforced in the Netherlands, and must be re-litigated on its merits in the competent Dutch court. The Dutch court is in principle free to assess if and to what extent effect must be given to a foreign judgment. Generally, foreign judgments will be recognized if the following minimum requirements are met: (i) the foreign judge was competent to hear the case on internationally generally accepted grounds, (ii) the foreign judgment was rendered after proper service of process and using proper judicial procedure, (iii) the judgment is final and conclusive in such a way that all appeals have been exhausted and no other remedy could be obtained from a competent judicial body, and (iv) the foreign judgment does not violate the public order (openbare orde) of the Netherlands.
Subject to the foregoing and service of process in accordance with applicable treaties, investors may be able to enforce in the Netherlands judgments in civil and commercial matters obtained from U.S. federal or state courts. However, no assurance can be given that those judgments will be enforceable. In addition, it is doubtful whether a Dutch court would accept jurisdiction and impose civil liability in an original action commenced in the Netherlands and predicated solely upon U.S. federal securities laws.
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Any enforcement of agreements governed by foreign law and any foreign judgments in the Netherlands will be subject to the rules of Dutch civil procedure. Judgments may be rendered in a foreign currency but enforcement is executed in EUR at the applicable rate of exchange. Enforcement of obligations in the Netherlands will be subject to the nature of the remedies available in the courts of the Netherlands. The taking of concurrent proceedings in more than one jurisdiction may be disallowed by the courts of the Netherlands, but such courts have the power to stay proceedings (aanhouden) if concurrent proceedings are being brought elsewhere.
Recognition and enforcement of judgments obtained in the courts of England
Pursuant to article 33 of EU Council Regulation of December 22, 2000 (EU) Nr. 44/2001 on Jurisdiction and Recognition and Enforcement of Judgments in Civil and Commercial Matters, as amended (“Regulation 44/2001”), judgments rendered in England will be recognized and enforced in the Netherlands without any special procedure being required. However, article 34 of Regulation 44/2001 provides that a judgment will, inter alia, not be recognized:
(i) if such recognition is manifestly contrary to public policy in the Member State in which recognition is sought;
(ii) where it was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable the defendant to arrange for his defence, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for the defendant to do so;
(iii) if it is irreconcilable with a judgment given in a dispute between the same parties in the Member State in which recognition is sought; and
(iv) if it is irreconcilable with an earlier judgment given in another Member State or in a third State involving the same cause of action and between the same parties, provided that the earlier judgment fulfils the conditions necessary for its recognition in the Member State addressed.
Moreover, article 35 of Regulation 44/2001 provides that a judgment shall not be recognized if it conflicts with Sections 3, 4 or 6 of Chapter II, or in a case provided for in Article 72 of Regulation 44/2001.
Luxembourg
Enforcement of civil liabilities
The Issuer is Aguila 3 S.A., a société anonyme organized under the laws of Luxembourg. A substantial portion of its assets are located outside the United States and, as a result, you may not be able to enforce in Luxembourg judgments obtained in U.S. courts against the Issuer based on civil liability provisions of the U.S. federal and state securities laws or other laws. We have been advised by our Luxembourg counsel that the United States and the Grand Duchy of Luxembourg are not currently bound by a treaty providing for reciprocal recognition and enforcement of judgments, other than arbitral awards, rendered in civil and commercial matters. According to such counsel, an enforceable judgment for the payment of monies rendered by any U.S. federal or state court based on civil liability, whether or not predicated solely upon the U.S. securities laws, would not directly be enforceable in Luxembourg. However, a party who received such favorable judgment in a U.S. court may initiate enforcement proceedings in Luxembourg (exequatur) by requesting enforcement of the U.S. judgment by the District Court (Tribunal d’Arrondissement) pursuant to Article 678 of the New Luxembourg Code of Civil Procedure. The District Court will authorize the enforcement in Luxembourg of the U.S. judgment if it is satisfied that all of the following conditions are met:
• the U.S. judgment is enforceable (exécutoire) in the United States;
• the U.S. court awarding the judgment has jurisdiction to adjudicate the respective matter under applicable U.S. federal or state jurisdictions rules, and that jurisdiction is recognized by Luxembourg private international law;
• the U.S. court has applied to the dispute the substantive law which would have been applied by the Luxembourg conflict of laws rules;
• the U.S. judgment does not contravene international public policy or order as understood under the laws of Luxembourg or has been given in proceedings of a criminal nature;
• the U.S. court has acted in accordance with its own procedural laws; and
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• the judgment was granted following proceedings where the counterparty had the opportunity to appear, and if it appeared, to present a defence.
In practice, Luxembourg courts now tend not to review the merits of a foreign judgment, although there is no clear statutory prohibition of such review.
If an original action is brought in Luxembourg, Luxembourg courts may refuse to enforce any choice of law provisions if the application of such law would contravene Luxembourg public policy. In a judgment of the Luxembourg District Court, dated January 10, 2008, the Court differed slightly from the traditional rules for enforcing a judgment described above, and decided that, in order to enforce a foreign judgment in Luxembourg, a Luxembourg judge has to make sure that three conditions are fulfilled: (1) the “indirect” competence of the foreign judge based on the connection of the litigation with such judge, (2) the conformity with international public policy requirements, both substantive and procedural, and (3) the absence of fraud to the law. In the judgment, the District Court held that the Luxembourg judge does not need to verify that the (substantive) law applied by the foreign judge is the law which would have been applicable according to Luxembourg conflict of law rules.
Whether the District Court’s opinion described above will develop into the prevailing position of Luxembourg case law cannot be forecast with certainty at this stage, especially considering that in the case at issue the matter was not appealed to the Court of Appeal and because, to the best of our knowledge and belief, having taken all reasonable care to ensure that such is the case, there has been no further case law on the issue since then. To the extent, however, that the District Court’s decision endorsed the solution prevailing in French case law, its decision might, in the future, be endorsed by the Luxembourg courts in general.
Mexico
No treaty exists between the United States and Mexico for the reciprocal enforcement of judgments issued in the other country. Generally, Mexican courts would enforce final judgments rendered in the United States if certain requirements were met, including the review in Mexico of the U.S. judgment to ascertain compliance with certain basic principles of due process and the non-violation of Mexican law or public policy, provided that U.S. courts would grant reciprocal treatment to Mexican judgments. Additionally, there is doubt as to the enforceability, in original actions in Mexican courts, of liabilities predicated, in whole or in part, on U.S. federal securities laws and as to the enforceability in Mexican courts of judgments of U.S. courts obtained in actions predicated on the civil liability provisions of U.S. federal securities laws.
In the event that proceedings are brought in Mexico seeking to enforce our subsidiary guarantors’ obligations in respect of the Notes, we would not be required to discharge such obligations in a currency other than the Mexican peso. Pursuant to Mexican law, an obligation in a currency other than the Mexican peso, which is payable in Mexico, may be satisfied in Mexican currency at the rate of exchange in effect on the date on which payment is made. Such rate of exchange is currently determined by Banco de México each business day in Mexico and published the following business banking day in the Official Gazette of Mexico.
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LIMITATIONS ON VALIDITY AND ENFORCEABILITY OF THE GUARANTEES, THE NOTES SECURITY AND CERTAIN INSOLVENCY LAW CONSIDERATIONS
The following is a summary description of certain limitations on the validity and enforceability of the Guarantees and the security interests for the Notes, and a summary of certain insolvency law considerations in some of the jurisdictions in which the Issuer, the Guarantors and the Subsidiaries are incorporated or organized. The description is only a summary and does not purport to be complete or to discuss all of the limitations or considerations that may affect the validity and enforceability of the Notes, the Guarantees and the security interests. Prospective investors in the Notes should consult their own legal advisors with respect to such limitations and considerations.
European Union
The Issuer and several of the Guarantors are organized under the laws of Member States of the European Union. Pursuant to Council Regulation (EC) no. 1346/2000 on insolvency proceedings (the “EU Insolvency Regulation”), the court which shall have jurisdiction to open insolvency proceedings in relation to a company is the court of the Member State (other than Denmark) where the company concerned has its “centre of main interests” (as that term is used in Article 3(1) of the EU Insolvency Regulation). The determination of where any such company has its “centre of main interests” is a question of fact on which the courts of the different Member States may have differing and even conflicting views.
The term “centre of main interests” is not a static concept and may change from time to time. Although there is a rebuttable presumption under Article 3(1) of the EU Insolvency Regulation that any such company has its “centre of main interests” in the Member State in which it has its registered office, Preamble 13 of the EU Insolvency Regulation states that the “centre of main interests” of a debtor should correspond to the place where the debtor conducts the administration of its interests on a regular basis and “is therefore ascertainable by third parties.” In that respect, factors such as where board meetings are held, the location where the company conducts the majority of its business and the location where the large majority of the company’s creditors are established may all be relevant in the determination of the place where the company has its “centre of main interests.”
If the centre of main interests of a company is and will remain located in the state in which it has its registered office, the main insolvency proceedings in respect of the company under the EU Insolvency Regulation would be commenced in such jurisdiction and accordingly a court in such jurisdiction would be entitled to commence the types of insolvency proceedings referred to in Annex A to the EU Insolvency Regulation. Insolvency proceedings opened in one Member State under the EU Insolvency Regulation are to be recognized in the other Member States (other than Denmark), although secondary proceedings may be opened in another Member State. If the “centre of main interests” of a debtor is in one Member State (other than Denmark), under Article 3(2) of the EU Insolvency Regulation, the courts of another Member State (other than Denmark) have jurisdiction to open “territorial proceedings” only in the event that such debtor has an “establishment” in the territory of such other Member State. The effects of those territorial proceedings are restricted to the assets of the debtor situated in the territory of such other Member State. If the company does not have an establishment in any other Member State, no court of any other Member State has jurisdiction to open territorial proceedings in respect of such company under the EU Insolvency Regulation.
In the event that any one or more of the Issuer, the Guarantors or any of the Subsidiaries experience financial difficulty, it is not possible to predict with certainty in which jurisdiction or jurisdictions insolvency or similar proceedings would be commenced, or the outcome of such proceedings. Applicable insolvency laws may affect the enforceability of the obligations and the security of the Issuer and the Guarantors.
Brazil
Civil claims may be brought before Brazilian courts based on agreements governed by the laws of a foreign jurisdiction, such as the Indenture or the Notes, provided such law does not contravene Brazilian public policy, national sovereignty and good morals, that the choice of law is admissible under Brazilian Law and that Brazilian courts can assert jurisdiction over the particular subject matters. Any foreign documents to be admitted before a Brazilian court must be consularised, notarized, and registered before a Brazilian registry of titles and deeds and, to the extent such foreign document is not written in Portuguese, translated by a sworn translator.
Judgments by non-Brazilian courts ruled upon the laws of jurisdictions other than Brazil may be enforced in Brazil without reconsideration of the merits, by ratification of that judgment by the Brazilian Superior Court of Justice. That confirmation generally will be available if the foreign judgment: (i) fulfills all formalities required for its enforceability under the laws of the country where the foreign judgment is granted; (ii) is issued by a competent court after proper service of process; (iii) is final and therefore not subject to appeals; (iv) provides for the payment of sum certain; (v) is authenticated by a Brazilian consular office in the country where the foreign judgment has been issued and
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accompanied by a sworn translation into Portuguese; and (vi) is not contrary to Brazilian national sovereignty, public policy and good morals. The ratification process may take in an average two years to come to an end.
A plaintiff (whether Brazilian or non-Brazilian) who resides or is incorporated outside Brazil during the course of judicial litigation in Brazil must provide a bond to guarantee court costs and legal fees whenever such plaintiff owns no real property in Brazil that may ensure such payment. This bond must be sufficient to assure payment of court fees and defendant’s attorneys’ fees, as determined by the Brazilian judge, except in the case of the enforcement of foreign judgments that have been duly confirmed by the Brazilian Superior Court of Justice.
Guarantees and Security Interests
Under Brazilian law guarantees may be either personal guarantees pursuant to which all of the assets of a guarantor secure the relevant obligations or, “in rem” guarantees (‘security’ under common law) pursuant to which only certain specific assets are segregated to secure an obligation. The validity and enforceability of guarantees and security interests granted by a Brazilian subsidiary to its parent company abroad, such as the case of Swissport Brazil Ltda., or “Swissport Brasil” vis-à-vis the Issuer hereunder are subject to the effect of bankruptcy, insolvency, moratorium (recuperação judicial e extrajudicial), falência, fraudulent transfer or any other law of general application limiting or affecting the enforcement of contractual or legal rights, and by the effect of general principles of Brazilian civil law, such as probity and good faith and the social function of contracts and property.
Guarantees
A guarantee may be granted by a Brazilian company to guarantee obligations under the Notes or the Indenture and its enforcement, to the extent such guarantee is governed by a foreign law, will be subject to limitations and requirements applicable to foreign agreements as mentioned above. Furthermore, under Brazilian law, certain rights of the guarantor such as, for instance, the right to be released of a guarantee if the guaranteed obligation is deemed null or void, cannot be waived.
Security Interest
Brazilian law must govern security agreements in certain cases, for example, if the asset given as security is a real estate located in Brazil; a share in a company established in Brazil; a receivable governed by Brazilian law; or a movable asset under the possession of a Brazilian resident, in the case of a pledge. The formal requirements of a security interest governed by Brazilian law depend on the nature of the relevant security and on the nature of the assets being granted as security, but will generally include written form, a detailed description of the secured obligations on the security instrument and registration before a competent public registry, failing which the security interest will not produce effects before third parties and will not afford the secured obligation preference in case of insolvency.
Insolvency issues
Under Brazilian Law, one will be considered bankrupt whenever (i) one fails, without legal reason, to pay a debt which is represented by a protested enforceable instrument and exceeds the equivalent of 40 minimum wages, the total of which equates to BRL 21,600; or (ii) foreclosure proceedings are pending and one does not pay, deposit or appoint sufficient assets within the requisite legal term. A debtor may also be considered bankrupt if it (i) sells its assets in advance or resorts to ruinous or fraudulent means to make payments; (ii) performs (or tries to perform by unequivocal actions) a sham transaction or the disposal of part or all of its assets to a third party, with the objective of delaying payments or defrauding creditors; (iii) transfers its place of business without the consent of all creditors and does not maintain sufficient assets to settle its liabilities; (iv) performs a fraudulent (sham) transaction to transfer its main place of business to evade the law or to prejudice a creditor; (v) gives or increases security for an existing debt and does not maintain sufficient free and clear assets to settle its liabilities; (vi) becomes absent without leaving any competent representative with enough resources to pay the creditors; (vii) abandons its place of business or tries to hide from its domicile, head office or main place of business; and/or (viii) fails to perform an obligation due under a court reorganization plan.
Brazilian bankruptcy laws may be less favorable to creditors than those of certain other jurisdictions. Noteholders may have limited voting rights at creditors’ meetings in the context of a court reorganization proceeding, as explained below. In addition, any judgment obtained in Brazilian courts in respect of any payment obligations under the guarantee normally would be expressed in the real equivalent of the foreign currency amount of such sum at the exchange rate in effect (i) on the date of actual payment; (ii) on the date on which such judgment is rendered; or (iii) on the date on which collection or enforcement proceedings are started against a Brazilian company.
In the event of bankruptcy, all of Swissport Brasil’ obligations, including the guarantee and security interest under Indenture or the Notes, which are denominated in foreign currency, will be converted into reais at the prevailing exchange rate on the date of declaration of the bankruptcy by the court.
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Fraud against creditors
Under the allegation of fraud against creditors (fraude contra credores), a creditor, the judicial administrator and/or the public prosecutor may challenge transactions entered into by Swissport Brasil if there is evidence that (i) the insolvency of Swissport Brasil was known at the time the transaction was carried out, or should be known; and/or (ii) the transaction was carried out with the intention of defrauding creditors, there was a fraudulent collusion between Swissport Brasil and the third party involved in the transaction; and the transaction caused effective damages to the insolvent estate of Swissport Brasil. In such a situation, the transaction may be declared null and void, according to the provisions of Brazilian law.
In addition to that, the court can set aside transactions which take place up to 90 days from (as the court decides) the bankruptcy request, the judicial recovery request or the first protest against the debtor due to failure of payment. These transactions include (i) payments of debts that were not due and payable; (ii) payments made in a way which differed from those set out in the relevant contractual agreement; and (iii) the granting of security to existing debts. The court can also set aside, regardless of whether the debtor intended to defraud creditors or the third party to the transaction knew of the debtor’s financial difficulties, (i) transactions for no consideration carried out within two years of the declaration of bankruptcy; and (ii) the sale of the debtor’s business if the value of the debtor’s assets is insufficient to pay its debts and the consent of unpaid creditors’ has not been obtained, unless they have been notified of the sale and have not opposed it within 30 days.
Procedural fraud
Under the allegation of procedural fraud (fraude à execução), a creditor may challenge transactions entered into by Swissport Brasil if there is evidenced that, by the time the transaction took place, (i) there was a pending claim filed against Swissport Brasil; and (ii) the transaction led Swissport Brasil to insolvency, i.e. the payment of the credit held by the creditor is put at risk due to Swissport Brasil’s lack of sufficient assets to cover the payment claimed in the claim. In such case, it is not necessary for the creditor to produce evidentiary support of the fraud (neither guilt, nor evidence of intention), which may be presumed under special circumstances. It is also not necessary for the creditor to file a separate claim against the debtor as well: the transaction will simply be disregarded by the judge in charge of the case, according to the provisions of the Brazilian Civil Procedure Code.
Formal procedures for insolvency
The main types of formal procedures available for companies in financial difficulties are (i) out-of-court recovery (recuperação extra-judicial); (ii) judicial recovery (recuperação judicial); and (iii) bankruptcy (falência). Brazilian Bankruptcy Law provides that some credits are excluded from judicial recovery proceedings (such as State claims and some fiduciary credits) and the measures (before courts or not) taken by the respective holders are not subject to staying effects.
Out-of-court recovery
The out-of-court recovery is a private settlement between debtors and its creditors and which, despite the name, must be submitted to court to become enforceable. All creditors are free to enforce their rights, adopting the proper procedures. Under out-of-court proceeding, shareholders and directors keep the control and management of the company. Debtor and creditors settle the conditions for payment of the debts, and the reorganization plan is submitted to the court for homologation. Creditors may file challenges to the plan, but there are no credit claims (habilitação de crédito).
Judicial recovery
Upon filing of a request for judicial recovery and consequent acceptance of it by the court, certain creditors are refrained from enforcing their rights. Brazilian Bankruptcy Law provides for a stay period of 180 days, during which the creditors cannot bring or continue any legal or foreclosure proceedings against the debtor, except for those creditors which relate to tax claims, employment claims, claim that have a fiduciary claim to the underlying asset, lessors, owners or committed sellers of real estate where the relevant agreement includes an irrevocability or irreversibility clause; and claims that have retention of title clauses or are beneficiaries of forward exchange agreements (however, these creditors cannot sell or remove assets which are deemed essential for the debtor’s activities during the stay period). After such period, without the approval of a reorganization plan, those creditors are entitled to resume their legal proceedings against the debtor (or to initiate them). Shareholders and directors also keep the control and management of the company, but may be removed if certain requirements are met. A court appointed administrator (administrador judicial) will supervise the administrators’ acts in order to guarantee that they will comply with the legal requirements.
The commencement of judicial and out-of-court recoveries does not have the effect of terminating the company’s contracts. Nevertheless, the reorganization plan is able to terminate and/or amend the conditions of those contracts.
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For judicial recovery and bankruptcy proceedings, the debtor must present a list of creditors, classified according to the legal standards, including (i) labor credits; (ii) secured credits; and (iii) unsecured credits as each of those classes of creditors vote separately in the approval of a reorganization plan (cram-down procedures is admissible under Brazilian Bankruptcy Law if the reorganization plan is approved by creditors representing more than half of the amount of all claims represented at the meeting, regardless of class; by two classes of creditor—or one class if there are only two classes of creditor—; and by more than one-third of creditors belonging to the class which rejected the plan). Creditors that were not listed by the debtor are entitled to claim for inclusion (credit qualification). Creditors that disagree with the amount or classification in the list are entitled to claim for correction (correction request). On judicial recovery, all credits should be paid as established in the approved reorganization plan.
Bankruptcy
Once the Bankruptcy claim (pedido de falência) is accepted and the bankruptcy decree is issued, judicial measures filed by creditors must be stayed—and any claims will be submitted to the bankruptcy judge, which has jurisdiction over the debtor assets (juízo universal).
When a company is bankrupt, the debts become due and payable (including those of shareholders with unlimited and joint liability), with a pro-rata deduction of interest, all foreign currency claims are converted into Brazilian Real, the debtor is automatically prevented from exercising any business activity and from managing or disposing of its assets, the court appoints a judicial administrator to administer the bankruptcy, the judicial administrator collects the debtor’s property and assets, and values them, shareholders cannot sell their shareholdings or otherwise withdraw from the company, if the value of the debtor’s assets is insufficient to pay creditors, no interest accrues on claims (except interest on debentures and secured claims, which can be paid from the proceeds of sale of the underlying security) and agreements which the debtor entered into with third parties do not terminate automatically. The judicial administrator may perform these agreements if certain requirements are met.
For bankruptcy proceedings, there is a statutory order of preferences/privileges to be observed by the judge on the payment of the credits. Brazilian law establishes the following order: (i) Costs of proceedings; (ii) Claims relating to employee contracts and accidents, limited to 150 times the monthly minimum wage per employee; (iii) Claims of creditors that hold in rem security (up to the value of the assets given as security); (iv) Federal, state and municipal tax claims, excluding fines; (v) Special privileged credits; (vi) General privileged credits; (vii) All other unsecured claims; (viii) Contractual and public fines and penalties, including tax penalties; and (ix) Claims by the debtor’s shareholders and managers which do not have an employment relationship with the debtor.
Participation of Noteholders on insolvency legal procedures
Courts in Brazil have taken different approaches regarding the representations of creditors of a bond or note issuance in insolvency procedures. Some courts have admitted the representation of the holders of notes or bonds by a trustee or agent while other have required the direct participation of the beneficial owner of the notes, sometimes even considering the relevant note as independent credit.
Cross-border reorganization
Brazilian law has no specific provisions on cross-border reorganization or bankruptcy proceedings. Generally foreign court decisions must be submitted to ratification before a Brazilian court (Superior Tribunal de Justiça) in order to become enforceable in Brazil (homologação de sentença estrangeira). Court decisions taken on foreign judicial reorganization or bankruptcy proceedings may be subject to the same proceeding, observing the proper formal and material requirements.
On the other hand, it must be highlighted that Brazilian courts have exclusive jurisdiction over reorganization and bankruptcy of Brazilian companies, which means that only partial decisions (for instance, recognition of credits) should be homologated and enforced.
THE BRAZILIAN CURRENCY IS SUBJECT TO EXCHANGE CONTROLS POLICIES AND RESTRICTIONS.
Under regulations in effect, Brazilian companies are not required to obtain authorization from the Central Bank in order to make payments in other currency outside Brazil under guarantees or the security interest created over assets in Brazil. In other words, under the current Brazilian exchange regulations , the creditor will be allowed to convert the reais arising from the sale of the assets in Brazil into a foreign currency and remit the amount obtained abroad provided that there are “economic grounds”—demonstration, if required by the Central Bank, that the funds are legal and that it has been used for the purpose informed to the Central Bank through the presentation of documents. The Issuer or Swissport Brazil cannot assure Noteholders that these regulations will continue to be in force at the time Swissport Brazil may be
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required to perform their payment obligations under the Guarantees. If these regulations or their interpretation are modified and an authorization from the Central Bank is required, Swissport Brazil would be obligated to seek an authorization from the Central Bank to transfer the amounts under the Guarantees out of Brazil or, alternatively, make such payments with funds held by them outside Brazil. The Issuer or Swissport Brazil cannot assure Noteholders that such an authorization will be obtained or that such funds will be available.
The purchase and sale of foreign currency in Brazil is subject to governmental control through the Central Bank. Brazilian law provides that, in the event of a serious imbalance in Brazil’s balance of payments or a foreseeable likelihood of such an imbalance, the Brazilian government may, for a limited period of time, impose restrictions on the remittance of foreign currency and on the conversion of Brazilian currency into foreign currencies. Brazil has not restricted the remittance of foreign currency since 1990. However, no assurance can be given that such measures, which could affect the ability of Swissport Brazil to make payments with respect to the Notes will not be instituted in the future. Many factors could affect the likelihood of the Brazilian government imposing exchange control restrictions. Among these factors are:
• the level of Brazil’s foreign currency reserves;
• the availability of sufficient foreign exchange on the date a payment is due;
• the size of Brazil’s debt service burden relative to the economy as a whole;
• Brazil’s policy towards the International Monetary Fund; and
• political constraints to which Brazil may be subject.
Brazilian Taxation
The following discussion is a general description of certain Brazilian tax aspects of the notes applicable to an individual, entity, trust or organization resident or domiciled outside Brazil (“Non-Resident Holder”) and does not purport to be a comprehensive description of the tax aspects of the Notes. The earnings of foreign companies and persons not resident in Brazil are taxed in Brazil when derived from Brazilian sources or when the transaction giving rise to such earnings involves assets in Brazil. Investors should note that, as to the discussions below, other income tax rate or treatment may be provided for in any applicable tax treaty between Brazil and the country where the Non-Resident Holder is domiciled.
Payments Made by Swissport Brazil on the account of the Guarantee or the Security Interest
In case the Guarantors are required to make any payment under the notes (including the principal and interest) to a Non-Resident Holder, the Brazilian tax authorities could try to impose withholding income tax at a rate of up to 25.0% (depending on the nature of the payment and the location of the Non-Resident Holder). In addition to withholding income tax, the Brazilian Guarantor would be required to pay such additional amounts as may be necessary to ensure that the net amounts receivable by the Non-Resident after withholding for taxes will equal the amounts that would have been payable in the absence of such withholding. Brazilian law imposes a Tax on Foreign Exchange Transactions (Imposto sobre Operações de Crédito, Câmbio e Seguro, ou relativas a Títulos e Valores Mobiliários), or IOF/Exchange, due on the conversion of reais into foreign currency and on the conversion of foreign currency into reais. Currently, the IOF/Exchange rate for almost all foreign currency exchange transactions is 0.38%, including foreign exchange transactions in connection with payments under the guarantee or the security interest. The Brazilian government is permitted to increase this rate at any time up to 25.0%. Any such increase in rates may only apply to future transactions.
Canada
This summary highlights certain aspects of (i) the laws of the province of Quebec relating to guarantees granted by Quebec companies and security over personal property, and (ii) the federal laws of Canada in respect of bankruptcy and insolvency of corporations, in each case in force on the date of this Offering Memorandum. The rules relating to security over personal property in the other provinces and territories of Canada are somewhat different from the rules in force in Quebec, and more akin to the rules in force in the United States of America.
Generally, a Quebec company may create a hypothec (the Quebec law equivalent of a security interest) in all or any of its property, owned or subsequently acquired, to secure any of its obligations. There are however specific financial assistance requirements that a Quebec company must satisfy as a matter of corporate law to give a valid and enforceable guarantee (and a valid hypothec securing the obligations under such guarantee). This is discussed further below.
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Unless the articles or by-laws of a Quebec company provide otherwise, the directors of such company have the power to (i) authorize such transactions without authorization of the shareholders, or (ii) delegate such power of authorization to a director, an officer or a committee of the directors.
The secured party need not be a creditor, and an agent may hold the security on behalf of a syndicate of creditors.
Guarantees
As noted above, Quebec companies are limited by Quebec law financial assistance rules. Essentially, subject to certain exceptions, a Quebec company may not grant a loan, give security or furnish any other form of financial assistance to a shareholder, a shareholder of its parent legal person or a person to assist such person in purchasing its shares if there is reasonable ground to believe that, as a consequence, (i) it could not discharge its liabilities when due, or (ii) the book value of its assets (or the value of the realization on its assets) would be less than the sum of its liabilities and its issued and paid-up share capital account. Directors of a company who authorize the granting of financial assistance in contravention of the financial assistance rules of Quebec law are jointly and severally liable for the sums involved and not recovered. It should be noted that certain impending legislative amendments (the “Legislative Amendments”), if implemented, are expected to abrogate the foregoing financial assistance rules. The Legislative Amendments are currently anticipated to become effective on February 14, 2011 but there is no certainty that this will occur on that date or another date. The impact on any guarantees and security granted by a Quebec company prior to the effective date of the Legislative Amendments will be largely dependent on the transitional provisions pertaining to the Legislative Amendments, which transitional provisions have as of this date not been made available. Accordingly, no views are offered on the impact of the Legislative Amendments in respect of guarantees and security granted by a Quebec company prior to the date of effect of the Legislative Amendments.
Under Quebec law, a guarantee or some of its provisions may be unenforceable against the guarantor if they constitute (i) a penalty or (ii) a breach of public order (e.g., a clause providing for the rate of interest exceeding the statutory ceiling would be illegal). A guarantee may also be unenforceable if the underlying guaranteed obligation is unenforceable against the principal debtor, although this result may be overcome if the guarantee also includes appropriate language that is intended to convert it into an indemnity (an indemnity remains enforceable notwithstanding any invalidity or defect in the underlying obligation unless the underlying obligation is contrary to public order). While a guarantee may also provide that a guarantor will be liable as principal debtor for any amount not recoverable on the basis of a guarantee, the enforceability of such a clause is questionable. Guarantees typically contain waivers of defenses available to the guarantor as a matter of law. Waivers of general defenses may be unenforceable in certain circumstances, including where they are considered too vague or uncertain.
Insolvency
In Canada, insolvency proceedings are governed by three federal statutes. The federal insolvency laws in Canada apply across the country and allow for either a bankruptcy type proceeding (i.e., a Chapter 7 type liquidation) or a restructuring type proceeding (i.e., a Chapter 11 type proceeding). In addition, under federal insolvency laws, secured creditors may appoint what is known as a “receiver” over the collateral of the debtor, in order to sell the debtor’s assets or manage the debtor’s business or otherwise realize on collateral. Notwithstanding that insolvency proceedings in Canada are governed by federal statute, in certain circumstances provincial and territorial laws will affect those proceedings (e.g., security laws, landlord rights, etc.). In addition, secured creditors may have recourse to self-help or court-supervised proceedings.
Liquidation
Bankruptcy proceedings in Canada can be either voluntarily commenced by a debtor company or involuntarily commenced by any creditor of such a company with a claim of $1,000 or more. In order for a bankruptcy filing to be valid, the company must meet one of the tests for insolvency set out in the Bankruptcy and Insolvency Act (the “BIA”), with the most common test being failure to meet obligations generally as they become due. Upon a bankruptcy occurring, all of the assets of the company vest in a trustee-in-bankruptcy with the proceedings being subject to the oversight of both the Superintendent of Bankruptcy and the Court. Typically, a trustee-in-bankruptcy proceeds to liquidate the assets of the company and distribute the proceeds to creditors in accordance with their legal priorities.
Certain statutes in Canada provide super priority status to claims such as payroll deductions for employee income taxes, government operated pension plans and employment insurance, as well as for certain specified private pension contributions (if any), and unpaid wages and employee disbursements (accrued in the six months prior to the bankruptcy, up to $2,000 for wages and $1,000 for disbursements, per employee). After the statutory super priorities, the BIA provides that secured creditors are to be paid prior to unsecured creditors. While the general rule is that unsecured creditors share any remaining proceeds pari passu, the BIA does provide that certain “preferred” claims are to be paid
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prior to the general body of unsecured creditors, including the fees and expenses of the trustee and its counsel, remaining unpaid wages accrued in the six months prior to the bankruptcy beyond the priority amounts noted above and certain landlord claims. In the context of a bankruptcy, a trustee is also required to review asset transfers and transactions undertaken by the bankrupt within specified time periods prior to the bankruptcy to determine if the bankrupt was engaged in any reviewable transactions or fraudulent preferences. In the case of “transfers at under value”, the review period is 1 year from the date of bankruptcy (or 5 years for related parties) and fraudulent preferences are subject to review if they occurred within 3 months of the bankruptcy (or 12 months for related parties). In the event that such a transaction is determined to have occurred, the trustee may apply to the Court for relief, including unwinding of the transaction and/or asserting claims against the recipient of the assets. After the payment of all amounts owing to the creditors, any surplus is available to the shareholders.
Upon the occurrence of a bankruptcy order or a voluntary assignment of bankruptcy, the BIA imposes a stay of proceedings and leave is required to proceed, or continue, with any actions against the bankrupt entity. The stay of proceedings only applies to unsecured creditors. Secured creditors are free to continue to enforce their security against the assets of the bankrupt, subject to satisfying the trustee that they have valid security.
As stated above, a secured creditor may appoint a “receiver” over the collateral of a debtor company. The receiver is not typically installed to restructure a business. A receiver is intended as a mechanism for realizing on collateral. The receiver will proceed to sell the debtor’s assets, manage the debtor’s business or otherwise realize on the collateral, with the proceeds from its activities payable in accordance with the established priorities. A receiver can be Court-appointed or privately appointed—the reasons for each varies. In the case of a Court-appointed receivership, the powers of the receiver are in the discretion of the Court. The appointment order typically includes a stay of proceedings and priority charges for administration fees. In the case of a private receiver, the receiver’s powers are prescribed by contract (i.e., between the creditor and the debtor). In each case, the receivership remains subject to many of the considerations in a bankruptcy, including super-priorities, reporting obligations, etc. A receiver is often appointed where only the secured creditors are likely to be paid out of the realizations or there is an opportunity to realize higher returns through a going-concern sale of the business than a piecemeal liquidation. Ultimately, however, the effect is the same: the realization on the debtor company’s assets in favour of those creditors having priority.
Restructuring
Generally, restructuring proceedings are commenced under one of two statutes in Canada. For large or complex restructurings, the most commonly used statute is the Companies’ Creditors Arrangement Act (the “CCAA”). In order to seek relief under the CCAA, the company must have at least $5 million in outstanding debt. The granting of an order for relief under the CCAA is in the discretion of the Court, but if granted, a CCAA order typically involves a broad stay of proceedings (applying to secured and unsecured creditors), protection from the termination of contracts by third parties, authority to disclaim or repudiate unfavorable contracts and, in certain cases, the granting of super priority security interests on the assets of the applicant company to secure amounts owing to debtor-in-possession lenders, professionals involved in the restructuring and directors of the company with respect to their statutory liabilities. An initial stay of proceedings under the CCAA cannot exceed 30 days, but the applicant company is entitled to seek extensions to the stay. There is no time limit on the duration of a stay of proceedings under the CCAA.
CCAA proceedings are supervised by the Court and upon the making of an order under the CCAA, the Court must appoint a licensed trustee-in-bankruptcy to act as the “monitor” of the applicant company. The monitor is given certain powers under the CCAA and additional powers may be granted by Court order. The monitor does not take possession of, or have any control over, the assets of the applicant company unless otherwise ordered by the Court. The monitor is required to oversee certain filings made by the applicant company and provide its views with respect to same. The monitor also has a statutory duty to advise the court of any material adverse change in the status of the applicant company.
Under the CCAA, a company may, inter alia, proceed to file a plan of compromise or arrangement, or seek Court approval of an interim sale of some or all of its assets. In the case of a plan of compromise or arrangement, it is necessary for the applicant company to obtain the requisite level of creditor approval (66 2/3% in value and more than 50% in number of the creditors who cast votes in each affected class of creditors) and Court approval of the restructuring plan. Secured creditors may be included in the plan, in which case they have a right to vote as a separate class, or may be dealt with outside of the plan. Upon requisite creditor and Court approvals being obtained, the restructuring plan is binding on all affected creditors whether or not they voted in favor of the plan. CCAA plans may be combined with plans of reorganization under Canada’s federal and provincial corporate statutes, allowing Canadian companies to change their share capital, including cancelling existing shares and/or converting existing debt to new shares, in the context of a plan. If the proceeding includes an asset sale, any sale out of the ordinary course is subject to approval of the Court (but with no creditor vote) and the Court is authorized to transfer assets to a purchaser free and clear of all liens, claims and encumbrances. During the course of a CCAA proceeding, creditors and contractual counter parties are not entitled to exercise any rights or remedies without leave of the Court except for certain statutory exceptions (e.g., proven claims of
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set-off, termination and enforcement rights under certain types of derivative agreements and certain regulatory investigations).
The Court may not approve an asset sale or sanction a restructuring plan in the context of a CCAA proceeding unless any existing super priority employee wage claims and pension contribution claims are satisfied or provided for to the satisfaction of the Court.
Companies in Canada may also proceed with a restructuring under the proposal provisions of the Bankruptcy and Insolvency Act (as previously defined, the “BIA”). The proposal provisions of the BIA (the “Proposal Provisions”) are very similar to restructuring proceedings under the CCAA with the following key differences. A restructuring under the BIA is typically undertaken where the proposed restructuring is small or relatively simple; or, where the applicant company simply does not qualify for the CCAA because its aggregate debt is less than $5 million. There is no minimum amount of outstanding debt required to use the Proposal Provisions.
Upon filing a proposal (or a notice of intention to make a proposal) with the Office of the Superintendent of Bankruptcy, the BIA provides an automatic stay of proceedings. There is no need to apply to the Court for the initial stay. The nature and term of the stay varies, depending on whether the company commences the proceedings by filing a proposal or by filing a notice of intention to make a proposal. In the context of a proposal, the stay applies to unsecured creditors but will only apply to secured creditors if the proposal includes an offer to secured creditors. Such stay will remain in place until the trustee administering the proposal proceedings is discharged (e.g., the proposal is implemented and the proceedings concluded) or the company becomes bankrupt (e.g., via a failed proposal, as discussed below). In the context of a notice of intention to make a proposal, the initial stay is for a period of 30 days, which applies to secured and unsecured creditors. However, if the company has not completed its proposal within the initial 30-day period, it must apply to the Court for an extension of such period. The Proposal Provisions limit the duration of initial 30-day period and any extensions thereto, to an aggregate of 6 months from the date of the filing of the notice of intention. Failure to file a proposal within this period will result in a deemed bankruptcy. In the case of any proceedings under the Proposal Provisions, the applicant company is protected from the termination of contracts by third parties.
The Proposal Provisions allow for the granting of super priority charges (similar to the CCAA), repudiation or disclaimer of contracts (similar to the CCAA), and the appointment of a proposal trustee (which has a similar role and powers as a monitor under the CCAA). A proposal is ultimately put to a creditor vote, with secured creditors (if any) voting in a separate class (or classes). In the event that the company’s proposal to its creditors is either rejected by any class of unsecured creditors at a meeting held to approve such proposal (same voting thresholds as the CCAA noted above) or by the Court when the proposal is put before the Court for approval, the company is deemed bankrupt. Notably, if a proposal is rejected by a class of secured creditors but accepted by each class of unsecured creditors, the proposal does not automatically fail. The secured class rejecting the proposal is left to pursue private remedies, while the proposal is submitted to the Court for approval.
The Court may not approve an asset sale in the context of proposal proceedings or sanction a proposal unless any existing super priority employee wage claims and pension contribution claims are satisfied or provided for to the satisfaction of the Court.
In the event of a foreign insolvency proceeding, both the CCAA and the BIA allow for an authorized representative of the foreign company to seek recognition of the foreign insolvency proceeding. Canada has recently adopted a slightly modified version of the UNCITRAL model insolvency protocol (collectively, the “Recognition Provisions”). The Recognition Provisions allow an authorized representative to apply for recognition of the foreign insolvency proceeding as either a “foreign main proceeding” or a “foreign non-main proceeding.” The determination of the type of proceeding is based upon the centre of main interest (“COMI”) of the applicant. The COMI test is essentially the same as set out in the UNCITRAL model law and Chapter 15 of the U.S. Bankruptcy Code. If the Court determines that the foreign proceeding is a “foreign main proceeding”, the Court must grant a stay of proceedings in Canada and may grant additional relief permitted under the CCAA/BIA. If the Court determines that the foreign proceeding is a “foreign non-main” proceeding, the Court may, but is not required to, grant a stay of proceedings in Canada and any other relief permitted under the CCAA/BIA. In the event of a recognition order being granted, certain restrictions are imposed on the applicant company, including a restriction on selling assets in Canada unless the Court approves such asset sale transaction. In the event that the foreign proceeding results in the approval of a restructuring plan, the Canadian Court may grant such plan full force and recognition in Canada.
England and Wales
Guarantees and security granted by a subsidiary incorporated in England (a “UK Subsidiary”) are subject to limitation to the extent that they would result in unlawful financial assistance within the meaning of the Companies Act 2006.
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Insolvency
As a general rule, insolvency proceedings with respect to an English company should be based on English insolvency laws. However, pursuant to the EC Regulation No. 1346/2000 on Insolvency Proceedings (“EC Regulation on Insolvency Proceedings”), where an English company conducts business in more than one member state of the European Union, the jurisdiction of the English courts may be limited if the company’s “center of main interests” is found to be in a member state other than the United Kingdom. Although there is a rebuttable presumption that a company’s center of main interests is in the jurisdiction in which it is incorporated, there are a number of factors that are taken into account to ascertain the center of main interests, which should correspond to the place where the company conducts the administration of its interests on a regular basis and is ascertainable by third parties. The point at which this issue falls to be determined is at the time that the relevant insolvency proceedings are opened. Similarly, the UK Cross Border Insolvency Regulations 2006, which implement the UNCITRAL Model Law on cross border insolvency in the United Kingdom, provide that a foreign (i.e. non-English) court may have jurisdiction where any English company has a center of its main interests in such foreign jurisdiction, or where it has a place of operations in such foreign jurisdiction and carries out non-transitory economic activities with human means and assets or services.
The relevant English insolvency statutes empower English courts to make an administration order in respect of an English company in certain circumstances. An administrator can also be appointed out of court by the company, its directors or the holder of a qualifying floating charge and different procedures apply according to the identity of the person making the appointment. During the administration, in general no proceedings or other legal process including security enforcement may be commenced or continued against the debtor, except with leave of the court or consent of the administrator. If a UK Subsidiary were to enter into administration proceedings, it is possible that any security or Guarantee granted by it may not be enforced while it was in administration.
