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Indebtedness and Financial Investiments

Indebtedness and Financial Investments

Gross debt as at March 31 was R$ 27,596 million, a R$ 3,511 million increase in relation to the end of 4Q19, mainly due to the FX translation effect on foreign currency loans. Early repayment of less attractive loans in terms of maturity and/or at costs higher than new funding arranged during the period partially offset the increase. Among the operations in the quarter, it is worth highlighting the retapping of the Green Bond due in 2049, with additional tranche of US$ 200 million and a 6.10% yield per annum. Conversely, the Company repaid pre-export lines (PPE) amounting to US$ 666 million. Of the Company’s total debt, R$ 21,703 million, or 79% (US$ 4,174 million) is US dollar denominated, considering company financing with Real x US Dollar swaps

During the period, there was an increase in average loan maturities from 96 months at the end of 4Q19 to an average 113 months at the end of 1Q20, 59 months for domestic loans and 126 for currency loans. A mix of liability management and macroeconomic conditions were instrumental in reducing average loan costs from 6.1% p.y. in 4Q19 to 5.3% p.y. in the current quarter for local currency debt, and for currency denominated loans, practically the same level was retained, raising from 5.0% p.y. plus exchange rate fluctuation to 5.1% p.y. plus exchange rate fluctuation on the same comparative basis.

The company’s cash and equivalents position at the end of the quarter amounted to R$ 7.215 million, R$ 2,516 million less than at the end of the 4Q19, mainly reflecting the early repayment of the PPE loans amounting to US$ 666 million. This cash position would be enough for debt repayments over a 51 month period. Additionally, Klabin has a Revolving Credit Facility of US$ 500 million (equivalent to R$2,599 million), with maturity in December 2023 and a financial cost of 0.4% p.y.. Should drawings be made against this facility, the cost of financing would be Libor + 1.35% p.y.

Klabin also contracted, but has not yet drawn, financing linked to the execution of the Puma II Project as follows: (i) IBD Invest, IFC and JICA, totaling US$ 800 million; (ii) Finnvera, totaling US$ 245 million; (iii) BNDES totaling R$ 3 billion, of which the Company has drawn R$ 500 million. Financing is to be drawn down according to the construction schedule of the Puma II Project and/or company cash requirements.

Consolidated net debt as at March 31, 2020 amounted to R$ 20,381 million, R$ 6,027 million more compared with December 31, 2019, largely reflecting the effect of the negative variation in FX rates on currency loans. This non-cash impact saw the Company’s financial leverage, measured by the Net Debt/adjusted EBITDA, increase from 3.3x to 4.7x. The Net Debt/EBITDA ratio in US dollars – which better reflects Klabin’s financial leverage – increased 0.5x ending the quarter to 3.7 times. This variation reflects the time lag between the effect of EBITDA over the next few months and the immediate effect of marking-to-market of the Company’s dollar debt, as well as the Puma II Project disbursements.

Rating

AGENCY RATING OUTLOOK LATEST UPDATE
Standard & Poor’s BB+ Stable Dec-19
Fitch Ratings BB+ Stable May-20
Last updated on May 5, 2020.
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