Understanding Financial Covenants in Green Bonds Issued by AUGA
Financial Covenants for Bonds Issued by AUGA group
On November 25, 2019, the Bank of Lithuania approved a base prospectus for bonds issued by AUGA group, AB. This prospectus outlines several critical provisions regarding the financial obligations of the company, particularly focusing on the bonds with a nominal value of EUR 20,000,000.
The Importance of Financial Covenants
Among the various stipulations in the prospectus, specific financial covenants are highlighted. These covenants include maintaining an interest coverage ratio of at least 2 and ensuring a consolidated-equity-to-asset ratio of no less than 30%. These requirements are categorized as the Financial Covenants, and they emphasize the financial health and stability that the company must uphold.
Annual Financial Assessment
Each year, the Financial Covenants are assessed based on the company’s audited annual financial statements. This process is crucial because if AUGA group fails to meet these covenants, it initiates a remediation period of six months. This period allows the company an opportunity to address and rectify any violations of the financial metrics stipulated in the prospectus.
Recent Financial Disclosures
In the company’s audited financial statements for the year 2023, published on April 30, 2024, it was disclosed that AUGA group failed to comply with the Financial Covenants. In coordination with UAB AUDIFINA, the bondholders’ trustee, the company acknowledged this non-compliance and set a six-month rectification period, concluding on October 30, 2024. This timeframe is crucial as it serves as an opportunity for the company to align its financial standing with the outlined covenants.
Clarification of the Rectification Process
Despite the prospectus outlining this rectification process, there is ambiguity regarding the implementation. The prospectus specifies that both the interest coverage ratio and the consolidated-equity-to-asset ratio are to be calculated annually. However, the operationalization of the six-month remediation period is less straightforward. This period of rectification does not align with the annual schedule for preparing audited financial statements.
Company’s Management Perspective
The management of AUGA group, AB, asserts that, as of the date of this notice, the company did not sufficiently rectify its financial non-compliance by the deadline of October 30, 2024. Subsequently, the company reached out to the trustee, providing updates regarding its standing with the Financial Covenants and discussing possible pathways for resolution.
Contact Information
For further inquiries, you can reach the Chief Financial Officer of AUGA group, AB:
Kristupas Baranauskas
Phone: +370 5 233 5340
Frequently Asked Questions
What are Financial Covenants?
Financial covenants are stipulations set in bond agreements that the issuer must adhere to in order to maintain financial health.
What happens if the Financial Covenants are not met?
If the covenants are not met, there is a designated remediation period during which the company can rectify its financial position.
How are Financial Covenants assessed?
They are assessed annually based on the company's audited financial statements to ensure compliance with the stipulated financial metrics.
What is the role of the Trustee?
The trustee, in this case UAB AUDIFINA, acts as a representative for the bondholders, ensuring that the company adheres to the financial covenants.
How can I contact AUGA group for inquiries?
You can contact Kristupas Baranauskas, CFO of AUGA group, at +370 5 233 5340 for any questions.
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