The fixed charge security granted by a UK Subsidiary would generally be enforced through the appointment of a receiver. The receiver may continue in office if a UK Subsidiary is in liquidation but would be required to resign if a UK Subsidiary is in administration. In addition, no receiver can be appointed by a secured creditor if a UK Subsidiary is already in administration.
Upon liquidation of a UK Subsidiary, the order of priorities is generally such that debts due to any holders of fixed charges are paid first from realizations of assets subject to those fixed charges (after realization costs) and to the extent they are secured by such charges. Following payment of such debts, preferential debts would be paid. Such debts may include amounts owed in respect of occupational pension obligations and certain amounts owed to employees. Thereafter, any debts owing to any holder of a floating charge would be paid to the extent they are secured by that charge. A certain proportion of realizations from the assets covered by any floating charge are required to be “ring-fenced” and made available pro rata to unsecured creditors (including Noteholders). The exact amount will depend on the total value of a UK Subsidiary’s property—currently the total ring-fenced amount cannot exceed £600,000 but this may be increased by subsequent legislation. Unsecured debts which are not preferential debts would be paid after those prior liabilities.
There are circumstances under English insolvency law in which the granting by an English company of security and guarantees can be challenged. In most cases this will only arise if the company is placed into administration or liquidation within a specified period of the granting of the guarantee or security. Therefore, if during the specified period an administrator or liquidator is appointed to a UK Subsidiary, he may challenge the validity of any Guarantee or security given by it. The Issuer cannot be certain that, in the event of a UK Subsidiary becoming insolvent within any of the requisite time periods set out below, the grant of any security or Guarantee will not be challenged or that a court would uphold the transaction as valid.
The potential grounds for challenge available under the English insolvency legislation that may apply to any security or Guarantee include, without limitation:
Transaction at an Undervalue
Under English insolvency law, a liquidator or administrator of a UK Subsidiary could apply to the court for an order to set aside the creation of security or the Guarantee if such liquidator or administrator believed that the creation of such security or Guarantee constituted a transaction at an undervalue. It will only be a transaction at an undervalue if at the time of the transaction or as a result of the transaction, a UK Subsidiary is insolvent (as defined in the UK Insolvency Act 1986, as amended). The transaction can be challenged if a UK Subsidiary enters into liquidation or administration within a period of two years from the date a UK Subsidiary grants the security or the Guarantee. A transaction might be subject to being set aside as a transaction at an undervalue if it involved a gift by a company, if a company received no consideration or if a company received consideration of significantly less value, in money or money’s worth, than the consideration given by such company. However, a court generally will not intervene if it is satisfied that the company entered into the transaction in good faith and for the purpose of carrying on its business, and that at the time it did so
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there were reasonable grounds for believing the transaction would benefit it. If the court determines that the transaction was a transaction at an undervalue the court can make such order as it thinks fit to restore the company to the position it would have been in had it not entered into the transaction. In any proceedings, it is for the administrator or liquidator to demonstrate that a UK Subsidiary was insolvent unless a beneficiary of the transaction was a connected person (as defined in the UK Insolvency Act 1986, as amended), in which case the connected person must demonstrate the solvency of a UK Subsidiary in such proceedings.
Preference
Under English insolvency law, a liquidator or administrator of a UK Subsidiary could apply to the court for an order to set aside the creation of the security or the Guarantee if such liquidator or administrator believed that the creation of such security or such Guarantee constituted a preference. It will only be a preference if at the time of the transaction or as a result of the transaction, a UK Subsidiary is insolvent. The transaction can be challenged if a UK Subsidiary enters into liquidation or administration within a period of six months (if the beneficiary of the security or the Guarantee is not a connected person) or two years (if the beneficiary is a connected person) from the date a UK Subsidiary grants the security or the Guarantee. A transaction may constitute a preference if it has the effect of putting a creditor, guarantor or surety of a UK Subsidiary in a better position (in the event of the company going into insolvent liquidation) than such creditor, guarantor or surety would otherwise have been in had that transaction not been entered into. If the court determines that the transaction was a preference the court can make such order as it thinks fit to restore the company to the position it would have been in had it not entered into the transaction. However, for the court to determine a preference, it must be shown that a UK Subsidiary was influenced by a desire to produce that result. In any proceedings, it is for the administrator or liquidator to demonstrate that a UK Subsidiary was insolvent and that there was such desire unless a beneficiary of the transaction was a connected person, in which case the connected person must demonstrate in such proceedings that there was no such desire.
Transaction Defrauding Creditors
Under English insolvency law, where it can be shown that a transaction was at an undervalue and was made for the purpose of putting assets beyond the reach of a person who is making, or may make, a claim against a company, or of otherwise prejudicing the interests of a person in relation to the claim, which that person is making or may make, the transaction may be set aside by the court as a transaction defrauding creditors. This provision may be used by any person who claims to be a “victim” of the transaction and is not therefore limited to liquidators or administrators. There is no statutory time limit in the English insolvency legislation within which the challenge must be made and the relevant company does not need to be insolvent at the time of the transaction.
Avoidance of floating charges
Under English insolvency law, floating charges created by a company within the period of one year prior to the commencement of administration or liquidation (two years in the case of a charge in favor of a connected person) at a time when the company was insolvent or became so as a consequence of the transaction will be invalid, except to the extent of the value of the consideration given to the company for the creation of the charge at the same time as, or after, its creation.
France
You may be required to pay a “soulte” in the event you decide to enforce a security interest by judicial or non-judicial attribution of the pledged assets rather than by a sale of the pledged assets in a public auction.
Under French law, a pledge over a certain asset may be enforced at the option of the secured creditor either by a sale of the pledged asset in a public auction (the proceeds of the sale being paid to the secured creditors) or by the judicial attribution (attribution judiciaire) or non-judicial attribution (pacte commissoire) of the pledged asset to the secured creditor, following which the secured creditor becomes the legal owner of the pledged assets.
In a proceeding for attribution judiciaire, a court appointed expert values the pledged assets. In a proceeding resulting from a pacte commissoire, the parties contractually agree on the valuation procedure.
In both cases, if the value of the pledged assets exceeds the amount of the secured liabilities, the secured creditors may be required to pay the obligor a “soulte” equal to the difference between the value of the pledged assets and the amount of the secured liabilities. This is true regardless of the actual amount of proceeds ultimately received by the secured creditors from a subsequent sale of the pledged assets.
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If the value of the pledged assets is less than the amount of the secured liabilities, the secured creditors’ claims will nevertheless be released up to the values of the pledged assets so attributed, and the remaining portion of such creditors’ claims will remain unpaid debt.
Germany
The enforcement of the Guarantee and the security interests granted by a German subsidiary of the Issuer (such as Swissport Deutschland GmbH and Swissport Cargo Services Deutschland GmbH) to secure the Issuer’s debt will be limited if, and to the extent, payments under the Guarantee or the enforcement of the security interests would cause the amount of such German subsidiary’s net assets (i.e., total assets less liabilities in accordance with the German Commercial Code (HGB)) to fall below the amount of its stated share capital. In such event, the German subsidiary will be entitled to block or to stop enforcement of the Guarantee or the security interest in full or in part, as the case may be, and any payments received under the Guarantee or the security interest in violation thereof must be refunded to such German subsidiary. See “Limitation on Enforcement” below.
Under German law it is unclear whether all of the security interests in the collateral give the Security Agent a right to prevent other creditors of the German guarantors from foreclosing into and realizing the collateral. Some courts have held that certain types of security interests only give their holders priority (according to their rank) in the distribution of any proceeds of such realization, but not an intervention right. Accordingly, the Security Agent and the Noteholders may not be able to avoid foreclosure by other creditors into the collateral, even if they consider such foreclosure untimely.
Pledges
Under German law, a pledge may only be validly created in favor of the creditor(s) of the secured claims and the pledgor will need to notify the relevant debtor of a pledged claim (or alternatively the company of pledged shares) of such pledge in order to create a valid pledge. Furthermore its validity, extent and enforceability is strictly linked (“accessory”) to the validity, extent and enforceability of the secured claims. In particular, a pledge may cease to exist if the claims secured by the pledge are transferred to new creditor(s) by way of novation or at a time when no amounts are outstanding under the secured claims. As a result, the security interests granted as pledges have been created in favor of the Security Agent acting in its capacity as creditor of a parallel debt. It is widely believed that a parallel debt can effectively be secured by a pledge, but there are no published court decisions on this issue. See “Parallel Debt” below.
Since German law does not generally permit for an appropriation of pledged assets by the pledgee upon the occurrence of an enforcement event, an enforcement of a share pledge governed by German law usually requires the sale of the relevant collateral through a formal disposal process involving a public auction. Certain waiting periods and notice requirements may apply for such disposal process.
Insolvency
In the event of insolvency of a German subsidiary of the Issuer, insolvency proceedings may be initiated in Germany if it was held to have not only its registered office but also its centre of main interest within the territory of the Federal Republic of Germany at such time. Such proceedings would then be governed by German insolvency law. However, pursuant to the EU Insolvency Regulation, where a German company conducts business in more than one member state of the European Union, the jurisdiction of the German courts may be limited if the company’s “centre of main interests” is found to be in a member state other than Germany (see—“European Union”). This issue is to be determined at the time when the competent court decides on the commencement of the relevant insolvency proceedings.
Under German law, insolvency proceedings can be initiated either by a company itself or by a creditor of such company upon the occurrence of a cause of insolvency, with over-indebtedness (Überschuldung), illiquidity (Zahlungsunfähigkeit) and impending illiquidity (drohende Zahlungsunfähigkeit) of the relevant company constituting such causes of insolvency. In case of impending illiquidity, though, only the relevant company’s management but not its creditors may initiate insolvency proceedings.
A company is considered to be over-indebted if (i) there is no positive going concern prognosis for its business and (ii) its liabilities exceed the value of its assets (please note, however, that for the time being, this test only applies until the end of 2013). A company is considered to be illiquid if it is unable to pay its debts as and when they fall due. Impending illiquidity exists when there is an imminent risk of the company becoming unable to pay its debts as and when they fall due (drohende Zahlungsunfähigkeit).
Upon a company becoming illiquid or over-indebted, the debtor, i.e. its managing director(s) and, in certain circumstances its shareholders, are required by law to file for insolvency without undue delay but no later than three
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weeks. Failure to comply with this obligation constitutes a criminal offence. In case of impending illiquidity the debtor has the right (but not the obligation) to file for insolvency.
Any insolvency proceedings in Germany are court-controlled and the court opens formal insolvency proceedings only if certain requirements are met (in particular, but not limited to, evidence being provided of an existing cause of insolvency) and if the insolvency estate’s value is sufficient to cover at least the costs of the proceedings. If the competent court decides to open insolvency proceedings, it appoints an insolvency administrator with full authority to dispose of the debtor’s assets. The opening of insolvency proceedings may occur as late as two or three months after an insolvency petition has been filed. As a rarely used exception, the court may order insolvency proceedings to be run by the relevant debtor itself under the supervision of a custodian (Sachwalter), in which case the relevant debtor retains to a large extent its authority to dispose of its assets. Such order remains subject to review and may be repealed in which case an insolvency administrator would be appointed. The insolvency administrator may raise new financial indebtedness and incur other liabilities to continue the company’s operations, if and to the extent he is able to completely satisfy these liabilities as preferential debts of the estate (Masseschulden) which rank preferred to any insolvency claim of an unsecured creditor (this also includes such portion of a secured creditor’s claim which exceeds the amount obtained through a disposal of the relevant collateral).
All creditors, whether secured or unsecured, who wish to assert claims against the debtor need to participate in the insolvency proceedings. Any individual enforcement action brought against the debtor by any of its creditors is subject to an automatic stay once insolvency proceedings have been opened if not just stopped by court order after the filing for insolvency.
Whether or not, after the initiation of insolvency proceedings, a secured creditor remains entitled to enforce security granted to it by the relevant debtor depends on the type of security. However, even if the law vests the right of disposal regarding the relevant collateral in the insolvency administrator, the relevant secured creditor retains a right of preferred satisfaction with regard to the disposal proceeds. As a consequence, the enforcement proceeds minus a certain haircut for (i) assessing the value of the secured assets and (ii) realizing the secured assets are paid to the creditor holding a security interest in the relevant collateral up to an amount equal to its secured claims. Remaining amounts (“excess-proceeds”) are distributed among the unsecured creditors.
If a German subsidiary of the Issuer grants security over its assets to other creditors than the Noteholders, such security may result in a preferred satisfaction of such other creditors’ secured claims with respect to the proceeds obtained through the disposal of the relevant collateral. The excess-proceeds resulting from the disposal of collateral provided to such other creditors may not be sufficient to satisfy the unsecured claims of the Noteholders under the Guarantee granted by such German subsidiary (if any). In addition, it may take several years until an insolvency dividend (if any) is distributed to unsecured creditors (whereas advanced distributions to the unsecured creditors are generally allowed). Alternatively, a different distribution of enforcement proceeds and/or the insolvency estate could be proposed in an insolvency plan (Insolvenzplan) that may be submitted by the relevant debtor or the relevant insolvency administrator and which requires the consent of the debtor as well as the consent of each class of creditors in accordance with specific majority rules (with secured creditors being grouped in a separate class).
Under German insolvency law, there is no consolidation of the assets and liabilities of a group of companies in the event of insolvency. In case of a group of companies, each entity, from an insolvency law point of view, has to be dealt with separately (i.e., there is no group insolvency concept under German insolvency law). As a consequence, there is, in particular, no pooling of claims among the respective entities of a group, but rather claims of and vis-à-vis each entity have to be dealt with separately.
Other than secured and unsecured creditors, German insolvency law provides for certain creditors to be subordinated by law (in particular, but not limited to, claims made by shareholders (unless privileged) of the relevant debtor for the return of funds or payment of a consideration), while claims of a person who became a creditor of the insolvency estate only after the opening of insolvency proceedings (Massegläubiger) generally rank senior to the claims of regular, unsecured insolvency creditors.
While powers of attorney granted by the relevant debtor and certain other legal relationships cease to be effective upon the opening of insolvency proceedings, most executory contracts become unenforceable at such time unless and until the insolvency administrator chooses fulfillment.
Limitation on Enforcement
The German subsidiaries of the Issuer (such as Swissport Deutschland GmbH and Swissport Cargo Services Deutschland GmbH) are established in the form of a limited liability company (Gesellschaft mit beschränkter Haftung, “GmbH”). Consequently, the grant of collateral by a German subsidiary is subject to certain provisions of the German Limited Liability Company Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung, “GmbHG”).
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Sections 30 and 31 of the GmbHG (“Sections 30 and 31”) prohibit a GmbH from disbursing its assets to its shareholders to the extent that will cause a registered share capital deficit (Unterbilanz) or will increase an already existing registered share capital deficit. If and to the extent a prohibited repayment of registered share capital takes place, the recipient is obliged to repay such amount to the GmbH. Guarantees, share pledges and any other collateral granted by a GmbH in order to guarantee or secure liabilities of a direct or indirect shareholder or affiliate are considered disbursements under Sections 30 and 31. Therefore, in order to enable German subsidiaries to grant collateral to secure liabilities of a direct or indirect shareholder or affiliate without the risk of violating Sections 30 and 31, it is standard market practice for credit agreements, guarantees and security documents to contain so-called “limitation language” in relation to subsidiaries in the legal form of a GmbH incorporated or established in Germany. Pursuant to such limitation language, the secured parties agree to enforce the collateral (or to release the proceeds of an enforcement, as applicable) and the beneficiaries of the guarantees agree to enforce the guarantees against the German subsidiary only to the extent that such enforcement does not result in a registered share capital deficit or increases an already existing registered share capital deficit of the German GmbH. Accordingly, the documentation in relation to the guarantees and the security interests, to the extent they relate to a German subsidiary of the Issuer, includes such limitation language and such guarantees and security interests are limited in the manner described.
The limitations set out above apply mutatis mutandis if the Guarantee is granted by a German Guarantor incorporated as a limited liability partnership (KG) in relation to each general partner (Komplementär) incorporated as a limited liability company (GmbH) or if the Guarantee is granted by a German Guarantor incorporated as a partnership (OHG) in relation to each partner incorporated as a limited liability company (GmbH).
German capital maintenance rules are subject to ongoing court decisions. We can not assure you that future court rulings may not further limit the access of shareholders to assets of their subsidiaries constituted in the form of a GmbH, which can negatively affect the ability of the Issuer to make payment on the Notes, of the subsidiaries to make payments on the guarantees, of the secured parties to enforce the collateral or of the beneficiaries of the guarantees to enforce the guarantees.
Parallel Debt
Under German law, certain “accessory” security interests such as pledges (Pfandrechte) require that the pledgee and the creditor of the secured claim be the same person. Such security interests cannot be held for the benefit of a third party by a pledgee who does not itself hold the secured claim. The holders of interests in the Notes from time to time will not be parties to the Security Documents. In order to permit the Noteholders from time to time to benefit from pledges granted to the Security Agent under German law the Intercreditor Agreement provides for the creation of a “parallel debt.” Pursuant to the parallel debt, the Security Agent becomes the holder of a claim equal to each amount payable by an obligor under, in particular, the Notes and the Indenture. The pledges governed by German law will directly secure, in particular, the parallel debt. There are no published court decisions confirming the validity of the parallel debt structure and of the pledges granted under German law to secure such parallel debt, and hence there is no certainty that German courts will uphold such pledges.
Hardening Periods and Fraudulent Transfer
In the event of insolvency proceedings with respect to a German subsidiary of the Issuer based on and governed by the insolvency laws of Germany, an insolvency administrator (Insolvenzverwalter) may possibly challenge under the rules of avoidance as set out in the German insolvency code (Insolvenzordnung) the security interests granted as well as the Guarantee provided by that entity or, if any payments have already been made, especially under the Guarantee, require that the recipients return the payment to the relevant payer.
Acts (Rechtshandlungen) or transactions (Rechtsgeschäfte) (which term includes the provision of security or the repayment of debt) that have been detrimental to the insolvency creditors (as a whole) may be challenged by an insolvency administrator. This may even affect actions taken by the debtor which have occurred up to ten years prior or at any time after the respective insolvency petition has been filed. When successful, such challenge results in an obligation of the relevant creditor to return the benefit obtained through or in connection with such action to the insolvency estate, while a claim for the return of a consideration originally granted to the debtor for the debtor’s performance (if any) may constitute only a regular, unsecured insolvency claim which may be satisfied only to the extent a general insolvency dividend is paid upon the distribution of the insolvency estate to the creditors.
Such transactions can include the payment of any amounts to the Noteholders as well as granting them any security interest. In the event that such a transaction is successfully avoided, the Noteholders would be under an obligation to repay the amounts received or to waive the Guarantee or security interest.
If the Guarantee given or any security interest granted by a German subsidiary of the Issuer were avoided or held unenforceable for any reason, e.g. because of equitable subordination of the secured debt, any claims in respect
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thereof would cease to exist. Any amounts received from a transaction that has been successfully avoided would have to be repaid to the insolvent estate.
Furthermore, even in the absence of an insolvency proceeding, a third-party creditor who has obtained an enforcement order but has failed to obtain satisfaction of its enforceable claims by a levy of execution or where such levy of execution can be expected not to result in full satisfaction of such claims, under certain circumstances, has the right to avoid certain transactions, such as the payment of debt and the granting of security pursuant to the German Code on Avoidance (Anfechtungsgesetz).
Luxembourg
The conditions to be satisfied by the granting of guarantees relate to (i) corporate power, (ii) corporate authority, and (iii) corporate benefit. These rules are derived from general principles and must be applied to specific circumstances, which have to be analyzed on a case by case basis.
Corporate power
Limits on corporate power can either be imposed (i) by law or (ii) by the articles of association of the company.
(i) Limitations imposed by law.
Pursuant to the Luxembourg Civil Code, a company is established with a view to participate in the profits (and the losses) which may arise therefrom. The goal to share the profits is an essential element of every company and therefore, a purely free (or gratuitous) act, without consideration, may be outside the scope of the activities of a company as contemplated by law. A company may however carry out gratuitous acts whenever these acts are accomplished with a view to the realization, directly or indirectly, of the company’s corporate objective. It is normally understood that except in exceptional circumstances, an intragroup security is a type of act which may serve the purpose of realizing a profit.
Thus, it is only in exceptional circumstances when there is no reasonable indirect potential benefit of, or a motivated interest for, a proposed guarantee to be given by a company, that the validity of such a guarantee could be challenged for lack of any interest by the guarantor in providing the guarantee.
Further to this general legal restriction, additional limitations are imposed by specific laws, such as the prohibition to exercise a financial activity without a specific authorization (which in the case of a Luxembourg company, does not apply to financial activities within a group of companies) or the limitation on financial assistance to shareholders in the case of subscription or purchase of shares of the guarantor.
(ii) Limitations imposed by the articles of association.
The provision of guarantees or security by a company must be within the limits of the object clause of its articles of association.
Should the provision of a guarantee or security by a Luxembourg company be considered to exceed the corporate objective as expressed in the articles of association, the company is still bound by such action, unless there is evidence that the beneficiary of such acts knew that the acts exceeded the corporate objective or that the beneficiary could not, in light of the circumstances, have been unaware of that fact.
Corporate authority
When a Luxembourg company grants guarantees and/or security, applicable corporate procedures normally entail that the decision be approved by a board resolution or by decision of delegates that have been appointed for such purpose.
Corporate benefit
The third condition for a guarantee to be granted by a Luxembourg company is that the proposed action by the company must be “in the corporate interest of the company,” which words is a translation of the French “intérêt social”, an equivalent term to the English legal concept of corporate benefit. The concept of “corporate interest” is not defined by law, but has been developed by doctrine and court precedents and may be described as being ‘the limit of acceptable corporate behaviour’. Whereas the previous discussions regarding the limits of corporate power are based on objective criteria (provisions of law and of the articles of association), the concept of corporate benefit requires a subjective judgement. In that context, the concept of a group of companies may be relevant, and while it should first be analyzed whether a transaction is in the best interest of the company on a stand alone basis, it should also be examined whether the transaction is justified in the light of the interest on a group level, which may result in a benefit for the guarantor.
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In general terms, group interest may justify the issue of a guarantee or the granting of security in favor of a parent company (upstream guarantee) or a sister company (cross-stream guarantee), under the following circumstances:
• the proposed action must be justified on the basis of a common economical, social, or financial policy applicable throughout the whole group;
• the existence of a group should be evidenced through capital links; or
• the guarantee must not be (i) without consideration, or alternatively (ii) break up the balance between the undertakings of the various group companies.
To the extent that all companies of the group are asked to bear in a similar way the burden of guarantees or security given for the benefit of the other group company or companies in an equal way, the obligation undertaken by a group company for the benefit of other group companies may be justified. Similarly, if a group company cannot exist outside of the group and is dependent on the group, assistance to other group companies should ultimately result in a benefit for such company. The limit of reasonable corporate behavior is reached when the transaction is exclusively in the interest of the parent company or the other companies of the group, without any benefit, direct or indirect, for the Luxembourg company granting the guarantee.
However, the failure to comply with the corporate benefit requirement will typically result in liability for the directors or managers of the guarantor concerned.
There is a limited risk that the directors or managers of the Luxembourg company be held liable if, inter alia:
• the guarantee/security interest so provided would materially exceed the (direct or indirect) benefit deriving from the secured obligations for the Luxembourg company, or
• the Luxembourg company derives no personal benefit or obtains no direct or indirect consideration for the guarantee/security interest granted; or
• the commitment of the Luxembourg company exceeds its financial means.
In addition to any criminal and civil liability incurred by the directors or managers of the Luxembourg company, the guarantee/security interest could itself be held unenforceable, if it is held that it is contrary to public policy (ordre public).
The above analysis is slightly different within a group of companies where a group interest (intérêt du groupe) exists. The existence of a group interest would prevent the guarantee/security interest from falling foul of the above constraints. In order for a group interest to be recognized, the following cumulative criteria must be met and proven:
• the “assisting” company must receive some benefit, or there must be a balance between the respective commitments of all the affiliates;
• the guarantee must not exceed the assisting company’s financial means; and
• the companies involved must form part of a genuine group operating under a common strategy aimed at a common objective.
The criteria mentioned above have to be applied on a case-by-case basis and a subjective factbased judgment is required to be made by the directors or managers of the Luxembourg Guarantor.
As a result, the guarantees or security interests granted by a Luxembourg company may be subject to certain limitations, which usually take the form of a general limitation language, which is inserted in the relevant finance document(s) or guarantee agreements and which covers the aggregate obligations and exposure of the relevant Luxembourg assisting company under all finance documents or guarantee agreements.
For the purposes of this transaction, a specific limitation language has been agreed upon between the parties, whereby the aggregate obligations and exposure of any Guarantor incorporated under the laws of the Grand Duchy of Luxembourg (a “Luxembourg Guarantor”) with respect to the obligations of any other obligor shall be limited as follows:
the payment undertaking of any Luxembourg Guarantor for the obligations of any Obligor which is not a Subsidiary of that Guarantor shall be limited at any time, to an aggregate amount not exceeding ninety per cent. (90%) of the greater of:
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(i) the Luxembourg Guarantor’s own funds (“capitaux propres”) and the debt owed by such Luxembourg Guarantor to any of its direct or indirect shareholders, as determined by Article 34 of the Luxembourg law of 19 December 2002 on the register of commerce and companies, accounting and companies’ annual accounts, as amended, as reflected in the last annual accounts of the Guarantor, as at the date of this Agreement. Should no annual accounts of the Luxembourg Guarantor be available on the date of this Agreement, the Luxembourg Guarantor’s own funds and the debt owed by such Luxembourg Guarantor to any of its direct or indirect shareholders will be determined at the reasonable discretion of the Security Agent in accordance with the accounting principles applicable to the Luxembourg Guarantor.
(ii) the Luxembourg Guarantor’s own funds (“capitaux propres”) and the debt owed by such Luxembourg Guarantor to any of its direct or indirect shareholders, as determined by Article 34 of the Luxembourg law of 19 December 2002 on the register of commerce and companies, accounting and companies’ annual accounts, as amended, as reflected in the last annual accounts of the Guarantor, as at the date the guarantee is called. Should no annual accounts of the Luxembourg Guarantor be available on the date the guarantee is called, the Luxembourg Guarantor’s own funds and the debt owed by such Luxembourg Guarantor to any of its direct or indirect shareholders will be determined at the reasonable discretion of the Security Agent in accordance with the accounting principles applicable to the Luxembourg Guarantor.
The above limitation shall not apply to any amounts borrowed under any Facility and in each case made available, in any form whatsoever, to such Luxembourg Guarantor or any of its Subsidiaries.
Under Luxembourg law, security interests qualifying as financial collateral arrangements under the Luxembourg law of 5 August 2005 on financial collateral arrangements (the “Law on financial collateral arrangements”) may be granted in favor of a person acting on behalf of the beneficiaries of such security interests, a fiduciary or a trustee as a security for the claims of third party beneficiaries, present or future, to the extent that such third party beneficiaries are or may be determined.
All security interests governed by Luxembourg law granted under the form of a pledge over shares of a Luxembourg company, Luxembourg bank accounts and claims/receivables under Luxembourg law qualify as financial collateral arrangements under the Law on financial collateral arrangements.
Insolvency
In the event where the Issuer or a Luxembourg Guarantor would become insolvent, insolvency proceedings may be initiated in Luxembourg to the extent that the Issuer or the Luxembourg Guarantor has its principal establishment or its centre of main interests in Luxembourg within the meaning of EU Council Regulation No. 1346/2000 of May 29, 2000 on insolvency proceedings. Such proceedings would then be governed by Luxembourg law. Under certain limited circumstances, EU Council Regulation No. 1346/2000 also allows secondary bankruptcy proceedings to be opened in Luxembourg over the assets of companies that are not established in Luxembourg.
There are three statutory insolvency proceedings under Luxembourg law: bankruptcy proceedings (“faillite”), controlled management (“gestion contrôlée”) and composition proceedings (“concordat préventif de la faillite”). Controlled management and composition proceedings are formal corporate rescue procedures, while the purpose of bankruptcy proceedings is to realize the assets of the company, distribute the proceeds to its creditors and wind up the company.
A company in financial difficulty may instead seek to reach an informal contractual agreement with its creditors to reorganize its financial position or to restructure its business (non-statutory proceedings). On the basis of articles 593ff. of the Luxembourg Commercial Code, the company may also apply to court to suspend payment of its debts (“sursis de paiement”). In addition, judicial liquidation (“liquidation judiciaire”) proceedings may be opened at the request of the public prosecutor against companies pursuing an activity violating criminal laws or that are in serious breach or violation of the commercial code or of the law of 10 August 1915 on commercial companies (as amended). The management of such liquidation proceedings will generally follow the rules of bankruptcy proceedings.
Bankruptcy proceedings, controlled management, composition proceedings and “sursis de paiement” are available to all types of Luxembourg companies with a commercial corporate object. Special regimes apply for entities including, but not limited to, financial institutions and insurance companies. The commencement of any procedure, other than bankruptcy, does not preclude the court from declaring the company bankrupt (including on the court’s own motion), if the legal conditions for bankruptcy are met.
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Bankruptcy (“faillite”)
A company may enter into bankruptcy proceedings if it has ceased making payments (i.e. it is no longer able to repay its debts as they fall due, one debt being sufficient to satisfy that condition) (“cessation des paiements”) and its creditworthiness has been impaired (“ébranlement du crédit”) (for example, the company is no longer able to obtain credit). In other words, the company must be insolvent under a cash flow test (as opposed to a balance sheet test).
Bankruptcy proceedings may be opened by the company or a creditor of the company by filing a declaration of bankruptcy (in the case of the company) or an application for bankruptcy (in the case of a creditor) with the commercial court in the district in which the company has its principal place of business. Alternatively, the court may order bankruptcy proceedings on the proposal of the public prosecutor.
If the court declares a company bankrupt, it will appoint a receiver (“curateur”) (or several receivers, depending on the complexity of the proceedings) and a judge (“juge-commissaire”) to supervise the insolvency proceedings. The receiver will realize the company’s assets and distribute the proceeds to the company’s creditors in accordance with the statutory order of payment and (if there are any funds left) the company’s shareholders.
Unsecured claims will, in the event of a liquidation of the company following bankruptcy, only rank after the cost of liquidation (including any debt incurred for the purpose of such liquidation) and those debts of the relevant entity that are entitled to priority under Luxembourg law. Preferential debts under Luxembourg law include, among others:
• certain amounts owed to the Luxembourg Revenue;
• value-added tax and other taxes and duties owed to the Luxembourg Customs and Excise;
• social security contributions; and
• remuneration owed to employees.
The receiver must notify creditors of the date by which they must file claims with the clerk of the court. The period within which creditors must file their claims is specified in the published judgment declaring the company bankrupt. Claims filed after such period may nevertheless be taken into account if the receiver has not started the realization of the assets of the company and the distribution of the proceeds from that realization. The receiver will need to obtain court permission for certain acts, such as agreeing settlement of claims or deciding to pursue the business of the company during the bankruptcy proceedings.
The receiver takes over the management and control of the company in place of the directors. The receiver represents the company on the one hand and, on the other, the creditors collectively (“masse des créanciers”). Contracts of the company are not automatically terminated on commencement of bankruptcy proceedings, save for contracts for which the identity or solvency of the company is crucial (“intuitu personae” agreements) (e.g. a power of attorney). However, certain contracts are terminated automatically by law, such as employment contracts, unless expressly confirmed by the receiver. Contractual provisions purporting to terminate a contract upon bankruptcy are valid. The receiver may choose to terminate contracts of the company.
Bankruptcy is governed by public policy and strict regulations, which generally delay the bankruptcy proceedings and any restructuring of the group to which the bankrupt company belongs. On closing of the bankruptcy proceedings, the company will typically be dissolved.
Finally, international aspects of Luxembourg bankruptcy, controlled management or composition proceedings may be subject to EU Council Regulation No. 1346/2000 of May 29, 2000 on insolvency proceedings.
Controlled Management (“gestion contrôlée”)
A company which has lost its creditworthiness or which is not in a position to completely fulfil its obligations can apply for the regime of controlled management in order either to reorganise its business or to realise its assets in good conditions. This procedure is rarely applied for as it is not often successful and generally leads to bankruptcy proceedings. This procedure is occasionally applied to companies, in particular holding or finance companies, which are part of an international group and whose inability to meet obligations results from a default of group companies.
An application for controlled management can only be made by the company.
The company must have lost its creditworthiness or be unable to fulfil its obligations. The loss of creditworthiness is identical to the credit test applied in bankruptcy proceedings. As to the second situation, a broad view
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of the total situation of the company is taken. A company will be denied the regime of controlled management if it is considered of bad faith in case of gross negligence or heavy irregularities in the management of its affairs.
The procedure is divided into three steps:
1. The company has to file an application with the district court sitting in commercial matters. The court can reject the application because (i) the company has already been declared bankrupt; or (ii) the evidence brought forward by the company does not ensure the stabilisation and the normal exercise of the company’s business or improve the realisation of the company’s assets in better conditions. If the application is upheld at this stage, the court will appoint an investigating judge to make a report on the overall situation of the company.
2. Once the investigating judge has delivered his report, the court may (i) turn down the application on the ground that the proposals made by the applicant are unlikely to lead to the reorganisation of the business or the realisation of the assets in better conditions; or (ii) appoint one or several administrators who will supervise the management of the assets of the company.
If the court ascertains that the company is unable to pay its creditors (cessation of payment), it may set the date as from which the company will be deemed to have been in such situation. Such date may be set up to six months prior to the filing of application for controlled management. However bankruptcy may only be declared, if the conditions for bankruptcy are met (cessation of payment and loss of creditworthiness) and if the application has been dismissed either before or after consideration of the report by the investigating judge or after the plan proposed by the administrators at step 3 (see below).
The administrators will draw up the inventory of the assets as well as the financial situation of the company. They are also in charge of the annual accounts of the company. The administrators may also prescribe any act they consider to be in the interests of the applicant or its creditors. The administrators have to be convened to any meeting of the board of directors or of managers. They may attend all board meetings but have no voting right. They have the right to convene such board meetings.
3. The administrators will draft a plan for the reorganisation of the applicant’s business or a plan for realisation of the assets, within the deadlines set forth by the court. The plan shall equitably take into account all interests involved and will comply with the ranking of mortgages and privileges as required by law, without taking into account any contractual clause regarding termination, penalties or acceleration. The administrators will notify the draft plan to the creditors, joint debtors and guarantors. Within fifteen days of such notification or publication, the creditors will inform the court whether they agree or object to the draft plan. Any creditor who abstains will be considered as having adhered to the plan. The creditors, the company, the joint debtors and the guarantors may submit written observations to the court.
The court may (i) approve the plan if a majority of the creditors representing, via their claims which have not been challenged by the administrators, at least half of the company’s liabilities, have agreed thereto: the judgement approving the plan will be binding upon the company and its creditors, joint debtors and guarantors; or (ii) disagree with the plan proposed by the administrators even though a majority of creditors representing at least half of the applicant’s liabilities have notified their agreement, in which case the application for controlled management will be dismissed; or (iii) ask the administrators to propose an amended plan (such amended plan will have to be submitted to the creditors as aforesaid).
The fees of the administrators will be fixed by the court and will be borne by the company. The administrators who at the same time are creditors of the applicant are not entitled to any fees.
Composition in Order to Avoid Bankruptcy (“condordat préventif de la faillite”)
A company may enter into composition proceedings (“concordat préventif de la faillite”) in order to resolve its financial difficulties by entering into an agreement with its creditors, the purpose of which is to avoid bankruptcy.
Composition proceedings may only be applied for by a company which is in financial difficulty. As with the controlled management procedure, this procedure is not available if the company has already been declared insolvent by the court or if the company is acting in bad faith.
The application for the composition proceedings can only be made by the company and must be supported by proposals of composition.
The court will delegate to a judge (the “Delegate”) the duty to verify, and to prepare a report on, the situation of the company. Based on such report, the court will decide whether to pursue or not the composition proceedings. If the court considers that the procedure should not be pursued it will in the same judgment declare the bankruptcy of the company (which bankruptcy may also be declared during the composition proceedings if the conditions for the
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composition proceedings are not met). If the court considers that the procedure may be pursued, it will set the place, date and hour of a meeting (assemblée concordataire) at which the creditors will be convened. The Delegate will make its report at the assemblée concordataire.
The concordat préventif may only be adopted if the majority of the creditors representing, by their unchallenged claims, three-quarters of the company’s debts, have adhered to the proposal and if the composition has been homologated by the court. Creditors benefiting from mortgages, privileges or pledges only have a deliberating voice in the operations of the concordat if they renounce to the benefit of their mortgages, privileges or pledges. The vote in favour of the concordat entails renunciation. The renunciation may be limited by the secured creditors to only a portion (but representing at least 50% in value) of their claims with corresponding voting rights.
The composition has no effect on the claims secured by a mortgage, a privilege or a pledge and on claims by the tax authorities.
If the application results in a composition arrangement sanctioned by the court, the composition could still either be annulled (if it has not been executed) or terminated (in case of fraud or bad faith of the company). The consequence of an annulment is the declaration of bankruptcy. Such a bankruptcy judgment can decide to fix the date of cessation of payment to the date of the application for the composition. If that date is less than six months prior to the bankruptcy judgment, the court can of course set the cessation of payment date at six months prior to its judgment.
The company’s business activities continue during the composition proceedings. While the composition is being negotiated, the company may not dispose of, or grant any security over, any assets without the approval of the Delegate. Once the composition has been agreed by the court, this restriction is lifted. However, the company’s business activities will still be supervised by the Delegate.
Composition proceedings are rarely used in practice since they are not binding upon secured creditors.
Suspension of Payments (“sursis de paiement”)
A suspension of payment (sursis de paiement) for “general” commercial companies is not to be confused with the sursis de paiement proceedings available to banks and insurance companies. It can only be applied to a company which, as a result of extraordinary and unforeseeable events, has to temporarily cease its payments but who has on the basis of its balance sheet sufficient assets to pay all amounts due to its creditors. The sursis de paiement may also be granted if the situation of the applicant, even though showing a loss, presents serious elements of reestablishment of the balance between the assets and the debts.
The purpose of the suspension of payments is to allow a business undertaking experiencing financial difficulties to suspend its payments for a limited time after a complex proceedings involving both the district court and the court of appeals and the approval by the majority of the creditors representing, by their claims, three-quarters of the company’s debts, (excluding claims secured by priviledge, mortgage or pledge).
The suspension of payments is, however, not of general application—one of the main reasons why it has lost its attractiveness. It only applies to those liabilities which have been assumed by the debtor prior to obtaining the suspension reprieve from payment and has no effect as far as taxes and other public charges or secured claims (by right of priviledge, a mortgage or a pledge) are concerned.
Effect of Opening Insolvency Proceedings
According to the Law on financial collateral arrangements, all financial collateral arrangements (including pledges of financial instruments or cash held on account) as well as the enforcement events relating to these financial collateral arrangements are valid and enforceable against third parties (including supervisors, receivers, liquidators or other similar persons or bodies) irrespective of any bankruptcy, liquidation or other situation (for instance, pre-bankruptcy suspect period), national or foreign, of composition with creditors or reorganization affecting any one of the parties, save in case of fraud.
Bankruptcy
Under Luxembourg law transactions entered into or payments made by the company during the period before bankruptcy, the so-called “suspect period” (période suspecte) which is a maximum of six months preceding the judgment declaring bankruptcy, except that in certain specific situations the court may set the start of the suspect period at an earlier date, if the bankruptcy judgment was preceded by controlled management proceedings, the court may set the maximum up to six months prior to the filing for such controlled management. In particular:
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• pursuant to article 445 of the Luxembourg Code of Commerce (Code de commerce), specified transactions (such as, in particular, the granting of a security interest for antecedent debts save in respect of financial collateral arrangements within the meaning of Law on financial collateral arrangements; the payment of debts which have not fallen due, whether payment is made in cash or by way of assignment, sale, set-off or by any other means; the payment of debts which have fallen due by any means other than in cash or by bill of exchange; the sale of assets without consideration or with substantially inadequate consideration) entered into during the suspect period (or the ten days preceding it) must be set aside or declared null and void, if so requested by the insolvency receiver;
• pursuant to article 446 of the Luxembourg Code of Commerce payments made for matured debts as well as other transactions concluded for consideration during the suspect period are subject to cancellation by the court upon proceedings instituted by the insolvency receiver if they were concluded with the knowledge of the bankrupt party’s cessation of payments;
• pursuant to article 21 (2) of the Law on financial collateral arrangements, notwithstanding the suspect period as referred to in articles 445 and 446 of the Luxembourg Code of Commerce, where a financial collateral arrangement has been entered into after the opening of liquidation proceedings or the coming into force of reorganization measures or the entry into force of such measures, such arrangement is valid and binding against third parties, administrators, insolvency receivers, liquidators and other similar organs if the collateral taker proves that it was unaware of the fact that such proceedings had been opened or that such measures had been taken or that it could not reasonably be aware of it; and
• in the case of bankruptcy, article 448 of the Luxembourg Code of Commerce and article 1167 of the Luxembourg Civil Code (action paulienne) gives the insolvency receiver (acting on behalf of the creditors) the right to challenge any fraudulent payments and transactions, including the granting of security with an intent to defraud, made prior to the bankruptcy, without any time limit.
Controlled Management
As from the day of the appointment of the investigating judge until the final decision on the application for controlled management, any subsequent enforcement proceedings or acts, even if initiated by privileged creditors (including creditors who have the benefit of pledges and mortgages) are stayed, save as provided for by the Law on financial collateral arrangements. The company may not enter into any act of disposition, mortgage, contract or accept any movable asset without the authorisation of the investigating judge.
Once the administrators have been appointed, the company may not carry out any act (including receiving funds, lending money, granting any security, making any payment) without the prior authorisation of the administrators. The administrators may bring any action in court in order to have any act made in violation of the legislation governing the controlled management or in fraud of the creditors’ rights be declared void. Subject to the prior authorisation of the court, they may bring an action (i) to have the directors, managers or the statutory auditor be held liable or (ii) if the court has declared the company to be in cessation of payments, to have any payment, compensation or security be declared void (under certain conditions set forth in articles 445 ff. of the Luxembourg Commercial Code).
