Spanish 
English 15.- DEBT IN RESPECT OF BOND ISSUES AND BANK BORROWINGS
The balances of the “Bonds and other negotiable securities” and “Debts with credit institutions” items at 31 December 2017 and 2016 were as follows:
| Thousands of Euros | ||||
| 2017 | 2016 | |||
| Long-term | Short-term | Long-term | Short-term | |
| Convertibe bonds | - | 244.606 | 238.724 | - |
| Guaranteed senior bonds maturing in 2019 | - | - | 250.000 | - |
| Guaranteed senior bonds maturing in 2023 | 400.000 | - | 285.000 | - |
| Borrowing costs | - | 5.125 | - | 6.248 |
| Arrangement expenses | (12.285) | (3.536) | (10.087) | (4.015) |
| Debt instruments and other marketable securities | 387.715 | 246.195 | 763.637 | 2.233 |
| Mortgages | 32.945 | 7.496 | 33.078 | 4.325 |
| Unsecured loans | 867 | 2.238 | 2.158 | 9.072 |
| Subordinated loans | 40.000 | - | 40.000 | - |
| Credit lines | - | 2.008 | - | 9.944 |
| Arrangement expenses | (2.566) | (917) | (2.516) | (1.015) |
| Borrowing costs | - | 899 | - | 900 |
| Debts with credit institutions | 71.246 | 11.724 | 72.720 | 23.226 |
| Total | 485.961 | 257.919 | 836.357 | 25.459 |
The current fair value of the convertible bonds, bearing in mind that the reference interest rate would be the one applied to the bonds issued during 2017, would mean such bonds amounting to 242 million euros (224 million euros in 2016). With regard to financial liabilities tied to a variable interest rate, because of their variable configuration, their fair value does not differ from their book value.
The effect of debt movement on the Group’s cash flows as reflected in the cash flow statement is affected by non-cash movements generated by exchange rate differences as the group has debts in currencies other than the euro.
Convertibe bonds
On 31 October 2013, the Parent Company placed convertible bonds among institutional investors, for a total of 250,000 thousand euros, with the following characteristics:
| Amount of the issue | 250.000.000€ |
| Nominal value of the bond | 100.000€ |
| Maturity | 5 años |
| Rang of debt | "Senior" no garantizada |
| Issue price | 100% |
| Coupon | 4% |
| Exchange price | 4,919 euros |
| Conversion premium | 30% |
| Redemption price | 100% |
| Maximum number of shares to issue | 50.823.338 |
In certain circumstances, at the request of the bondholder or Parent Company, this instrument may be redeemed or converted early.
This transaction is considered an instrument comprising liabilities and equity, with the equity at the time of issuance worth 27,230 thousand euros.
As is commonplace for this type of issue, and in order to enhance the liquidity of the instrument on the secondary market, NH Hotel Group, S.A. signed a security loan agreement with the placing entities for up to 9,000,000 million treasury shares. This loan bears interest at 0.5% and was drawn to the extent of 1,384,473 shares at 31 December 2017 (see Note 14.3).
As the maturity of the convertible bonds will occur on 31 October 2018, the Group has reclassified all debt associated with the “Bonds and other convertible securities” item of current liabilities at 31 December 2017. This has meant that the variation between current assets and current liabilities for 2017 is negative at 205,449 thousand euros. In this regard and based on the assumption that this instrument is not redeemed the directors of the Parent Company consider there being no doubt as to the Group being able to meet the payment of the debt at maturity both due to the expectation of generating positive cash flows during the year and the fact that, as indicated in the section “guaranteed syndicated credit line” of this Note, the Group has a credit line of 250 million euros and a final maturity on 29 September 2021 which, at 31 December 2017, is available in full.
Secured senior bonds maturing in 2019
On 30 October 2013 the Parent Company placed guaranteed senior bonds, which mature in 2019, at the nominal value of 250,000 thousand euros. The nominal yearly interest rate for said issuance of notes is 6.875%. At 31 December 2017, these bonds are fully cancelled through early amortisation or refinancing (see section “Refinancing 2017”).