Composition
Except as provided for in the Law on financial collateral arrangements, while the composition is being negotiated, unsecured creditors may not take action against the company to recover their claims. Secured creditors who do not participate in the composition proceedings may take action against the company to recover their claims and to enforce their security.
Fraudulent transactions which took place before the date on which the court commenced composition proceedings, may be set aside as described for the bankruptcy proceedings.
Mexico
Guarantees
Under Mexican law, there are no limitations for Mexican companies to guaranty third party obligations, including parents, subsidiaries or affiliates, to the extent permitted by its corporate by-laws. The validity of each guarantee is subject to the existence and validity of the obligation being guaranteed. As a consequence thereof, its enforcement is not independent or irrespective of such obligation being guaranteed. Furthermore, under Mexican law, a subsidiary guarantor may be released from its obligations under the guarantee if (i) the holder of the note gives an extension for payment under the notes without the express consent of the subsidiary guarantor, or (ii) the company
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waives any cause that would otherwise release the company of its obligations under the notes, including expirations or statute of limitation provisions.
Security Interests
Following is a listing, which is not exhaustive, but covers those operations which are of most common practical usage in Mexico, of certain types of security interests on real and personal property that may be implemented in Mexico depending on the circumstances of each case.
At a minimum security interests require a written agreement for perfection, and in most cases its formalization in a public instrument issued by a Mexican notary public. Also, in many cases the documents evidencing the security interests are required to be recorded in a public registry in order to obtain priority vis-a-vis third parties.
Guaranty Trust
Trusts (fideicomiso) are commercial agreements regulated by federal law. By means of a trust agreement, the settlor conveys in trust to a Mexican bank acting as trustee, certain assets for a determined legal purpose, the performance of which is entrusted to the trustee. Guaranty trusts, which are trusts intended to secure an obligation, are specifically regulated.
The form of trust available under Mexican law is similar to that available under other jurisdictions. It is a three party transaction involving a settlor, trustee and beneficiary. Only Mexican banks and other regulated financial institutions (such as insurance companies) may act as trustees.
The guaranty trust is commonly used in Mexico in real estate transactions; however, it is equally adaptable to shares, personal property and accounts receivables.
Title to the assets of the trust is transferred by the settlor to the trustee and is subject to the provisions established in the Trust Agreement. The trustee is empowered to dispose of or otherwise utilize the assets of the trust pursuant to the conditions set forth in the trust agreement. Disposal of the assets in the event of default by the borrower of the guaranteed obligations requires certain procedures that comply with Mexican due process principles, including notice to the borrower.
When real estate is transferred to a guaranty trust, the agreement must be executed before a notary public and recorded with a public registry. The trust will not become effective against third party creditors until such recordation is made.
Pledge
A pledge creates a lien on personal property, including account receivables and shares. Although pledges are regulated by state law, federal law regulating pledges override state law if the pledge is granted for commercial purposes. Commercial law provides for two types of pledges: possessory, when the pledged asset is delivered to the pledgee or a person appointed by the parties, and non-possessory, when the pledged asset remains with the pledgor.
A. Possessory Pledge
In the case of a possessory pledge, the pledge is perfected by delivery of the asset to the pledgee of a third party appointed by the parties. Also, depending on the nature of the asset, notice to third parties may be required, as in the case of account receivables (notice to the account borrower) and stock (notice of the company issuer of the shares). Further formalities may be required in the case of negotiable instruments, which may require the annotation of the pledge, in the form of an endorsement in favor of the pledgee. A pledgee in a possessory pledge has the right, in case of default, to request the court to sell the assets and apply the proceeds of the sale to payment of the secured obligation.
B. Non-Possessory Pledge
Commercial law provides for a general non-possessory pledge which creates a lien on present and future assets of the pledgor’s business. Pledgor retains possession of the pledged assets, which may be processed and sold, subject to the terms and conditions agreed by the parties. In the event of default, pledgee has the right to request delivery of the assets in order to sell them and apply the proceeds to payment of the secured obligations. In case the borrower opposes the sale of the trust assets, then the pledgee has to proceed with a judicial procedure to continue the sale.
In the event of decline of the value of the assets subject to a non-possessory pledge below the outstanding amount of the secured obligations, plus interest accrued and unpaid, the creditor has the right to
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seek judicial intervention to require the borrower (pledgor) to either increase the amount of the pledged assets or reduce the outstanding balance of the indebtedness. If borrower does not undertake either corrective measures, the creditor may compel a court supervised sale of the assets.
The agreement creating a non-possessory pledges requires to be executed before a notary and recorded with the commerce registry of the State where the pledgor is domiciled.
Enforcement of Security Interests
As a general principle under Mexican law, a secured creditor may not take possession of the collateral without court intervention, and if he does so, such action could constitute a criminal offence. Generally speaking, the main right that a security interest provides is the right to request a court to dispose of the asset and apply the proceeds of the sale to payment of the secured obligation.
Procedural steps to enforce liens before courts in Mexico depend on the nature of each security interest, and on whether the debtor is in suspension of payments, bankruptcy, or is still doing business. In any event, the procedural approach will vary and the type of action will depend on the documentation held by the creditor.
Because of the above, in order to enforce its security interest, the creditor must normally initiate a lawsuit. When the collateral is located within Mexican territory, filing the lawsuit before a Mexican court would most probably be more effective than trying to enforce in Mexico a judgment of a foreign court. Judgments of non-Mexican courts are enforceable in Mexico, provided a number of conditions are met, including certain basic principles of Mexican due process rules. Among such basic principles is service of process, which in all instances should be made personally on the defendant or its attorney-in-fact. Service of process by mail is ineffective under Mexican due process rules.
The guaranty trust is an exception to the general rule that a secured creditor may not take possession of the collateral without court intervention, as the guaranty trust can include its own foreclosure procedure, provided certain Mexican due process principles are met.
There are no limitations to the election of remedies in Mexico, creditors can pursue multiple remedies at the same time until the total amount of the indebtedness is fully paid. The debtor is entitled to receive any outstanding amount derived from the enforcement and foreclosure of all security interest, once the secured obligations have been paid in full to the creditors.
Foreclosure
With the exception of the non-possessory pledge and the guaranty trust, court intervention is required in order to foreclose in all security interests afforded by Mexican law. This does not mean, however, that the foreclosure of a non-possessory pledge and of a guaranty trust will not end up being decided in a Mexican court.
In the case of the non-possessory pledge, the pledgee has the right to request delivery of the assets in order to sell them and apply the proceeds to the payment of the secured obligations. In case the borrower opposes the sale of the trust assets, then the pledgee has to proceed with a judicial procedure to continue the sale.
In the case of the guaranty trust, there have well-known cases where the borrower has filed a lawsuit against the creditor and the trustee, in which the borrower argues, among other things, (a) that a default has not really occurred, and (b) that the foreclosure procedure in the trust agreement does not meet the due process principles of Mexican law. In some of this cases, the trustee has suspended foreclosure until a final judgment is issued, even when no court order has been issued to that effect. Needless to say, there are other cases when the trustee follows the letter of the trust agreement and forecloses on the assets, regardless of any claims from the borrower.
Based on Mexican law practice, foreclosure of a guaranty trust can take up to three months, if the borrower does not file any lawsuits or, even if filed, if the trustee sticks to the letter of the trust agreement and forecloses on the assets. If the trustee decides to suspend foreclosure until a final judgment is issued, foreclosure can easily take two years.
The time implications of foreclosure of a possessory pledge and of the conditional sale, based on Mexican legal practice, can take between 2-4 years (3-5 years, in a bad scenario).
Insolvency
Under Mexico’s Ley de Concursos Mercantiles (Law on Mercantile Reorganization), a proceeding is divided into stages: (i) an initial mediation stage, and (ii) a bankruptcy stage. During these two phases, the creditors have to comply with different obligations to reach a payment agreement or foreclose their collateral.
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General Requirements to Initiate Insolvency Proceedings
Once an insolvency procedure has been initiated, the court will verify whether (i) the requirements to initiate an insolvency procedures have been met, and (ii) if the company has incurred in a general default of its payment obligations, as described below. If such two elements are met, then the court will declare the company in insolvency and proceed with the following phase, mediation. The court will verify the borrower’s situation through a court- appointed inspector (visitador).
A. Involuntary Initiation.
Involuntary insolvency proceedings may be initiated against a company by any creditor or by the Attorney General.
B. Voluntary Initiation.
A borrower may also initiate its own insolvency proceedings. In the case of an entity, the initiation of the insolvency procedure must be approved by the appropriate corporate body.
C. General Default
A borrower has incurred in a general default of its payment obligations if (a) does not have sufficient assets to respond for 80% of its obligations which are due and payable, (b) it has defaulted in its payment obligations to two or more creditors, (c) of such defaulted obligations, those that have remained due and unpaid for 30 days represent 35% of all obligations of the borrower. The Law on Mercantile Reorganization provides for certain situations in which the general default of payment obligations is presumed.
Mediation
The declaration of insolvency by the court shall include an order to the borrower to cease making any payment, except for those necessary for the ordinary course of business. The court shall appoint a mediator (conciliador) for the purposes set forth below. During the mediation phase, the borrower will continue managing its business, unless the court considers otherwise.
The mediator’s main role is to negotiate with the creditors to achieve an agreement with the creditors to ensure the survival of the company as a going concern in whole or in part. The mediator is also responsible for supervising the borrower’s management of the company and approving new transactions.
The mediation phase has a term of 185 calendar days, which may be extended, in no case exceeding 365 calendar days.
In order to participate in the insolvency proceedings, creditors shall apply for recognitions of their credits. Failure to obtain recognition of its credit by a creditor may cause the inability to obtain payment.
If an agreement is approved by a majority of creditors and the court, then the insolvency procedure shall be terminated.
Bankruptcy
The court will declare the borrower in bankruptcy if (i) an agreement is not achieved with the creditors, or (ii) the borrower requests to be declared in bankruptcy, or (iii) the mediator requests bankruptcy to be declared in case of refusal by the borrower to comply with the mediator’s orders. Upon declaration of bankruptcy, the court shall order the borrower to surrender all its assets to the receiver for the benefit of its creditors.
The purpose of the bankruptcy phase is to liquidate the borrower’s assets in order to pay its liabilities.
Upon the declaration of bankruptcy, the mediator or another person shall be appointed as receiver (síndico). The receiver will be in charge of the management and sale of the borrower’s assets. No proceeds would be distributed prior to this sale of assets.
Recognized creditors shall be paid according to their corresponding priority, pursuant to the payment plan prepared by the receiver and approved by the court.
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Bankruptcy proceedings shall be terminated by the court if all the assets of the borrower have been sold, or all creditors have been paid in full, or the insufficiency of the borrower’s assets to pay all the creditors is proved.
Effect of Bankruptcy on Transactions
The Law on Mercantile Reorganization provides for a so-called “retroactivity date”, which means the 270th calendar days immediately preceding the date in which the declaration of insolvency is issued. However, this period of time could be extended at the request of the judge turning the suspicious period in a longer period of time.
The Law on Mercantile Reorganization provides that fraudulent acts against creditors shall have no effect upon the insolvent’s estate. Any acts pursuant to which the commercial entity, prior to the declaration of insolvency, knowingly defrauds the creditors, shall be a fraudulent act against such creditors, if the third party that participates in such acts is aware of said fraud; provided however that this last requisite shall not be mandatory in the case of gratuitous acts.
The Law on Mercantile Reorganization provides a dual classification of acts that shall or could be deemed fraudulent acts, as the case may be, against creditors. The first classification corresponds to acts that are deemed per se fraudulent acts against creditors, provided that they take place after the “retroactivity date”; and the second classification corresponds to acts that presumably are fraudulent acts against creditors if made after the retroactivity date, unless the interested party proves his good faith.
In addition to fraudulent acts against creditors, the mediator may order the borrower to abstain from performing agreements which have not been performed by the borrower at the time of declaration of insolvency, if the mediator considers that performance of such agreement would adversely affect the borrower’s estate. In such case, the agreement shall be rescinded.
The Law on Mercantile Reorganization provides that all Mexican peso denominated obligations are converted into UDIs (unidades de inversion) and foreign currency denominated obligations are converted into pesos at the prevailing rate of exchange on the date the insolvency judgment is rendered, and then converted into UDIs. With this mechanism, although creditors will not be entitled to collect interest during the insolvency proceedings, the fact that the debt will be denominated in UDIs protects the value of such debts from a loss of value resulting from inflation.
Those creditors with a perfected security interest (mortgage, pledge or guaranty trust) will not suffer any currency or unit conversion, and their debts will continue to accrue interest at the contractual (not default or penalty) interest rate up to the amount of the value of the mortgaged or pledged assets. Any amount not covered by collateral will be converted into UDIs and subject to the general rules of the Law on Mercantile Reorganization.
Ranking of Creditors
Recognized claims against an insolvent estate are classified in the following categories, according to the nature of their claims:
(a) Claims against the Bankruptcy Estate;
(b) Mortgagee’s and pledgee’s claims;
(c) Labor claims (other than claims against the bankruptcy estate) and tax claims;
(d) Special privileged claims; and
(e) Common claims.
The claims against the insolvent estate are: (a) claims by the borrower’s employees corresponding to the two years preceding the declaration of bankruptcy; (b) certain liabilities and expenses incurred in connection with the management and conservation of the bankruptcy estate.
Special privileged claims are those deriving from obligations to which the law provides a special privilege or a retention right.
Guaranty trusts are considered as a different legal device than mortgage or a pledge, therefore, a creditor whose collateral is secured exclusively by a guaranty trust will not be considered within the same category as a mortgage or pledge creditor. On the other hand, an asset transferred to a trustee pursuant to a guaranty trust is considered to be owned not by the bankrupt borrower, but by the trustee. Therefore, a creditor with a guaranty trust may collect from the guaranty trust without participating in the bankruptcy proceedings.
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Therefore, upon the declaration of insolvency (concurso mercantil) or bankruptcy (quiebra), the Guarantors obligations under the Notes:
• would be converted into pesos at the exchange rate published by Banco de México prevailing at the time of such declaration and subsequently converted into UDIs;
• would not be adjusted to take into account depreciation of the peso against the U.S. dollar occurring after such declaration of insolvency (concurso mercantil) or bankruptcy (quiebra);
• would be satisfied at the time claims of all of the creditors are satisfied;
• would cease to accrue interest from the day of the date insolvency (concurso mercantil) or bankruptcy (quiebra) was declared; and
• would be subject to certain statutory preferences, including tax, social security and labor claims, and claims of secured creditors.
In addition, the Guarantees granted by the Guarantors incorporated in Mexico may not be enforceable in the event of a bankruptcy of any such Guarantor. If the Guarantee granted by any Guarantor incorporated in Mexico becomes unenforceable, it would not be possible to collect from such Guarantors.
The Netherlands
Limitation on Enforcement
If a Dutch company grants a guarantee or security interest and that guarantee or security interest is not in the company’s corporate interest, the guarantee or security interest may be nullified by the Dutch company, its receiver (curator) in bankruptcy (faillissement) and its administrator (bewindvoerder) in moratorium of payment proceedings (surseance van betaling) or otherwise and, as a consequence, not be valid, binding and enforceable against it. In determining whether the granting of a guarantee or security interest is in the interest of a Dutch company, Dutch courts would not only consider the text of the objects clause in the articles of association (statuten) of the company but all relevant circumstances, including (i) whether the company irrespective of the wording of the objects clause derives certain commercial benefits from the transaction in respect of which the guarantee or security interest was granted and (ii) the balance between the risk that the company is assuming and the benefit it derives from such transaction. In addition, if it is determined that there are no, or insufficient, commercial benefits from the transactions for the company that grants the guarantee, then such company (and any bankruptcy receiver) may challenge the enforcement of the guarantee or security interest, and it is possible that such challenge would be successful. Such benefit may, according to Dutch case law, consist of an indirect benefit derived by the company as a consequence of the interdependence of such company with the group of companies to which it belongs. In addition, it is relevant whether, as a consequence of the granting of the guarantee or security interest, the continuity of such company would foreseeably be endangered by the granting of such guarantee or security interest. It remains possible that even if such strong financial and commercial interdependence exists, the transaction may be declared void if it appears that the granting of the guarantee or security interest cannot serve the realization of the relevant company’s objects or where it is determined that there is a material imbalance to the disadvantage of the company between the commercial benefit on the one hand and the risks on the other hand. The above also applies with respect to any security interest granted or other legal act entered into by a Dutch company.
If Dutch law applies, a guarantee or security governed by Dutch law may be voided by a court, if the document was executed through undue influence (misbruik van omstandigheden), fraud (bedrog), duress (bedreiging) or mistake (dwaling) of a party to the agreement contained in that document. Payment pursuant to a guarantee or following enforcement or foreclosure of security granted may, regardless of an insolvency situation occurring or not, also be withheld due to unforeseen circumstances (onvoorziene omstandigheden), force majeure (niet-toerekenbare tekortkoming) or reasonableness and fairness (redelijkheid en billijkheid). Other impeding factors include dissolution (ontbinding) of contract and set off (verrehersing).
In addition, a guarantee issued by a Dutch company and a security interest provided by a Dutch company may be suspended or avoided by the Enterprise Chamber of the Court of Appeal in Amsterdam (Ondernemingskamer van het Gerechtshof te Amsterdam) on the motion of the holder or holders of 10% or more of the shares in such company, as well as on the motion of a trade union and of other entities entitled thereto in the articles of association of the relevant Dutch company. Likewise, the guarantee or security itself may be upheld by the Enterprise Chamber, yet actual payment under it may be suspended or avoided.
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Pursuant to Article 2:207c Dutch Civil Code (Burgerlijk Wetboek) (financial assistance), it is prohibited for a private company with limited liability, such as the Dutch Guarantors, to give guarantees or otherwise provide security for the purpose of (met het oog op) the subscription for, or acquisition of its shares or share certificates by third parties. This also applies to such Dutch Guarantor’s subsidiaries. Violation of this provision leads (depending on the view in Dutch legal literature followed) to either nullity of the guarantee or a defect in the representation of the Dutch Guarantor. In order to enable a Dutch company to grant guarantees or security interests over collateral in order to secure its liabilities or the liabilities of a direct or indirect parent or sister company or a third party without the risk of violating Dutch rules on financial assistance, it is not uncommon for indentures, credit agreements, guarantees and security documents to contain so-called “limitation language” in relation to subsidiaries incorporated or established in The Netherlands, to the extent the relevant facilities cannot be carved out in the credit facility itself. Pursuant to such limitation language, it is agreed between the relevant parties that a guarantee or security interest is deemed not to be given to the extent the same would constitute a violation of the Dutch rules on financial assistance. Accordingly, the Indenture and the Security Documents will contain such limitation language and the guarantee of any Guarantor incorporated under Dutch law and the security will be so limited. The limitation language in these documents will read substantially as follows:
“The guarantee of any Guarantor or security interest granted by any company incorporated in The Netherlands and any of its Subsidiaries shall be deemed to have been given only to the extent that such guarantee or security interest does not constitute unlawful financial assistance within the meaning of Article 2:207c of the Dutch Civil Code (Burgerlijk Wetboek).”
Parallel Debt
Under Dutch law, certain “accessory” security interests such as pledges require that the pledgee and the creditor be the same person. Such security interests cannot be held by a third party which does not hold the secured claim but purports to hold security interests for the parties that do. The beneficial holders of the Notes from time to time will not be party to the Security Documents. In order to permit the Noteholders from time to time to have a secured claim, the Security Documents or other finance documents will provide for the creation of a “parallel debt.” Pursuant to the parallel debt, the Security Agent becomes the holder of a claim equal to each amount payable by an obligor under the Notes. The pledges governed by Dutch law will directly secure the parallel debt. The parallel debt structure has not been tested under Dutch law, and there is no certainty that it will eliminate or mitigate the risk of unenforceability posed by Dutch law.
With respect to any trust purported to be created by a Dutch company, it should be noted that the concept of “trust” under, for example, the laws of the State of New York or English law does not exist under Dutch law. The Netherlands have, however, ratified the Hague Trust Convention and, consequently, it is to be expected that such trust would be recognised by the courts of the Netherlands, provided that (i) it is a trust within the meaning of Article 2 of the Hague Trust Convention, (ii) it is validly created and existing under the laws of the state under which it is created and is evidenced in writing, (iii) the court requested to recognise such trust does not find that the elements thereof have a closer connection with a jurisdiction in which the concept of trust does not exist, and (iv) such elements are also otherwise in accordance with the requirements for recognition of trusts under the Hague Trust Convention.
Fraudulent Transfer
To the extent that Dutch law applies, a guarantee or security interest granted by a legal entity may, under certain circumstances, be nullified by any of its creditors, if (i) the guarantee or security interest was granted without prior existing legal obligation to do so (onverplicht), (ii) the creditor concerned was prejudiced as a consequence of the guarantee or the granting of the security interest and (iii) at the time the guarantee or security interest was granted both the legal entity and, unless the guarantee or security interest was granted for no consideration (om niet), the beneficiary of the guarantee or security interest knew or should have known that one or more of the entities’ creditors (existing or future) would be prejudiced (action pauliana). Also to the extent that Dutch insolvency law applies, a guarantee or security interest may be nullified by the bankruptcy receiver on behalf of and for the benefit of all creditors of the insolvent debtor, and in such case the beneficiary of the guarantee or security interest is presumed (subject to evidence to the contrary) to have known that creditors of the debtor would be prejudiced if the bankruptcy follows within a year of the granting and for no consideration. The foregoing requirements apply mutatis mutandis for such actions. In addition, the bankruptcy receiver may challenge the guarantee or security interest if it was granted on the basis of a prior existing legal obligation to do so (verplichte rechtshandeling), if (i) the guarantee or security interest was granted at a time that the beneficiary of such guarantee or security interest knew that a request for bankruptcy had been filed or (ii) if such guarantee or security interest was granted as a result of deliberation between the debtor and the beneficiary of such guarantee or security interest with a view to give preference to the beneficiary over the debtor’s other creditors. Consequently, the validity of any guarantees or security interests granted by a Dutch legal entity may be challenged and it is possible that such challenge would be successful.
It is not certain and has not been determined in published case law whether a right of pledge on shares can be created in advance of the acquisition of the shares by the pledgor.
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If a security right is created in collateral to which a Dutch company has not yet obtained title, such collateral will not be subject to such a security interest if that company is declared bankrupt or granted a moratorium of payments prior to obtaining title therto.
It is not possible to conduct searches in respect of any Dutch law governed security (other than in respect of rights of mortgage, if any), except that any security created over the shares in a Dutch company should be registered in its shareholders’ register. However, this does not constitute conclusive evidence of the absence of any pre-existing security.
Insolvency
Certain of the Guarantors are incorporated in the Netherlands. Any insolvency proceedings concerning any of such Guarantors’ guarantee would likely be based on Dutch insolvency law. Under certain circumstances, bankruptcy proceedings may also be opened in The Netherlands in accordance with Dutch law over the assets of companies that are not established under Dutch law.
The following is a brief description of certain aspects of Dutch insolvency law. There are two primary insolvency regimes under Dutch law: the first, moratorium of payments (surseance van betaling), is intended to facilitate the reorganization of a debtor’s indebtedness and enable the debtor to continue as a going concern. The second, bankruptcy (faillissement), is primarily designed to liquidate assets and distribute the proceeds of the assets of a debtor to its creditors. Both insolvency regimes are set forth in the Dutch Bankruptcy Act. In practice, a suspension of payments often results in bankruptcy. A general description of the principles of both insolvency regimes is set out below.
An application for a moratorium of payments can only be made by the debtor itself. Once the request for a moratorium of payments is filed, a court will immediately (dadelijk) grant a provisional moratorium and appoint an administrator (bewindvoerder). A meeting of creditors is required to decide on the definitive moratorium. If a draft composition (ontwerp akkoord) is filed simultaneously with the application for moratorium of payments, the court can order that the composition will be processed before a decision about a definitive moratorium. If the composition is accepted and subsequently ratified by the court (gehomologeerd), the provisional moratorium ends. The definitive moratorium will generally be granted unless a qualified minority (more than one-quarter in amount of claims held by creditors represented at the creditors’ meeting or more than one-third in number of creditors represented at such creditors’ meeting) of the unsecured non-preferential creditors withholds its consent. The moratorium of payments is only effective with regard to unsecured non-preferential creditors. Unlike Chapter 11 proceedings under U.S. bankruptcy law, during which both secured and unsecured creditors are generally barred from seeking to recover on their claims during a moratorium of payments, under Dutch law, secured and preferential creditors (including tax and social security authorities) may enforce their rights against assets of the company in moratorium of payments to satisfy their claims as if there were no moratorium of payments. A recovery under Dutch law could, therefore, involve a sale of assets that does not reflect the going concern value of the debtor. However, the court may order a “cooling down period” (afkoelingsperiode) for a maximum period of four months during which enforcement actions by secured or preferential creditors are barred. Also in a definitive moratorium of payments, a composition (akkoord) may be offered to creditors. A composition will be binding on all unsecured and non-preferential creditors if it is approved by (i) a majority in number of the creditors represented at the creditors’ meeting, representing at least 50% in amount of the claims that are admitted for voting purposes and (ii) subsequently ratified (gehomologeerd) by the court. Consequently, Dutch insolvency laws could preclude or inhibit the ability of the Noteholders to effect a restructuring and could reduce the recovery of a holder of Notes in Dutch moratorium of payments proceedings. Interest payments that fall due after the date on which a moratorium of payments is granted cannot be claimed in a composition.
Under Dutch law, a debtor can be declared bankrupt when it is no longer able to pay its debts when due. The bankruptcy can be requested by a creditor of a claim that is due and payable but left unpaid when there is at least one other creditor. The debtor can also request the application of bankruptcy proceedings itself.
Under Dutch bankruptcy proceedings, the assets of a debtor are generally liquidated and the proceeds distributed to the debtor’s creditors in accordance with the respective rank and priority of their claims. The general principle of Dutch bankruptcy law is the so-called paritas creditorum (principle of equal treatment) which means that all creditors have an equal right to payment and that the proceeds of bankruptcy proceedings shall be distributed in proportion to the size of their claims. However, certain creditors (such as secured creditors and tax and social security authorities) will have special rights that take priority over the rights of other creditors. Consequently, Dutch insolvency laws could reduce your potential recovery in Dutch bankruptcy proceedings.
The claim of a creditor may be limited depending on the date the claim becomes due and payable in accordance with its terms. Generally, claims of the Noteholders that were not due and payable by their terms on the date of a bankruptcy of the relevant Guarantor will be accelerated and become due and payable as of that date. Each of these claims will have to be submitted to the bankruptcy receiver to be verified. “Verification” under Dutch law means that the receiver determines the value of the claim and whether and to what extent it will be admitted in the bankruptcy
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proceedings to the purpose of the distribution of the proceeds. The valuation of claims that otherwise would not have been payable at the time of the bankruptcy proceedings may be based on a net present value analysis. Interest payments that fall due after the date of the bankruptcy cannot be verified. The existence, value and ranking of any claims submitted by the Noteholders may be challenged in the Dutch bankruptcy proceedings. Generally, in a creditors’ meeting (verificatievergadering), the bankruptcy receiver, the insolvent debtor and all verified creditors may dispute the verification of claims of other creditors. Creditors whose claims or value thereof are disputed in the creditors’ meeting may be referred to separate court proceedings (renvooiprocedure). These procedures could cause Noteholders to recover less than the principal amount of their Notes or less than they could recover in a U.S. liquidation. Such renvooi proceedings could also cause payments to the Noteholders to be delayed compared with holders of undisputed claims. As in moratorium of payments proceedings, in a bankruptcy a composition may be offered to creditors, which shall be binding on unsecured non-preferential creditors if it is approved by (i) a majority in number of the creditors represented at the creditors’ meeting, representing at least 50% in amount of the claims that are admitted for voting purposes and (ii) subsequently confirmed by the court. The Dutch Bankruptcy Act does not in itself recognize the concept of classes of creditors. Remaining amounts, if any, after satisfaction of the secured and the preferential creditors are distributed among the unsecured non-preferential creditors, who will be satisfied on a pro rata basis. Contractual subordination may to a certain extent be given effect in Dutch insolvency proceedings. The actual effect depends largely on the way such subordination is construed.
Secured or preferential creditors may (including tax and social security authorities) enforce their rights against assets of the debtor to satisfy their claims under a Dutch bankruptcy as if there is no bankruptcy. As in moratorium of payments proceedings, the court may order a “cooling down period” for a maximum of four months during which enforcement actions by secured or preferential creditors are barred unless such creditors have obtained leave for enforcement from the supervisory judge (rechter-commissaris). Further, a receiver in bankruptcy can force a secured creditor to enforce its security interest within a reasonable period of time, failing which the receiver will be entitled to sell the secured assets, if any, and the secured creditor will have to share in the bankruptcy costs, which may be significant. Excess proceeds of enforcement must be returned to the bankrupt estate; they may not be set-off against an unsecured claim of the secured creditor in the bankruptcy. Such set-off is allowed prior to the bankruptcy, although a set-off prior to bankruptcy may be subject to clawback in the case of fraudulent conveyance or bad faith in obtaining the claim used for set-off. Moreover, to the extent that Dutch law applies, a legal act performed by a debtor (including, without limitation, an agreement pursuant to which it guarantees the performance of the obligations of a third party or agrees to provide or provides security for any of its or a third party’s obligations, enters into additional agreements benefiting from existing security and any other legal act having a similar effect) can be challenged in an insolvency proceeding or otherwise and may be nullified by any of its creditors or its trustee in bankruptcy. See “Fraudulent Transfer” above.
Under Dutch law, as soon as a debtor is declared bankrupt, in principle all pending executions of judgments against such debtor, as well as all attachments on the debtor’s assets (other than with respect to secured creditors and certain other creditors, as described above), will be terminated by operation of law. Simultaneously with the opening of the bankruptcy, a Dutch receiver will be appointed. The proceeds resulting from the liquidation of the bankrupt estate may not be sufficient to satisfy unsecured creditors under the guarantees granted by an insolvent guarantor after the secured and the preferential creditors have been satisfied. In principle, litigation pending on the date of the bankruptcy order is automatically stayed.
Switzerland
The liabilities of any Guarantor or security provider organized under the laws of Switzerland (any such Guarantor or security provider, a “Swiss Collateral Guarantor”) under any up-stream or cross-stream Guarantee and security interest are at any time (to the extent that such is a requirement of applicable Swiss law in force at the relevant time) limited to a sum equal to the maximum amount of the respective Swiss Collateral Guarantor’s reserves and profits available for distribution, provided that such limitations shall not free the respective Swiss Collateral Guarantor from payment obligations in excess of its freely distributable reserves and profits, but merely postpone the payment date of those obligations until such time as payment is permitted notwithstanding such limitations. The payment under the respective Swiss Collateral Guarantor’s Guarantee and the enforcement of security interest may require certain prior corporate formalities to be completed including, but not limited to, obtaining an audit report, shareholders’ resolutions and board resolutions.
The enforcement of the respective Swiss Collateral Guarantor’s Guarantee and the security interest may give rise to Swiss withholding taxes on dividends (of up to 53.8% at present rates) to the extent that the payment or enforcement of security interest falls to be regarded as a deemed distribution by the respective Swiss Collateral Guarantor to the Issuer or any other related party.
For the above reasons, it is standard market practice for indenture agreements, credit agreements, guarantees and Security Documents to contain so-called “limitation language” in relation to the respective Obligor substantially in the form as set out below under “Limitations on Enforcement of Guarantee and Security granted by Swiss Collateral Guarantor.”
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Limitations on Enforcement of Guarantee and Security granted by Swiss Collateral Guarantor
If and to the extent that obligations of a Swiss Collateral Guarantor under the Indenture or any other Notes documentation are for the benefit of its direct or indirect affiliates (other than its wholly-owned subsidiaries) and that complying with such obligations would constitute a repayment of capital (Einlagerückgewähr), a violation of the legally protected reserves (gesetzlich geschützte Reserven) or the payment of a (constructive) dividend (Gewinnausschüttung) by such Swiss Collateral Guarantor or would otherwise be restricted under Swiss corporate law then applicable (the “Restricted Obligations”), the following provisions shall apply.
The aggregate liability of the Swiss Collateral Guarantor for Restricted Obligations under the Indenture or any other Notes documentation, including, without limitation, under the Guarantees, shall be limited to the amount of the Swiss Collateral Guarantor’s unrestricted equity capital surplus (including the unrestricted portion of general and statutory reserves, other free reserves, retained earnings and current net profits) available for distribution as dividends to the shareholders of such Swiss Collateral Guarantor at the time the Swiss Collateral Guarantor makes any payment under the Indenture or any other Notes documentation, in each case in accordance with, without limitation, article 671(1) to (3) of the Swiss Code of Obligations (the “Available Amount”) (provided that this is a requirement under applicable law at that time and further provided that such limitation (as may apply from time to time or not) shall not (generally or definitively) free the Swiss Collateral Guarantor from performing Restricted Obligations hereunder in excess thereof, but merely postpone the performance date therefor until such times as performance is again permitted notwithstanding such limitation).
Immediately after having been requested to perform Restricted Obligations under the Indenture or any other Notes documentation, the Swiss Collateral Guarantor shall and any parent company of the Swiss Collateral Guarantor shall procure that the Swiss Collateral Guarantor will:
• if and to the extent requested by the Security Agent or required under then applicable Swiss law, provide the Security Agent, within 30 Business Days, with (a) an interim balance sheet audited by the statutory auditors of the Swiss Collateral Guarantor, (b) the determination by the statutory auditors of the Available Amount based on such interim audited balance sheet and (c) a confirmation from the statutory auditors of the Swiss Collateral Guarantor that the Available Amount complies with the provisions of Swiss corporate law which are aimed at protecting the share capital and legal reserves;
• to the extent permitted by applicable law, write up or realize any of its assets that are shown in its balance sheet with a book value that is significantly lower than the market value of the assets, in case of realization, however, only if such assets are not necessary for the Swiss Collateral Guarantor’s or the Group’s business (nicht betriebsnotwendig);
• take such further corporate and other action which may be necessary or useful at the time (such as board and shareholders’ approvals and the receipt of any confirmations from the Swiss Collateral Guarantor’s statutory auditors) in order to allow a prompt payment under the Indenture or any other Notes documentation with a minimum of limitations; and/or
• immediately after confirming the Available Amount in accordance with paragraph (i) above, any amounts received or collected by the Security Agent under and in connection with Restricted Obligations under the Indenture or any other Notes documentation in excess of the Available Amount shall be retransferred to the Swiss Collateral Guarantor as soon as possible and, if not already done so, pay up to the Available Amount (less, if required, any Swiss withholding tax) to the Security Agent.
If so required under applicable law (including double tax treaties) in force at the time it is required to perform Restricted Obligations under the Indenture or any other Notes documentation, the Swiss Collateral Guarantor shall:
• deduct the Swiss withholding tax at the rate of 35% (or such other rate as is in force at that time) from any payment under the Indenture or any other Notes documentation;
• pay the Swiss withholding tax to the Swiss Federal Tax Administration; and
• notify and provide evidence to the Security Agent that the Swiss withholding tax has been paid to the Swiss Federal Tax Administration.
Unless grossing-up is explicitly permitted under the laws of Switzerland then in force, the Swiss Collateral Guarantor shall not be required to make a gross-up, indemnify or otherwise hold harmless the Noteholders for the deduction of the Swiss withholding tax, notwithstanding anything to the contrary contained in the Indenture or any other Notes documentation, provided that this should not in any way limit any obligations of the Issuer or the other Guarantors
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under the Indenture or any other Notes documentation to indemnify the Noteholders in respect of the deduction of the Swiss withholding tax, including, without limitation, any tax indemnity undertaking under the Indenture or any other Notes documentation. The Swiss Collateral Guarantor shall use its best efforts to ensure that any person which is, as a result of a deduction of Swiss withholding tax, entitled to a full or partial refund of the Swiss withholding tax, will, as soon as possible after the deduction of the Swiss withholding tax, (i) request a refund of the Swiss withholding tax under any applicable law (including double tax treaties) and (ii) pay to the Security Agent upon receipt any amount so refunded.
Pledges
With respect to pledges, under Swiss law, a valid pledge may only be created in favor of the person whose claim is secured by the pledge (and not to a third party) and the enforceability of the pledge is linked to the enforceability of the secured claim. As the (beneficial) holders of the Notes, which may change from time to time, will not be party to the Security Documents, a parallel debt structure has been established in the Security Documents pursuant to which security interests granted as pledges are created in favor of the Security Agent who will hold a claim equal to each amount payable by an obligor under the Notes (the “Parallel Debt”). This Parallel Debt is created by way of an abstract acknowledgement of debt (abstraktes Schuldanerkenntnis) to satisfy a requirement under the laws of Switzerland that the Security Agent, as grantee of certain types of collateral, be a creditor of the relevant debtor of the secured obligations. The Parallel Debt is in the same amount and payable at the same time as the obligations of the Issuer under the Indenture (the “Principal Obligations”). Any payment in respect of the Principal Obligations shall discharge the corresponding Parallel Debt and any payment in respect of the Parallel Debt shall discharge the corresponding Principal Obligations. Although the Security Agent will have, pursuant to the Parallel Debt, a claim against the Issuer for the full principal amount of the Notes, holders of the Notes bear some risks associated with a possible insolvency or bankruptcy of the Security Agent. The parallel debt structure has not been tested under Swiss law and there is no assurance that such a structure will be effective before a Swiss court because there is no judicial or other guidance as to its efficacy and, therefore, there is no certainty that such structure will eliminate or mitigate the risk of the pledge in favor of the Noteholders being invalid or unenforceable.
Insolvency
In the event of a Swiss Collateral Guarantor’s insolvency, the respective insolvency proceedings would be governed by Swiss law as a result of the respective Swiss Collateral Guarantor’s offices being registered in the competent commercial register in Switzerland. In addition, Swiss debt enforcement and insolvency laws may be applicable in case of an enforcement of security interests over assets located in Switzerland. The enforcement of claims and questions relating to insolvency and bankruptcy in general are dealt with by the Swiss Federal Act on Debt Enforcement and Bankruptcy, with amendments effective as from January 1, 2010. Under these rules claims that are pursued against a Swiss entity can lead to the opening of bankruptcy (Konkurs) and, hence, a general liquidation of all assets and liabilities of the debtor. If bankruptcy has not been declared, creditors secured by a pledge must follow a special enforcement proceeding limited to the liquidation of the collateral (Betreibung auf Pfandverwertung) unless the parties have agreed on a private liquidation. However, if bankruptcy is declared while such a special enforcement proceeding is pending, the proceeding ceases and the creditor participates in the bankruptcy proceedings with the other creditors and a private liquidation is no longer permitted.
As a rule, the opening of bankruptcy by the competent court needs to be preceded by a prior debt enforcement procedure which involves, inter alia, the issuance of a payment summons by local debt enforcement authorities (Betreibungsamt). However, the competent court may also declare a debtor bankrupt without such prior proceedings if the following requirements are met: (i) at the request of the debtor, if the debtor’s board of directors or the auditors of the company (in case of failure of the board of directors) declare that the debtor is over-indebted (überschuldet) within the meaning of art. 725 (2) of the Swiss Code of Obligations or if it declares to be insolvent (zahlungsunfähig), and (ii) at the request of a creditor, if the debtor commits certain acts to the detriment of its creditors or ceases to make payments (Zahlungseinstellung) or if certain events happen during composition proceedings. The bankruptcy proceedings are carried out and the bankrupt estate is managed by the receiver in bankruptcy (Konkursverwaltung).
All assets at the time of the declaration of bankruptcy and all assets acquired or received subsequently form the bankrupt estate, which after deduction of costs and certain other expenses, is used to satisfy the creditors. Assets of the bankrupt estate over which a pledge was created in favor of a creditor before the declaration of bankruptcy are included in the bankrupt estate. The pledgee is under an obligation to remit the pledged assets to the bankrupt estate. The assets are liquidated by the receiver in bankruptcy in the same manner as the other assets of the bankrupt estate, but the creditor secured by the pledge retains its privilege to be satisfied from the proceeds of the liquidation of the assets pledged to it with priority over the unsecured creditors. Final distribution of non-secured claims is based on a ranking of creditors in three classes. The first and the second class, which are privileged, comprise claims under employment contracts, accident insurance, pension plans and family law. Certain privileges can also be claimed by the government and its subdivisions based on specific provisions of federal law. All other creditors are treated equally in the third class. A secured party participates in the third class to the extent its claim is not covered by its collateral.
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Claims assigned for security purposes by a Swiss Collateral Guarantor that come into existence prior to the opening of bankruptcy can be enforced by the assignee outside Swiss bankruptcy proceedings. Assigned claims that come into existence after the opening of bankruptcy over a Swiss Collateral Guarantor may fall within the bankrupt estate and the assignee may not be entitled to such claim proceeds.
Swiss insolvency laws also provide for reorganization procedures by composition with the debtor’s creditors. Reorganization is initiated by a request with the competent court for a stay (Nachlassstundung) pending negotiation of the composition agreement with the creditors and confirmation of such agreement by the competent court. A distinction is made between a composition agreement providing for the assignment of assets (Nachlassvertrag mit Vermögensabtretung) which leads to a private liquidation and in many instances has analogous effects as a bankruptcy, and a dividend composition (Dividenden-Vergleich) providing for the payment of a certain percentage on the creditors’ claims and the continuation of the debtor. Further, there is the possibility of a composition in the form of a mere payment term extension (Stundungsvergleich). During a moratorium, debt collection proceedings cannot be initiated and pending proceedings are stayed. Furthermore, the debtor’s power to dispose of its assets and to manage its affairs is restricted. In case of a pledge, the secured party is not entitled to proceed with a private liquidation until the confirmation of the settlement by the competent court. A secured creditor participates in the settlement only for the amount of its claim not covered by the collateral. The moratorium does not affect the agreed due dates of debts (contrary to bankruptcy, in which case all debts become immediately due upon adjudication). The moratorium aims at facilitating the conclusion of one of the above composition agreements. Any composition agreement needs to be approved by the creditors and confirmed by the competent court. With the judicial confirmation, the composition agreement becomes binding on all creditors, whereby secured claims are only subject to the composition agreement to the extent that the collateral proves to be insufficient to cover the secured claims.
Hardening Periods and Fraudulent Transfer
Certain arrangements or dispositions that are made during a certain period (suspect period) preceding the declaration of bankruptcy or the grant of a moratorium in connection with a composition proceedings may be challenged by the receiver in bankruptcy (Konkursverwaltung) and certain creditors under the applicable rules of avoidance. The avoidance may relate to (i) gifts and gratuitous transactions made in the suspect period of 12 months prior to be being declared bankrupt or the grant of a moratorium, (ii) certain acts of a debtor in the suspect period of 12 months prior to be being declared bankrupt or the grant of a moratorium if the debtor at that time was over-indebted, and (iii) dispositions made by the debtor within a suspect period of 5 years prior to be being declared bankrupt or the grant of a moratorium with the intent to disadvantage its creditors or to prefer certain of its creditors to the detriment of other creditors. The transactions potentially subject to avoidance also include those contemplated by the relevant Swiss Collateral Guarantor’s Guarantee or the granting of security interests. If they are challenged successfully, the rights granted under the Guarantee or in connection with security interest become unenforceable and any amounts received must be refunded to the insolvent estate.
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DESCRIPTION OF THE ISSUER
Description
The Issuer was incorporated in Luxembourg on December 13, 2010. The registered office of the Issuer is 12, Rue Guillaume Schneider L-2522 Luxembourg. The Issuer’s Articles of Association are deposited with the Registre de Commerce et des Sociétés in Luxembourg, where such document may be examined and copies thereof obtained. The Articles of Association of the Issuer were published in the Mémorial, Journal Officiel du Grand Duché de Luxembourg, Recueil des Sociétés et Associations (number C—N° 88 of January 17, 2011). The Issuer has no establishment or branch in or outside of Luxembourg.
There have been no governmental proceedings with respect to the Issuer.
Objects
Article 3 of the Articles of Association of the Issuer state that the objects of the Issuer are:
• to hold participations, in any form whatsoever, in Luxembourg and foreign companies, including, to the extent permitted by law, in any direct or indirect parent company, or other business entities, acquire by purchase, subscription, or in any other manner as well as transfer by sale, exchange or otherwise, of stock, bonds, debentures, notes, convertible loan notes and other securities of any kind, and the ownership, administration, development and management of its portfolio;
• to hold interests in partnerships and carry out its business through branches in Luxembourg or abroad;
• to borrow in any form and issue bonds, preferred equity certificates, whether convertible or not, warrants, notes and debentures;
• to grant assistance (by way of loans, advances, guarantees or securities or otherwise, including up stream or cross stream) to companies or other enterprises in which the Company has an interest or which forms part of the group of companies to which the Company belongs, take any controlling and supervisory measures and carry out any operation which it may deem useful in the accomplishment and development of its purposes; and
• to perform all commercial, technical and financial or other operations, connected directly or indirectly in all areas in order to facilitate the accomplishment of its purpose.
The Issuer is a holding company that conducts no business operations of its own and has no significant assets other than the shares it holds in its direct subsidiary and its claims under certain intercompany loans and the PPECs.
Share capital
The Issuer has an issued share capital of CHF 39,906.30 divided into 3,990,630 ordinary shares with a nominal value of CHF 0.01 each. The share capital of the Issuer has been fully paid-up. All shares issued by the Issuer have equal rights as provided for by the act of August 10, 1915 on commercial companies, as amended, and as set forth in the Articles of Association of the Issuer.
Perpetual preferred equity certificates
See section “Description of Certain Financing Arrangements—Perpetual Preferred Equity Certificates.”
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LISTING AND GENERAL INFORMATION
Information
All notices to holders of the Notes, including any notice of optional redemption, change of control or any change in the interest rate payable on the Notes will be published in a Luxembourg newspaper of general circulation (which is expected to be the Luxemburger Wort) or on the website of the Luxembourg Stock Exchange (www.bourse.lu).
The Guarantors. The following is a brief description of the Guarantors that will Guarantee the Notes on the date on which they are issued.
• Swissport International Ltd. Swissport International Ltd. is a corporation incorporated and organized under the laws of Switzerland on August 30, 1996. Its registration number is CH-020.3.007.667-5 and its address is Flughoffstrasse 55, 8152 Opfikon, Switzerland.
• Swissport Cargo Services Holding B.V. Swissport Cargo Services Holding B.V. is a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) incorporated under the laws of The Netherlands on June 30, 1971. Its registration number with the commercial register is 33132648 and its office address is Strawinskylaan 1431, 1077 XX Amsterdam.
• Swissport Ltd. Swissport Ltd is a private limited company incorporated under the laws of England and Wales on July 21, 1999. Its Company number is 03810974 and its registered address is 3120 Park Square, Birmingham Business Park, Solihull Parkway, Birmingham, West Midlands, United Kingdom, B37 7YN.
• Swissport Holdings, Inc. Swissport Holdings, Inc. is a corporation incorporated under the laws of Delaware on February 20, 1996. Its business address is 1011 Centre Road, Suite 322, Wilmington, DE 19805.
• Swissport USA, Inc. Swissport USA, Inc. is a corporation incorporated under the laws of Delaware on July 6, 1971. Its business address is 45025 Aviation Drive, Suite 350, Dulles, VA 20166.
• Swissport North America, Inc. Swissport North America, Inc. is a corporation incorporated under the laws of Delaware on November 18, 1994. Its business address is 45025 Aviation Drive, Suite 350, Dulles, VA 20166.
• Swissport Fueling, Inc. Swissport Fueling, Inc. is a corporation incorporated under the laws of Delaware on April 22, 1958. Its business address is 45025 Aviation Drive, Suite 350, Dulles, VA 20166.
• Swissport Canada Handling Inc. Swissport Canada Handling Inc. is a corporation incorporated under the laws of the Province of Quebec on June 17, 1999, as modified on April 17, 2003 and September 27, 2007. Its registration number is 1148651384 and its address is 360 Saint-Jacques, Suite 1815, Montreal, Quebec, Canada.
• Swissport Brasil Ltda. Swissport Brasil Ltda. is a limited liability company (limitada) organized under the laws of Brazil on May 28, 1997. It registration number is 01.886.441/0001-03 (Cadatro Nacional de Pessoa Jurídica do Ministério da Fazenda) and its address is Avenida Bernardino de Campos, 98, 10th floor, City of São Paulo, State of São Paulo, Brazil.
• Swissport Aviation Services de México S.A. de C.V. Swissport Aviation Services de México S.A. de C.V. is a corporation incorporated under the laws of Mexico on April 20, 1999. It is registered before the Public Registry of Commerce of Mexico City under registration number 251,563 and its address is Antiguo Camino a Texcoco Sin Número, Zona Federal Aduana del Aeropuerto Internacional de la Ciudad de México, Colonia Peñón de los Baños, Delegación Venustiano Carranza, 15520, Mexico City, Mexico.
• Swissport Cargo Services Deutschland GmbH. Swissport Cargo Services Deutschland GmbH is a limited liability company incorporated under the laws of Germany. It is registered in the commercial register of the local court of Frankfurt am Main under registration number HRB 51718 and its address is Cargo City Süd, Geb. 558 B, 60549 Frankfurt am Main, Germany.
• Swissport Cargo Services The Netherlands B.V. Swissport Cargo Services The Netherlands B.V. is a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) incorporated under the laws of The Netherlands on March 23, 2005. Its registration number with the commercial register is 34218298 and its office address is Anchoragelaan 30, 1118 LD Luchthaven Schiphol.
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• Swissport Cargo Holdings, Inc. Swissport Cargo Holdings, Inc. is a corporation incorporated under the laws of Delaware on August 20, 2002. Its business address is 45025 Aviation Drive, Suite 350, Dulles, VA 20166.
• Swissport Cargo Services, Inc. Swissport Cargo Services, Inc. is a corporation incorporated under the laws California on November 15, 1993. Its business address is 45025 Aviation Drive, Suite 350, Dulles, VA 20166.
• Cargo Service Center de México S.A. de C.V. Cargo Service Center de México S.A. de C.V. is a corporation incorporated under the laws of Mexico on March 30, 1992. It is registered before the Public Registry of Commerce of Mexico City under registration number 170,204 Bis and its address is Antiguo Camino a Texcoco Sin Número, Zona Federal Aduana del Aeropuerto Internacional de la Ciudad de México, Colonia Peñón de los Baños, Delegación Venustiano Carranza, 15520, Mexico City, Mexico.
• Cargo Service Center East Africa B.V. Cargo Service Center East Africa B.V. is a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) incorporated under the laws of The Netherlands on August 11, 1995. Its registration number with the commercial register is 33272248 and its office address is Strawinskylaan 1431, 1077 XX Amsterdam.
• Swissport CFE, Inc. Swissport CFE, Inc. is a corporation incorporated under the laws of Delaware on August 28, 1962. Its business address is 45025 Aviation Drive, Suite 350, Dulles, VA 20166.
• Swissport Nederland B.V. Swissport Nederland B.V. is a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) incorporated under the laws of The Netherlands on July 8, 1997. Its registration number with the commercial register is 33291389 and its office address is Strawinskylaan 1431, 1077 XX Amsterdam.
• Swissport Deutschland GmbH. Swissport Deutschland GmbH is a limited liability company incorporated under the laws of Germany. It is registered in the commercial register of the local court of Frankfurt am Main under registration number HRB 87520 and its address is Cargo City Süd, Geb. 558 B, 60549 Frankfurt am Main, Germany.
• Swissport Group Services GmbH. Swissport Group Services GmbH is a limited liability company incorporated and organized under the laws of Switzerland on April 23, 2008. Its registration number is CH-400.4.030.478-8 and its address is Zugerstrasse 77, 6340 Baar, Switzerland.
• Swissport Cargo Services UK Ltd. Swissport Cargo Services UK Ltd. is a private limited company incorporated under the laws of England and Wales on June 2, 1992. Its Company number is 02719480 and its registered address is Groundstar House Freight Village, Newcastle International Airport, Newcastle Upon Tyne, Tyne & Wear, United Kingdom, NE13 8BH.
• Aguila Bid AG. Aguila Bid AG is a corporation incorporated and organized under the laws of Switzerland on January 7, 2011. Its registration number is CH-020.3.036.059-0 and its address is Flughofstrasse 55, 8152 Opfikon, Switzerland.
• Swissport North America Holdings, Inc. Swissport North America Holdings, Inc. is a corporation incorporated under the laws of Delaware on December 7, 2010. Its business address is 45025 Aviation Drive, Suite 350, Dulles, VA 20166.
• Swissport UK Holding Ltd. Swissport UK Holding Ltd. is a private limited company incorporated under the laws of England and Wales on December 10, 2010. Its company number is 07466896 and its registered address is 3120 Park Square, Birmingham Business Park, Solihull Parkway, Birmingham, West Midlands, United Kingdom, B37 7YN.
• Swissport Germany Holding GmbH. Swissport Germany Holding GmbH is a limited liability company incorporated 26 November 2010 under the laws of Germany. It is registered in the commercial register in the local court of Frankfurt am Main under registration number HRB 89574 and its address is Cargo City Süd, Geb. 558 B, 60549 Frankfurt am Main, Germany.
• 9230-4948 Québec Inc. 9230-4948 Québec Inc. is a corporation incorporated under the laws of the Province of Quebec on December 8, 2010. Its registration number is 1166999863 and its address is 360 Saint-Jacques, Suite 1815, Montreal, Quebec, H2Y 1P5, Canada.
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• Swissport México Holding, S. de R.L. de C.V. Swissport México Holding, S. de R.L. de C.V. is a partnership incorporated under the laws of Mexico on December 14, 2010. Due to its recent incorporation, it is in process of being registered before the Public Registry of Commerce of Mexico City and its address is Antiguo Camino a Texcoco Sin Número, Zona Federal Aduana del Aeropuerto Internacional de la Ciudad de México, Colonia Peñón de los Baños, Delegación Venustiano Carranza, 15520, Mexico City, Mexico.
The consolidated financial statements contained herein include financial information for several of the Guarantors listed above that existed during the reporting period and/or on the balance sheet reporting date. The financial statements contained herein do not include information for 9230-4948 Québec Inc., Swissport Germany Holding GmbH, Swissport North America Holdings, Inc. and Swissport UK Holding Ltd. because these entities did not exist during the reporting period and/or on the balance sheet reporting date. Our Guarantors produce their own statutory stand-alone financial statements in accordance with local statutory requirements, however not all of the stand-alone financial statements are audited, especially where auditing procedures are not required by law.
Application has been made for the Notes to be listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the Luxembourg Stock Exchange’s Euro MTF Market.
We accept responsibility for the information contained in this Offering Memorandum. To the best of our knowledge, except as otherwise noted, the information contained in this Offering Memorandum is in accordance with the facts and does not omit anything likely to affect the import of this Offering Memorandum.
Except as disclosed herein, there has been no material adverse change in our consolidated financial position since September 30, 2010 and there has been no material adverse change in the financial position of the Issuer since its incorporation.
Neither we nor any of our subsidiaries is a party to any litigation that, in our judgment, is material in the context of the issue of the Notes, except as disclosed herein.
We have appointed Citibank, N.A., London Branch as our Principal Paying Agent and Transfer Agent. We reserve the right to vary such appointment and shall publish notice of such change of appointment in a newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the Luxembourg Stock Exchange’s website, www.bourse.lu. The Principal Paying Agent will act as intermediary between the holders of the Notes.
The issuance of the Notes was authorized by resolutions of the board of directors of the Issuer passed at meetings held on January 24, 2011. The guarantees will be authorized by either written resolutions of the boards of directors or meetings of each of the Guarantors. The guarantees will also be authorized by resolutions of the shareholders of the Dutch Guarantors.
The Global Notes sold pursuant to Regulation S and Rule 144A under the U.S. Securities Act denominated in Swiss francs have been accepted for clearance through the facilities of Clearstream Banking and Euroclear under common codes 058544043 and 058544060, respectively, and the Global Notes sold pursuant to Regulation S and Rule 144A denominated in U.S. dollars have been accepted for clearance through the facilities of DTC under common codes 058752274 and 058752428, respectively. The CUSIP numbers for the Global Notes sold pursuant to Regulation S and Rule 144A denominated in U.S. dollars are G01304 AA5 and 008635 AA2, respectively. The ISIN numbers for the Global Notes sold pursuant to Regulation S denominated in Swiss francs and U.S. dollars are XS0585440430 and USG01304AA50, respectively, and the ISIN numbers for the Global Notes sold pursuant to Rule 144A denominated in Swiss francs and U.S. dollars are XS0585440604 and US008635AA20, respectively.
Additional information
For so long as the notes are listed on the Official List of the Luxembourg Stock Exchange and traded on the Euro MTF Market, copies of the following documents (together, where necessary, with English translations thereof) may be inspected and obtained at the specified office of the listing agent in Luxembourg during normal business hours on any weekday:
• the organizational documents of the Issuer; and
• the Indenture (which includes the form of the notes).
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INDEX TO FINANCIAL STATEMENTS
Page
Consolidated financial statements of Aguila 3 S.A. as at December 13, 2010
Report of the Reviseur D’Entreprises Agree ............................................................................................................... F-2
Balance Sheet .............................................................................................................................................................. F-4
Notes to the Opening Balance Sheet............................................................................................................................ F-5
Condensed consolidated interim financial statements of Swissport International Ltd. for the nine-month period ended September 30, 2010
Condensed Consolidated Balance Sheet ...................................................................................................................... F-8
Condensed Consolidated Income Statement................................................................................................................ F-10
Condensed Consolidated Statement of Comprehensive Income.................................................................................. F-11
Condensed Consolidated Statement of Changes in Equity .......................................................................................... F-12
Condensed Consolidated Cash Flow Statement........................................................................................................... F-13
Notes to the Condensed Consolidated Interim Financial Report ................................................................................. F-14
Consolidated financial statements of Swissport International Ltd. for the years ended December 31, 2009, 2008 and 2007
Independent Auditor’s Report ..................................................................................................................................... F-21
Consolidated Balance Sheet......................................................................................................................................... F-23
Consolidated Income Statement .................................................................................................................................. F-25
Consolidated Statement of Comprehensive Income .................................................................................................... F-26
Consolidated Statement of Changes in Equity............................................................................................................. F-27
Consolidated Cash Flow Statement ............................................................................................................................. F-29
Notes to the Consolidated Financial Statements.......................................................................................................... F-30
F-2
Deloitte S.A. 560, rue de Neudorf L-2220 Luxembourg B.P. 1173 L-1011 Luxembourg
Tel: +352 451 451 Fax: +352 451 452 401www.deloitte.lu
REPORT OF THE REVISEUR D’ENTREPRISES AGREE
To the shareholders of Aguila 3 S.A., 12, rue Guillaume Schneider, L-2522 Luxembourg
We have audited the accompanying opening balance sheet of Aguila 3 S.A. as at December 13, 2010 and a summary of significant accounting policies and other explanatory information (together “the opening accounts”).
Board of directors’ responsibility for the opening accounts
The board of directors is responsible for the preparation and fair presentation of these opening accounts in accordance with the Luxembourg legal and regulatory requirements relevant to preparing such opening accounts. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of opening accounts that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Responsibility of the réviseur d’entreprises agréé
Our responsibility is to express an opinion on these opening accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the opening accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the opening accounts. The procedures selected depend on the judgment of the réviseur d’entreprises agréé, including the assessment of the risks of material misstatement of the opening accounts, whether due to fraud or error. In making those risk assessments, the réviseur d’entreprises agréé considers internal control relevant to the entity’s preparation and fair presentation of the opening accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the board of managers, as well as evaluating the overall presentation of the opening accounts.
Société Anonyme RCS Luxembourg B 67.895 Autorisation d’établissement: n°88607
Member of Deloitte Touche Tohmatsu
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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the opening account presents fairly, in all material respects, the financial position of Aguila 3 S.A. as at December 13, 2010 in accordance with the Luxembourg legal and regulatory requirements relevant to preparing such opening accounts.
For Deloitte S.A., Cabinet de révision agréé
Nick Tabone, Réviseur d’entreprises agréé Partner
January 14, 2011
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AGUILA 3 S.A. SOCIÉTÉ ANONYME
Registered office: 12, rue Guillaume Schneider L-2522 Luxembourg
R.C.S. Luxembourg B–157 692
BALANCE SHEET AS AT DECEMBER 13, 2010 (the “opening balance sheet”)
December 13,
2010 EUR
ASSETS Current Assets
Cash at bank, cash in postal cheque accounts, cheques and cash in hand...................................................... 589,971Total Assets ...................................................................................................................................................... 589,971
LIABILITIES AND EQUITY Capital and Reserves
Subscribed capital (See Note 3.1.) ................................................................................................................. 31,000Share Premium account (See Note 3.2.) ........................................................................................................ 559,000Result for the financial period........................................................................................................................ (29)
Total Liabilities and Equity ............................................................................................................................ 589,971
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AGUILA 3 S.A. SOCIÉTÉ ANONYME
Registered office: 12, rue Guillaume Schneider L-2522 Luxembourg
R.C.S. Luxembourg B–157 692
NOTES TO THE OPENING BALANCE SHEET
1. CORPORATE INFORMATION
Aguila 3 S.A. (The “Company”) is a public limited liability company (société anonyme), incorporated on December 13, 2010 in Luxembourg under the number R.C.S B157 692 and has its registered office at 12, rue Guillaume Schneider, L-2522 Luxembourg. All of the shares are held by Aguila 2 S.A. a company established under the laws of the Grand Duchy of Luxembourg.
The Company’s fiscal year is equal to a calendar year except for the first financial year that will start on December 13, 2010 and ends on December 31, 2011.
The object of the Company is to hold participations, in any form whatsoever, in Luxembourg and foreign companies, including, to the extent permitted by law, in any direct or indirect parent company, or other business entities, acquire by purchase, subscription, or in any other manner as well as transfer by sale, exchange or otherwise, of stock, bonds, debentures, notes, convertible loan notes and other securities of any kind, and the ownership, administration, development and management of its portfolio. The Company may hold interests in partnerships and carry out its business through branches in Luxembourg or abroad.
The Company may borrow in any form and issue bonds, preferred equity certificates, whether convertible or not, warrants notes and debentures.
In a general fashion it may grant assistance (by way of loans, advances, guarantees or securities or otherwise, including up stream or cross stream) to companies or other enterprises in which the Company has an interest or which forms part of the group of companies to which the Company belongs, take any controlling and supervisory measures and carry out any operation which it may deem useful in the accomplishment and development of its purposes.
Finally, the Company can perform all commercial, technical and financial or other operations, connected directly or indirectly in all areas in order to facilitate the accomplishment of its purpose.
2. SIGNIFICANT ACCOUNTING POLICIES
The Company maintains its books and records in Euros (“EUR”). The opening balance sheet has been prepared in accordance with Luxembourg legal and regulatory requirements. Accounting policies and valuation rules are, besides the ones laid down by the Law determined and applied by the board of directors of the Company.
3. CAPITAL AND RESERVES
3.1 Share capital
The Company is currently established as a public limited liability company (société anonyme), under the laws and regulations of the Grand Duchy of Luxembourg. Its subscribed capital consists of 3,100,000 shares (actions) with a nominal value of one Euro cent (EUR 0.01) per share.
F-6
3. CAPITAL AND RESERVES (Continued)
The authorised capital of the Company is fixed at additional four hundred million Euro (EUR 400,000,000) consisting of additional forty billion (40,000,000,000) shares, each with a nominal value of one Euro cent (EUR 0.01).
3.2 Share premium
The shares have been subscribed in cash by Aguila 2 S.A. prenamed at total subscription price of five hundred ninety thousand Euro (EUR 590,000) being a price per share of one nine zero three Euro cents (EUR 0.1903), of which one Euro cent (EUR 0.01) shall be allocated to the share capital account of the Company and the balance to the share premium account of the Company.
3.3 Legal reserve
In accordance with Luxembourg Law, the Company is required to set aside a minimum of 5% of its annual net profit for each financial year to a legal reserve. This requirement ceases to be necessary once the balance of the legal reserve reached 10% of the issued subscribed capital. The legal reserve is not available for distribution to the shareholders.
4. RELATED PARTY DISCLOSURES
The Company is managed by the board of directors, which is composed of:
Name Address Date of birth City and country of birth David Richy 43, Moinet, B-6600 Bastogne July 23, 1979 Liège, Belgium Benoît Chéron 12, rue Guillaume Schneider
L-2522 Luxembourg February 23, 1980 Le Mans, France
Ricardo De Serdio Edificio Pedro de Valdivia 10
Planta baja–Local 5 28006 Madrid–SP
February 5, 1969 Seville, Spain
Alexandre Prost Gargoz 2, rue Louis XIV L-1948
Luxembourg January 30, 1975 Rocourt, Belgium
5. COMMITMENTS AND CONTINGENCIES
The Company does not have any commitments or contingencies as at December 13, 2010.
6. SUBSEQUENT EVENTS
On January 7, 2011 the Company incorporated Aguila Bid AG a Swiss Company established under the laws of Switzerland (the “Swissco”). The Company subscribed to 1,000 shares for a total amount of CHF 100,000.
Further to the board of directors of the Company held on January 13, 2011 the Company intends to issue senior secured notes and on-lend on the net proceeds from such issue to Swissco.
F-7
CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT
FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010
F-8
SWISSPORT INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEET AS OF 30 SEPTEMBER 2010 AND 31 DECEMBER 2009
(all amounts in Swiss Francs thousands, unless otherwise stated)
Note 30 September
2010 31 December
2009
ASSETS Non-current assets Property, vehicles and equipment .................................................................................... 154,752 154,040Goodwill .......................................................................................................................... 91,911 96,750Other intangible assets ..................................................................................................... 12,553 13,385Investments in associates and jointly controlled entities ................................................. 14,094 14,559Deferred income tax assets .............................................................................................. 51,504 63,159Long-term employee benefits asset ................................................................................. 8 18,745 33,253Trade and other receivables ............................................................................................. 213,770 213,350 557,329 588,496Current assets Inventories ....................................................................................................................... 4,476 4,486Trade and other receivables ............................................................................................. 272,962 267,302Available-for-sale financial assets ................................................................................... 831 1,025Derivative financial instruments ...................................................................................... 0 44Cash and cash equivalents ............................................................................................... 7 193,016 145,729 471,285 418,586Total assets ..................................................................................................................... 1,028,614 1,007,082
The Condensed Interim Financial Report is unaudited.
F-9
SWISSPORT INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEET AS OF 30 SEPTEMBER 2010 AND 31 DECEMBER 2009 (Continued)
(all amounts in Swiss Francs thousands, unless otherwise stated)
Note 30 September
2010 31 December
2009
EQUITY AND LIABILITIES Equity Equity attributable to holders of the Company’s equity Share capital.................................................................................................................. 165,450 165,450Accumulated losses ...................................................................................................... (93,999) (34,944)Other reserves ............................................................................................................... (527) (602)Currency translation differences ................................................................................... (60,111) (45,831) 10,813 84,073Non-controlling interests ............................................................................................ 25,105 23,950Total equity ................................................................................................................. 35,918 108,023
Liabilities Non-current liabilities Borrowings ................................................................................................................... 9 524,103 401,589Provisions for other liabilities and charges ................................................................... 44,522 49,589Long-term employee benefit obligations ...................................................................... 41,129 41,275Deferred income ........................................................................................................... 4,832 5,323Deferred income tax liabilities...................................................................................... 6,814 10,133 621,400 507,909Current liabilities Borrowings ................................................................................................................... 9 49,756 88,699Derivative financial instruments ................................................................................... 138 —Provisions for other liabilities and charges ................................................................... 30,936 26,866Deferred income ........................................................................................................... 2,790 2,817Current income tax liabilities........................................................................................ 13,420 10,027Trade and other payables .............................................................................................. 274,256 262,741 371,296 391,150Total liabilities............................................................................................................. 992,696 899,059Total equity and liabilities.......................................................................................... 1,028,614 1,007,082
The Condensed Interim Financial Report is unaudited.
F-10
SWISSPORT INTERNATIONAL LTD.
CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010 AND 2009
(all amounts in Swiss Francs thousands, unless otherwise stated)
Note 30 September
2010 30 September
2009
Continuing operations Revenue .......................................................................................................................... 1,262,072 1,179,326Other operating income .................................................................................................. 42,383 44,987Total revenue and other operating income................................................................. 1,304,455 1,224,313Goods and services purchased ........................................................................................ 208,808 190,887Personnel expenses ......................................................................................................... 790,434 783,566Other operating expenses................................................................................................ 201,152 170,795Depreciation and impairment of property, vehicles and equipment ............................... 21,272 25,222Amortisation and impairment of intangible assets.......................................................... 1,029 1,021Total operating expenses .............................................................................................. 1,222,695 1,171,491Operating profit ............................................................................................................ 81,760 52,822Finance expense.............................................................................................................. (22,089) (18,194)Finance income............................................................................................................... 17,558 16,680Share of profits from associates and jointly controlled entities ...................................... 1,955 753Profit before IFRS 3.65 adjustment to goodwill and income tax .............................. 79,184 52,061IFRS 3.65 adjustment to goodwill .................................................................................. 4 — (9,244)Profit before income tax ............................................................................................... 79,184 42,817Income tax (expense)/credit............................................................................................ 5 (25,013) 19,484Net profit for the period from continuing operations................................................ 54,171 62,301Discontinued operations Net loss for the period from discontinued operations ..................................................... 6 — (11,382)Net profit for the period ............................................................................................... 54,171 50,919Attributable to: Holders of the Company’s equity ................................................................................... 48,243 44,645Non-controlling interests ................................................................................................ 5,928 6,274Basic and diluted earnings per share attributable to the equity holders of the
Company (in CHF per share) From continuing operations ............................................................................................ 305.34 354.60From discontinued operations......................................................................................... — (72.04) 305.34 282.56
The Condensed Interim Financial Report is unaudited.
F-11
SWISSPORT INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010 AND 2009
(all amounts in Swiss Francs thousands, unless otherwise stated)
30 September
2010 30 September
2009
Net profit for the period ........................................................................................................... 54,171 50,919
Other comprehensive income: Available-for-sale financial assets .............................................................................................. 75 (333)Changes in pension asset limitation and actuarial gains and losses............................................ (12,694) 9,670Currency translation differences ................................................................................................. (15,206) 2,601Other comprehensive income for the period, net of tax.............................................................. (27,825) 11,938Total comprehensive income for the period ........................................................................... 26,346 62,857
Attributable to: Holders of the Company’s equity ............................................................................................... 21,740 57,177Non-controlling interests ............................................................................................................ 4,606 5,680 26,346 62,857
The pension asset limitation and actuarial gains and losses in the statement above are disclosed net of tax. The impact is CHF 3.6 million (2009: CHF −2.9 million)
The Condensed Interim Financial Report is unaudited.
F-12
SWISSPORT INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010 AND 2009
(all amounts in Swiss Francs thousands, unless otherwise stated)
Attributable to holder’s of the Company’s equity
Share capital
Accumulated losses
Other reserves
Currency translation differences Total
Non-controlling interests
Total equity
Balance at 1 January 2009 ................ 165,450 (122,101) (604) (51,255) (8,510) 20,066 11,556Total comprehensive income for
the period........................................ — 54,315 (333) 3,195 57,177 5,680 62,857
Transactions with owners Dividends to non-controlling
interests............................................ — — — — — (2,998) (2,998)Total contributions by and
distributions to owners..................... — — — — — (2,998) (2,998)Total transactions with owners......... — — — — — (2,998) (2,998)
Balance at 30 September 2009 .......... 165,450 (67,786) (937) (48,060) 48,667 22,748 71,415Balance at 1 January 2010 ................ 165,450 (34,944) (602) (45,831) 84,073 23,950 108,023Total comprehensive income for
the period........................................ — 35,945 75 (14,280) 21,740 4,606 26,346
Transactions with owners Dividends paid to holders of the
Company’s equity............................ — (95,000) — — (95,000) — (95,000)Dividends paid to non-controlling
interests............................................ — — — — — (3,451) (3,451)Total contributions by and
distributions to owners..................... — (95,000) — — (95,000) (3,451) (98,451)Total transactions with owners......... — (95,000) — — (95,000) (3,451) (98,451)
Balance at 30 September 2010 .......... 165,450 (93,999) (527) (60,111) 10,813 25,105 35,918
The Condensed Interim Financial Report is unaudited.
F-13
SWISSPORT INTERNATIONAL LTD.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010 AND 2009
(all amounts in Swiss Francs thousands, unless otherwise stated)
Note 30 September
2010 30 September
2009
Cash flow from operating activities Cash generated from operations.......................................................................................... 111,611 103,826Interest paid ........................................................................................................................ (11,488) (14,079)Income tax paid................................................................................................................... (10,253) (9,984)Interest received.................................................................................................................. 2,639 2,080Dividends received ............................................................................................................. 719 1,943Cash flow from operating activities in continuing operations ...................................... 93,228 83,786Cash flow from operating activities in discontinued operations ......................................... — (2,048)Total cash flow from operating activities........................................................................ 93,228 81,738Cash flow from investing activities Sale of subsidiaries and associates, net of cash sold........................................................... — (3,339)Sale of investments ............................................................................................................. 1,385 —Purchase of property, vehicles and equipment.................................................................... (20,977) (37,541)Proceeds from sale of property, vehicles and equipment.................................................... 1,326 8,789Purchase of intangible assets .............................................................................................. (859) (378)Proceeds from sale of intangible assets .............................................................................. 29 8Investment in financial assets ............................................................................................. 327 —(Loan made)/Loan repayments received............................................................................. 3,130 1,063(Increase) decrease in restricted cash.................................................................................. (36,439) 2,085Cash flow used in investing activities in continuing operations.................................... (52,078) (29,313)Total cash flow used in investing activities ..................................................................... (52,078) (29,313)Cash flow from financing activities Proceeds from borrowings .................................................................................................. 9 383,814 19,243Repayment of borrowings................................................................................................... 9 (297,842) (57,210)Financing fees paid ............................................................................................................. 9 (8,144) —Dividends paid to holders of the Company’s equity........................................................... 11 (95,000) —Dividends paid to non controlling interests ........................................................................ (1,219) (2,899)Cash flow from/(used in) financing activities in continuing operations ....................... (18,391) (40,866)Total cash flow from/(used in) financing activities ........................................................ (18,391) (40,866)Net increase in unrestricted cash and cash equivalents................................................. 22,759 11,559Unrestricted cash and cash equivalents at 1 January .......................................................... 139,844 116,035Exchange (loss) gain on cash and cash equivalents ............................................................ (11,470) 2,318Unrestricted cash and cash equivalents at 30 September.............................................. 7 151,133 129,912Unrestricted cash and cash equivalents of discontinued operations.................................... — —Unrestricted cash and cash equivalents of continuing operations ................................ 151,133 129,912
The Condensed Interim Financial Report is unaudited.
F-14
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010
1. General information
Swissport International Limited (‘the Company’) and its subsidiaries (together ‘the Group’ or ‘Swissport’) provide ground handling and cargo handling services to many of the world’s leading airlines in 38 countries. Swissport is a wholly owned subsidiary of Ferrovial Servicios S.A.
The Company is a limited liability company, domiciled in Switzerland and was legally incorporated on 30 August 1996. The address of the registered office is:
Swissport International Limited Flughofstrasse 55 CH-8152 Opfikon Switzerland
This Condensed Consolidated Interim Financial Report was approved for issue by the Board of Directors on 12 January 2011.
2. Basis of preparation
This condensed consolidated interim financial report for the 9 months ended 30 September 2010 has been prepared on the going concern basis and in accordance with IAS 34, ‘Interim financial reporting’ with comparatives of the prior year period. The condensed consolidated interim financial report should be read in conjunction with the annual financial statements for the year ended 31 December 2009, which have been prepared in accordance with IFRS.
3. Accounting Policies
The same accounting policies and methods of computation have been followed in this interim financial report as were applied in the preparation of the Group’s financial statements for the year ended 31 December 2009, except for the impact of the adoption of the Standards and Interpretations described below.
(a) New and amended standards adopted by the Group
• IFRS 3 (revised), ‘Business combinations’, and consequential amendments to IAS 27, ‘Consolidated and separate financial statements’, IAS 28 ‘Investments in associates’, and IAS 31, ‘Interests in joint ventures’, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. This has been adopted effective 1 January 2010.
The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition- related costs are expensed. As the Group has adopted IFRS 3 (revised), it is required to adopt IAS 27 (revised), ‘consolidated and separate financial statements’, at the same time. IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in
F-15
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010 (Continued)
3. Accounting Policies (Continued)
goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. Under IAS 27 (revised), the Group has attributed no losses to the non controlling interest, who have a deficit balance from January 1, 2010, onwards. There have been no transactions whereby an interest in an entity is retained after the loss of control of that entity; there have been no transactions with non-controlling interests.
(b) Standards, amendments and interpretations to existing standards effective in 2010 but not currently relevant to the Group
• IFRIC 17, ‘Distributions of non-cash assets to owners’, effective for annual periods beginning on or after 1 July 2009. This is not currently applicable to the Group, as it has not made any non-cash distributions.
• IFRIC 18, ‘Transfers of assets from customers’, effective for transfer of assets received on or after 1 July 2009. This is not relevant to the Group, as it has not received any assets from customers.
• ‘Additional exemptions for first-time adopters’ (Amendment to IFRS 1) was issued in July 2009. The amendments are required to be applied for annual periods beginning on or after 1 January 2010. This is not relevant to the Group, as it is an existing IFRS preparer.
• Improvements to International Financial Reporting Standards 2009 were issued in April 2009. The effective dates vary standard by standard but most are effective 1 January 2010.
(c) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group
The following standards, amendments and interpretations to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 January 2011, but the Group has not early adopted them:
• ‘Prepayments of a minimum funding requirement’ (Amendments to IFRIC 14), issued in November 2009. The amendments correct an unintended consequence of IFRIC 14, ‘IAS 19—The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct the problem. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented.
• Revised IAS 24, ‘Related party disclosures’, issued in November 2009. It supersedes IAS 24, ‘Related party disclosures’, issued in 2003. The revised IAS 24 is required to be applied from 1 January 2011. Earlier application, in whole or in part, is permitted.
• IFRS 9, ‘Financial instruments’ (effective for periods on or after 1 January 2013). New IFRS on the classification and measurement of financial assets. The new standard enhances the ability of investors and other users of financial information to understand the accounting of financial
F-16
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010 (Continued)
3. Accounting Policies (Continued)
assets and reduces complexity. The Group will apply IFRS 9 to all financial instruments from 1 January 2013. Management has not yet assessed the impact of this standard.
• IAS 12 (amendments) ‘Deferred tax: Recovery of Underlying Assets’ (effective for annual periods beginning on or after 1 January 2012). The amendments introduce a rebuttable presumption that deferred tax on investment property measured at fair value should be determined on the basis that the carrying amount will be recovered through sale. The amendments also incorporate ‘SIC-21 Income taxes—Recovery of revalued non-depreciable assets into IAS 12’. The Group will apply the amended standard from 1 January 2012.
• Improvements to International Financial Reporting Standards 2010 were issued in May 2010. The effective dates vary standard by standard but most are effective 1 January 2011.
(d) Standards, amendments and interpretations to existing standards that are not yet effective and not currently relevant for the Group’s operations
• ‘Classification of rights issues’ (Amendment to IAS 32), issued in October 2009. For rights issues offered for a fixed amount of foreign currency, current practice appears to require such issues to be accounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to all the entity’s existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. The amendment should be applied for annual periods beginning on or after 1 February 2010. Earlier application is permitted.
• IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’. This clarifies the requirements of IFRSs when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial liability fully or partially. The interpretation is effective for annual periods beginning on or after 1 July 2010. Earlier application is permitted.
4. Results for the period
The profit from continuing operations for the nine months ended 30 September 2010 experienced a significant negative impact from the disruptions to air travel across western and northern Europe caused by eruptions of the volcano Eyjafjallajökull on Iceland, mainly affecting the Group’s European operations. Further, one of the Group’s clients with substantial outstanding receivables filed for insolvency during the summer 2010, which resulted in a negative impact to operating profit of CHF 4.1 million.
In summer 2010, the Group made a profit of CHF 3.9 million from the sale of its 13.1% participation of Unitpool. This amount includes CHF 2.0 million profit on the reimbursement of a loan to Unitpool, which was previously fully impaired. This unusual profit is included in financial income in the condensed consolidated income statement.
In the comparative period 2009 the profit for continuing operations the nine months ended 30 September 2009 includes the following:
• a non-recurring profit of CHF 4.0 million due to a release of a provision related to a past claim.
F-17
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010 (Continued)
4. Results for the period (Continued)
• a negative impact of CHF 9.2 million to adjust the goodwill in accordance with IFRS 3.65 that was caused by the use and capitalization of previously unrecognised tax losses that did not satisfy the criteria for separate recognition at the time of the purchase price allocation of a business combination.
• a release of onerous contract provision for CHF 3.4 million based on the recovery of the cargo business in the UK during the period.
• impairment expense of tangible fixed assets totalling CHF 5.1 million for Singapore operations closed in March 2009.
• Recognition of deferred tax assets totalling CHF 34.6 million related to previously unrecognised tax loss carried forwards after having revaluated forecasted profitability in the US and in Brazil.
5. Income taxes
Credit/(Expense) in the period
Interim period income tax is accrued based on the estimated average annual effective income tax rate of 31.6 per cent (9 months ended 30 September 2009: 29.4 percent, excluding the impact of previously unrecognized tax losses and temporary differences). The main components that resulted in a tax credit for the nine months ended 30 September 2009 was the recognition of previously unrecognised tax loss carry forwards and temporary differences, which resulted in additional deferred tax assets.
6. Net loss for the period from discontinued operations
On 1 June 2009, the Group sold its ground handling business in Germany for the purchase price of 1 EUR which was previously recognised under IFRS 5 as discontinued operations. The net loss for the period from discontinued operations consists of the loss on the shareholder’s equity sold of CHF 6.2 million, a provision for contingent payments of CHF 3.2 million and the loss after tax of discontinued operations through sale date of CHF 2.0 million.
7. Cash and cash equivalents
September
2010 December
2009
TCHF TCHF
Cash at bank and on hand ..................................................................................................................... 124,760 120,322
Cash in transit ....................................................................................................................................... 185 —
Short term bank deposits....................................................................................................................... 68,071 25,407
Total cash and cash equivalents in current assets............................................................................ 193,016 145,729
of which is restricted............................................................................................................................. (41,883) (5,885)
Unrestricted cash and cash equivalents ............................................................................................ 151,133 139,844
The restricted cash has increased during the 9 months ended 30 September 2010 due to the requirement from the new credit facility (note 9) to secure part of the bank guarantees with cash
F-18
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010 (Continued)
7. Cash and cash equivalents (Continued) collateral (refer to note 10). The remaining restricted cash comprises principally short term bank deposits that the Group is required by major suppliers, usually airports, to maintain in lieu of bank guarantees.
8. Long-term employee benefits asset
The reduction of long-term employee benefits assets is due to a decreased market values of the investments of the Swiss pension fund.
9. Borrowings
In June 2010, the Group entered into a new credit facility to reduce re-financing risk by extending the maturity date and to create additional borrowing capacity. The total credit facility size was increased by CHF 50.0 million to a total of CHF 450.0 million with total outstanding of CHF 361.9 million drawn as at 30 September 2010. The credit facility is subdivided into a CHF 350.0 million Term Loan Facility and a CHF 100.0 million Revolving Credit Facility, both maturing on 28 June 2014. The Term Loan Facility has CHF 40.0 million semi-annual repayments commencing 28 June 2011 and CHF 110.0 million payable at maturity.
The new credit facility, which can be drawn in different currencies, allowed the Group to realign its natural hedge with respect to the Group’s foreign exchange exposure. The Group’s short term interest rate risk is closely monitored and managed by Group Management.
In the event that the announced transaction set out in note 13 was to occur, the Group would receive appropriate new funding facilities under the conditions precedent set with the potential buyer. In the absence of such transaction, the Group’s current committed facilities will remain available to it.