Secured senior bonds maturing in 2023
On 23 September 2016 the Parent Company placed guaranteed senior bonds, which mature in 2023, at the nominal value of 285,000 thousand euros. The nominal yearly interest rate for said issuance of notes is 3.75%. On 4 April 2017, the parent company issued an extension of guaranteed senior bonds maturing in 2023 for a nominal amount of 115,000 thousand euros with an implicit cost until maturity of 3.17%. The outstanding nominal amount at 31 December 2017 is 400,000 thousand euros (see section “Refinancing 2017”).
Refinancing 2017
As indicated in the section “Guaranteed senior notes maturing in 2019”, at the beginning of the year the Group owed 250,000 thousand of bonds to their holders which have been fully refinanced or amortised in full throughout 2017
In this regard, in April 2017, the parent company issued an extension of guaranteed senior notes maturing in 2023 for a nominal amount of 115,000 thousand euros with an implicit cost until maturity of 3.17%. This extension led to the conversion of 121,505 thousand euros in guaranteed senior notes maturing in 2019 with an annual nominal interest of 6.875%, after having the aforementioned 121,505 thousand euros acquired by the Deutsche Bank branch in London On this date, the parent company reached the following milestones corresponding to the accrued and unpaid coupon and premium for the repurchase offer:
- Conversion of the nominal amount of 121,505 thousand euros of guaranteed senior note maturing in 2019 into a new one of 115,000 thousand euros with the same conditions as the guaranteed senior notes maturing in 2023.
- Payment of unpaid accrued interest and other interest: 3,225 thousand euros
- Payment of the amount of the repurchase premium: 9,599 thousand euros
In relation to the conversion of the notes, the Directors of the Company consider that all the qualitative and quantitative criteria have been met (mainly, that the current value of the cash flows discounted under the new terms, including any commission paid net of any commission received, and discounting using the original effective interest rate, differs by less than 10% from the discounted present value of the cash flows which still remained of the syndicated notes maturing in 2019), for their accounting recognition, in accordance to their interpretation of the standard, that the new notes maturing in 2023 and amount of 115 million euros, do not differ significantly from those cancelled for the amount of 121.5 million euros maturing in 2019. Therefore, the new notes maturing in 2023 are reduced by the arrangement expenses pending of the redeemed obligations maturing in 2023, as well as the new arrangement expenses incurred which could be registered as such.
In May 2017, the parent company voluntarily amortised, by paying the applicable premium, 28,495 thousand euros of the guaranteed senior notes maturing in 2019 with an annual nominal interest rate of 6.875%. The payments made for the repurchase were broken down as follows:
- Nominal paid in advance: 28,495 thousand euros
- Unpaid accrued interest and other interest: 920 thousand euros
- Amount of the repurchase premium: 2,068 thousand euros
Finally, in November 2017, the Parent Company voluntarily amortised, by paying the applicable premium to the remaining 100,000 thousand euros of the guaranteed senior notes maturing in 2019 with an annual nominal interest rate of 6.875%. The payments made for the repurchase are broken down as follows:
- Nominal paid in advance: 100,000 thousand euros
- Unpaid accrued interest and other interest: 286 thousand euros
- Amount of the repurchase premium: 3,438 thousand euros
As a result of the aforementioned three amortisations, the guaranteed senior notes maturing in 2019 have been fully refinanced or cancelled early in full.
Secured credit line
On 22 September 2016, the Parent Company and NH Finance, S.A. entered into a revolving business credit with credit institutions amounting to 250,000 thousand euros (“syndicated credit line”) with a maturity of three years, extendable to five years at the time of the refinancing of the guaranteed senior notes maturing in 2019. As a consequence of the refinancing and early payments of the guaranteed senior notes maturing in 2019 which took place in 2017, the maturity date of said financing has been extended to 29 September 2021. At 31 December 2017, this financing was not available in full.