10. Contingent liabilities
The following contingent liabilities changed significantly compared to year-end 2009:
Bank guarantees
At 30 September 2010 the Group had contingent liabilities in respect of bank guarantees, arising in the ordinary course of business and provided to third parties by the Group’s banks, amounting to CHF 72.4 million (31 December 2009: CHF 74.1 million), in respect of liabilities recorded in these financial statements. Of which, CHF 31.0 million are secured by cash collateral (refer to note 7). The guarantees represent contingent liabilities that will crystallise to the extent that the guarantees are drawn and the bank enforces its right to recover the amount drawn from the Group.
11. Dividend
During the period, a dividend of CHF 95.0 million was paid out by Swissport International Ltd., (the Swiss parent) to the Group’s sole shareholder, Ferrovial Servicios S.A., out of the Company’s available distributable reserves.
F-19
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010 (Continued)
12. Significant changes to related party transactions
During the period, the following significant changes to related party transactions occurred with Ferrovial Servicios:
Loan issued by Ferrovial Servicios
30 September
2010 TCHF
At 1 January ..................................................................................................................................................... 229,271Interest charged.................................................................................................................................................. 4,100Interest paid ....................................................................................................................................................... (2,317)Repayments ....................................................................................................................................................... (95,348)At 30 September............................................................................................................................................... 135,706
13. Events occurring after the reporting period
At 12 January 2011, date of approval of the Interim Financial Report for the 9 months ended 30 September 2010 by the Board of Directors, the Group had no subsequent events that require an adjustment of the Condensed Consolidated Interim Financial Report.
On 2 November 2010, the Group’s sole shareholder Ferrovial Servicios S.A. announced its commitment to sell 100% of the Group’s shares to PAI Partners, a Europe-based private equity group pending approval by the competition authorities and final arrangement of the financing structure by the buyer. The transaction has not been closed by the signing date of this Condensed Consolidated Interim Financial Report.
F-20
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007
F-21
PricewaterhouseCoopers AG Birchstrasse 160 8050 Zurich Phone +41 58 792 44 00 Fax +41 58 792 44 10 Direct Phone +41 58 792 26 20 www.pwc.ch
Independent auditor’s report to the Board of Directors of Swissport International Limited Opfikon
Introduction
In accordance with your instructions we have audited the accompanying consolidated financial statements of Swissport International Limited and its subsidiaries (the ‘Group’) on pages F-23 to F-111, which comprise the consolidated balance sheets as of 31 December 2009, 2008 and 2007 and the consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated cash flow statements for the three years then ended and a summary of significant accounting policies and other explanatory notes.
Board of Director’s Responsibility for the Consolidated Financial Statements
The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements.
F-22
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2009, 2008 and 2007, and of its financial performance and its cash flows for each of the three years then ended in accordance with IFRS.
Emphasis of matter
Without qualifying our opinion we draw attention to note 28 of the consolidated financial statements, which describes the nature and amount of restatements recorded to: retrospectively apply a change in the Group’s accounting policy for jointly controlled entities so that such entities are now consolidated using the equity method, rather than using the proportionate consolidation method, and to correct an error in the application of IFRS 3, paragraph 65. These restatements impacted the years ended 31 December 2008 and 2007, as well as prior periods and therefore also impacted equity as of 1 January 2007, as previously presented. We issued our original auditor’s report on the year ended 31 December 2008 on 24 March 2009 and our report on the year ended 31 December 2007 on 28 March 2008. As stated in note 28, the restatement of the comparative figures for the years ended 31 December 2008 and 2007 has been limited to the matters described in that note.
PricewaterhouseCoopers AG
Stephen W Williams Brady G Millerberg Zurich, 12 January 2011
F-23
SWISSPORT INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER
(all amounts in Swiss Francs thousands, unless otherwise stated)
Note 2009
2008 As
restated*
2007 As
|restated*
1 January 2007 As
restated* ASSETS Non-current assets Property, vehicles and equipment ........................................... 9 154,040 145,722 146,802 132,275Goodwill ................................................................................. 10 96,750 104,018 121,557 127,849Other intangible assets ............................................................ 10 13,385 11,034 15,427 9,213Investments in associates and jointly controlled
entities ................................................................................ 11 14,559 16,291 16,389 14,940Deferred income tax assets ..................................................... 12 63,159 42,980 26,169 33,996Long-term employee benefits asset......................................... 13 33,253 — 102,587 63,954Trade and other receivables .................................................... 14 213,350 196,381 176,145 168,897 588,496 516,426 605,076 551,124Current assets Inventories .............................................................................. 4,486 5,072 5,666 4,817Trade and other receivables .................................................... 14 267,302 315,279 382,845 328,957Available-for-sale financial assets .......................................... 1,025 1,023 950 —Derivative financial instruments ............................................. 44 — — —Cash and cash equivalents ...................................................... 15 145,729 123,295 85,166 95,784 418,586 444,669 474,627 429,558Assets of disposal group held for sale..................................... 16 — 8,881 — 9,967 418,586 453,550 474,627 439,525Total assets ............................................................................ 1,007,082 969,976 1,079,703 990,649
The notes on pages F-30 to F-111 are an integral part of these consolidated financial statements.
F-24
SWISSPORT INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER (Continued)
(all amounts in Swiss Francs thousands, unless otherwise stated)
Note 2009
2008 As
restated*
2007 As
restated*
1 January 2007 As
restated* EQUITY AND LIABILITIES Equity Equity attributable to holders of the Company’s equity Share capital ........................................................................... 17 165,450 165,450 165,450 165,450Accumulated losses ................................................................ (34,944) (122,101) (79,923) (117,031)Other reserves ......................................................................... 17 (602) (604) (551) —Currency translation differences ............................................. 17 (45,831) (51,255) (23,739) (23,775) 84,073 (8,510) 61,237 24,644Minority interest ................................................................... 23,950 20,066 21,531 18,204Total equity ........................................................................... 108,023 11,556 82,768 42,848
Liabilities Non-current liabilities Borrowings ............................................................................. 18 401,589 505,066 507,555 470,402Provisions for other liabilities and charges ............................. 20 49,589 56,501 78,375 79,314Long-term employee benefit obligations ................................ 13 41,275 42,774 36,626 38,682Deferred income ..................................................................... 19 5,323 9,142 11,292 5,681Deferred income tax liabilities................................................ 12 10,133 10,039 31,994 21,113 507,909 623,522 665,842 615,192Current liabilities Borrowings ............................................................................. 18 88,699 19,664 10,460 10,534Provisions for other liabilities and charges ............................. 20 26,866 23,884 25,524 28,379Deferred income ..................................................................... 19 2,817 1,025 545 575Current income tax liabilities.................................................. 10,027 5,274 8,074 5,719Trade and other payables ........................................................ 21 262,741 276,907 286,490 279,315 391,150 326,754 331,093 324,522Liabilities of disposal group held for sale ............................... 16 — 8,144 — 8,087 391,150 334,898 331,093 332,609Total liabilities....................................................................... 899,059 958,420 996,935 947,801Total equity and liabilities.................................................... 1,007,082 969,976 1,079,703 990,649
* Certain numbers shown here do not correspond to the previously issued 2008 and 2007 financial statements and
reflect adjustments made as explained in note 28.
The notes on pages F-30 to F-111 are an integral part of these consolidated financial statements.
F-25
SWISSPORT INTERNATIONAL LTD.
CONSOLIDATED INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER
(all amounts in Swiss Francs thousands, unless otherwise stated)
Note 2009
2008 As
restated*
2007 As
restated*
Continuing operations Revenue ............................................................................................................. 1,584,550 1,712,559 1,752,920Other operating income ..................................................................................... 59,322 75,951 63,575Total revenue and other operating income.................................................... 1 1,643,872 1,788,510 1,816,495Goods and services purchased ........................................................................... 2 258,821 300,250 310,766Personnel expenses ............................................................................................ 3 1,032,970 1,109,172 1,141,732Other operating expenses................................................................................... 4 234,441 264,302 268,455Depreciation and impairment of property, vehicles and equipment .................. 9 32,254 27,752 27,075Amortisation and impairment of intangible assets............................................. 10 1,326 4,179 3,922Total operating expenses ................................................................................. 1,559,812 1,705,655 1,751,950Operating profit ............................................................................................... 84,060 82,855 64,545Finance expense................................................................................................. 5 (25,751) (40,931) (38,832)Finance income.................................................................................................. 6 20,159 13,036 12,004Share of (losses)/profits from associates and jointly controlled entities ............ 11 (275) 2,893 3,561Loss on sale of disposal group ........................................................................... 23 — — (2,035)Gain on sale of subsidiary.................................................................................. 23 — — 457Profit before IFRS 3.65 adjustment to goodwill and income tax ................. 78,193 57,853 39,700IFRS 3.65 adjustment to goodwill ..................................................................... 28 (9,244) (2,260) (699)Profit before income tax .................................................................................. 68,949 55,593 39,001Income tax credit/(charge) ................................................................................. 7 14,003 7,647 (18,998)Net profit for the year from continuing operations ...................................... 82,952 63,240 20,003Discontinued operations Net loss for the year from discontinued operations ........................................... 23 (11,382) (6,163) (809)Net profit for the year...................................................................................... 71,570 57,077 19,194Attributable to: Holders of the Company’s equity ...................................................................... 62,744 51,732 11,972Minority interests............................................................................................... 8,826 5,345 7,222Basic and diluted earnings per share attributable to the equity
holders of the Company (in CHF per share) From continuing operations ............................................................................... 8 469.15 366.42 80.89From discontinued operations............................................................................ 8 (72.04) (39.01) (5.12) 397.11 327.41 75.77
* Certain numbers shown here do not correspond to the previously issued 2008 and 2007 financial statements and
reflect adjustments made as explained in note 28.
The notes on pages F-30 to F-111 are an integral part of these consolidated financial statements.
F-26
SWISSPORT INTERNATIONAL LTD.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER
(all amounts is Swiss Francs thousands, unless otherwise stated)
Note 2009 2008
as restated* 2007
as restated*
Net profit for the year..................................................................................... 71,570 57,077 19,194
Other comprehensive income: Available-for-sale financial assets .................................................................... 7 2 (53) (551)Changes in pension asset limitation and actuarial gains and losses .................. 7 24,232 (94,191) 25,136Currency translation differences ....................................................................... 7 5,407 (30,060) (721)Other comprehensive income/(loss) for the year, net of tax ............................. 29,641 (124,304) 23,864Total comprehensive income/(loss) for the year ........................................... 101,211 (67,227) 43,058
Attributable to: Holders of the Company’s equity ..................................................................... 92,583 (69,747) 36,593Minority interests.............................................................................................. 8,628 2,520 6,465 101,211 (67,227) 43,058
* Certain numbers shown here do not correspond to the previously issued 2008 and 2007 financial statements and
reflect adjustments made as explained in note 28.
Items in the statement above are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed in note 7.
The notes on pages F-30 to F-111 are an integral part of these consolidated financial statements.
F-27
SWISSPORT INTERNATIONAL LTD.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER
(all amounts in Swiss Francs thousands, unless otherwise stated)
Attributable to owners of the parent
Share capital
Accumulated losses
Other reserves
Currency translation differences Total
Minority interests
Total equity
Balance at 1 January 2007 as reported ....... 165,450 (88,866) — (21,267) 55,317 18,204 73,521Adoption of IFRIC 14 (note 13) ..................... — 49,884 — — 49,884 — 49,884Restatement (note 28) ..................................... — (78,049) — (2,508) (80,557) — (80,557)Balance at 1 January 2007 as restated* ...... 165,450 (117,031) — (23,775) 24,644 18,204 42,848Income statement Profit of the year ............................................. — 11,972 — — 11,972 7,222 19,194Other comprehensive income Available-for-sale financial assets .................. — — (551) — (551) — (551)Changes in pension asset limitation and
actuarial gains and losses ............................ — 25,136 — — 25,136 — 25,136Currency translation differences ..................... — — — 36 36 (757) (721)Total other comprehensive income/(loss) ....... — 25,136 (551) 36 24,621 (757) 23,864Total comprehensive income/(loss).............. — 37,108 (551) 36 36,593 6,465 43,058Transactions with owners Dividends paid to minority shareholders ........ — — — — — (3,138) (3,138)Total contributions by/(distributions to)
owners......................................................... — — — — — (3,138) (3,138)Change in ownership interests in
subsidiaries that do not result in a loss of control
Minority interests arising on change in ownership interests ..................................... — — — — — — —
Total transactions with owners.................... — — — — — (3,138) (3,138)Balance at 31 December 2007 as
restated*..................................................... 165,450 (79,923) (551) (23,739) 61,237 21,531 82,768Income statement Profit of the year ............................................. — 51,732 — — 51,732 5,345 57,077Other comprehensive income Available-for-sale financial assets .................. — — (53) — (53) — (53)Changes in pension asset limitation and
actuarial gains and losses ............................ — (93,910) — — (93,910) (281) (94,191)Currency translation differences ..................... — — — (27,516) (27,516) (2,544) (30,060)Total other comprehensive income/(loss) ....... — (93,910) (53) (27,516) (121,479) (2,825) (124,304)Total comprehensive income/(loss).............. — (42,178) (53) (27,516) (69,747) 2,520 (67,227)Transactions with owners Dividends paid to minority shareholders ........ — — — — — (3,938) (3,938)Total contributions by/(distributions to)
owners......................................................... — — — — — (3,938) (3,938)Change in ownership interests in
subsidiaries that do not result in a loss of control
Minority interests arising on change in ownership interests ..................................... — — — — — (47) (47)
Total transactions with owners.................... — — — — — (3,985) (3,985)Balance at 31 December 2008 as
restated*..................................................... 165,450 (122,101) (604) (51,255) (8,510) 20,066 11,556
* Certain numbers shown here do not correspond to the previously issued 2008 and 2007 financial statements and
reflect adjustments made as explained in note 28.
The notes on pages F-30 to F-111 are an integral part of these consolidated financial statements.
F-28
SWISSPORT INTERNATIONAL LTD.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER
(all amounts in Swiss Francs thousands, unless otherwise stated)
Attributable to owners of the parent
Share capital
Accumulated losses
Other reserves
Currency translation differences Total
Minority interests
Total equity
Balance at 1 January 2009 as restated* ....................................... 165,450 (122,101) (604) (51,255) (8,510) 20,066 11,556
Income statement Profit of the year ................................ — 62,744 — — 62,744 8,826 71,570Other comprehensive income Available-for-sale financial assets ..... — — 2 — 2 — 2Changes in pension asset limitation
and actuarial gains and losses ........ — 24,413 — — 24,413 (181) 24,232Currency translation differences ........ — — — 5,424 5,424 (17) 5,407Total other comprehensive
income/(loss).................................. — 24,413 2 5,424 29,839 (198) 29,641Total comprehensive income........... — 87,157 2 5,424 92,583 8,628 101,211
Transactions with owners Dividends paid to minority
shareholders ................................... — — — — — (4,940) (4,940)Total contributions by/(distributions
to) owners ...................................... — — — — — (4,940) (4,940)Change in ownership interests in
subsidiaries that do not result in a loss of control
Minority interests arising on change in ownership interests .................... — — — — — 196 196
Total transactions with owners....... — — — — — (4,744) (4,744)Balance at 31 December 2009 ......... 165,450 (34,944) (602) (45,831) 84,073 23,950 108,023
* Certain numbers shown here do not correspond to the previously issued 2008 and 2007 financial statements and
reflect adjustments made as explained in note 28.
The notes on pages F-30 to F-111 are an integral part of these consolidated financial statements.
F-29
SWISSPORT INTERNATIONAL LTD.
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEARS ENDED 31 DECEMBER
(all amounts in Swiss Francs thousands, unless otherwise stated)
Note 2009
2008 As
restated*
2007 As
restated*
Cash flow from operating activities
Cash generated from operations .......................................................................... 22 135,277 127,429 55,682Interest paid ......................................................................................................... (19,131) (14,757) (15,558)
Income tax paid.................................................................................................... (12,895) (13,181) (11,816)Interest received................................................................................................... 3,058 5,173 3,076
Dividends received .............................................................................................. 11 1,957 3,331 2,181
Cash flow from operating activities in continuing operations ....................... 108,266 107,995 33,565
Cash flow from operating activities in discontinued operations .......................... (2,048) (6,275) (1,480)
Total cash flow from operating activities......................................................... 106,218 101,720 32,085
Cash flow from investing activities
Acquisitions of subsidiaries, net of cash acquired ............................................... 23 — (899) 286Investment in associates....................................................................................... 11 — (4,786) —
Sale of subsidiaries and associates, net of cash sold............................................ 23 (3,339) 2,305 (2,814)
Purchase of property, vehicles and equipment..................................................... 9 (43,206) (54,106) (45,018)Proceeds from sale of property, vehicles and equipment..................................... 9/1/4 8,837 8,933 2,421
Purchase of intangible assets ............................................................................... 10 (3,871) (860) (10,994)
Proceeds from sale of intangible assets ............................................................... 10 8 — —Purchases of available-for-sale financial assets ................................................... — — (1,550)
(Loans made)/Loan repayments received ............................................................ 229 950 2,468
(Increase) decrease in restricted cash................................................................... 1,704 (2,631) (502)
Cash flow from investing activities in continuing operations ........................ (39,638) (51,094) (55,703)Cash flow from investing activities in discontinued operations .......................... — (36) (10)
Total cash flow from investing activities.......................................................... (39,638) (51,130) (55,713)
Cash flow from financing activities
Proceeds from borrowings................................................................................... 18,393 68,988 69,933Repayment of borrowings.................................................................................... (58,796) (68,090) (47,104)
Dividends paid to minority interests .................................................................... (4,940) (3,938) (3,138)
Cash flow from financing activities in continuing operations........................ (45,343) (3,040) 19,691Cash flow from financing activities in discontinued operations .......................... — 8 —
Total cash flow from financing activities ......................................................... (45,343) (3,032) 19,691
Net increase in unrestricted cash and cash equivalents.................................. 21,237 47,558 (3,937)
Unrestricted cash and cash equivalents at 1 January ........................................... 116,035 79,512 85,434Exchange gain/(loss) on cash and cash equivalents............................................. 2,572 (9,517) (1,985)
Unrestricted cash and cash equivalents at 31 December................................ 139,844 117,553 79,512
Unrestricted cash and cash equivalents of discontinued operations..................... 15 — (1,518) —
Unrestricted cash and cash equivalents of continuing operations ................. 15 139,844 116,035 79,512
* Certain numbers shown here do not correspond to the previously issued 2008 and 2007 financial statements and
reflect adjustments made as explained in note 28.
The notes on pages F-30 to F-111 are an integral part of these consolidated financial statements.
F-30
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007
1. General Information
Swissport International Limited (‘the Company’) and its subsidiaries (together ‘the Group’ or ‘Swissport’) provide ground handling and cargo handling services to many of the world’s leading airlines in 38 countries.
The Company is a limited liability company, domiciled in Switzerland and was legally incorporated on 30 August 1996. The address of the registered office is:
Swissport International Limited Flughofstrasse 55 CH-8152 Opfikon Switzerland
The consolidated financial statements for each year included were approved and authorised for issuance by the Board of Directors as follows:
• Year ended 31 December 2009............................................................................... 12 January 2011• Year ended 31 December 2008............................................................................... 24 March 2009• Year ended 31 December 2007............................................................................... 28 March 2008
2. Accounting Policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation
The consolidated financial statements have been prepared:
• in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB); and
• have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and financial assets and liabilities (including derivative instruments) at fair value through profit or loss; and
• in the Group’s reporting currency, Swiss Francs (the ‘Group Currency’).
In these consolidated financial statements amounts expressed in Swiss Francs are designated as CHF, amounts expressed in thousands of Swiss Francs are designated as TCHF and amounts expressed in millions of Swiss Francs are designated as MCHF.
(a) Standards, amendments and interpretations effective in 2009
• IAS 1 (revised), ‘Presentation of financial statements’—effective from 1 January 2009. The revised standard prohibits the presentation of items of income and expenses (that is, ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in equity’ to be presented separately from owner changes in equity in a statement of comprehensive income. As a result, the group presents in
F-31
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued)
the consolidated statement of changes in equity, all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. As the change in accounting policy only impacts presentation aspects, there is no impact on the financial position or performance of the Group.
• IAS 1 (amendment), ‘Presentation of financial statements’—effective from 1 January 2009. The amendment is part of the IASB’s annual improvements project published in May 2008. Assets and liabilities classified as held for trading in accordance with IAS 39 Financial Instruments: recognition and measurement are not automatically classified as current in the balance sheet. The Group analyzed whether the expected period of realization of financial assets and liabilities differed from the classification of the instrument. This did not result in any reclassification of financial instruments between current and non-current in the balance sheet.
• IAS 19 (amendment), ‘Employee benefits’—effective from 1 January 2009. The amendment is part of the IASB’s annual improvements project published in May 2008.
• The amendment clarifies that a plan amendment that results in a change in the extent to which benefit promises are affected by future salary increases is a curtailment, while an amendment that changes benefits attributable to past service gives rise to a negative past service cost, if it results in a reduction in the present value of the defined benefit obligation.
• The definition of return on plan assets has been amended to state that plan administration costs are deducted in the calculation of return on plan assets only to the extent that such costs have been excluded from measurement of the defined benefit obligation.
• The distinction between short term and long term employee benefits will be based on whether benefits are due to be settled within or after 12 months of employee service being rendered.
• IAS 37, ‘Provisions, contingent liabilities and contingent assets, requires contingent liabilities to be disclosed, not recognized. IAS 19 has been amended to be consistent.
The Group adopted this amendment as of 1 January 2009. It did not have an impact on the financial position or performance of the Group.
• IAS 23 (amendment), ‘Borrowing costs’ (effective from 1 January 2009) requires an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs was removed. As a further amendment, the definition of borrowing costs was amended so that interest expense is calculated using the effective interest method defined in IAS 39 ‘Financial instruments: recognition and measurement’. This eliminates the inconsistency of terms between IAS 39 and IAS 23. This amendment to IAS 23 did not impact the Group because it is already the Group’s policy to capitalize borrowing costs incurred in connection with the construction of such qualifying assets as part of the overall cost of those assets and to depreciate those costs using the straight-line method over the asset’s estimated useful life.
• IAS 28 (amendment), ‘Investments in associates’ (and consequential amendments to IAS 32, ‘Financial instruments: presentation’, and IFRS 7, ‘Financial instruments: Disclosures’) (effective from 1 January 2009). The amendment is part of the IASB’s annual improvements project
F-32
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued)
published in May 2008. An investment in associate is treated as a single asset for the purposes of impairment testing. Any impairment loss is not allocated to specific assets included within the investment, for example, goodwill. Reversals of impairment are recorded as an adjustment to the investment balance to the extent that the recoverable amount of the associate increases. The Group adopted this amendment as of 1 January 2009. It did not have an impact on the financial position or performance of the Group.
• IAS 36 (amendment), ‘Impairment of assets’ (effective from 1 January 2009). The amendment is part of the IASB’s annual improvements project published in May 2008. Where fair value less costs to sell is calculated on the basis of discounted cash flows, disclosures equivalent to those for the value-in-use calculation should be made. The Group adopted this amendment as of 1 January 2009. It did not have an impact on the financial position or performance of the Group.
• IAS 39 (amendment), ‘Financial instruments: recognition and measurement’ (effective from 1 January 2009). The amendment is part of the IASB’s annual improvements project published in May 2008.
• This amendment clarifies that it is possible for there to be movements into and out of the fair value through profit or loss category where a derivative commences or ceases to qualify as a hedging instrument in cash flow or net investment hedge.
• The definition of financial asset or financial liability at fair value through profit or loss as it relates to items that are held for trading was also amended. This clarifies that a financial asset or liability that is part of a portfolio of financial instruments managed together with evidence of an actual recent pattern of short-term profit taking is included in such a portfolio on initial recognition.
• The current guidance on designating and documenting hedges stated that a hedging instrument needs to involve a party external to the reporting entity and cites a segment as an example of a reporting entity. This means that in order for hedge accounting to be applied at segment level, the requirements for hedge accounting are currently required to be met by the applicable segment. The amendment removes the example of a segment so that the guidance is consistent with IFRS 8, ‘Operating segments’, which requires disclosure for segments to be based on information reported to the chief operating decision-maker.
• When remeasuring the carrying amount of a debt instrument on cessation of fair value hedge accounting, the amendment clarifies that a revised effective interest rate (calculated at the date fair value hedge accounting ceases) be used.
The amendment did not have any impact on the Group’s financial statements as the Group does not hold these types of financial instruments.
• IFRIC 16, ‘Hedges of a net investment in a foreign operation’ (effective from 1 October 2008). IFRIC 16 clarifies the accounting treatment in respect of net investment hedging. This includes the fact that net investment hedging relates to differences in functional currency not presentation currency, and hedging instruments may be held anywhere in the Group. The requirements of IAS 21, ‘The effects of changes in foreign exchange rates’, do apply to the
F-33
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued)
hedged item. The amendment did not have any impact on the Group’s financial statements as the Group’s net investment hedges are already based on differences in functional currency.
• IFRS 7 (amendment), ‘Financial instruments—disclosures’ (effective from 1 January 2009). The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. As the change in accounting policy only results in additional disclosures, there is no impact on the financial position or performance of the Group.
(b) Standards and interpretations early adopted by the Group
• None
(c) Standards, amendments and interpretations effective in 2009, but not relevant
The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2009, but they are not relevant to the Group’s operations:
• IFRS 1 (amendment), ‘First time adoption of IFRS’, and IAS 27 ‘Consolidated and separate financial statements’
• IFRS 2 (amendment), ‘Share-base payment’: vesting conditions and cancellations
• IFRS 8, ‘Operating segments’
• IAS 16 (amendment), ‘Property, plant and equipment’ (and consequential amendment to IAS 7, ‘Statement of cash flows’)
• IAS 20 (amendment), ‘Accounting for government grants and disclosure of government assistance’
• IAS 29 (amendment), ‘Financial reporting in hyperinflationary economies’
• IAS 31 (amendment), ‘Interests in joint ventures’ (and consequential amendments to IAS 32 and IFRS 7)
• IAS 32 (amendment), ‘Financial instruments: presentation’, and IAS 1 (Amendment), ‘Presentation of financial statements’—‘Puttable financial instruments and obligations arising on liquidation’
• IAS 38 (amendment), ‘Intangible assets’
• IAS 40 (amendment), ‘Investment property’ (and consequential amendments to IAS 16)
• IAS 41 (amendment), ‘Agriculture’
• IFRIC 15, ‘Agreements for construction of real estate’
F-34
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued) (d) Standards, amendments and interpretations to existing standards that are not yet effective and have not
been early adopted by the Group
The following standards, amendments and interpretations to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 January 2010, but the Group has not early adopted them:
• IFRS 3 (revised), ‘Business combinations’ (effective from 1 July 2009) requires several changes in the application of the acquisition method to business combinations. All payments to purchase a business are to be recorded at fair value at the acquisition date, with some contingent payments subsequently re-measured at fair value through profit or loss. Goodwill may be calculated based on the parent’s share of net assets, or it may also include goodwill related to the minority interest. All transaction costs will be expensed. Management will study the new standard and apply it for acquisitions subsequent to 1 January 2010.
• IFRS 5 (amendment), ‘Non-current assets held-for-sale and discontinued operations’ (and consequential amendment to IFRS 1, ‘First-time adoption’) (effective from 1 July 2009). The amendment is part of the IASB’s annual improvements project published in May 2008. The amendment clarifies that all of a subsidiary’s assets and liabilities are to be classified as held for sale if a partial disposal plan results in loss of control. Relevant disclosure should be made for this subsidiary if the definition of a discontinued operation is met. A consequential amendment to IFRS 1 states that these amendments are applied prospectively from the date of transition to IFRS. The Group will apply IFRS 5 (amendment) prospectively to all partial disposals of subsidiaries from 1 January 2010.
• IFRS 9, ‘Financial instruments’ (effective for periods on or after 1 January 2013). New IFRS on the classification and measurement of financial assets. The new standard enhances the ability of investors and other users of financial information to understand the accounting of financial assets and reduces complexity. The Group will apply IFRS 9 to all financial instruments from 1 January 2013. Management has not yet assessed the impact of this standard.
• IAS 27 (revised), ‘Consolidated and separate financial statements’ (effective from 1 July 2009). The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is remeasured to fair value, and a gain or loss is recognized in profit or loss. The Group will apply IAS 27 (revised) prospectively to transactions with non-controlling interests from 1 January 2010.
• IAS 27 (amendment), ‘Consolidated and separate financial statements’ (effective from 1 July 2009). The amendment is part of the IASB’s annual improvements project published in May 2008. Where an investment in a subsidiary that is accounted for under IAS 39, ‘Financial instruments: recognition and measurement’, is classified as held for sale under IFRS 5, ‘Non-current assets held-for-sale and discontinued operations’, IAS 39 continues to be applied. The Group will apply IAS 27 (amendment) prospectively from 1 January 2010.
• IAS 38 (amendment), ‘Intangible assets’ (effective 1 July 2009). The amendment is part of the IASB’s annual improvements project published in April 2009 and the Group will apply IAS 38
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued)
(amendment) from the date IFRS 3 (revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The amendment will not result in a material impact on the Group’s financial statements.
• IAS 24 (revised), ‘Related party disclosures’, issued in November 2009 supersedes IAS 24, ‘Related party disclosures’, issued during 2003 (effective for periods beginning on or after 1 January 2011). The revised standard amends the definition of a related party and modifies certain related party disclosure requirements for government-related entities. The Group will apply IAS 24 (revised) prospectively from 1 January 2011.
• IAS 32 (amendment), ‘Classification of rights issues’, issued in October 2009 (effective for annual periods beginning on or after 1 February 2010). The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Such rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency may be classified as equity instruments, provided the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8 ‘Accounting policies, changes in accounting estimates and errors. The Group will apply the amended standard from 1 January 2011.
• IFRIC 14 (amendment) ‘Prepayments of a minimum funding requirement’ (effective for annual periods beginning 1 January 2011). These amendments remove an unintended consequence of IFRIC 14, ‘IAS 19—The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities were not permitted to recognise some voluntary prepayments for minimum funding contributions as an asset. Therefore, this amendment results in prepayments of contributions in certain circumstances being recognised as an asset, rather than an expense. The Group will retrospectively apply these amendments for the financial reporting period commencing 1 January 2011.
• IAS 12 (amendments) ‘Deferred tax: Recovery of Underlying Assets’ (effective for annual periods beginning on or after 1 January 2012). The amendments introduce a rebuttable presumption that deferred tax on investment property measured at fair value should be determined on the basis that the carrying amount will be recovered through sale. The amendments also incorporate ‘SIC-21 Income taxes—Recovery of revalued non-depreciable assets into IAS 12’. The Group will apply the amended standard from 1 January 2012.
• There are a number of minor amendments to the following standards, which are part of the IASB’s 2009 and 2010 annual improvements projects. As these amendments are minor and are unlikely to have an impact on the Group’s accounts they are summarized as follows:
• IFRS 5 ‘Non-current assets held for sale and discontinued operations
• IFRS 7, ‘Financial instruments’
• IAS 1 ‘Presentation of financial statements’
• IAS 7 ‘Statement of cash flows’
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued)
• IAS 17 ‘Leases’
• IAS 18 ‘Revenue’
• IAS 27, ‘Consolidated and separate financial statements’
• IAS 34, ‘Interim financial reporting’
• IAS 36 ‘Impairment of assets’
• IAS 39 ‘Financial instruments: recognition and measurement’
• IFRIC 13, ‘Customer loyalty programmes’
(e) Standards, amendments and interpretations to existing standards that are not yet effective and not relevant for the Group’s operations
The following pronouncements have been published and are mandatory for the Group’s accounting periods beginning on or after 1 January 2010 or later periods, but are not relevant for the Group’s operations:
• IFRIC 17, ‘Distributions of non-cash assets to owners’ (effective from 1 July 2009) clarifies how an entity should measure distributions of assets, other than cash, when it pays dividends to its owners. The interpretation states that a dividend payable should be recognized when appropriately authorised and should be measured at the fair value of the net assets to be distributed. The difference between the fair value of the dividend paid and the carrying amount of the net assets distributed should be recognized in profit or loss. The amendment will not have any impact on the Group’s financial statements as the Group does not expect to distribute non-cash dividends.
• IFRIC 18, ‘Transfers of assets from customers’ (effective for periods beginning on or after 1 July 2009), prospectively, with some limited retrospective application permitted) clarifies the accounting for arrangements where an item of property, plant and equipment, which is provided by the customer, is used to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services. The interpretation is not expected to have an impact on the Group’s financial statements because the Group does not use property, plant and equipment provided by customers to deliver services.
• IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’ (effective for periods beginning on or after 1 July 2010) clarifies the requirements of IFRS when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial liability fully or partially. IFRIC 19 clarifies that:
• the entity’s equity instruments issued to a creditor are part of the consideration paid to extinguish the financial liability.
• the equity instruments issued are measured at their fair value. If their fair value cannot be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued)
• the difference between the carrying amount of the financial liability extinguished and the initial measurement amount of the equity instruments issued is included in the entity’s profit or loss for the period.
The interpretation is not expected to have an impact as the Group does not have such transactions.
• IFRS 2 (amendment), ‘Scope of IFRS 2 and IFRS 3 (revised)’ (effective for periods beginning on or after 1 July 2009). Linked to application of IFRS 3 (revised). Amendment to confirm that, in addition to business combination as defined by IFRS 3 (revised), ‘Business combinations’, contributions of a business on formation of a joint venture and common control transactions are excluded from the scope of IFRS 2, ‘Share-based payment’. The amendment will not be relevant as the Group does not have share-based payments.
• IFRS 2 (amendments), ‘Group cash-settled and share-based payment transactions’ (effective from 1 January 2010). In addition to incorporating IFRIC 8, ‘Scope of IFRS 2’, and IFRIC 11, ‘IFRS 2—Group and treasury share transactions’, the amendments expand on the guidance in IFRIC 11 to address the classification of group arrangements that were not covered by that interpretation. The new guidance is not relevant as the Group does not have share-based payments.
• IFRS 8 (amendment), ‘Disclosure of information about segment assets’ (effective for periods beginning on or after 1 January 2010), which amends the standard and the basis for conclusions to clarify that an entity is required to disclose a measure of segment assets only if that measure is regularly reported to the chief operating decision-maker. IFRS 8 will not be relevant to the Group’s operations because the Group has neither equity nor debt securities that are publicly traded, nor is it in the process of issuing equity or debt securities in public securities markets.
• IFRIC 9, ‘Reassessment of embedded derivatives’ (effective for periods beginning on or after 1 July 2009). This amendment clarifies that the scope paragraph of IFRIC 9 does not apply to possible reassessment, at the date of acquisition, to embedded derivatives in contracts acquired in a combination between entities or businesses under common control or the formation of a joint venture. The amendment will not be relevant as the Group does not have embedded derivatives.
• IFRIC 16 (amendment), ‘Hedges of a net investment in a foreign operation’ (effective for periods beginning on or after 1 July 2009). The amendment states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the foreign operation itself, as long as the designation, documentation and effectiveness requirements of IAS 39 that relate to a net investment hedge are satisfied. The amendment will not result in a material impact on the Group’s financial statements.
(f) Change in accounting policy
During 2009, the Group retrospectively changed the accounting treatment for its jointly controlled entities from the proportionate consolidation method to the equity method and applied IFRS 3.65, as detailed in note 28.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued) (g) Changes in presentation
The Group made presentational changes in the comparatives of certain positions to comply with the current year presentation of the financial statements and related notes.
2.2 Consolidation
Subsidiary undertakings
Subsidiary undertakings (‘Group companies’) are those entities in which the Group has the ability to exercise control over the operations, usually by virtue of its ownership of more than 50% of the voting rights. Group companies are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.
Group companies are required to adopt the Group’s accounting policies. All transactions, balances and gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Intercompany foreign exchange differences are disclosed within exchange gains and losses in the income statement, except for those loans that are considered as net investments in foreign operations, in accordance with IAS 21.
The share of minority shareholders’ equity in the Group is disclosed as a separate component within equity. The share of the net income attributable to minority shareholders is included within the Group’s net result for the year, but disclosed on the face of the income statement. Where the shareholders’ equity is negative and the minority shareholders have no obligation to make further contributions to the Group company’s capital, no minority interest is accounted for.
The acquisition of minorities is accounted for using the modified parent company model whereby the purchase of minorities is considered as additional consideration for the acquired business. Assets and liabilities are not remeasured and any excess of acquisition cost over minority interests acquired is goodwill.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued) Associated undertakings and joint ventures
(a) Associates/Jointly controlled entities
Associates and jointly controlled entities include all entities over which the Group has significant influence or joint control, but not sole control, generally involving a shareholding of between 20% and 50% of the voting rights. Investments in associates and jointly controlled entities are accounted for using the equity method of accounting and are initially recognized at cost. The Group’s investment in associates and jointly controlled entities includes goodwill identified on acquisition, net of any accumulated impairment loss.
The Group’s share of its associates’ and jointly controlled entities’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate or a jointly controlled entity equals or exceeds its interest in the associate or jointly controlled entity, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations, has given loans that are considered to be part of the investment or has made payments on behalf of the associate or jointly controlled entity.
Unrealized gains on transactions between the Group and its associates and jointly controlled entities are eliminated to the extent of the Group’s interest. Unrealized losses are also eliminated, unless the transaction provides evidence of an impairment of the asset transferred. Dilution gains and losses arising in investments in associates and jointly controlled entities are recognized in the income statement.
Accounting policies of associates and jointly controlled entities have been changed as necessary to ensure consistency with the policies adopted by the Group as detailed in note 28.
(b) Jointly Controlled Assets
The Group’s interests in jointly controlled assets are accounted for by proportionate consolidation. The Group combines its share of the jointly controlled assets’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial statements. The Group recognizes the portion of gains or losses on the sale of Group assets to the jointly controlled assets joint venture that is attributable to the other venturers. The Group does not recognize its share of profits or losses from the jointly controlled assets that result from the Group’s purchase of assets from the jointly controlled assets joint venture until it resells the assets to an independent party. However, a loss on the transaction is recognized immediately if the loss provides evidence of a reduction in the net realizable value of current assets, or an impairment loss.
(c) Non-current assets held for sale and discontinued operations
Non-current assets held for sale (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction, not through continuing use. These assets may be a component of an entity, a disposal group or an individual non-current asset. Non-current assets held for sale are stated at the lower of their carrying value or fair value less costs to sell.
F-40
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued)
A discontinued operation is a component of an entity that either has been disposed of, or that is classified as held for sale, and: (a) represents a separate major line of business or geographical area of operations; (b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or (c) is a subsidiary acquired exclusively with a view to resale.
2.3 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Swiss Francs (CHF), which is the Group’s reporting currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions (recognized) and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies (unrecognized) are recorded in the income statement.
Changes in the fair value of monetary securities denominated in foreign currency, classified as available-for-sale, are analyzed between translation differences resulting from changes in the amortized cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in amortized cost are recognized in profit or loss, and other changes in carrying amount are recognized in other comprehensive income.
(c) Group companies
The results and financial position of all Group entities that have a functional currency different from the Group’s presentation currency are translated into the Group’s presentation currency as follows:
(a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(b) income and expenses for each income statement are translated at average exchange rates of that period;
(c) all exchange differences resulting from such transactions are recognized as a separate component of other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations and related borrowings are included in other comprehensive income. When a foreign operation is disposed of, either partially or fully, exchange differences that were recorded in other comprehensive income are recognized in the income statement as part of the gain or loss on sale.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued)
In accordance with IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’, the Group defines a disposal of a foreign operation as the loss of control of a subsidiary, the loss of significant influence over an associate or the loss of joint control over a jointly controlled entity and defines the partial disposal of an entity as any reduction in an entity’s ownership interest in a foreign operation. Such disposals may occur through sale, liquidation, repayment of share capital or abandonment of all, or part of, that entity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing rate.
Venezuela has met the conditions of a hyperinflationary economy since November 2009. As it is immaterial in the overall scope of the Group, IAS 29 ‘Financial Reporting in Hyperinflationary Economies’ was not applied.
(d) Principal exchange rates
The exchange rates used for the principal currencies of the Group were:
Consolidated balance sheet
Consolidated income and cash flow statements and other movements in assets
and liabilities Year-end rates Average rates 2009 2008 2007 2009 2008 2007
Euro (EUR)...................................................................................... 1.489 1.486 1.656 1.507 1.585 1.644US Dollar (USD) ............................................................................. 1.041 1.063 1.125 1.082 1.079 1.197Pound Sterling (GBP) ...................................................................... 1.667 1.548 2.254 1.684 1.995 2.397Brazilian Real (BRL)....................................................................... 0.596 0.452 0.632 0.541 0.596 0.616Mexican Peso (MXN)...................................................................... 0.080 0.077 0.103 0.080 0.097 0.110South African Rand (ZAR).............................................................. 0.141 0.113 0.165 0.130 0.134 0.170
2.4 Property, vehicles and equipment
Buildings (comprising mainly warehouses, storage buildings, maintenance shops and offices) and all other equipment are shown at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the item. Depreciation is calculated using the straight-line method over the asset’s estimated useful life as follows:
Buildings and building improvements ............................................................. 30 to 50 years Motorized and non-motorized equipment ........................................................ 7 to 15 years IT equipment.................................................................................................... 3 to 5 years
Where an asset comprises several parts with different useful lives, each part of the asset is depreciated separately over its applicable useful life.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued) the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
The assets’ residual values are reviewed, and adjusted if appropriate, if there is an indicator for impairment. Useful lives are reviewed at each balance sheet date.
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.
Gains and losses on disposals are determined by comparing the sale proceeds with the carrying amounts and are included in the operating result in the income statement.
Interest on specific and general borrowings used to finance construction costs of property, plant and equipment is capitalized during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed.
2.5 Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable and recognisable assets, excluding goodwill carried on the acquired entity’s balance sheet, but including other intangible assets of the acquired entity at the date of acquisition.