Obligations required in the senior note indentures maturing in 2023 and in the syndicated credit line
The senior notes maturing in 2023 and the syndicated credit line require the fulfilment of a series of obligations and limitations of essentially homogeneous content as regards the assumption of additional borrowing or provision of guarantees in favour of third parties, the granting of real guarantees on assets, the sale of assets, investments that are permitted, restricted payments (including the distribution of dividends to shareholders), transactions between related parties, corporate transactions and disclosure obligations. These obligations are detailed in the issue prospectus for the aforementioned notes, as well as in the credit agreement of the syndicated credit line. In addition, the syndicated credit line requires compliance with financial ratios; in particular (i) an interest coverage ratio of ≥ 2.00x, (ii) a debt coverage ratio of ≤ 5.50x and (iii) a Loan to Value (“LTV”) ratio of ≤ 55% up to the maturity or refinancing date of the guaranteed senior notes maturing in 2019, a fact which occurred during 2017. On the date of expiry or refinancing of these debentures, the loan-to-value ratio must be ≤ 70%, and after that date, the applicable loan-to-value ratio will depend on the indebtedness of NH at the time, as indicated below:
- Debt-to-income ratio ˃ 4,00x: LTV Ratio = 70%
- Debt-to-income ratio ≤ 4,00x: LTV Ratio = 85%
- Debt-to-income ratio ≤ 3,50x: LTV Ratio = 100%
As a result of the early voluntary amortisation of all guaranteed senior notes maturing in 2019, the LTV at 31 December 2017 is generally ≤70%. Subsequently, it will be reviewed according to the ratio of net indebtedness.
At 31 December 2017 these ratios were completely adhered to.
Package of guaranteed senior notes maturing in 2023 and syndicated credit line
The guaranteed senior notes maturing in 2023 and syndicated credit line (undrawn at 31 December 2017) share the following guarantees: (i) pledge of shares: 100% of the share capital of (A) Diegem, (B) Immo Hotel BCC NV, (C) Immo Hotel Belfort NV, (D) Immo Hotel Brugge NV, (E) Immo Hotel Diegem NV, (F) Immo Hotel Gent NV, (G) Immo Hotel GP NV, (H) Immo Hotel Mechelen NV, (I) Immo Hotel Stephanie NV, (J) Onroerend Goed Beheer Maatschappij Van Alphenstraat Zandvoort, B.V. and (K) NH Italia, S.p.A. (ii) first-tier mortgage guarantee on the following hotels located in the Netherlands: NH Conference Centre Koningshof, owned by Koningshof, B.V.; NH Conference Centre LeeuweNHorst, owned by LeeuweNHorst Congres Center, B.V.; NH Schiphol Airport, owned by Onroerend Goed Beheer Maatschappij Kruisweg Hoofddorp, B.V.; NH Zoetermeer, owned by Onroerend Goed Beheer Maatschappij Danny Kayelaan Zoetermeer, B.V.; NH Conference Centre SparreNHorst, owned by SparreNHorst, B.V.; NH Best, owned by Onroerend Goed Beheer Maatschappij Maas Best, B.V.; NH Capelle, owned by Onroerend Goed Beheer Maatschappij Capelle aan den IJssel, B.V.; NH Geldrop, owned by Onroerend Goed Beheer Maatschappij Bogardeind Geldrop, B.V.; NH Marquette, owned by Onroerend Goed Beheer Maatschappij Marquette Heemskerk, B.V.; and NH Naarden, owned by Onroerend Goed Beheer Maatschappij IJsselmeerweg Naarden, B.V. and the joint guarantee on first demand of the main operating companies in the group wholly owned by the Parent Company.
Limitation on the distribution of dividends
The guaranteed senior notes maturing in 2023 and the syndicated credit line described above contain clauses limiting the distribution of dividends.