Goodwill is treated as an asset of the acquired business and denominated in the functional currency of the business and retranslated annually, with any currency gain or loss included in other comprehensive income.
Goodwill is allocated to each of the cash generating units that are expected to benefit from the business combination. The Group’s policy is to treat each legal entity as a cash generating unit, unless that entity has a material business in more than one of the Group’s business lines; then, two or more separate cash generating units are recognized. Goodwill related to the acquisition of associates is included in investments in associates.
Separately recognized goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. The Group’s policy is to review each cash generating unit for impairment during the preparation of the annual financial statements. In addition, under IAS 36, an ad hoc impairment review must be performed if there is evidence of impairment at any other time. In both cases, a formal discounted cash flow valuation of the cash generating unit concerned is prepared, based upon a five year business plan, using a discount rate appropriate for that cash generating unit. Any shortfall in the valuation, compared with the carrying value of the net assets, is recorded in the income statement as an impairment loss.
On disposal of an entity, the carrying value of related goodwill is taken into account when calculating the gain or loss on disposal.
Negative goodwill is recognized as income at the date of acquisition.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued) (b) Other intangible assets
Acquired computer software licences are capitalized based on the costs incurred to acquire and bring the specific software to use. These costs are amortized over their estimated useful lives (subject to a maximum of 3 years).
External computer software development costs are capitalized and amortized using the straight-line method over their useful lives (subject to a maximum of 3 years) where it is considered that economic benefits will be derived in future years.
Internal costs associated with developing or maintaining computer software programmes are recognized as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that are expected to generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads.
Patents, trademarks, licences and customer relationships are shown at historical cost. Patents, trademarks, licences and customer relationships have a finite useful life and are carried at cost, less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost of trademarks and licences over their estimated useful lives (subject to a maximum of 20 years). For acquisitions, all intangible assets that are either separable or arise from contractual or other legal rights, and from which future economic benefits will be generated, are identified and recognized. In this case the fair value is determined using the discounted cash flow method applied to the financial forecasts for the acquired business made at about the time of the business combination.
2.6 Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its estimated recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered impairment, other than goodwill, are reviewed for possible reversal of the impairment at each reporting date.
2.7 Financial assets
In general, the Group classifies its financial assets into the following categories:
• Financial assets at fair value through profit and loss
• Loans and receivables
• Held-to-maturity investments
• Available-for-sale financial assets
The classification depends on the nature and the purpose of the transaction.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued)
The Group has no held-to-maturity investments.
(a) Financial assets at fair value through profit and loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held for trading unless they are designated as hedges. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The changes in the fair value are recorded in the income statement. Assets in this category are classified as current assets.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities more than 12 months after the balance sheet date. These are classified as non-current assets. The Group’s loans and receivables are presented as ‘Trade and other receivables’ on the balance sheet (note 14). Loans and receivables are recognized initially at fair value and subsequently measured at amortized cost. Amortized cost is the amount at which the financial asset is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, minus any reduction for impairment or uncollectability.
(c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Available-for-sale investments are initially recognized at fair value plus transaction costs. They are derecognized when the rights to receive cash flows from the investments have expired or the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value, if the fair value can be reliably determined, otherwise they are carried at cost and impaired if necessary. Changes in the fair value of available-for-sale financial assets are recognized in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in other comprehensive income are included in the income statement as ‘gains and losses from available-for-sale financial assets’.
(d) Impairment of financial assets
A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. The Group assesses, at each balance sheet date, whether there is any objective evidence that a financial asset may be impaired. If any such evidence exists, the Group estimates the recoverable amount of that asset and recognizes any impairment loss in the income statement. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be objectively related to an event occurring after the write-down, the write-down of the financial asset is reversed. The reversal cannot result in a carrying amount of the financial asset that exceeds the amount that amortized cost
F-45
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued) would have been at the date the write-down of the financial asset is reversed, had the impairment not been recognized. The amount of the reversal is included in the income statement for the financial year.
2.8 Trade receivables
Trade receivables are recognised initially at fair value, and subsequently measured at amortised cost using the effective interest method, less a provision for impairment. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. This provision is equal to the difference between the carrying amount and the present value of the amounts expected to be recovered. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments are considered indicators that the receivable is impaired. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement within ‘other operating expenses’. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against ‘other operating expenses’ in the income statement.
2.9 Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out (FIFO) method. Allowances are made for obsolete, slow moving, and excess inventories.
Inventories consist mainly of de-icing liquid and spare parts. These exclude borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
2.10 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand (excluding restricted cash), deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts.
2.11 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company’s equity holders, until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.
2.12 Trade payables
Trade payables are recognized initially at fair value and subsequently measured at amortized cost.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued) 2.13 Borrowings
Borrowings are recognized initially at fair value (i.e. proceeds, net of transaction costs incurred). Borrowings are subsequently measured at amortized cost and the difference between the proceeds (net of transaction costs) and the redemption value is amortized over the lifetime of the borrowings using the effective interest method. Borrowings due to be settled within twelve months of the balance sheet date are presented as current liabilities, other borrowings are presented as non-current liabilities. Borrowings where the company has an unconditional right to defer payment more than 12 months are presented as non-current liabilities.
2.14 Current and deferred income tax
(a) Current income taxes
The current income tax expense/credit is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns, with respect to situations in which applicable tax regulations are subject to interpretation, and establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.
(b) Deferred income taxes
Deferred income taxes are provided in full, using the balance sheet oriented comprehensive liability method, for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. The principal temporary differences arise from depreciation on property, plant and equipment, amortization of intangibles, provisions for pensions and other post-retirement benefits and tax losses carried forward, and, in relation to acquisitions, on the difference between the fair values of the net assets acquired and their tax base. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred income taxes.
Deferred tax assets relating to the carry forward of unused tax losses are recognized to the extent that it is probable that future taxable profit will be available, against which the tax losses carried forward can be utilised.
Deferred tax assets and liabilities are only offset within the same tax jurisdiction where there is a legally enforceable right to offset and the reversal will occur within the same period.
Deferred income taxes are provided for temporary differences arising from investments in subsidiaries, associates and jointly controlled entities, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
The Group does not provide for deferred income tax liabilities in respect of withholding and other taxes that would be payable on the unremitted earnings of certain subsidiaries, as the parent is able to
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued) control the timing of the reversal of the temporary difference and such amounts are considered to be permanently reinvested.
2.15 Post-employment benefits
(a) Benefit plans
Group companies operate both defined benefit and defined contribution plans. The schemes are generally funded through trustee-administered funds.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.
A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The asset or liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date, less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate (or, in the absence of a long term corporate bond market, government) bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Pension assets are recognized to the extent that the company can derive an economic benefit either in terms of a refund or by way of a reduction of future contributions. Contribution reductions are equivalent to the lower of the surplus in the plan and the present value of the future service cost to the entity, less any minimum future funding contribution requirements. Consideration of the minimum funding requirement may also give rise to a liability.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are credited or charged to other comprehensive income, net of related tax effects, in the period in which they arise.
Past-service costs are recognized immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis over the vesting period.
(b) Bridging Pensions
In Switzerland the normal retirement age for the pension plan of Swissport is 63 for men and women. The normal retirement age for the state pension (AVS/AHV) is 65 for men and 64 for women.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued) During the gap between the Swissport pension plan’s normal retirement date and the first time when the state pension is paid, the Group pays a bridging pension equal to the maximum state pension (CHF 27,360 p.a. at 31 December 2009/CHF 26,520 at 31 December 2008 and 2007). The liability is determined using the projected unit credit method. For pensioners the liability is measured at the present value of pensions in payment, and for active employees the liability is measured at the present value of the accrued benefit.
(c) Swiss night-shift obligations
Under the Swiss general workers contract (GAV), employers must provide employees working during the night with an option to take holidays and/or early retirement from the age of 57 onwards. Liabilities for these night shifts are calculated and recognized in the balance sheets of the companies concerned.
2.16 Provisions
Provisions are recognized when the Group has a present legal or constructive obligation resulting from past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation, using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.
(a) Legal claims
Provisions are made for legal claims when the Group believes, after taking advice where appropriate, that it is probable that the final outcome will be an outflow of resources.
(b) Restructuring
Restructuring provisions mainly comprise employee termination payments and lease termination penalties, and are recognized in the period in which the Group becomes legally or constructively committed to payment. Employee termination benefits are recognized only after an agreement is in place with the appropriate employee representatives specifying the terms of redundancy and the numbers of employees affected, or after individual employees have been advised of the specific terms. No provision is made for future operating losses.
(c) Onerous contracts
Onerous contracts arise when the unavoidable costs of meeting the obligations under the contracts exceed the economic benefits expected to be received from them. In the Group’s line of business long-term rental contracts for warehousing facilities, vehicles or equipment can become onerous. Under
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued) these circumstances the present obligation is determined based on the present value of the expected cash in- and outflows and is recorded as a provision.
2.17 Revenue recognition
(a) Sales of services
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognizes revenue when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the entity. Services are recognized in the accounting period the services are provided, as a proportion of the total services to be provided. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Where the outcome of transactions cannot be estimated reliably, revenue is recognised only to the extent of recoverable expenses.
(b) Interest income
Interest income is recognized on a time-proportion basis using the effective interest method.
(c) Management and trademark fees
Income from management and trademark fees, including 100% of that from associates and joint ventures, is recognized on an accruals basis in accordance with the substance of the relevant agreements and is included in other operating income. Management and trademark fees within the Group are eliminated. In the case of jointly controlled assets, the Group’s share in the joint venture is eliminated.
(d) Dividend income
Dividend income is recognized when the right to receive payment is established. Dividends within the Group are eliminated.
2.18 Leases
Leases of property, vehicles and equipment are classified as finance leases if the Group has substantially all the risks and rewards of ownership. Finance leases are capitalized at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant periodic rate of interest on the outstanding balance of the liability. The corresponding obligations, net of finance charges, are included in borrowings. The property, vehicles and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.
Leases are classified as operating leases, if a significant portion of the risks and rewards of ownership are retained by the lessor. Payments made under operating leases (net of any incentives
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
2. Accounting Policies (Continued) received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
2.19 Dividend distribution
Dividend distributions to the Group’s shareholder are recognized as a liability in the Group’s financial statements in the period in which the dividends are approved by the Group’s shareholder.
2.20 Service concession arrangements
Service concession arrangements where the Group contracts with a government or other public sector body to operate and maintain infrastructure assets, such as a cargo warehouse, and where the government or other public sector body controls a significant residual interest in the infrastructure at the end of the arrangement, are accounted for in accordance with IFRIC 12. Rather than recognizing a tangible asset for the related construction costs the Group recognizes a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset. The Group may also recognize an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. Both types of arrangements may exist within a single contract.
3. Financial Risk Management
3.1 Financial risk factors
The Group is exposed to a variety of financial risks, namely market risk (including currency and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.
Financial risk management is carried out by a central treasury department (‘Corporate Treasury’), which applies the following principles and policies:
(a) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to US Dollar, Euro, Pound Sterling and South African Rand. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities, and investments in foreign operations.
Individual Group companies rarely enter into transactions with third parties that are not denominated in their functional currency. Where they do, the Group policy does not allow them to use any kind of derivative instruments to hedge their foreign exchange risk.
Transactions with other Group companies are generally not hedged. However, Corporate Treasury may enter into a foreign exchange forward contract to remove the foreign exchange risk on a loan to or from Group companies.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
3. Financial Risk Management (Continued)
The net assets of Group companies denominated in foreign currencies are also a source of foreign exchange risk. The Group’s policy is to reduce this risk by:
• funding acquisitions using local rather than central borrowings, where possible, to provide a natural cash flow hedge in that the subsidiaries are mainly financed in the currency in which they generate the majority of their operational cash flows; and
• otherwise having borrowings denominated in the functional currencies of the Group companies concerned (principally US Dollar and Euro). Where appropriate, these borrowings are designated as hedges of the net investments in foreign entities and the exchange gains and losses arising on the translation of these borrowings are recognized in other comprehensive income.
At 31 December 2009, if the Euro had weakened/strengthened by 1% against the Swiss Franc, with all other variables held constant, post-tax profits for the year would have been TCHF 249 (2008: TCHF 293 / 2007: TCHF 442) lower/higher, mainly as a result of foreign exchange losses/gains on translation of Euro denominated intra-Group borrowings.
At 31 December 2009, if the Pound Sterling had weakened/strengthened by 1% against the Swiss Franc, with all other variables held constant, post-tax profits for the year would have been TCHF 201 (2008: TCHF 116 / 2007: TCHF −40) lower/higher, mainly as a result of foreign exchange losses/gains on translation of Pound Sterling denominated intra-Group borrowings.
At 31 December 2009, if the US Dollar had weakened/strengthened by 1% against the Swiss Franc, with all other variables held constant, post-tax profits for the year would have been TCHF 107 (2008: TCHF 99 / 2007: TCHF 206) lower/higher, mainly as a result of foreign exchange losses/gains on translation of US Dollar denominated intra-Group borrowings.
At 31 December 2009, if the South African Rand had weakened/strengthened by 1% against the Swiss Franc, with all other variables held constant, post-tax profits for the year would have been TCHF 61 (2008: TCHF 75 / 2007: TCHF 59) lower/higher, mainly as a result of foreign exchange losses/gains on translation of Swiss Franc denominated intra-Group borrowings of units in South Africa.
At 31 December 2009, if the US Dollar had weakened/strengthened by 1% against the Canadian Dollar, with all other variables held constant, post-tax profits for the year would have been TCHF 36 (2008: TCHF 58 / 2007: TCHF 0) higher/lower, mainly as a result of foreign exchange gains/losses on translation of US Dollar denominated intra-Group borrowings.
At 31 December 2009, if the US Dollar had weakened/strengthened by 1% against the Tanzanian Shilling, with all other variables held constant, post-tax profits for the year would have been TCHF 13 (2008: TCHF 25 / 2007: TCHF −14) lower/higher, mainly as a result of foreign exchange losses/gains on translation of US Dollar denominated third party trade receivables.
(b) Cash flow and fair value interest rate risk
The Group’s interest rate risk arises from external borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Currently, the majority of the Group’s borrowings (loan from immediate holding company and banking syndicate term loan) have variable interest rates, i.e. the interest expense is subject to changes in market interest rates. Interest rates are not hedged.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
3. Financial Risk Management (Continued)
At 31 December 2009, if the interest rate on Swiss Franc denominated borrowings had been 1% lower/higher with all other variables held constant, post-tax profits would have been TCHF 2,455 (2008: TCHF 2,714 / 2007: TCHF 2,560) higher/lower, mainly as a result of lower/higher interest expense on floating rate borrowings.
At 31 December 2009, if the interest rate on US Dollar denominated borrowings had been 1% lower/higher with all other variables held constant, post-tax profits would have been TCHF 918 (2008: TCHF 1,334 / 2007: TCHF 1,025) higher/lower, mainly as a result of lower/higher interest expense on floating rate borrowings.
(c) Credit risk
Credit risk is managed on Group level. Credit risk arises from cash, cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers including outstanding receivables. The Group’s internal policies require that credit exposures with banks and other financial institutions are regularly measured, actively managed and results reported to senior management to ensure relevancy in volatile credit markets. Credit risks related to trade receivables are systematically analyzed, monitored and managed. The Group has policies in place to ensure that sales of products and services on credit are made to customers with an appropriate credit history. The revenue of any single customer does not exceed 15% of the consolidated annual revenue.
The table below shows the balances for cash and cash equivalents with the banks and financial institutions at the balance sheet date:
2009 2008 2007 TCHF TCHF TCHF
Cash and Cash Equivalents Counterparties external credit rating (Standard & Poors) Investment grade A− and above ........................................................................................... 101,741 93,617 60,763Investment grade BBB+, BBB, BBB− ................................................................................. 14,335 5,828 5,311Non-investment grade BB+ and below................................................................................. 9,779 3,816 2,844Not rated ............................................................................................................................... 19,874 20,034 16,248 145,729 123,295 85,166
The maximum exposure to credit risk at the reporting date is the carrying value of the financial assets.
(d) Use of derivative financial instruments
Local management are not authorised to enter into any derivative instruments. In accordance with its banking arrangement, the Group only uses derivatives following detailed assessment of the risk and Parent Company approval.
(e) Liquidity risk and investing excess liquidity
All Group companies regularly monitor and manage their liquidity to ensure all obligations are met. According to the Group’s investment policy, excess cash, which is regularly monitored by
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
3. Financial Risk Management (Continued) Corporate Treasury, is maintained in highly liquid and highly rated investments. The principal tool for managing the Group’s liquidity and investments is the monthly preparation of a treasury pack, which includes a detailed cash flow forecast.
The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The tables include both interest and principal cash flows.
< 12 months 13 – 24 months 25 – 60 months > 60 months TCHF TCHF TCHF TCHF
At 31 December 2009 Borrowings ........................................................................... 95,368 63,700 339,783 9,239Trade and other payables ...................................................... 262,741 — — —At 31 December 2008 Borrowings ........................................................................... 29,548 89,101 205,976 257,215Trade and other payables ...................................................... 276,907 — — —At 31 December 2007 Borrowings ........................................................................... 35,528 30,579 317,592 245,233Trade and other payables ...................................................... 286,490 — — —
As the amounts included in the table are the contractual undiscounted cash flows, these amounts do not reconcile to the amounts disclosed on the balance sheet for borrowings and trade and other payables.
For financial guarantee contracts, refer to note 24.
3.2 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the leverage ratio set out by the credit facility (note 18 (a)). The objective of the Group is to make sure that this ratio is below the limit set out by the credit facility which were:
2009 2008 2007 Leverage ratio of the Group................................................................................................................... 1.76 1.90 2.40Limit of the leverage ratio from the credit facility............................................................................ 3.00 3.25 3.50
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
3. Financial Risk Management (Continued)
3.3 Fair value estimation
The carrying value of receivables (after allowances) and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
• Inputs for the asset of liability that are not based on observable market data (that is, unobservable inputs) (level 3).
As at 31 December 2009, the Group held the following financial instruments measured at fair value:
Level 1 Level 2 Level 3 Total
balance
Assets Available-for-sale financial assets .......................................................................... 1,025 — — 1,025Derivative financial instruments............................................................................. — 44 — 44Total assets ............................................................................................................ 1,025 44 — 1,069
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market prices used for financial assets held by the Group is the current bid price. These instruments are included in level 1.
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
4. Accounting Estimates and Judgements
The preparation of the consolidated financial statements requires management to make estimates and judgements concerning the future that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
4. Accounting Estimates and Judgements (Continued)
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. In the future such estimates and judgements will be modified as appropriate in the year in which the circumstances change.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
(a) Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations, which are influenced by management’s projections of future cash flows (see note 10).
(b) Income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes and assessing the extent to which deferred tax assets are recoverable, particularly those in connection with tax losses carried forward. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made (see notes 7 and 12).
(c) Litigation
The current nature of the business exposes the Group to a number of proceedings and civil lawsuits. These procedures take, in some cases, years to be resolved and management seeks advice from legal counsel and makes appropriate assumptions on the timing and estimated amounts of cash outflows of such proceedings. The related provisions of the Group are presented in note 20, related contingent liabilities are presented in note 24.
(d) Actuarial valuation
Assumptions are used in the preparation of the defined benefit schemes calculations. Management uses the services of external actuaries to perform these calculations. The assumptions used in these calculations are presented in note 13.
(e) Onerous contracts
The consolidated balance sheet at 31 December 2009 includes provisions of CHF 1.5 million (2008: CHF 15.6 million / 2007: CHF 30.0 million) for onerous contracts related to leasing of cargo warehousing and handling facilities in the USA and in the UK and Singapore in 2008 and 2007 (see note 20). The calculation of these provisions is based on the present value of the estimated least net costs to exit these leases. These estimations require significant management judgement and it is
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
4. Accounting Estimates and Judgements (Continued) possible that the provisions will be adjusted in future years to reflect changes in management’s estimates.
5. Changes in the Scope of Consolidation
The principal business combinations, start-ups, disposals and discontinuances affecting the scope of consolidation in the period were:
Acquisitions and start-ups
2009
• Careport AG, Switzerland, previously dormant company renamed from Fuelport Schweiz AG to Careport AG to assist passengers with reduced mobility, increase of shareholding from 49% to 66.8% (October 2009)
• GVAssistance AG, Switzerland, newly founded company to assist passengers with reduced mobility (October 2009)
• S&L Airport Services Ltd., Cyprus, newly founded company with an interest of 19.1% to assist passengers with reduced mobility (February 2009)
2008
• Swissport Group Services GmbH, Switzerland, newly founded company to provide business services to Group companies as well as to third parties (December 2008)
• Swissport Cyprus Ltd., Cyprus, newly founded company in passenger and ramp handling business (June 2008)
• Swissport Ukraine LLC, Ukraine, increase of shareholding from 51% to 70.6% (May 2008)
• New Age Aviation Security US Inc., USA, acquired company in security services business (June 2008)
• Peruvian Investment 2008 PTE Ltd., Singapore, newly founded company (September 2008)
• Fuelport Schweiz AG, newly founded company in fuelling business, no operations before 31 December 2008
• Swissport HNA Ground Handling Co. Ltd., China, newly founded company in passenger and ramp handling business, no operations before 31 December 2008
2007
• Swissport Algerie Ltd., Algeria, increase of shareholding from 40% to 51% in April 2007 by disproportionate capital increase of the entity that was registered in December 2006 and started activities in 2007
• Swissport Bulgaria AD, Bulgaria, newly founded company in passenger and ramp handling business (July 2007)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
5. Changes in the Scope of Consolidation (Continued)
• Swissport Nice SAS, France, newly founded company in passenger and ramp handling business, no operations before 31 December 2007
• SCS Austria GmbH, Austria, newly founded company in the cargo business, no operations before 31 December 2007
• Unitpool AG, Switzerland, disposal group held for sale, increase of interest from 84.9% to 86.9% (September 2007) before its sale in October 2007
• SCS Luxembourg S.A., Luxembourg, interest of 75% acquired from SWT LUX S.A. (related party) on 20 December 2007
Disposals and discontinuances
2009
• Swissport Frankfurt GmbH, Germany, sale of 100% share (June 2009)
• Cargo Service Center Trucking B.V., Netherlands, liquidated in October 2009
• Helvport B.V., Netherlands, liquidated in October 2009
• Capital Aviation Handling Ltd., United Kingdom, liquidated in June 2009
• Crossco (437) Ltd., United Kingdom, liquidated in June 2009
• North East Aviation Services Ltd., United Kingdom, liquidated in June 2009
• North West Aviation Services Ltd., United Kingdom, liquidated in June 2009
• Swissport Bulgaria AD, Bulgaria, reduced shareholding from 100% to 66% (February 2009)
2008
• Miascor Ground Handling Corp., Philippines, sale of the 40% share (July 2008)
• Visayas Airport Services Corp., Philippines, sale of the 40% share (July 2008)
• Mindanao Airport Services Corp., Philippines, sale of the 40% share (July 2008)
• Swissport Philippines Inc., Philippines, sale of the 40% share (July 2008)
• Swissport Greek Participation B.V., Netherlands, liquidated in December 2008
2007
• Swissport Japan Ltd., Japan, sale of 49% to joint venture partner (change from full to proportionate consolidation), April 2007
• Unitpool AG, Switzerland, disposal Group held for sale, sale of 86.9% (October 2007)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
1. Total revenue and other operating income
Revenue
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Services rendered...................................................................................................... 1,526,630 1,645,305 1,684,464Other revenues .......................................................................................................... 57,920 67,254 68,456Total ......................................................................................................................... 1,584,550 1,712,559 1,752,920
Other operating income
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Concession and rental .................................................................................................. 13,332 18,614 19,704Maintenance services................................................................................................... 5,749 8,328 6,781Management fees ......................................................................................................... 5,631 2,773 1,565Expenses recharged to customers ................................................................................ 12,078 12,348 9,637Gains on sale of fixed assets ........................................................................................ 1,012 2,844 623Fuelling related services .............................................................................................. 11,915 15,135 14,352Sale of fuel (excl. into-plane fueling) .......................................................................... 7,035 7,904 7,641Other ............................................................................................................................ 2,570 8,005 3,272Total ............................................................................................................................ 59,322 75,951 63,575
2. Goods and services purchased
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Purchased ground handling services............................................................................ 88,155 89,183 115,431Purchased cargo services ............................................................................................. 30,981 42,223 36,235Purchased ground transport services............................................................................ 1,569 6,765 4,203Rent and maintenance of equipment............................................................................ 87,199 101,753 95,054Material........................................................................................................................ 29,842 35,777 45,526Airport fees .................................................................................................................. 11,104 14,062 4,721Concession fees ........................................................................................................... 9,971 10,487 9,596Total ............................................................................................................................ 258,821 300,250 310,766
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
3. Personnel expenses
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Wages and salaries.................................................................................................... 823,189 902,224 938,272Social security costs.................................................................................................. 88,707 96,437 87,502Personnel insurances................................................................................................. 39,984 39,879 48,106Pension costs—defined benefit schemes (note 13)................................................... 15,495 8,639 11,919Pension costs—defined contribution schemes (note 13) .......................................... 5,342 5,325 3,920Staff allowance ......................................................................................................... 25,448 25,020 22,482Uniforms & protective clothes.................................................................................. 7,963 10,011 9,654Other staff costs ........................................................................................................ 26,842 21,637 19,877Total ......................................................................................................................... 1,032,970 1,109,172 1,141,732
The average number of employees was 32,960 (2008: 32,500 / 2007: 28,200).
4. Other operating expenses
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Building occupancy .................................................................................................. 99,714 112,793 119,270Information technology............................................................................................. 42,704 46,211 44,848Marketing.................................................................................................................. 2,873 3,886 3,290Office costs ............................................................................................................... 8,074 9,545 12,163Professional fees ....................................................................................................... 35,605 45,611 38,152Insurances ................................................................................................................. 16,612 16,721 15,256Bad debts .................................................................................................................. 1,367 3,665 3,097Loss on sale of fixed assets....................................................................................... 679 280 330Management fees ...................................................................................................... 10,454 8,580 9,534Travel costs............................................................................................................... 10,349 14,788 14,508Costs relating to provisions for claims...................................................................... (4,278) 157 —Other ......................................................................................................................... 10,288 2,065 8,007Total ......................................................................................................................... 234,441 264,302 268,455
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
5. Finance expense
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Interest expense ............................................................................................................... 18,084 26,484 25,262Loss from unrealized foreign exchange ........................................................................... 2,108 7,921 2,154Loss from realised foreign exchange ............................................................................... 2,967 2,372 1,814Bank charges.................................................................................................................... 2,109 1,809 2,461Valuation adjustments of financial assets ........................................................................ — 103 4,869Other financial costs ........................................................................................................ 483 2,242 2,272Total ................................................................................................................................ 25,751 40,931 38,832
6. Finance income
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Interest income................................................................................................................. 6,889 10,166 9,448Gain from unrealised foreign exchange........................................................................... 7,704 861 2,595Gain from realised foreign exchange............................................................................... 3,645 2,009 (39)Liquidation dividend........................................................................................................ 1,876 — —Other financial income..................................................................................................... 45 — —Total ................................................................................................................................ 20,159 13,036 12,004
7. Income taxes
Credit/(Expense) in the period
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Current taxes.................................................................................................................. (13,216) (11,009) (8,345)Deferred taxes (note 12) ................................................................................................ 27,219 18,656 (10,653)Total .............................................................................................................................. 14,003 7,647 (18,998)
F-61
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
7. Income taxes (Continued)
The tax on the Group’s profit before taxes differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows:
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Profit before tax ............................................................................................................. 68,949 55,593 39,001Tax (expense)/credit calculated at the weighted average expected tax rate of
29.4% (2008: 23.8% / 2007: 28.1%).......................................................................... (20,264) (13,263) (10,955)Income not subject to taxes............................................................................................ 3,432 5,924 2,069Expenses not deductible for tax purposes ...................................................................... (1,184) (4,228) (3,871)Utilisation/recognition of previously unrecognized tax losses ...................................... 39,455 46,080 7,818Tax losses for which no deferred income tax asset was recognized .............................. (7,182) (8,313) (11,653)Effect of different local tax rates ................................................................................... (2,176) (17,054) (75)Other effects................................................................................................................... 1,922 (1,499) (2,331)Tax credit...................................................................................................................... 14,003 7,647 (18,998)
The decrease in the 2008 weighted average expected tax rate, compared to 2009 and 2007, related to increased profitability during 2008 in jurisdictions with below average local tax rates. The main jurisdiction with a lower local tax rate, which had increased profitability during 2008 was Switzerland. This was due to the implementation of tax planning strategies during 2008 that generated taxable income in Switzerland, which was offset against previously unrecognised net operating loss carryforwards. This also resulted in the recognition of an intangible asset for tax purposes only and a related deferred tax asset for the resulting temporary difference.
The tax (charge)/credit relating to components of the other comprehensive income is as follows.
2009 2008 as restated
Before tax Tax (charge)/
credit After tax Before tax Tax (charge)/
credit After tax
Fair value gains/(losses) —Available-for-sale financial assets ............... 2 — 2 (53) — (53)Changes in pension asset limitation and
actuarial gains and losses ............................. 32,064 (7,832) 24,232 (116,760) 22,569 (94,191)Currency translation differences ...................... 5,407 — 5,407 (30,060) — (30,060)Other comprehensive income........................ 37,473 (7,832) 29,641 (146,873) 22,569 (124,304)
Deferred tax ..................................................... (7,832) 22,569
F-62
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
7. Income taxes (Continued)
2007 as restated
Before tax Tax (charge)/
credit After tax
Fair value gains/(losses) —Available-for-sale financial assets .............................................................................. (600) 49 (551)Changes in pension asset limitation and actuarial gains and losses ................................ 35,476 (10,340) 25,136Currency translation differences ..................................................................................... (721) — (721)Other comprehensive income....................................................................................... 34,155 (10,291) 23,864
Deferred tax .................................................................................................................... (10,291)
For details on deferred taxes see note 12.
8. Earnings per share
Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.
Since the Company does not have any potentially dilutive ordinary shares, diluted earnings per share are the same as basic earnings per share.
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Gain/(Loss) attributable to holders of the Company’s shares (in TCHF): From continuing operations ........................................................................................... 74,126 57,895 12,781From discontinued operations........................................................................................ (11,382) (6,163) (809) 62,744 51,732 11,972
Weighted average number of CHF 1,000 ordinary shares in issue ................................ 158,000 158,000 158,000Gain/(Loss) attributable to each of the Company’s shares (CHF per share): From continuing operations ........................................................................................... 469.15 366.42 80.89From discontinued operations........................................................................................ (72.04) (39.01) (5.12) 397.11 327.41 75.77
F-63
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
9. Property, vehicles and equipment (Continued)
Property Vehicles & equipment Total
TCHF TCHF TCHF At 1 January 2007 Cost.................................................................................................................................... 40,994 215,989 256,983Accumulated depreciation and impairment charges .......................................................... (18,790) (105,918) (124,708)Net book amount.............................................................................................................. 22,204 110,071 132,275
of which held under finance leases: Cost.................................................................................................................................... 163 17,033 17,196Accumulated depreciation and impairment charges .......................................................... (151) (11,837) (11,988)Net book amount.............................................................................................................. 12 5,196 5,208
Opening net book amount at 1 January 2007................................................................ 22,204 110,071 132,275Business combination (Note 23)........................................................................................ 145 823 968Decrease in scope of consolidation.................................................................................... — (58) (58)Additions ........................................................................................................................... 2,004 43,014 45,018Disposals............................................................................................................................ — (2,128) (2,128)Reclassifications ................................................................................................................ — 444 444Depreciation charge ........................................................................................................... (4,351) (22,724) (27,075)Currency exchange differences.......................................................................................... (974) (1,668) (2,642)Closing net book amounts at 31 December 2007 as restated........................................ 19,028 127,774 146,802
At 31 December 2007 / 1 January 2008 as restated Cost.................................................................................................................................... 41,843 261,336 303,179Accumulated depreciation and impairment charges .......................................................... (22,815) (133,562) (156,377)Net book amount as restated........................................................................................... 19,028 127,774 146,802
of which held under finance leases: Cost.................................................................................................................................... — 28,190 28,190Accumulated depreciation and impairment charges .......................................................... — (11,525) (11,525)Net book amount.............................................................................................................. — 16,665 16,665
Opening net book amount at 1 January 2008 as restated ............................................ 19,028 127,774 146,802Business combination (Note 23)........................................................................................ — 23 23Additions ........................................................................................................................... 1,796 52,310 54,106Disposals............................................................................................................................ (76) (6,293) (6,369)Reclassifications ................................................................................................................ 534 (534) —Depreciation charge ........................................................................................................... (3,964) (23,788) (27,752)Transfer to/from disposal groups....................................................................................... (1) (45) (46)Currency exchange differences.......................................................................................... (1,859) (19,183) (21,042)Closing net book amounts at 31 December 2008 as restated........................................ 15,458 130,264 145,722
F-64
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
9. Property, vehicles and equipment (Continued)
Property Vehicles & equipment Total
TCHF TCHF TCHF At 31 December 2008 / 1 January 2009 as restated Cost.................................................................................................................................... 44,777 269,811 314,588Accumulated depreciation and impairment charges .......................................................... (29,319) (139,547) (168,866)Net book amount as restated........................................................................................... 15,458 130,264 145,722
of which held under finance leases: Cost.................................................................................................................................... — 29,246 29,246Accumulated depreciation and impairment charges .......................................................... — (11,051) (11,051)Net book amount.............................................................................................................. — 18,195 18,195
Opening net book amount at 1 January 2009 as restated ............................................ 15,458 130,264 145,722Additions ........................................................................................................................... 2,241 40,965 43,206Disposals............................................................................................................................ (168) (8,336) (8,504)Depreciation charge ........................................................................................................... (2,863) (24,260) (27,123)Impairment charge ............................................................................................................. (1,512) (3,619) (5,131)Currency exchange differences.......................................................................................... 289 5,581 5,870Closing net book amounts at 31 December 2009........................................................... 13,445 140,595 154,040
31 December 2009 Cost.................................................................................................................................... 45,197 311,638 356,835Accumulated depreciation and impairment charges .......................................................... (31,752) (171,043) (202,795)Net book amount.............................................................................................................. 13,445 140,595 154,040
of which held under finance leases: Cost.................................................................................................................................... — 27,854 27,854Accumulated depreciation and impairment charges .......................................................... — (13,058) (13,058)Net book amount.............................................................................................................. — 14,796 14,796
At 31 December 2009, vehicles & equipment with a carrying value of TCHF 15,583 (2008: TCHF 14,309 / 2007: TCHF 6,997) were pledged as security for liabilities.
During the year 2009, the Group acquired property, vehicles and equipment with an aggregate cost of TCHF 43,206 (2008: TCHF 54,106 / 2007: TCHF 45,018) of which TCHF 483 (2008: TCHF 7,610 / 2007: TCHF 10,931) was acquired by means of finance leases.
The impairment charge mainly relates to property, vehicles and equipment formerly used by the Singapore operations, which were closed in March 2009. These related to leasehold improvements impairments of TCHF 1,512 (2008: nil / 2007: nil) and impairments of TCHF 3,550 (2008: nil / 2007: nil) for vehicles and equipment, for which no internal or external buyer could be found. This reflects the current estimated fair value less costs to sell, which is mainly a result of the current economic situation in the ground handling and cargo market.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
9. Property, vehicles and equipment (Continued)
Lease rentals amounting to TCHF 86,393 (2008: TCHF 101,532 / 2007: TCHF 100,114) and leases of vehicles and equipment amounting to TCHF 43,272 (2008: TCHF 46,065 / 2007: TCHF 44,249) are included in the income statement in other operating expenses and goods and services purchased, respectively.
The Group leases various vehicles and other operating equipment under non-cancellable finance lease agreements. The lease terms are mainly between 3 and 7 years.
10. Intangible assets
Goodwill Other Total TCHF TCHF TCHF
At 1 January 2007 Cost as reported ..................................................................................................................... 203,578 35,901 239,479Restatement (note 28) ............................................................................................................ (75,729) — (75,729)Cost as restated .................................................................................................................... 127,849 35,901 163,750Accumulated amortization and impairment ........................................................................... — (26,688) (26,688)Net book amount as restated............................................................................................... 127,849 9,213 137,062
Opening net book amount at 1 January 2007 as restated ................................................ 127,849 9,213 137,062IFRS 3.65 adjustment to goodwill (note 28).......................................................................... (699) — (699)Business combination (note 23)............................................................................................. (181) — (181)Purchase price adjustment ..................................................................................................... 407 — 407Additions ............................................................................................................................... — 10,994 10,994Reclassifications .................................................................................................................... — (444) (444)Amortization charge .............................................................................................................. — (4,103) (4,103)Impairments ........................................................................................................................... 181 — 181Currency exchange differences.............................................................................................. (6,000) (233) (6,233)Closing net book amount at 31 December 2007 as restated ............................................. 121,557 15,427 136,984
At 31 December 2007 / 1 January 2008 as restated Cost........................................................................................................................................ 121,557 46,979 168,536Accumulated amortization and impairment ........................................................................... — (31,552) (31,552)Net book amount as restated............................................................................................... 121,557 15,427 136,984
Opening net book amount at 1 January 2008 as restated ................................................ 121,557 15,427 136,984IFRS 3.65 adjustment to goodwill (note 28).......................................................................... (2,260) — (2,260)Business combination (note 23)............................................................................................. 929 — 929Additions ............................................................................................................................... — 860 860Disposals................................................................................................................................ — (15) (15)Amortization charge .............................................................................................................. — (4,179) (4,179)Transfer to/from disposal groups ........................................................................................... — (1) (1)Currency exchange differences.............................................................................................. (16,208) (1,058) (17,266)Closing net book amount at 31 December 2008 as restated ............................................. 104,018 11,034 115,052
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
10. Intangible assets (Continued)
Goodwill Other Total
At 31 December 2008 / 1 January 2009 as restated Cost........................................................................................................................................ 104,018 33,437 137,455Accumulated amortization and impairment ........................................................................... — (22,403) (22,403)Net book amount as restated............................................................................................... 104,018 11,034 115,052
Opening net book amount at 1 January 2009 as restated ................................................ 104,018 11,034 115,052IFRS 3.65 adjustment to goodwill (note 28).......................................................................... (9,244) — (9,244)Additions ............................................................................................................................... — 3,871 3,871Disposals................................................................................................................................ — (8) (8)Amortization charge .............................................................................................................. — (1,326) (1,326)Currency exchange differences.............................................................................................. 1,976 (186) 1,790Closing net book amount at 31 December 2009 ................................................................ 96,750 13,385 110,135
At 31 December 2009 Cost........................................................................................................................................ 96,750 37,484 134,234Accumulated amortization and impairment ........................................................................... — (24,099) (24,099)Net book amount.................................................................................................................. 96,750 13,385 110,135
IFRIC 12, ‘Service concession arrangements’ became effective for the Group on 1 January 2008 and was applied retrospectively by the Group to their contract for construction and operation of the warehouses with associated service concession arrangements.
In 2007, the Company entered into a service concession arrangement with the Israeli airport authority. Under this service concession arrangement, SCS Israel is to build a cargo terminal that is to be transferred to the airport authority upon completion of the service concession period. In exchange, the authority granted SCS Israel a 20 year concession to operate the same cargo terminal. The authority is to repay SCS Israel part of this investment and SCS Israel is to pay an annual concession fee to the authority. The receivable is linked to the Israeli CPI and adjusted on a regular basis. The intangible asset is amortized on a straight-line basis over the 20 year concession period and the receivable is offset annually with the concession fee payable. The amortization charge in 2009 was TCHF 459 (2008: TCHF 270 / 2007: nil).
In 2007, the Company entered into a service concession arrangement with the Kenya airport authority. Under this service concession arrangement, CSC East Africa is to build a cargo terminal that is to be transferred to the airport authority upon completion of the service concession period. In exchange, the authority granted CSC East Africa a 20 year concession to operate the same cargo terminal. Construction work started in early 2009 and is expected to be completed in the first half of 2010. From the start of the operations, the intangible asset will be amortized on a straight-line basis over the remaining concession period. CSC East Africa has recorded an intangible asset of TCHF 3,296 as of 31 December 2009 (2008: nil / 2007: nil), which contributed TCHF 305 to current year’s result (2008: nil / 2007: nil).
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
10. Intangible assets (Continued)
The main components of other intangibles are the service concession agreement of SCS Israel of TCHF 8,414
(2008: TCHF 9,011 / 2007: TCHF 9,760) and of CSC East Africa of TCHF 3,296 (2008: nil / 2007: nil).
Impairment tests for goodwill
The Group’s policy is to treat each legal entity as a cash generating unit, unless that entity has a material business in more than one of the Group’s business lines; then, two or more separate cash generating units are recognized
A review of the carrying value of each of the Group’s cash generating units was performed at the end of 2009, 2008 and 2007 using discounted cash flow analyses.
The recoverable amount of goodwill is based on value-in-use calculations. These calculations use pre-tax cash flow projections based on business plans approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below.
While the goodwill impairment testing is performed by cash generating unit, the goodwill allocated to these cash generating units and the key assumptions used in the value-in-use calculations are aggregated by major line of service, as presented below:
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Ground Handling ................................................................................................................. 54,023 58,088 68,084Cargo ................................................................................................................................... 35,211 36,455 44,192Aviation Security Services................................................................................................... 7,516 9,475 9,281Total .................................................................................................................................... 96,750 104,018 121,557
2009
Ground Handling Cargo Aviation Security
Services Estimated growth rate beyond five year period .................................... 1% 1% 1%Expected gross margin.......................................................................... 12%-38% 13%-36% 16%-18%Pre-tax discount rate ............................................................................. 5.01%-21.69% 5.5%-12.24% 5.25%-6.26%
2008
Ground Handling Cargo Aviation Security
Services Estimated growth rate beyond five year period .................................... 0%-1% 0%-1% 1%Expected gross margin.......................................................................... 10%-43% 10%-29% 15%Pre-tax discount rate ............................................................................. 4.77%-13.62% 4.95%-12.36% 4.95%-5.02%
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
10. Intangible assets (Continued)
2007
Ground Handling Cargo Aviation Security
Services
Estimated growth rate beyond five year period .................................... 0%-1% 0%-1% 1%Expected gross margin.......................................................................... 5%-47% 4%-31% 14%-15%Pre-tax discount rate ............................................................................. 5.34%-12.94% 5.71%-13.68% 5.34%-6.24%
No impairment charge against goodwill was required in 2009, 2008 or 2007, as there were no cash generating units with an estimated value-in-use that was lower than the carrying value of the goodwill included in each respective cash generating unit.