In the case of the senior notes maturing in 2023, the distribution of dividends is generally permitted provided that (a) the interest coverage ratio is > 2.0x and (b) the sum of restricted payments (including dividends and repayment of subordinated debt) made since 8 November 2013 is less than the sum of, amongst other items, (I) 50% of NH’s consolidated net income (even though in the calculation of net income, 100% of consolidated net losses must be deducted) from 1 July 2013 to the date of the last quarterly accounts available (this is what is known as the CNI Builder) and, (ii) 100% of the net contributions to NH’s capital from 8 November 2013.
Additionally, as an alternative and without having to be in compliance with the previous condition:
(i) in the case of bonds maturing in 2023, NH may distribute dividends provided that the leverage ratio (gross debt/EBITDA) does not exceed 4.5x.
Finally, and also alternatively and without having to be concurrent with the previous ones, the notes maturing in 2023 establish a franchise to be able to make restricted payments (including dividends) without needing to comply with any specific requirement, for a total aggregate amount of 25,000,000 euros as of November 2013.
In the case of the syndicated credit line, the distribution of a percentage of the NH Group’s consolidated net profit from the previous year is allowed, provided that there has been no breach of the financing agreement and the Net Financial Debt (through the Dividend payment) / EBITDA Ratio is less than 4.0x.
The maximum percentage of the consolidated net profit to be distributed will depend on the Net Financial Debt Ratio (through the payment of the Dividend) / EBITDA according to the following breakdown:
- Net Financial Debt / EBITDA ≤ 4.0x: Percentage of consolidated net profit: 75%
- Net Financial Debt / EBITDA ≤ 3.5x: Percentage of consolidated net profit: 100%
- Net Financial Debt / EBITDA ≤ 3.0x: Percentage of consolidated net profit: unlimited
Mortgage loans
The detail of the mortgage loans and credits is as follows (in thousands of euros):
| Mortgaged asset | Fixed rate | Variable interest | Total | Net book value of the mortgaged asset | |
| Spain | NH Lagasca | - | 4.480 | 4.480 | 17.229 |
| Wilan Ander | 5.048 | - | 5.048 | 6.546 | |
| Wilan Huel | 3.617 | - | 3.617 | 4.965 | |
| NH Palacio de la Merced | - | 4.372 | 4.372 | 16.498 | |
| Total Spain | 8.665 | 8.852 | 17.517 | 45.238 | |
| Mexico | NH Querétaro | - | 1.026 | 1.026 | 4.075 |
| NH Santa Fe | - | 388 | 388 | 6.397 | |
| Total Mexico | - | 1.414 | 1.414 | 10.472 | |
| Netherlands | NH Groningen | - | 198 | 198 | 6.571 |
| Total Netherlands | - | 198 | 198 | 6.571 | |
| Italy | NH Villa San Mauro | - | 1.677 | 1.677 | - |
| Total Italy | - | 1.677 | 1.677 | - | |
| Chile | NH Antofagasta y NH Plaza de Santiago | 19.635 | - | 19.635 | 23.946 |
| Total Chile | 19.635 | - | 19.635 | 23.946 | |
| Total | 28.300 | 12.141 | 40.441 | 86.227 | |
The mortgage loans of Wilan Ander and Wilan Huel of 5,048 thousand euros and 3,617 thousand euros respectively, have been consolidated using the global integration method since October 2017, the month in which the Parent Company, through its subsidiary NH Hoteles España, S.A., acquired 100% of these companies (see Note 2.5.4).
Assets granted as mortgage security against the syndicated credit line of 250,000 thousand euros (undrawn at 31 December 2017) and guaranteed senior notes in the joint amount of 400,000 thousand euros, maturing in 2023, can be broken down as follows (in thousands of euros):
| Mortgaged asset | Net book value of the mortgaged asset | |
| NH Conference Centre Leeuwenhorst | 52.357 | |
| NH Conference Centre Koningshof | 37.919 | |
| NH Schiphol Airport | 41.453 | |
| NH Conference Centre Sparrenhorst | 16.724 | |
| NH zoetermeer | 7.676 | |
| NH Naarden | 11.038 | |
| NH Capelle | 6.368 | |
| NH Geldrop | 7.311 | |
| NH Best | 4.891 | |
| NH Marquette | 3.350 | |
| Total | 189.087 | |
| Net value of assets assigned as mortgage collateral | 189.087 | |
| value of guaranteed debt | 400.000 | |
| Fixed interest | 400.000 | |
| Variable interest (amount of the syndicated credit line undrawn) | 250.000 | |
There are also companies whose shares are pledged as collateral for said lines of financing.
Subordinated loan
A loan amounting to 40,000 thousand euros fully drawn at 31 December 2017 and with a single maturity and repayment in 2037 is included in this item. The interest rate of this loan is the 3-month Euribor plus a differential.
Credit lines
At 31 December 2017, the balances under this item include the amount drawn down from credit facilities. The joint limit of these loan agreements and credit facilities at 31 December 2017 amounted to 68,353 thousand euros, of which 2,008 thousand euros had been drawn down at that date. Additionally, at 31 December 2017, the Parent Company had a guaranteed syndicated long-term credit line amounting to 250,000 thousand euros.
Detail of current and non-current payables
The detail, by maturity, of the items included under “Non-Current and Current Payables” is as follows (in thousands of euros):
| Maturiry | ||||||||||
| Instrument | Limit | Available | Disposed | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | Remainder |
| Mortgage loans | 40.441 | - | 40.441 | - | 7.496 | 2.756 | 2.605 | 2.554 | 2.141 | 22.889 |
| Fixed rate | 28.300 | - | 28.300 | - | 1.054 | 1.353 | 1.379 | 1.504 | 1.530 | 21.480 |
| Variable interest | 12.141 | - | 12.141 | - | 6.442 | 1.404 | 1.226 | 1.050 | 611 | 1.409 |
| Subordinated loans | 40.000 | - | 40.000 | - | - | - | - | - | - | 40.000 |
| Variable interest | 40.000 | - | 40.000 | - | - | - | - | - | - | 40.000 |
| Convertibe bonds | 250.000 | - | 250.000 | - | 250.000 | - | - | - | - | - |
| Fixed rate | 250.000 | - | 250.000 | - | 250.000 | - | - | - | - | - |
| Guaranteed senior notes mat. in 2023 | 400.000 | - | 400.000 | - | - | - | - | - | - | 400.000 |
| Fixed rate | 400.000 | - | 400.000 | - | - | - | - | - | - | 400.000 |
| Unsecured loans | 3.106 | - | 3.105 | - | 2.238 | 600 | 267 | - | - | - |
| Variable interest | 3.106 | - | 3.105 | - | 2.238 | 600 | 267 | - | - | - |
| Secured credit line | 250.000 | 250.000 | - | - | - | - | - | - | - | - |
| Variable interest | 250.000 | 250.000 | - | - | - | - | - | - | - | - |
| Credit lines | 68.353 | 66.345 | 2.008 | - | 2.008 | - | - | - | - | - |
| Variable interest | 68.353 | 66.345 | 2.008 | - | 2.008 | - | - | - | - | - |
| SUBTOTAL | 1.051.899 | 316.345 | 735.554 | - | 261.742 | 3.356 | 2.872 | 2.554 | 2.141 | 462.889 |
| Arrangement expenses | (19.304) | - | (19.304) | (4.453) | (3.064) | (3.243) | (3.197) | (2.765) | (2.582) | |
| Implicit derivative convertible bonds | (5.394) | - | (5.394) | (5.394) | - | - | - | - | - | |
| Borrowing costs | 6.024 | - | 6.024 | 6.024 | - | - | - | - | - | |
| Borrowing at 31/12/2017 | 1.033.225 | 316.345 | 716.880 | - | 257.919 | 292 | (371) | (643) | (624) | 460.307 |
| Borrowing at 31/12/2016 | 1.181.208 | 308.908 | 861.816 | 25.459 | 241.379 | 249.645 | 1.321 | 858 | 1.344 | 341.811 |