11. Associates and jointly controlled entities
Equity consolidated entities
For the equity consolidated companies of the Group refer to the list in note 29. All entities provide services to the airline industry.
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
At 1 January .................................................................................................................. 16,291 16,389 14,940Share of results ............................................................................................................... (275) 2,893 3,561Currency exchange differences....................................................................................... 549 (1,707) 19Dividends received ......................................................................................................... (1,957) (3,331) (2,181)Additions ........................................................................................................................ — 4,786 —Disposals (note 23) ......................................................................................................... — (2,739) —Change in consolidation method..................................................................................... (49) — 50At 31 December............................................................................................................. 14,559 16,291 16,389
Analyzed between: Goodwill ......................................................................................................................... 3,753 4,180 4,180Share of net assets........................................................................................................... 10,806 12,111 12,209Investments in equity consolidated companies........................................................... 14,559 16,291 16,389
The change in consolidation method in 2009 relates to Careport AG (formerly Fuelport Schweiz AG) that is now fully consolidated. There was no impact on the results of the Group as this company was dormant until the change in consolidation.
The change in consolidation method in 2007 relates to Swissport Japan Ltd, a company formerly owned 100% which, after the sale of 49% of the Group’s investment, became a jointly controlled entity from April 2007.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
11. Associates and jointly controlled entities (Continued)
The total gross amounts of the assets, liabilities, revenues and profit/(loss) of the Group’s equity accounted companies, all of which are unlisted, are as follows as of, or for the respective years ended, 31 December:
2009 2008
as restated 2007
as restated
January 1,2007
as restated TCHF TCHF TCHF TCHF
Total assets....................................................................................................... 43,862 34,407 52,689 42,525Total liabilities ................................................................................................. 23,286 16,387 27,492 17,422Total revenues.................................................................................................. 93,591 66,426 85,514 —Total profit/(loss) of the year ........................................................................... 148 4,975 5,654 —
The Group has no share of any capital commitments as at 31 December 2009, 2008 and 2007 for associates and jointly controlled entities.
At the balance sheet date, contingent liabilities of associates and joint ventures amounted to CHF 0.4 million (2008: nil / 2007: nil).
12. Deferred taxes
The movements in deferred tax assets and liabilities during the period are as follows:
(i) Deferred tax credit (expense)
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Deferred tax assets credited/(debited) to net result .................................................... 30,041 20,324 (7,838)Deferred tax liabilities credited/(debited) to net result .............................................. (2,822) (1,668) (2,815)Deferred tax income/(expense) (note 7).................................................................. 27,219 18,656 (10,653)
(ii) Deferred tax assets
2009 2008 2007 TCHF TCHF TCHF
At 1 January.................................................................................................................. 42,980 26,169 33,996Reclassifications ............................................................................................................. (10,564) — —Currency exchange difference ........................................................................................ 702 (3,513) 11Credited/(debited) to net result ....................................................................................... 30,041 20,324 (7,838)At 31 December............................................................................................................. 63,159 42,980 26,169
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
12. Deferred taxes (Continued)
The balance relates to:
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Tax losses ....................................................................................................................... 28,603 11,352 23,624Property, vehicles and equipment ................................................................................... 872 564 2,521Trade and other receivables ............................................................................................ 10 — —Accruals and provisions.................................................................................................. 14,080 24 24Tax deductible goodwill amortization ............................................................................ (9,229) — —Intangible assets.............................................................................................................. 28,823 31,040 —At 31 December............................................................................................................. 63,159 42,980 26,169
Deferred tax assets estimated to be recovered within 12 months amount to TCHF 9,197 (2008: TCHF 3,971 / 2007: TCHF 8,440).
The Group has deferred tax assets amounting to TCHF 63,159 mainly arising from tax losses brought forward and a timing difference in intangible assets. Deferred income tax assets are recognized for tax losses brought forward to the extent that realization through future taxable profits is probable. The recovery of these assets prior to their expiry is dependent upon the relevant companies earning sufficient future profits. Management believes that such assets are fully recoverable based on their forecasts of future results. An unexpected loss or reduction of profits could require a reassessment of the recoverability of deferred tax assets.
The Group has unrecognized tax losses to carry forward against future taxable income and associated unrecognized deferred tax assets, which expire as follows (these amounts include the discontinued operations of the German ground handling business):
Unrecognized tax losses Unrecognized deferred
tax assets 2009 2008 2007 2009 2008 2007 TCHF TCHF TCHF TCHF TCHF TCHF
In one year .......................................................................... 628 — 44 239 — 9In 2 years ............................................................................ 7,997 868 103,782 2,123 277 22,884In 3 years ............................................................................ 59,862 8,392 946 13,897 2,193 269In 4 years ............................................................................ 2,374 57,928 2,687 800 13,219 763In 5 years ............................................................................ 2,445 2,103 74,554 633 584 16,570In 6 years ............................................................................ 602 1,962 1,594 137 763 446In 7 years ............................................................................ 48,296 2 427 11,047 — 119No statutory expiry date...................................................... 215,039 230,702 245,192 61,604 70,727 82,353 337,243 301,957 429,226 90,480 87,763 123,413
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
12. Deferred taxes (Continued)
(iii) Deferred tax liabilities
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
At 1 January as reported ............................................................................................ 10,039 31,994 2,215Adoption of IFRIC 14.................................................................................................... — — 14,070Restatement (note 28) .................................................................................................... — — 4,828At 1 January as restated.............................................................................................. 10,039 31,994 21,113Debited/(credited) to net result ...................................................................................... 2,822 1,668 2,815Debited/(credited) to other comprehensive income (note 7).......................................... 7,832 (22,569) 10,291Reclassification.............................................................................................................. (10,564) — —Currency exchange difference ....................................................................................... 4 (1,054) (2,225)At 31 December............................................................................................................ 10,133 10,039 31,994
The balance relates to:
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Pension asset limitation and actuarial gains and losses ................................................... 7,832 — 22,569Property, vehicles and equipment .................................................................................... 1,403 1,037 1,895Intangible assets............................................................................................................... 627 582 846Tax deductible goodwill amortization ............................................................................. — 8,420 6,684Provisions for other liabilities and charges ...................................................................... 271 — — 10,133 10,039 31,994
Deferred tax liabilities estimated to be recovered within 12 months amount to TCHF 650 (2008: TCHF 520 / 2007: TCHF 682).
Deferred income tax liabilities of TCHF 5,499 (2008: TCHF 5,232 / 2007: TCHF 5,623) have not been recognized for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries. Such amounts are permanently reinvested and totalled TCHF 77,761 at 31 December 2009 (2008: TCHF 74,131 / 2007: TCHF 104,369).
The above balances relate to a number of different tax jurisdictions where there is no right to offset deferred tax assets and deferred tax liabilities.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
13. Post-employment and other long-term employee benefits
IFRIC 14 “IAS 19—The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction” effective for the Company on 1 January 2008 and was applied retrospectively by the Company for the pension fund in Switzerland. IFRIC 14 clarifies the application of IAS 19 paragraph 58 that limits the measurement of a defined benefit asset to the present value of economic benefits available. The Company reassessed the value of the pension assets based on the clarification of IFRIC 14 and accounted for a pension asset of TCHF 63,954 and related deferred tax liability of TCHF 14,070 resulting in a net increase in equity of TCHF 49,884 as of 1 January 2007. The asset was further increased to TCHF 102,587 as of 31 December 2007. This asset was then reduced to nil as of 31 December 2008 as the Company presented a net pension obligation as highlighted in this note. At 31 December 2009 the asset had a value of TCHF 33,253. The adjustments to recognize the asset and subsequently actuarial gains and losses that mainly drive the movements were booked in the Other Comprehensive Income statement, net of taxes.
Balance Sheet—Long-term employee benefit asset
Note 2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Defined benefit schemes in Switzerland................................................................. (a) 33,253 — 102,587Total ....................................................................................................................... 33,253 — 102,587
Balance sheet—Long-term employee benefit obligations:
Note 2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Defined benefit schemes in Switzerland.................................................................. (a) — 3,524 —Defined benefit schemes elsewhere (‘Other’).......................................................... (a) 2,128 2,736 1,883Defined contribution schemes ................................................................................. 3,224 3,312 3,222Swiss bridging pension obligation........................................................................... (b) 22,381 20,489 18,538Swiss night-shift obligation ..................................................................................... (c) 10,951 11,591 12,370Transfer to/from disposal groups............................................................................. — (1,278) —Other long-term employee benefits ......................................................................... 2,591 2,400 613Total ........................................................................................................................ 41,275 42,774 36,626
Income statement charge:
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Defined benefit schemes—Switzerland (note 3) .............................................................. 14,383 8,236 11,380Defined benefit schemes—Other (note 3) ........................................................................ 1,112 403 539Defined contribution schemes (note 3) ............................................................................. 5,342 5,325 3,920Swiss bridging pension ..................................................................................................... 2,281 2,115 2,128Swiss night shift benefits .................................................................................................. (640) (325) (680)Total ................................................................................................................................. 22,478 15,754 17,287
All of these expenses are included in personnel expenses.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
13. Post-employment and other long-term employee benefits (Continued)
(a) Pensions
(i) Switzerland
From 1 January 2004 the Group has had an independent pension scheme in Switzerland covering the following Swiss entities (Swissport International Ltd., Swissport Baggage Sorting AG, Privat Port S.A., Careport AG, GVAssistance AG and Swissport Group Services GmbH); Personalvorsorge Swissport/PVS. The scheme received from APK assets corresponding to the sum of individual vested benefits of current Group employees. However, all the pensions already in payment remained the liability of APK.
Under Swiss law the scheme is considered as a defined contribution scheme; however, under IAS 19 it is considered as a defined benefit scheme and therefore an independent actuarial valuation has been performed using the projected unit credit method.
(ii) Other
This category includes several defined benefit schemes comprising the following:
• Cargo Service Center (UK) Limited Pension and Life Assurance Scheme, funded, UK
• Swissport Tanzania Limited Employee’s Gratuity Arrangement, unfunded, Tanzania
• Pensionseinrichtung der Swissair AG, unfunded, Germany
(iii) Income Statement
The costs recognized in the income statement are:
2009 CH
2009 Other
2009 Total
TCHF TCHF TCHF Current service cost ............................................................................................................ 21,329 955 22,284Interest cost......................................................................................................................... 18,681 499 19,180Expected return on plan assets............................................................................................ (25,627) (342) (25,969)Defined benefit expense (note 3) ...................................................................................... 14,383 1,112 15,495
2008 CH
as restated
2008 Other
as restated
2008 Total
as restated
TCHF TCHF TCHF Current service cost ........................................................................................................... 20,403 456 20,859Interest cost........................................................................................................................ 17,652 415 18,067Expected return on plan assets........................................................................................... (29,819) (468) (30,287)Defined benefit expense (note 3) ..................................................................................... 8,236 403 8,639
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
13. Post-employment and other long-term employee benefits (Continued)
2007 CH
as restated
2007 Other
as restated
2007 Total
as restated TCHF TCHF TCHF
Current service cost ......................................................................................................... 22,183 811 22,994Interest cost...................................................................................................................... 14,657 356 15,013Expected return on plan assets......................................................................................... (25,460) (356) (25,816)Effect of curtailment ........................................................................................................ — (272) (272)Defined benefit expense (note 3) ................................................................................... 11,380 539 11,919
(iv) Balance Sheet
The amounts recognized in the balance sheet are determined as follows:
2009 CH
2009 Other
2008 CH
as restated
2008 Other
as restated
2007 CH
as restated
2007 Other
as restated TCHF TCHF TCHF TCHF TCHF TCHF
Present value of retirement benefit obligations..... 545,398 10,890 535,532 6,356 505,613 8,019Fair value of plan assets........................................ (578,670) (8,762) (532,008) (3,620) (608,234) (6,136) (33,272) 2,128 3,524 2,736 (102,621) 1,883
Unrecognized part of the defined benefit asset (obligation) ....................................................... 19 — — — 34 —
(Asset) liability in the balance sheet .................. (33,253) 2,128 3,524 2,736 (102,587) 1,883
Movement in the (Pension assets)/Retirement benefit obligations:
2009 CH
2009 Other
2008 CH
as restated
2008 Other
as restated
2007 CH
as restated
2007 Other
as restated TCHF TCHF TCHF TCHF TCHF TCHF
At 1 January........................................................ 3,524 2,736 (102,587) 1,883 (63,954) 3,191Pension cost .......................................................... 14,383 1,112 8,236 403 11,380 539Actuarial losses (gains)/Other comprehensive
income .............................................................. (33,750) 58 114,809 649 (33,635) (609)Plan settlement...................................................... — (478) — — — —Contributions paid by employer ........................... (17,410) (1,302) (16,934) (399) (16,378) (399)Other changes (foreign exchange,
reclassifications) ............................................... — 2 — 200 — (839)At 31 December................................................... (33,253) 2,128 3,524 2,736 (102,587) 1,883
F-75
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
13. Post-employment and other long-term employee benefits (Continued)
Movement in the defined benefit obligation is as follows:
2009 CH
2009 Other
2008 CH
as restated
2008 Other
as restated
2007 CH
as restated
2007 Other
as restated TCHF TCHF TCHF TCHF TCHF TCHF
At 1 January........................................................ 535,532 6,356 505,613 8,019 515,062 8,282Current service cost .............................................. 21,329 955 20,403 456 22,183 811Interest cost........................................................... 18,681 499 17,652 415 14,657 356Contributions paid by employee ........................... 12,869 414 12,654 205 12,150 230Actuarial losses (gains)/Other comprehensive
income .............................................................. (4,331) 33 (8,690) (498) (22,009) (609)Effect of curtailment/settlement............................ — (478) — — (1,595) (272)Benefits paid ......................................................... (38,682) (874) (12,100) (54) (34,835) (92)Other changes (foreign exchange,
reclassifications) ............................................... — 3,985 — (2,187) — (687)At 31 December................................................... 545,398 10,890 535,532 6,356 505,613 8,019
Movement in the fair value of the plan assets is as follows:
2009 CH
2009 Other
2008 CH
2008 Other
2007 CH
2007 Other
TCHF TCHF TCHF TCHF TCHF TCHF At 1 January ....................................................... 532,008 3,620 608,234 6,136 579,030 5,091Expected return on assets..................................... 25,627 342 29,819 468 25,460 356Actuarial gains (losses)/Other comprehensive
income ............................................................. 29,438 (25) (123,533) (1,147) 11,968 —Contributions paid by employer........................... 17,410 1,302 16,934 399 16,378 399Contributions paid by employee .......................... 12,869 414 12,654 205 12,150 230Effect of curtailment/settlement........................... — — — — (1,917) —Benefits paid ........................................................ (38,682) (874) (12,100) (54) (34,835) (92)Other changes (foreign exchange,
reclassifications) .............................................. — 3,983 — (2,387) — 152At 31 December .................................................. 578,670 8,762 532,008 3,620 608,234 6,136
2009 2008 2007 2006 2005 TCHF TCHF TCHF TCHF TCHF
At 31 December Present value of defined benefit obligation ......... (556,288) (541,888) (513,632) (523,344) (479,469)Fair value of plan assets....................................... 587,432 535,628 614,370 584,121 531,340(Deficit)/surplus in the plans ............................. 31,144 (6,260) 100,738 60,777 51,871
Experience adjustments on plan liabilities........... 10,595 9,188 22,618 (12,834) (15,964)Experience adjustments on plan assets ................ 29,437 (124,680) 12,919 16,821 13,299
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
13. Post-employment and other long-term employee benefits (Continued)
The estimated contributions expected to be paid during the year ending 31 December 2010, in respect of the Group’s pension plans are TCHF 17,320.
(v) Assumptions and other information
The principal actuarial assumptions used were:
2009 CH
2009 Other
2008 CH
2008 Other
2007 CH
2007 Other
Discount rate....................................................... 3.3% 3.3%-9.0% 3.5% 5.5%-10.0% 3.5% 5.7%-9.0%Expected return on plan assets............................ 3.9% 2.8%-6.8% 4.7% Nil-7.5% 4.8% Nil-6.9%Future salary increases........................................ 1.5% 1.50-5.0% 1.5% 1.0%-7.0% 1.5% 1.0%-7.0%Future pension increases..................................... 0.25% 0.25%-3.6% 0.25% 1.0%-3.0% 0.25% 2.0%-4.0%Mortality table .................................................... BVG 2005 Various BVG 2005 Various BVG 2005 Various
Plan assets are comprised as follows:
2009 CH
2008 CH
2007 CH
Equity............................................................................................................................................... 27.8% 26.3% 33.0%Debt ................................................................................................................................................. 29.4% 34.4% 21.0%Real estate........................................................................................................................................ 23.2% 22.5% 22.0%Other ................................................................................................................................................ 19.6% 16.8% 24.0%Plan assets invested in company equity securities ........................................................................... — — —Plan assets invested in property currently used by the company ..................................................... — — —
For the majority of the pension plans, the expected return on assets is calculated as the weighted average of the investment strategy and the expected return on the different asset categories.
Strategy and expected return:
Strategy 2009 2008 2007 Cash .............................................................................................................................. 2.0% 1.20% 2.80% 2.75%Mortgages ..................................................................................................................... 5.0% 2.75% 2.80% 3.60%Bonds CHF ................................................................................................................... 13.0% 2.05% 3.00% 3.00%Bonds foreign currencies .............................................................................................. 20.0% 2.20% 3.40% 3.30%Swiss Shares ................................................................................................................. 6.0% 6.40% 6.50% 6.70%Foreign shares............................................................................................................... 24.0% 6.10% 6.70% 7.00%Real estate..................................................................................................................... 22.0% 3.90% 5.80% 4.70%Alternative investments ................................................................................................ 8.0% 4.20% 5.00% 5.00%
History of experience gains and losses:
2009 2008 2007 Actual return on assets............................................................................................................. 9.5% (17.6)% 6.1%Difference between the expected and actual return on assets .................................................. (5.1)% 23.2% (2.0%)Experience losses on plan liabilities ........................................................................................ (2.2)% (2.1)% (1.0%)
F-77
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
13. Post-employment and other long-term employee benefits (Continued)
(b) Swiss bridging pension obligation
As described in more detail in the accounting policies in section 2.15, this liability relates to the additional pension paid to pensioners of the Personalvorsorge Swissport/PVS during the period before they are eligible to receive the State pension.
As required by IAS 19, the obligation has been measured at present value using the projected unit credit method and the movements in the balance are:
2009 2008 2007 TCHF TCHF TCHF
At 1 January ............................................................................................................................... 20,489 18,538 18,813Service cost.................................................................................................................................. 1,594 1,492 1,609Interest cost.................................................................................................................................. 687 623 519Benefit payments ......................................................................................................................... (2,017) (1,466) (1,171)Experience (gains) losses/Other comprehensive income............................................................. 1,628 1,302 (1,232)At 31 December.......................................................................................................................... 22,381 20,489 18,538
2009 2008 2007
Principal assumptions Discount rate............................................................................................................................... 3.3% 3.5% 3.5%Rate of increase in social security pension ................................................................................. 1.0% 1.0% 1.0%Current maximum AVS pension (CHF) ..................................................................................... 27,360 26,520 26,520
(c) Swiss night-shift obligations
As described in more detail in the accounting policies in section 2.15, this liability relates to the obligation in Switzerland to provide benefits to night shift workers.
(d) Other comprehensive income
The actuarial gains and losses, experience gains and losses and the changes in unrecognized positions are recognized in other comprehensive income, before tax, as follows:
2009 2008 2007 TCHF TCHF TCHF
Loss (gain) recognized in other comprehensive income for the year...................................... (32,064) 116,760 (35,476)Accumulated loss (gain) recognized in other comprehensive income, end of period............. 14,734 17,330 (99,430)
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
14. Trade and other receivables
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Non-current receivables: Non-current loans to related parties (note 26) ................................................................. 67 1,648 3,509Non-current loans to immediate holding company (note 26) .......................................... 171,190 167,479 149,396Non-current receivables from airport authorities............................................................. 15,565 16,292 —Other non-current receivables.......................................................................................... 26,528 10,962 23,240Total ................................................................................................................................ 213,350 196,381 176,145
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Current receivables and prepayments: Trade receivables ........................................................................................................... TCHF TCHF TCHFfrom third parties ........................................................................................................... 232,447 267,113 323,654from related parties (note 26)......................................................................................... 1,190 1,747 1,311Less: Impairment for bad and doubtful debts ................................................................ (37,787) (33,450) (39,873) 195,850 235,410 285,092
Non-income tax receivables........................................................................................... 17,891 15,170 15,772Prepayments................................................................................................................... 11,027 12,255 13,696Accrued balances ........................................................................................................... 17,053 23,473 28,669Other receivables from third parties .............................................................................. 21,011 26,438 25,175Other receivables from related parties (note 26)............................................................ — 1,484 1,153Current loan to related parties (note 26) ........................................................................ 4,275 1,049 —Accrued interest from third parties ................................................................................ 159 — —Accrued interest from related parties (note 26) ............................................................. 36 — 13,288Total .............................................................................................................................. 267,302 315,279 382,845
Carrying values equal fair values as the loans have a variable interest rate.
Generally, trade receivables that are less than three months past due are not considered impaired. The values of trade receivables that are past due, but not impaired, are as follows:
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Up to 3 months............................................................................................................... 45,971 51,588 92,2453 to 6 months ................................................................................................................. 1,816 6,528 3,871Over 6 months................................................................................................................ 3,392 6,723 9,147 51,179 64,839 105,263
The credit quality of trade receivables that are neither past due nor impaired can be assessed by reference to historical information about counterparty default risk. Based on the experience from the
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
14. Trade and other receivables (Continued)
last three years, more than 99% (2008: 98% / 2007: 99%) of the balances with customers that are neither past due nor impaired were fully recovered.
As of 31 December 2009, trade receivables of TCHF 39,923 (2008: TCHF 35,207 / 2007: TCHF 44,835) were impaired and partially provided for. It was assessed that a portion of these receivables are expected to be recovered. The majority of the individually impaired receivables relate to former clients of entities in France, Brazil, Switzerland and North America that have become insolvent. The amount of the provision was TCHF 37,787 as of 31 December 2009 (2008: TCHF 33,450 / 2007: TCHF 39,873). The ageing of these receivables is as follows:
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Up to 6 months......................................................................................................... 3,137 3,582 8,946Over 6 months.......................................................................................................... 36,786 31,625 35,889 39,923 35,207 44,835
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Swiss Franc (CHF) ........................................................................................................ 185,703 230,047 237,962US Dollar (USD) ........................................................................................................... 106,644 120,322 132,550Euro (EUR).................................................................................................................... 57,703 72,592 84,615Pound Sterling (GBP) .................................................................................................... 53,362 29,615 40,753Israeli Shekel (ILS)........................................................................................................ 16,454 17,078 —Brazilian Real (BRL)..................................................................................................... 12,838 7,814 15,857Canadian Dollar (CAD)................................................................................................. 5,608 9,167 9,176Other currencies............................................................................................................. 42,340 25,025 38,077Total .............................................................................................................................. 480,652 511,660 558,990
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
14. Trade and other receivables (Continued)
Movements on the Group provision for impairment of trade receivables are as follows:
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
At 1 January .................................................................................................................. (33,450) (39,873) (37,017)Provision for receivables impairment ............................................................................. (1,644) (1,753) (4,733)Receivables written off during the year .......................................................................... 4,566 (1,996) (131)Unused amounts reversed and (recovery of balances previously written-off) ................ (4,413) 4,035 2,911Transfer to/from disposal group...................................................................................... — 921 —Exchange differences...................................................................................................... (2,846) 5,216 (903)At 31 December............................................................................................................. (37,787) (33,450) (39,873)
The creation and release of allowances for impaired trade receivables have been included in ‘other operating expenses’ in the income statement. Amounts charged to the allowance account are generally written off against the receivable when there is no expectation of recovering additional cash.
The other receivables do not contain impaired assets.
Concentrations of credit risk with respect to trade receivables are limited due to the Group’s large number of customers, who are internationally dispersed. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The Group does not hold any collateral as security.
The loan to the immediate holding company of TCHF 171,190 (2008: TCHF 167,479 / 2007: TCHF 149,396) has a variable weighted average interest rate of 2.18% (2008: 2.49% / 2007: 3.95%) and a maturity of 3 years.
15. Cash and cash equivalents
2009 2008 2007
TCHF as restated
TCHF as restated
TCHF Cash at bank and in hand ................................................................................................... 120,322 108,306 70,869Short term bank deposits ................................................................................................... 25,407 14,989 14,297Total cash and cash equivalents in current assets......................................................... 145,729 123,295 85,166of which is restricted.......................................................................................................... (5,885) (7,260) (5,654)Unrestricted cash and cash equivalents ......................................................................... 139,844 116,035 79,512
Restricted cash comprises principally short term bank deposits that the Group is required by major suppliers, usually airports, to maintain in lieu of bank guarantees.
The short-term bank deposits have a weighted average maturity of 24 days (2008: 37 days/2007: 20 days).
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
16. Disposal group held for sale and discontinued operations
At 31 December 2009, there are no assets or liabilities held for sale and discontinued operations as the ground handling business in Germany was sold during the year, following Group management’s decision during 2008 to sell this business within 12 months.
2009 2008 2007 TCHF TCHF TCHF
Assets of the disposal Group held for sale: Property, vehicles and equipment (note 9)............................................................................. — 46 —Intangible assets (note 10) ..................................................................................................... — 1 —Trade and other receivables ................................................................................................... — 7,316 —Cash and cash equivalents ..................................................................................................... — 1,518 — — 8,881 —
Liabilities of the disposal Group held for sale: Borrowings ............................................................................................................................ — 1,278 —Provisions (note 20) ............................................................................................................... — 77 —Trade and other payables ....................................................................................................... — 6,789 — — 8,144 —
2009 2008 2007 TCHF TCHF TCHF
Analysis of the result of discontinued operations: Revenue ................................................................................................................................. 11,392 35,817 32,848Expense.................................................................................................................................. (13,440) (41,980) (33,657)Loss before tax of discontinued operations........................................................................ (2,048) (6,163) (809)Tax......................................................................................................................................... — — —Loss after tax of discontinued operations .......................................................................... (2,048) (6,163) (809)
No loss arose on the re-measurement of the disposal group.
Revenue and expense were recognized under ‘discontinued operations’ until the sale of the business. See note 23 for details related to the sale of the business on 1 June 2009.
17. Equity
(a) Share capital
The total authorised and issued number of ordinary shares of Swissport International Ltd. is 158,000 shares (2008: 158,000 shares/2007: 158,000 shares) with a par value of CHF 1,000 per share. All issued shares are fully paid. The share capital is stated including TCHF 7,450 share premium.
The Group did not pay dividends to shareholders in 2009, 2008 and 2007. Subsequent to 31 December, during 2010, the Group paid a dividend in the amount of TCHF 95,000 to holders of the Company’s equity.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
17. Equity (Continued)
(b) Nature and purposes of reserves
Other reserves
This reserve records fair value changes on available-for-sale financial assets.
Currency translation differences reserve
This reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
18. Borrowings
2009 2008 2007
TCHF as restated
TCHF as restated
TCHF Current Bank loans ............................................................................................................... 81,037 9,510 1,421Loans from immediate holding company (note 26)................................................. 1,214 1,342 1,710Loans from related parties ....................................................................................... — — 2,281Loans from other third parties ................................................................................. 475 139 —Lease liabilities ........................................................................................................ 3,902 5,431 3,314Other ........................................................................................................................ 2,071 3,242 1,734Total ........................................................................................................................ 88,699 19,664 10,460
Non-current Bank loans ............................................................................................................... 154,062 252,873 266,463Loans from immediate holding company (note 26)................................................. 228,057 228,049 214,308Loans from other third parties ................................................................................. 7,362 5,513 2,485Lease liabilities ........................................................................................................ 7,742 12,777 12,093Other ........................................................................................................................ 4,366 5,854 12,206Total ........................................................................................................................ 401,589 505,066 507,555Total borrowings.................................................................................................... 490,288 524,730 518,015
Of the current bank loans, TCHF 32,754 are repayable on demand. The Group is currently in the process of renegotiating the terms and conditions of this bank loan.
Carrying values equal fair values as the borrowings have a variable interest rate.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
18. Borrowings (Continued)
Present value of finance lease liabilities:
2009 2008 2007 TCHF TCHF TCHF
–within 1 year ............................................................................................................................. 3,902 5,431 3,314—between 1 to 5 years................................................................................................................ 7,682 11,567 10,640—after 5 years............................................................................................................................. 60 1,210 1,453Present value of finance lease liabilities .................................................................................. 11,644 18,208 15,407Future finance charges on finance leases.................................................................................... 1,341 410 3,572Future minimum lease commitments ...................................................................................... 12,985 18,618 18,979
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
2009 2008 2007
TCHF as restated
TCHF as restated
TCHF Swiss Franc (CHF) .......................................................................................................... 316,569 320,610 320,811US Dollar (USD) ............................................................................................................. 106,669 137,542 140,036Israeli Shekel (ILS).......................................................................................................... 37,991 31,219 17,219Euro (EUR)...................................................................................................................... 20,623 21,641 2,569Brazilian Real (BRL)....................................................................................................... 3,197 4,239 7,288South African Rand (ZAR).............................................................................................. 1,995 1,598 6,359Other currencies............................................................................................................... 3,244 7,881 23,733Total ................................................................................................................................ 490,288 524,730 518,015
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
18. Borrowings (Continued)
The maturity profile of the non-current borrowings is as follows:
13-24 months 25-60 months > 60 months Total TCHF TCHF TCHF TCHF
At 31 December 2007 Bank loans ........................................................................................ 245,631 2,566 18,266 266,463Lease liabilities ................................................................................. 9,491 1,149 1,453 12,093Loan from immediate holding company........................................... 1,044 — 213,264 214,308Loans from other third parties........................................................... — 2,485 — 2,485Other ................................................................................................. 2,838 6,620 2,748 12,206 259,004 12,820 235,731 507,555
At 31 December 2008 Bank loans ........................................................................................ 69,037 169,072 14,764 252,873Lease liabilities ................................................................................. 6,394 5,174 1,209 12,777Loan from immediate holding company........................................... 146 — 227,903 228,049Loans from other third parties........................................................... — 1,598 3,915 5,513Other ................................................................................................. 3,941 926 987 5,854 79,518 176,770 248,778 505,066
At 31 December 2009 Bank loans ........................................................................................ 53,777 100,285 — 154,062Lease liabilities ................................................................................. 3,464 4,218 60 7,742Loan from immediate holding company........................................... 154 227,903 — 228,057Loans from other third parties........................................................... 33 99 7,230 7,362Other ................................................................................................. 1,753 999 1,614 4,366 59,181 333,504 8,904 401,589
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
18. Borrowings (Continued)
The interest rates on the Group’s borrowings will change and the borrowings will be repriced as follows:
≤ 12 months 13-24 months 25-60 months > 60 months Total TCHF TCHF TCHF TCHF TCHF
At 31 December 2007 as restated Bank loans ................................................................. 249,730 1,072 1,025 16,057 267,884Loan from immediate holding company.................... 215,125 893 — — 216,018Loans from related parties ......................................... 2,281 — — — 2,281Loans from other third parties ................................... — — 2,485 — 2,485Lease liabilities .......................................................... 9,560 3,827 1,583 437 15,407Other .......................................................................... 13,940 — — — 13,940Total borrowings...................................................... 490,636 5,792 5,093 16,494 518,015
At 31 December 2008 as restated Bank loans ................................................................. 225,367 2,219 7,493 27,304 262,383Loan from immediate holding company.................... 229,391 — — — 229,391Loans from other third parties ................................... 139 1,598 — 3,915 5,652Lease liabilities .......................................................... 9,071 4,517 4,620 — 18,208Other .......................................................................... 4,972 2,316 820 988 9,096Total borrowings...................................................... 468,940 10,650 12,933 32,207 524,730
At 31 December 2009 Bank loans ................................................................. 226,152 3,714 5,233 — 235,099Loan from immediate holding company.................... 229,271 — — — 229,271Loans from other third parties ................................... 2,600 5,237 — — 7,837Lease liabilities .......................................................... 5,464 1,895 4,285 — 11,644Other .......................................................................... 3,109 2,742 — 586 6,437Total borrowings...................................................... 466,596 13,588 9,518 586 490,288
On 7 October 2005, the Group terminated its Senior Facility Agreement with RBS and entered into a loan agreement with its immediate holding company, Ferrovial Servicios S.A. Subsequently, the Group amended the loan agreement whereby the loan became fully subordinated to indebtedness as defined under the credit facility agreement with a banking syndicate entered into on 22 December 2005. The balance of the subordinated loan from the immediate holding company as at 31 December 2009 amounts to TCHF 227,903 (2008: TCHF 227,903/2007: TCHF 214,308). In addition to this, the Group has a current loan of TCHF 1,214 (2008: TCHF 1,342/2007: TCHF 1,710) with Ferrovial Servicios S.A.
On 22 December 2005, the Group entered into a new credit facility agreement with a banking syndicate, currently consisting of 13 banks with a term loan facility of TCHF 250,000 and a revolving credit facility of TCHF 150,000. The balance of the borrowings under these facilities as of 31 December 2009 amounts to TCHF 183,874 (2008: TCHF 215,720/2007: TCHF 247,528).
F-86
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
18. Borrowings (Continued)
On 1 August 2009, the Group entered into a credit facility agreement with Banco Sabadell S.A., London Branch in terms of a Revolving Cash Advance Facility amounting to TEUR 5,000. The Balance of the borrowings under this facility as of 31 December 2009 amount to TCHF 5,000.
The weighted average effective interest rates on borrowings at the balance sheet date were as follows:
2009 2008 2007 Bank loans ...................................................................................................................................... 3.37% 4.99% 6.07%Loan from immediate holding company......................................................................................... 2.18% 4.50% 4.03%Long term leases ............................................................................................................................. 8.00% 4.99% 6.55%
Financial covenants
The Company is required to report semi-annually its financial covenants to the banking syndicate. The covenant levels and ratios are set out in the Credit Facility Agreement and consist of:
(a) Leverage
As defined in the Credit Facility Agreement, the Company must ensure that consolidated total net borrowings do not, at the end of each measurement period ending on the accounting date set out in the Credit Facility Agreement, exceed the multiple of consolidated EBITDA set opposite that accounting date.
(b) Interest cover
As defined in the Credit Facility Agreement, the Company must ensure that consolidated EBITDA is at least that multiple of consolidated net interest payable at the end of each measurement period ending on an accounting date set out in the Credit Facility Agreement.
19. Deferred income
2009 2008 2007 TCHF TCHF TCHF
At 1 January ................................................................................................................................ 10,167 11,837 6,256Charge to income statement.......................................................................................................... — 373 6,500Release to income statement......................................................................................................... (2,284) (479) (580)Exchange differences.................................................................................................................... 257 (1,564) (339)At 31 December........................................................................................................................... 8,140 10,167 11,837
Analyzed between: Current .......................................................................................................................................... 2,817 1,025 545Non-current................................................................................................................................... 5,323 9,142 11,292Total ............................................................................................................................................. 8,140 10,167 11,837
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
18. Borrowings (Continued)
This item relates (a) to the gain on the sale and leaseback of the warehouse at Heathrow, which was completed in October 2002 on the acquisition of the Cargo business and is being released over the 15 year term of the lease contract therefore reducing the lease cost and (b) to discounts related to long term service contracts with a fixed duration, for which the discounts pattern changes over the duration of the contract.
20. Provisions
Claims Restruc-turing
Onerous contracts
Workers Compens-
ation Insurance provision Other Total
TCHF TCHF TCHF TCHF TCHF TCHF TCHF At 1 January 2008 ................................................................ 5,972 423 30,043 30,941 21,483 15,037 103,899Further charges to the income statement ............................... 713 6 530 20,191 9,099 798 31,337Reversal of amounts no longer required ................................ (83) (45) (9,650) — — (4,356) (14,134)Change in scope of consolidation .......................................... 331 — — — — — 331Utilised during year................................................................ (277) (184) (1,900) (22,883) (7,066) (629) (32,939)Transfer to disposal group/classified as held for sale ............ (68) — — — — (9) (77)Currency exchange differences.............................................. (483) (2) (3,421) (401) (2,475) (1,250) (8,032)At 31 December 2008 as restated........................................ 6,105 198 15,602 27,848 21,041 9,591 80,385Further charges to the income statement ............................... 1,882 2,194 625 12,216 14,965 5,797 37,679Reversal of amounts no longer required ................................ (4,394) (20) (3,378) — — (3,609) (11,401)Utilised during year................................................................ (1,239) (1,404) (11,878) (8,618) (6,682) (258) (30,079)Currency exchange differences.............................................. (40) (11) 558 (726) (743) 823 (139)At 31 December 2009 ........................................................... 2,314 957 1,529 30,720 28,581 12,344 76,445
Analyzed between: Current.................................................................................... 26,866 23,884 25,524Non-current ............................................................................ 49,589 56,501 78,375Total ....................................................................................... 76,455 80,385 103,899
The provisions of the Group consist of the following:
Claims
The balance of the provision relates to various claims that have arisen in the ordinary course of business.
The Group has recorded provisions of MCHF 2.3 (2008: MCHF 2.4/2007: MCHF 2.0) in connection with industry issues arising from relationships with airlines and airports. The final outcome of these issues may differ from management’s expectations giving rise to an additional charge or a release of provisions. No specific timing for the resolution of these provisions is known as it depends on actions of the courts.
Restructuring
This amount relates mainly to expenses that are expected to be paid in 2010 in relation to the discontinued operations in Germany (compensation, contractual rent payments). This provision is expected to be utilised during the first half of 2010.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
20. Provisions (Continued)
Onerous contracts
This provision relates to the accounting for onerous contracts for losses expected on the operating leases for the warehouses located at the JFK airport in the USA and in the UK and Singapore in 2008 and 2007.
Management had to enter into long-term operating lease contracts for the leasing of large warehouses and/or vehicles and equipment used in the Cargo business. The currently achieved percentage of occupancy is very low and therefore the infrastructure generates high costs, which are not covered by the present level of business. As the contract in the USA will expire by February 2011, this provision will be utilized by that date.
Workers Compensation
These balances represent provisions for claims in the US in relation to injuries that occur on the job. These provisions are partially offset by a receivable of MCHF 5.8 (2008: MCHF 1.5/2007: MCHF 1.7) from an insurance company, which is included in other receivables. It is estimated that the majority of the claim liability will be paid out in 7 to 10 years.
Insurance provisions
These balances represent provisions for claims in the US in relation to aviation liabilities. These provisions are partially offset by a receivable of MCHF 22.1 (2008: MCHF 15.4/2007: MCHF 16.9) from an insurance company, which is included in other receivables. The liabilities are expected to be paid out within 2 to 3 years of the policy year.
Other provisions
The balance relates to a variety of other matters where the Group anticipates an outflow of resources at some point in the future.
The balance also includes the following provisions:
(i) Labor related provision
After a labor related decision made by a court in 2006 established a precedent, management estimated a possible loss in connection with this decision and therefore a provision of MCHF 1.9 (2008: MCHF 2.9/2007: MCHF 3.2) is included in the 2009 consolidated accounts. This provision is expected to be fully satisfied by 2011.
(ii) Contingent payments relating to the sale of the ground handling business in Germany
An amount of MCHF 3.2 (2008: nil/2007: nil) was booked in 2009. This amount represents management’s best estimate for contingent payments, which could occur in the near future according to the contractual terms of the sale of the ground handling business in Germany. This provision is expected to be settled within 3 years.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 and 2007 (Continued)
21. Trade and other payables
2009 2008 2007
TCHF as restated
TCHF as restated
TCHF Trade payables to third parties........................................................................................ 74,366 90,676 85,295Trade payables to related parties .................................................................................... 14,283 16,688 4,734Tax payables ................................................................................................................... 14,892 16,534 14,113Guarantees ...................................................................................................................... 2,683 15,593 16,324Advanced payments received ......................................................................................... 3,179 4,400 6,177Other payables to third parties ........................................................................................ 16,725 16,787 28,851Accrued items ................................................................................................................. 44,977 39,454 42,244Other payables to related parties..................................................................................... 14 784 873Interest accruals—immediate holding company............................................................. 758 — —Interest accruals—third parties ....................................................................................... 2,106 4,443 3,131Interest accruals—related parties.................................................................................... — — 16,804Payroll related accruals................................................................................................... 73,837 58,682 64,753Purchase related accruals ................................................................................................ 14,921 12,866 3,191Total ............................................................................................................................... 262,741 276,907 286,490
Accruals include both estimated costs for goods and services received not invoiced, as well as incurred charges for projects.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
22. Cash generated from operations
2009 2008
as restated 2007
as restated TCHF TCHF TCHF
Profit before income tax ................................................................................................. 68,949 55,593 39,001Adjustments for: –Share of profit from associates and joint ventures (note 11)......................................... 275 (2,893) (3,561)–Net unrealized foreign exchange (gain)/loss (note 5 and 6).......................................... (5,596) 7,060 (441)–Net interest expense (note 5 and 6)............................................................................... 11,195 16,318 15,814–Valuation adjustment of financial assets (note 5) ......................................................... — 103 4,869–Depreciation and impairment of property, vehicles and equipment (note 9) ................ 32,254 27,752 27,075–Amortization and impairment of intangible assets and goodwill (note 10) .................. 1,326 4,179 3,922–Profit on sale of property, vehicles and equipment (note 1) ......................................... (1,012) (2,844) (623)–Loss on sale of property, vehicles and equipment (note 4)........................................... 679 280 330–Loss on sale of investments (note 23)........................................................................... — 434 1,578–IFRS 3.65 adjustment to goodwill (note 28)................................................................. 9,244 2,260 699–Pension contribution in excess of pension cost in the income statement (note 13) ...... (2,953) (8,045) (3,901)–Amortization of capitalized financing costs.................................................................. 435 435 435–Movement in pension liabilities.................................................................................... (779) 2,448 (1,881)–Movement in deferred income (note 19)....................................................................... (2,284) (106) 5,920–Movement in operating provisions ............................................................................... (10,965) (15,813) 2,633–IFRIC 12 ....................................................................................................................... (311) (1,710) —Changes in working capital (excluding the effect of acquisition and exchange
difference): –Inventories .................................................................................................................... 576 97 (972)–Trade and other receivables .......................................................................................... 55,473 19,642 (55,849)–Trade and other payables .............................................................................................. (21,229) 22,239 20,634Cash generated from operations.................................................................................. 135,277 127,429 55,682
23. Business Combinations
In 2009:
Acquisitions:
No acquisitions were made during the year 2009.
Disposals:
(a) Ground handling business in Germany
On 1 June 2009, the Group sold its ground handling business in Germany for the purchase price of 1 EUR.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
23. Business Combinations (Continued)
Details of the net assets sold and the loss on sale are:
Sale of ground handling business
in Germany TCHF
Assets (liabilities) sold: Fixed assets................................................................................................................................................. 40Non-current receivables.............................................................................................................................. 139Trade and other current receivables............................................................................................................ 1,788Cash ............................................................................................................................................................ 4,858Provisions ................................................................................................................................................... (434)Other payables ............................................................................................................................................ (223)Shareholder’s equity sold ......................................................................................................................... 6,168Loss on sale: Cash received from buyer ........................................................................................................................... 1Provision for contingent payments ............................................................................................................. (3,167)Loss on sale................................................................................................................................................ (9,334)Loss after tax of discontinued operations through sale date (note 16)........................................................ (2,048)Net loss for year from discontinued operations...................................................................................... (11,382)Cash flow from disposal Cash received from buyer ........................................................................................................................... 1Cash and cash equivalents eliminated from consolidation scope at 1 June 2009 ....................................... (4,858)Cash and cash equivalents previously eliminated from continuing operations at 31 December 2008
(note 16).................................................................................................................................................. 1,518Net cash outflow from disposal at Group level....................................................................................... (3,339)
(b) SP Bulgaria
During 2009, the Group sold 34% of the share capital of Swissport Bulgaria AD for a price of TCHF 13. This disposal does not have any impact on consolidation as no change in control occurred. This company continues to be fully consolidated with a 34% minority interest.
In 2008:
Acquisitions:
(a) Swissport Ukraine
On 15 May 2008, the Group purchased 19.6% of the share capital of Swissport Ukraine for the purchase price of TCHF 716. The acquired business contributed revenues of TCHF 4,879 and net loss of TCHF 908 for the period from 15 May 2008 to 31 December 2008. If the acquisition had occurred on 1 January 2008, Group revenues and profit before allocations would not have been different as SP Ukraine was already fully consolidated on that date.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
23. Business Combinations (Continued)
(b) New Age Aviation Security US Inc.
On 1 June 2008, the Group purchased 51% of the share capital of New Age Aviation Security US Inc. (NAAS) for the purchase price of TCHF 210. The acquired business contributed revenues of TCHF 675 and net loss of TCHF 112 for the period from 1 June 2008 to 31 December 2008. If the acquisition had occurred on 1 January 2008, Group revenues and profit before allocations would not have been materially different.
Details of the net assets acquired are as follows:
(a) Acquisition of
19.6% of SP Ukraine
(b) Acquisition of
51% of New Age Aviation Security Total
TCHF TCHF TCHF Assets (liabilities) purchased: Property, vehicles and equipment .......................................................................... 23 — 23Trade and other non-current receivables................................................................ 1,179 221 1,400Cash and cash equivalents ..................................................................................... 200 27 227Trade and other current payables........................................................................... (1,164) (346) (1,510)Net assets (liabilities) of the entity (100%)............................................................ 238 (98) 140Fair value of interest acquired............................................................................ 47 (50) (3)Purchase consideration: Cash paid to former shareholders .......................................................................... 716 210 926Goodwill (note 10)................................................................................................ 669 260 929Cash flow from acquisition: Cash paid to former shareholders .......................................................................... (716) (210) (926)Cash and cash equivalents added to consolidation scope ...................................... — 27 27Net cash outflow from acquisition ...................................................................... (716) (183) (899)
Disposals:
(a) Swissport Philippines
On 8 August 2008, the Group sold its 40.0% interest in its operations on the Philippines (i.e. Swissport Philippines Inc., Visayas Airport Services Corp. and Mindanao Airport Services Corp.). The investment in associates has been derecognized on this date and a loss on the sale of TCHF 434 has been recognized.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
23. Business Combinations (Continued)
Details of the net assets sold and the gain/(loss) on sale are:
(a) Sale of Philippines
40.0% TCHF
Assets (liabilities) sold: Investment in associates........................................................................................................................... 2,739Shareholders’ equity sold ...................................................................................................................... 2,739Loss on sale: Cash received from buyer ........................................................................................................................ 2,305Loss on sale............................................................................................................................................. (434)Cash flow from disposal: Cash received from buyer ........................................................................................................................ 2,305Cash and cash equivalents eliminated from consolidation scope ............................................................ —Net cash inflow/(outflow) from disposal at Group level ..................................................................... 2,305
In 2007:
Acquisitions:
(a) SCS Luxembourg S.A.
On 20 December 2007, the Group purchased 75% of the share capital of SCS Luxembourg S.A for the purchase price of TCHF 373. SCS Luxembourg S.A. was consolidated from this date onwards. No revenues and costs were considered in the 2007 consolidated income statement. The purchase resulted in a badwill of TCHF 181 which, after reassessment, was credited to the consolidated income statement and to the impairments line (note 10).
The acquisition of SCS Luxembourg was a common control transaction, which is not within the scope of IFRS 3. As a result the Group elected to retain the IFRS carrying values of assets and
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
23. Business Combinations (Continued)
liabilities of the acquired company rather than restating these to their fair values at the date of the acquisition. Details of the net assets acquired are as follows:
(a) Acquisition of 75% of
SCS Luxembourg TCHF
Assets (liabilities) purchased: Property, vehicles and equipment .............................................................................................................. 968Trade and other receivables ....................................................................................................................... 924Cash and cash equivalents ......................................................................................................................... 750Income tax liabilities.................................................................................................................................. (7)Trade and other payables ........................................................................................................................... (1,896)Net assets (liabilities) of the entity (100%)................................................................................................ 739Fair value of interest acquired................................................................................................................ 554Purchase consideration: Cash paid to former shareholders .............................................................................................................. 373Goodwill/(badwill) (note 10) ................................................................................................................... (181)Cash flow from acquisition: Cash paid to former shareholders .............................................................................................................. (373)Cash and cash equivalents added to consolidation scope .......................................................................... 750Net cash inflow/(outflow) from acquisition............................................................................................ 377
(b) Unitpool AG
In September 2007, the interest in Unitpool AG (disposal Group of assets, see note 16) was increased by 2% from 84.9% to 86.9%. The price of this transaction amounted to TCHF 91. The acquisition was recognised at cost value and no separate purchase accounting was conducted for this acquisition as it formed part of the disposal of the Unitpool AG as described below (Disposals 2007, a).
(b) TCHF
Net cash inflow/(outflow) from purchase................................................................................................................ (91)
In September 2007, a shareholder of Unitpool exercised his put option and the Group acquired a 13.1% interest of Unitpool AG. This transaction was considered as isolated from the disposal Group held for sale (note 16) and accounted for as a financial instrument (available for sale). The acquisition price of TCHF 1,550 was paid on 30 September 2007 and the investment was impaired to its equity value of TCHF 165.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
23. Business Combinations (Continued)
Disposals:
(a) Unitpool AG
On 24 October 2007, the Group sold its 86.9% interest in the Unitpool AG for a price of TCHF 1. The sales price of TCHF 1 was received on 24 October 2007 and consolidation of this company was ceased from this date onwards.
(b) Swissport Japan
On 29 March 2007, the Group sold 49% of the share capital of Swissport Japan Ltd., an entity that was acquired during 2006. The sales price of TCHF 506 was received on 3 April 2007 and the entity has been accounted for from this date onwards as a jointly controlled entity.
Details of the net assets sold and the gain/(loss) on sale are:
(a) Sale of
Unitpool AG 86.9%
(b) Sale of
SP Japan Ltd.49% Total
TCHF TCHF TCHF Assets (liabilities) sold: Property, vehicles and equipment ................................................................................. 7,817 58 7,875Trade and other receivables .......................................................................................... 3,605 4,450 8,055Cash and cash equivalents ............................................................................................ 1,731 1,592 3,323Borrowings ................................................................................................................... (3,987) (3,838) (7,825)Long-term employee benefit obligation........................................................................ (57) (716) (773)Trade and other payables .............................................................................................. (6,893) (1,447) (8,340)Net assets/(liabilities) of the entity (100%)................................................................... 2,216 99 2,315Less: Minority interest .................................................................................................. (180) — (180)Less: Investment retained in a jointly controlled entity (note 11)................................. — (50) (50)Shareholders’ equity sold ........................................................................................... 2,036 49 2,085
Gain/(loss) on sale: Cash received from buyer ............................................................................................. 1 506 507Gain/(loss) on sale ....................................................................................................... (2,035) 457 (1,578)Cash flow from disposal: Cash received from buyer ............................................................................................. 1 506 507Cash and cash equivalents eliminated from consolidation scope ................................. (1,731) (1,590) (3,321)Net cash inflow/(outflow) from disposal at Group level .......................................... (1,730) (1,084) (2,814)
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
24. Contingent assets and liabilities
Bank guarantees
At 31 December 2009 the Group had contingent liabilities in respect of bank guarantees, arising in the ordinary course of business and provided to third parties by the Group’s banks, amounting to TCHF 74,147 (2008: TCHF 78,878 / 2007: TCHF 80,046), in respect of liabilities recorded in these financial statements. The guarantees represent contingent liabilities that will crystallise to the extent that the guarantees are drawn and the bank enforces its right to recover the amount drawn from the Group.
Financial guarantee contracts
The Group has made a financial guarantee to maintain adequate funding in accordance with the legal requirements of a pension plan in one of its subsidiaries, up to a maximum of TGBP 12,500 (2008: TGBP 12,500 / 2007: TGBP 12,500). Since this pension plan is currently sufficiently funded to meet its obligations, it is unlikely that the Group would be required to make any additional contributions.
Legal matters
The Group and some of its subsidiaries are party to a number of proceedings and civil lawsuits in which the Group and some of its subsidiaries are defendants. There are various cases outstanding and provisions have been made where the Group expects a material outflow to result from such proceedings (see note 20). It is possible that these provisions will prove to be inadequate, but the Group is aware of only one case where the unprovided amount could be material:
Consistent with prior years, two parties had filed a claim holding the Group and its subsidiaries liable for their claims against all former companies of the SAirGroup. The maximum amount claimed was MEUR 597. As up to now, all attempts by the claimants have been unsuccessful and as there are currently no open cases, Management concludes that the potential risk to Swissport is now below 50%.
There are no other matters from which it is anticipated that a material liability could arise.
25. Commitments
Capital commitments
2009 2008 2007 TCHF TCHF TCHF
Capital expenditures contracted for at the balance sheet date: Property, vehicles and equipment ...................................................................................................... 5,968 1,481 5,471Intangible assets................................................................................................................................. 219 — —Total .................................................................................................................................................. 6,187 1,481 5,471
Operating lease commitments
The Group has entered into commercial leases on certain buildings, vehicles and other operating equipment. The lease terms are mainly between 1 and 15 years. Escalation clauses and renewal options
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
25. Commitments (Continued)
are included in some of the leases. The lease expenditure charged to income statement during the year is disclosed in note 9.
2009 2008 2007 TCHF TCHF TCHF
The minimum operating lease commitments are due: —within 1 year ...................................................................................................................... 63,863 70,122 44,639—between 2 to 5 years .......................................................................................................... 189,107 184,728 134,338—after 5 years ....................................................................................................................... 68,666 54,388 88,131Total ...................................................................................................................................... 321,636 309,238 267,108
26. Related party transactions
The Group is controlled by Ferrovial Servicios S.A. which owns 100% of the Company’s shares. The ultimate parent of the Group is Ferrovial S.A.
The Group has not entered into any material transactions with related parties other than as set out below. Furthermore, throughout 2009, 2008 and 2007, no director had a personal interest in any transaction of significance for the business of the Group.
Directors’ remuneration
The Company’s directors are:
Dr. Thomas Staehelin ......................................... Chairman Mr. Per H. Utnegaard.......................................... Delegate Mr. Santiago José Olivares Blázquez ................. Vice Chairman Mr. Fidel López Soria......................................... Member Mrs. Elena Fernandez ......................................... Member (resigned 31.08.2009) Mr. Jose Maria Perez Tremps ............................. Member Mr. Klaus Herms ................................................ Member Mr. Urs Sieber .................................................... Member (since 01.08.2009)
In 2009 the Company’s Directors received fees of TCHF 151 (2008: TCHF 130/2007: TCHF 130) for their services as directors. Those Directors who have executive positions with the Group receive salaries and other benefits, which are disclosed below under Executive Management.
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
26. Related party transactions (Continued)
Executive Management remuneration
The Group’s Executive Management members are:
Mr. Per H. Utnegaard................................................. Chairman Mr. Joseph In Albon .................................................. Chariman (resigned 24.01.2007) Mr. Santiago José Olivares Blàzquez ........................ Chairman (appointed 24.01.2007, resigned 01.09.2007) Mr. Richard van Bruygom......................................... Member Mr. Erich Bodenmann ............................................... Member Mr. Philipp Joeinig .................................................... Member Mr. John A. Batten..................................................... Member Mr. Agustin Gonzalez Hermosilla ............................. Member (resigned 11.09.2007) Mr. Michel Jansen ..................................................... Member (resigned 11.02.2008) Mrs. Sara Maria Enriquez.......................................... Member (resigned 30.04.2008) Mr. Luis Pascual ........................................................ Member (resigned 31.08.2009) Mr. Alvaro Gomez-Reino .......................................... Member (appointed 01.04.2009) Mr. Peter Moser ......................................................... Member (appointed 01.04.2009) Mr. Urs Sieber ........................................................... Member (resigned 31.07.2009) Mrs. Elena Fernandez ................................................ Member & Secretary (resigned 31.08.2009) Mr. José Ramon Delgado........................................... Member & Secretary (from 01.04.-15.10.2009)
2009 2008 2007 TCHF TCHF TCHF
Salaries and other short-term employee benefits ........................................................................... 3,000 2,680 3,702Bonuses.......................................................................................................................................... 1,421 942 768Pension contributions..................................................................................................................... 313 207 267Total .............................................................................................................................................. 4,734 3,829 4,737
Ferrovial Servicios
The Group has entered into the following transactions with Ferrovial Servicios (which owns 100% of the Company’s shares in issue).
(i) Loan issued by Ferrovial Servicios
2009 2008 2007 TCHF TCHF TCHF
At 1 January ........................................................................................................................... 229,391 216,018 206,051Interest charged........................................................................................................................ 4,938 9,916 8,257Interest paid ............................................................................................................................. (4,938) — —Additions ................................................................................................................................. 7 3,825 1,710Repayments ............................................................................................................................. (127) (368) —At 31 December...................................................................................................................... 229,271 229,391 216,018
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
26. Related party transactions (Continued)
(ii) Loan issued to Ferrovial Servicios
2009 2008 2007 TCHF TCHF TCHF
At 1 January ............................................................................................................................ 167,479 — —Reassignment (from SP Investments) ....................................................................................... — 167,158 —Interest earned........................................................................................................................... 3,711 321 —At 31 December....................................................................................................................... 171,190 167,479 —
Other related parties
(i) Loans
SP Investments Associates
Jointly controlled
entities
Share of other partners of
jointly controlled
assets TCHF TCHF TCHF TCHF
At 1 January 2007 as restated....................................................... 149,409 — — 1,132Interest charged................................................................................ — — 60 172Additions ......................................................................................... — — 1,416 729Repayments...................................................................................... (13) — — —Reassignment (to Ferrovial Servicios)............................................. — — — —At 31 December 2007 as restated.................................................. 149,396 — 1,476 2,033
Analyzed between: Current ............................................................................................. — — — —Non-current...................................................................................... 149,396 — 1,476 2,033
SP Investments Associates
Jointly controlled
entities
Share of other partners of
jointly controlled
assets TCHF TCHF TCHF TCHF
At 1 January 2008 as restated...................................................... 149,396 — 1,476 2,033Interest charged............................................................................... 6,982 — 140 249Additions......................................................................................... 13,035 — — —Repayments..................................................................................... (2,255) — (567) (634)Reassignment (to Ferrovial Servicios)............................................ (167,158) — — —At 31 December 2008 as restated................................................. — — 1,049 1,648
Analyzed between: Current ............................................................................................ — — 1,049 —Non-current..................................................................................... — — — 1,648
F-100
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
26. Related party transactions (Continued)
SP Investments Associates
Jointly controlled
entities
Share of other partners of
jointly controlled
assets TCHF TCHF TCHF TCHF
At 1 January 2009 as restated..................................................... — — 1,049 1,648Interest charged.............................................................................. — — 55 30Additions ....................................................................................... — 56 466 1,038Repayments ................................................................................... — — — —Reassignment (to Ferrovial Servicios)........................................... — — — —At 31 December 2009................................................................... — 56 1,570 2,716
Analyzed between: Current ........................................................................................... — — 1,559 2,716Non-current.................................................................................... — 56 11 —
The loan to SP Investments was reassigned to Ferrovial Servicios on 15 December 2008.
Balances arising from sales/purchases of services
2007 Ferrovial SP investments Associates
Jointly controlled
entities
Share of otherpartners of
jointly controlled
assets TCHF TCHF TCHF TCHF TCHF
Income Statement Management and trademark fees .......................................... (9,534) — — — 762Interest .................................................................................. (8,598) 6,235 — — —Personnel expenses ............................................................... (2,329) — — — —Assets Trade receivables .................................................................. — — 492 — 819Other receivables .................................................................. — — — — 1,153Accrued interest .................................................................... — 13,035 86 34 133Total ..................................................................................... — 13,035 578 34 2,105
Liabilities Trade payables ...................................................................... 988 1,731 2,015 — —Other payables ...................................................................... — — 440 — 433Loans .................................................................................... — — — 2,281 —Accruals ................................................................................ 4,724 12,080 — — —Total ..................................................................................... 5,712 13,811 2,455 2,281 433
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SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
26. Related party transactions (Continued)
2008 Ferrovial SP investments Associates
Jointly controlled
entities
Share of otherpartners of
jointly controlled
assets TCHF TCHF TCHF TCHF TCHF
Income Statement Management and trademark fees ..................................... (8,580) — — — 677Interest charged................................................................ (9,916) 6,982 — — —Interest earned.................................................................. 321 — — — —Personnel expenses .......................................................... (1,775) — — — —Assets Trade receivables ............................................................. — — 199 25 1,523Other receivables ............................................................. — — — — 1,484Accrued interest ............................................................... — — — — —Total ................................................................................ — — 199 25 3,007
Liabilities Trade payables ................................................................. 15,013 — 1,675 — —Other payables ................................................................. — — 728 — 56Accruals ........................................................................... — — — — —Total ................................................................................ 15,013 — 2,403 — 56
2009 Ferrovial SP investments Associates
Jointly controlled
entities
Share of other partners of
jointly controlled
assets TCHF TCHF TCHF TCHF TCHF
Income Statement Management and trademark fees ...................................... (8,807) — — — (1,647)Interest charged................................................................. (5,709) — — 6 30Interest earned................................................................... 3,711 — — — —Personnel expenses ........................................................... (1,374) — — — —Assets Trade receivables .............................................................. — — 545 115 530Accrued interest ................................................................ — — — 6 30Total ................................................................................. — — 545 121 560
Liabilities Trade payables .................................................................. 13,918 — — — 365Other payables .................................................................. — — — — 14Accruals ............................................................................ 758 — — — —Total ................................................................................. 14,676 — — — 379
F-102
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
27. Events after the balance sheet date
No subsequent events that require an adjustment of the consolidated financial statements occurred between the balance sheet date of 31 December 2009 and 12 January 2011, the date of approval of the consolidated financial statements by the Board of Directors.
In June 2010, the Group renegotiated its existing credit facility to reduce re-financing risk by extending the maturity date and to create additional borrowing capacity. The total credit facility size was increased by TCHF 50,000 to TCHF 450,000 with total outstanding of TCHF 373,900 drawn as at 31 December 2010. The credit facility is subdivided into a TCHF 350,000 Term Loan Facility and a TCHF 100,000 Revolving Credit Facility, both maturing on 28 June 2014. The Term Loan Facility has TCHF 40,000 semi-annual repayments commencing 28th June 2011 and TCHF 110,000 payable at maturity.
The renegotiation of the credit facility, which can be drawn in different currencies, allowed the Group to realign its natural hedge with respect to the Group’s foreign exchange exposure. The Group’s short term interest rate risk is closely monitored and managed by Group Treasury.
On 2 November 2010, the Group’s sole shareholder Ferrovial Servicios S.A. announced its commitment to sell 100% of the Group’s shares to PAI Partners, a Europe-based private equity group pending approval by the competition authorities and final arrangement of the financing structure by the buyer. The transaction has not been closed by the signing date of these financial statements.
28. Restatement
(a) Change in accounting policy
In the current financial year the Swissport Group has changed the consolidation method for all jointly controlled entities due to a decision made by the parent company, which means that such entities are now consolidated using the equity method, rather than using the proportionate consolidation method used in the past. This change was done in line with the expected implementation of the exposure draft ED 9 Joint Arrangements, including its guidance and views.
This has been accounted for as a change in accounting policy in accordance with IAS 8. Therefore, this change has been applied retrospectively to the balances reported for these jointly controlled entities and the figures have been restated accordingly.
This change in accounting policy affects the following companies:
• Swissport Japan Ltd.
• Swissport HNA Ground Handling Co. Ltd.
• Quality Airport Services Israel Ltd.
• Swissport Executive Aviation SAS
The change of consolidation method had no impact on assets and liabilities as of 1 January 2007. Furthermore, it had no impact on net profit, earnings per share and equity for any of the periods presented.
F-103
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
28. Restatement (Continued)
Impact on change of consolidation method as of 31 December 2007:
As previously
stated As
restated*1 Restatement TCHF TCHF TCHF
Effect on the balance sheet Non-current assets ................................................................................................ 681,335 680,654 (681)Current assets........................................................................................................ 476,662 474,627 (2,035)Total assets .......................................................................................................... 1,157,997 1,155,281 (2,716)
Equity.................................................................................................................... 165,030 165,030 —Non-current liabilities ........................................................................................... 659,428 659,158 (270)Current liabilities .................................................................................................. 333,539 331,093 (2,446)Total Equity and Liabilities ............................................................................... 1,157,997 1,155,281 (2,716)
* 1 Before consideration of the impact of the error (note 28 (b)) on goodwill (TCHF −75,578), deferred tax
liability (TCHF +6,684) and equity (TCHF −82,262).
As of 31 December 2007, the change in accounting policy had no impact on the investment in associates and jointly controlled entities.
As previously
stated As restated*2 Restatement TCHF TCHF TCHF
Effect on the income statement................................................................................. Total revenue and other operating income................................................................ 1,823,967 1,816,495 (7,472)Total operating expenses .......................................................................................... 1,760,755 1,751,950 8,805Finance expense........................................................................................................ (37,603) (38,832) (1,229)Finance income......................................................................................................... 12,061 12,004 (57)Share of profits from associates and jointly controlled entities ................................ 3,611 3,561 (50)Loss on sale of companies ........................................................................................ (1,578) (1,578) —Income tax (expense)/credit...................................................................................... (16,630) (16,627) 3Total effect on the income statement..................................................................... —
* 2 Before consideration of the impact of the error (note 28 (b)) on income tax (expense)/credit (TCHF −2,371).
F-104
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
28. Restatement (Continued)
Impact on change of consolidation method as of 31 December 2008:
As previously
stated As
restated*3 Restatement TCHF TCHF TCHF
Effect on the balance sheet .................................................................................. Non-current assets ............................................................................................... 590,791 593,520 2,729Current assets....................................................................................................... 463,770 453,550 (10,220)Total assets ......................................................................................................... 1,054,561 1,047,070 (7,491)
Equity................................................................................................................... 97,070 97,070 —Non-current liabilities .......................................................................................... 615,993 615,102 (891)Current liabilities ................................................................................................. 341,498 334,898 (6,600)Total Equity and Liabilities .............................................................................. 1,054,561 1,047,070 (7,491)
* 3 Before consideration of the impact of the error (note 28 (b)) on goodwill (TCHF −77,094), deferred tax
liability (TCHF +8,420) and equity (TCHF −85,514).
Due to this change in accounting policy, the investment in associates and jointly controlled entities increased by TCHF 7,466.
As previously
stated As
restated*4 Restatement TCHF TCHF TCHF
Effect on the income statement................................................................................ Total revenue and other operating income............................................................... 1,827,642 1,788,510 (39,132)Total operating expenses ......................................................................................... 1,741,738 1,705,655 36,083Finance expense....................................................................................................... (41,579) (40,931) 648Finance income........................................................................................................ 13,343 13,036 (307)Share of profits from associates and jointly controlled entities ............................... 1,323 2,893 1,570Income tax (expense)/credit..................................................................................... 8,644 9,782 1,138Total effect on the income statement.................................................................... —
* 4 Before consideration of the impact of the error (note 28 (b)) on IFRS 3.65 adjustment on goodwill (TCHF
−2,260) and income tax (expense)/credit (TCHF −2,135).
(b) Adjustment of error
During late 2009, the Group became aware that IFRS 3 paragraph 65 (IFRS 3.65) had been applied incorrectly in the past, which resulted in material misstatements in the consolidated financial statements for years ended prior to 1 January 2007 as well as the years ended 31 December 2007 and 31 December 2008. According to IFRS 3.65, when an acquiree’s future tax benefits (tax loss carry-forwards or other future deductible amounts) do not satisfy the criteria for separate recognition at the
F-105
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
28. Restatement (Continued)
time the business combination is initially accounted for, but subsequently are estimated to be realizable, the acquirer should recognize the resulting deferred tax income in profit or loss and should record an expense to reduce the carrying amount of goodwill to the amount that would have been recognized if the deferred tax asset had been recorded at the acquisition date. The omission of the required goodwill reduction has resulted in a retrospective reduction to goodwill of CHF 75.8 million as of 1 January 2007. In relation to this, the Group has also recorded a deferred tax liability of CHF 4.8 million as of 1 January 2007 resulting in a total restatement to equity as of 1 January 2007 of CHF 80.6 million.
The Group also restated the financial statements for the year ended 31 December 2007 to record an additional increase to goodwill in the amount of CHF 0.2 million and deferred tax liability of CHF 1.9 million, and the financial statements for the year ended 31 December 2008 to record an additional reduction to goodwill in the amount of CHF 1.4 million and an increase in deferred tax liability of CHF 1.7 million. The above adjustments resulted in a cumulative restatement of equity at 31 December 2008 as previously reported in the amount of CHF 85.5 million.
For the financial year 2009, the impact of IFRS 3.65 amounted to CHF 9.2 million (2008: CHF 2.26 million/2007: CHF 0.699 million). With the adoption of IFRS 3 (revised) and the associated revisions of IAS 12 as of 1 January 2010, such adjustments to goodwill will not be required going forward because there are no unrecognised future tax benefits remaining from acquisitions made by the Group prior to 1 January 2010.
Impact on adjustment of error as of 1 January 2007:
As previously
stated*1 As
restated Restatement TCHF TCHF TCHF
Effect on Balance Sheet: Goodwill ..................................................................................................................... 203,578 127,849 (75,729)Deferred tax liability................................................................................................... (16,285) (21,113) (4,828) (80,557)Currency translation reserve ....................................................................................... (21,267) (23,775) (2,508)Accumulated losses .................................................................................................... (38,982) (117,031) (78,049)Net decrease of equity............................................................................................... (80,557)
* 1 Considering the impact from the retrospective application of IFRIC 14 in 2008 (note 13) on deferred tax
liability (TCHF 14,070) and on accumulated losses (TCHF 49,884).
F-106
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
28. Restatement (Continued)
Impact on adjustment of error as of 31 December 2007:
As previously
stated As
restated Restatement TCHF TCHF TCHF
Effect on Balance Sheet: Goodwill ...................................................................................................................... 197,135 121,557 (75,578)Deferred tax liability.................................................................................................... (25,310) (31,994) (6,684) (82,262)Currency translation reserve ........................................................................................ (22,596) (23,739) (1,143)Accumulated losses ..................................................................................................... (13,846) (91,895) (78,049)Net profit of the year.................................................................................................... 15,042 11,972 (3,070)Net decrease of equity................................................................................................ (82,262)
As previously stated *2
As restated Restatement
TCHF TCHF TCHF Effect on the Income statement IFRS 3.65 adjustment to goodwill ............................................................................... — (699) (699)Income tax (expense) ................................................................................................... (16,627) (18,998) (2,371)Total effect on the income statement........................................................................ (3,070)
* 2 After consideration of the change in accounting policy impact (note 28 (a)) on income tax (expense)/credit
(TCHF −3)
F-107
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
28. Restatement (Continued)
Impact on adjustment of error as of 31 December 2008:
As previously
stated*3 As
restated Restatement TCHF TCHF TCHF
Effect on Balance Sheet: Goodwill ...................................................................................................................... 181,112 104,018 (77,094)Deferred tax liability.................................................................................................... (1,619) (10,039) (8,420) (85,514)Accumulated losses ..................................................................................................... (92,714) (173,833) (81,119)Net profit of the year.................................................................................................... 56,127 51,732 (4,395)Net decrease of equity................................................................................................ (85,514)
* 3 After consideration of the change in accounting policy impact (note 28 (a)) on deferred tax liability
(TCHF −195)
As previously
stated*4 As
restated Restatement TCHF TCHF TCHF
Effect on the Income statement IFRS 3.65 adjustment to goodwill ............................................................................... — (2,260) (2,260)Income tax credit/(expense)......................................................................................... 9,782 7,647 (2,135)Total effect on the income statement........................................................................ (4,395)
* 4 After consideration of the change in accounting policy impact (note 28 (a)) on income tax (expense)/credit
(TCHF 1,138).
29. Swissport group companies
The Group interest is 100% of the ordinary share capital, unless otherwise stated.
The entities included in these financial statements are:
Interest where not 100% Fully consolidated entities 2009 2008 2007 Country of operation Switzerland Swissport International AG..................................................................... Switzerland Swissport Baggage Sorting AG .............................................................. Switzerland Swissport Group Services GmbH ........................................................... (g) — Switzerland Checkport Schweiz AG .......................................................................... 85% 85% 85% Switzerland Privat Port S.A. ....................................................................................... 51% 51% 51% Switzerland Careport AG ........................................................................................... (b)/(g) 66.8% 49% — Switzerland GVAssistance AG................................................................................... (a) 70% — — Switzerland
F-108
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
29. Swissport group companies (Continued)
Interest where not 100% Fully consolidated entities 2009 2008 2007 Country of operation Other European Countries Swissport Austria GmbH ........................................................................ Austria Swissport Cargo Services Austria GmbH ............................................... (j) Austria Swissport Cargo Services Belgium N.V. ................................................ Belgium Swissport Cargo Services Luxembourg S.A. .......................................... 75% 75% 75% Luxembourg Swissport Cargo Services France Sarl .................................................... France Swissport France SAS ............................................................................ France Swissport Services CDG......................................................................... France Swissport Nice SAS................................................................................ (j) France Swissport Cargo Services Deutschland GmbH....................................... Germany Swissport Deutschland GmbH................................................................ Germany Swissport Hellas S.A. ............................................................................. 51% 51% 51% Greece Swissport Hellas Cargo S.A.................................................................... (o) 40.8% 40.8% 40.8% Greece Swissport G.A.P. Vassilopoulos (Cyprus) Ltd........................................ 51% 51% 51% Cyprus Swissport Cyprus Ltd.............................................................................. (g)/(o) 38.2% 38.2% — Cyprus Swissport Cargo Services Magyarorszag KFT. ...................................... Hungary Swissport Ukraine LLC .......................................................................... 70.6% 70.6% 51% Ukraine Swissport Italy S.R.L. ............................................................................. Italy Swissport Cargo Services Italy S.R.L. .................................................... Italy Swissport Cargo Service Holding B.V.................................................... Netherlands Swissport Nederland B.V. ...................................................................... Netherlands Swissport Cargo Services The Netherlands B.V..................................... Netherlands Swissport Poland Ltd. ............................................................................. Poland Swissport Cargo Services St. Petersburg ................................................ 51% 51% 51% Russia Swissport Handling S.A.......................................................................... (h) Spain Swissport Cargo Services (UK) Ltd........................................................ United Kingdom Swissport Ltd. (formerly Groundstar Ltd.) ............................................. United Kingdom Swissport Stansted Ltd............................................................................ United Kingdom Swissport Fuelling Ltd............................................................................ United Kingdom Swissport Bulgaria AD ........................................................................... (j) 66% Bulgaria Swissport Greek Participation B.V. ........................................................ (k) — — Netherlands
F-109
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
29. Swissport group companies (Continued)
Interest where not 100% Fully consolidated entities 2009 2008 2007 Country of operation North America Swissport Canada Handling Inc.............................................................. Canada Swissport Corporation (USA) Inc........................................................... (l) — — USA Swissport North America Inc.................................................................. USA Swissport Cargo Holdings Inc. ............................................................... USA Swissport Cargo Services L.P................................................................. USA Swissport Holdings Inc. .......................................................................... USA Dapsco Inc. ............................................................................................. USA Swissport USA Inc. ................................................................................ USA Swissport CFE Inc. ................................................................................. USA Swissport Cargo Services Inc. ................................................................ USA Swissport Fueling Inc. ............................................................................ USA Swissport Fueling of Nevada Inc. ........................................................... USA Hallmark Aviation Services Inc.............................................................. 51% 51% 51% USA New Age Aviation Security US Inc. ....................................................... (g) 51% 51% — USA Other Countries Swissport Argentina S.A......................................................................... Argentina Swissport Brazil Ltda.............................................................................. Brazil Cargo Service Center Brazil S.A.T.A Ltda. ............................................ 51% 51% 51% Brazil Aerocargo B.V........................................................................................ Curacao Cargo Services Center International N.V................................................ Curacao Swissport Curacao N.V........................................................................... Curacao Cargo Service Center de Mexico S.A. de C.V. ....................................... Mexico Swissport Aviation Services de Mexico S.A. de C.V. ............................ Mexico Swissport Dominicana S.A. .................................................................... (c) 34% 34% 34% Dominican Republic Carribbean Jets ....................................................................................... (o) 34% 34% 34% Dominican Republic Swissport Cargo Services Venezuela S.A............................................... 88% 88% 88% Venezuela Tramitaven C.A. ..................................................................................... 60% 60% 60% Venezuela Camport PLC.......................................................................................... (o) 47% 47% 47% Cameroon Cargo Service Center East Africa B.V.................................................... Kenya (NL) Airside Ltd.............................................................................................. Kenya Checkport Security Nigeria Ltd .............................................................. (o) 43% 43% 43% Nigeria Swissport South Africa (PTY) Ltd.......................................................... 51% 51% 51% South Africa Checkport South Africa (PTY) Ltd......................................................... (o) 43% 43% 43% South Africa Swissport Tanzania Ltd. ......................................................................... 51% 51% 51% Tanzania Swissport Cargo Services Israel Ltd. ...................................................... 51% 51% 51% Israel Swissport Korea Ltd. .............................................................................. 51% 51% 51% Korea Peruvian Investments 2008 PTE. Ltd...................................................... (g) — Singapore SPA Swissport Algerie Ltd..................................................................... 51% 51% 51% Algeria
F-110
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
29. Swissport group companies (Continued)
Interest where not 100% Equity accounted entities 2009 2008 2007 Country of operation Swissport Executive Aviation SAS........................................................ (i) 50% 50% 50% France Quality Airport Services Israel Ltd. ....................................................... (i) 50% 50% 50% Israel Swissport GBH Peru S.A....................................................................... 41% 41% 41% Peru Swissport Japan Ltd. .............................................................................. (i) 51% 51% 51% Japan S&L Airport Services Ltd...................................................................... (a) 19.1% — — Cyprus Swissport GBH Honduras S.A............................................................... 41.5% 41.5% 41.5% Honduras WSW Hellas Services S.A..................................................................... 21.7% 21.7% 21.7% Greece Miascor Ground Handling Corp. ........................................................... (m) — — 40% Philippines Visayas Airport Services Corp............................................................... (m) — — 40% Philippines Mindanao Airport Services Corp. .......................................................... (m) — — 40% Philippines Swissport Philippines Inc....................................................................... (m) — — 40% Philippines
Interest where not 100% Inactive entities 2009 2008 2007 Country of operation Cargo Service Center Trucking B.V. ...................................................... (f) — Netherlands Checkport Nederland B.V....................................................................... (d) Netherlands Swissport Mexico Participation I B.V. ................................................... Netherlands Swissport Mexico Participation II B.V. .................................................. Netherlands Helvport B.V. ......................................................................................... (f) — Netherlands Capital Aviation Handling Ltd................................................................ (f) — United Kingdom Crossco (437) Ltd. .................................................................................. (f) — United Kingdom North East Aviation Services Ltd. .......................................................... (f) — United Kingdom North West Aviation Services Ltd. ......................................................... (f) — United Kingdom Swissport Latinamerica S.A.................................................................... Panama Swissport Handling Africa (PTY) Ltd. ................................................... South Africa Swissport HNA Ground Handling Co. Ltd. ............................................ (g)/(i) 49% 49% — China Swissport Korea Co. Ltd......................................................................... Korea Swissport Singapore Pte Ltd. .................................................................. Singapore Swissport Uruguay S.A........................................................................... Uruguay Swissport Middle East Holding Inc. ....................................................... Cayman Islands Checkport Ghana .................................................................................... Ghana Swissport Frankfurt GmbH..................................................................... (e) — Germany Swissport Ground Handling GmbH........................................................ (n) Germany Swissport Services GmbH ...................................................................... (n) Germany Swissport Travel Center GmbH.............................................................. (n) Germany
Additional information on the Group’s interests:
(a) Company founded in 2009
(b) Company renamed from Fuelport Schweiz AG to Careport AG, and increase in shareholding from 49% to 66.8% (change of control)
(c) The voting rights for Swissport Dominicana are 50.5%
(d) Company renamed from Cargo Service Center Participation B.V. to Checkport Nederland B.V.
F-111
SWISSPORT INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2009, 2008 AND 2007 (Continued)
29. Swissport group companies (Continued)
(e) Company sold in 2009
(f) Company liquidated in 2009
(g) Companies founded/acquired in 2008
(h) Including the Group’s 21% share in the Swissport Menzies UTEs
(i) Jointly controlled entities
(j) Companies founded in 2007
(k) Companies liquidated in 2008
(l) Merged into Swissport USA Inc.
(m) Companies disposed in 2008
(n) Companies inactive since 2009
(o) The percentages shown represent Swissport’s proportionate shareholding in these entities. This is based on the Group’s investment percentage in another partially owned, but fully controlled and consolidated entity, multiplied by that entity’s shareholding in this subsidiary. While the group has a proportionate shareholding of less than 50%, the Group has been deemed to have control and therefore accounts for this entity as a fully consolidated subsidiary.
REGISTERED OFFICE OF THE ISSUER
Aguila 3 S.A. 12, Rue Guillaume Schneider
L-2522 Luxembourg
LEGAL ADVISORS TO THE ISSUER
As to U.S. law
As to Luxembourg Law
As to Swiss law
Latham & Watkins (London) LLP 99 Bishopsgate
London EC2M 3XF United Kingdom
Elvinger, Hoss & Prussen 2, Place Winston Chrurchill
L-2014 Luxembourg
Homburger AG Weinbergstrasse 56-58
CH-8006 Zurich Switzerland
LEGAL ADVISORS TO THE INITIAL PURCHASERS
As to U.S. law
As to Luxembourg Law
As to Swiss law
Shearman & Sterling LLP 9 Appold St
London EC2A 2AP United Kingdom
Linklaters LLP 35, Avenue John F. Kennedy
L-1855 Luxembourg
Pestalozzi Attorneys at Law Ltd Loewenstrasse 1
8001 Zurich Switzerland
LEGAL ADVISOR TO THE TRUSTEE White & Case LLP 5 Old Broad Street
London EC2N 1DW United Kingdom
INDEPENDENT AUDITORS TO:
Aguila 3 S.A. Swissport International Ltd.
Deloitte S.A. 560, route de Neudorf L-2220 Luxembourg
For 2010 Deloitte AG
General Guisan-Quai 38 P.O. Box 2232
CH-8022 Zurich Switzerland
Until 2009 PricewaterhouseCoopers AG
Birchstrasse 160 8050 Zurich Switzerland
TRUSTEE UNDER THE
INDENTURE
PRINCIPAL PAYING AGENT AND TRANSFER AGENT
REGISTRAR
Citibank, N.A., London Branch Citigroup Centre
25 Canada Square Canary Wharf
London E14 5LB United Kingdom
Citibank, N.A., London Branch Citigroup Centre
25 Canada Square Canary Wharf
London E14 5LB United Kingdom
Citigroup Global Markets Deutschland AG
5th Floor Reuterweg 16 90323 Frankfurt
Germany
LISTING AGENT SECURITY AGENT
Dexia Banque Internationale à Luxembourg 69 route d’Esch
L-2953 Luxembourg
Barclays Bank PLC 5 The North Colonnade
Canary Wharf London E14 4BB United Kingdom
Merrill Corporation Ltd, London 11ZAD15101
CHF 350,000,000 77/8% Senior Secured Notes due 2018
$425,000,000 77/8% Senior Secured Notes due 2018
OFFERING MEMORANDUM
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