Norske Skog launches amended exchange offer; equity and liquidity initiatives; trading update and outlook

Norske Skog is launching an amended exchange offer to holders of the senior notes due in 2017 for a mix of new unsecured parent company notes due in December 2026 and perpetual notes. The purpose is to achieve maturity extension, debt reduction and strengthening of the balance sheet. The existing exchange offer to holders of the unsecured 2016 notes will be terminated. Norske Skog will separately implement a series of initiatives to further strengthen its equity and liquidity position.

The amended exchange offer
The amended exchange offer consideration, available to eligible holders of 2017 notes only, will be comprised of (i) unsecured parent company notes due in December 2026 based on an exchange ratio of 46.8% of the notional 2017 notes exchanged and (ii) parent company perpetual notes based on an exchange ratio of 36.2% of notional 2017 notes exchanged.

The new unsecured notes due in 2026 will have materially the same terms as those applying to the existing 2017 notes, and will bear cash interest of 3.5% and paid-in-kind (PIK) interest of 3.5%. The perpetual notes will bear cash interest of 2%, which can be deferred in whole or in part, and will mature in 2115.

If Norske Skog retains the current level of participation from 2017 noteholders, which is above the required threshold to amend the 2017 notes, the terms of the 2017 notes will be amended and non-participating holders will receive the same exchange offer consideration that participating holders will receive in the amended exchange offer. The exchange offer and consent solicitation will expire at 13:00 CET, on Wednesday, 6 April 2016. The amended 2017 exchange offer is supported by material 2017 note holders, representing more than 68% of the outstanding 2017 notes.

- A successful completion of the amended 2017 exchange offer would materially strengthen our medium-term capital structure by realizing immediate de-leveraging, improving our balance sheet, reduce the cash interest level and extend debt due in 2017. A successful exchange offer will protect the value for all stakeholders by creating an opportunity for the group to benefit from a continued cyclical uptick and enable further work to restructure and consolidate the European publication paper industry, said Mr. Sven Ombudstvedt, President and CEO of Norske Skog.

The new unsecured notes due in 2026 will, as the existing 2017 notes, rank effectively junior to the EUR 290 million senior secured notes (SSN) due in December 2019 and the EUR 159 million 2021 and USD 61 million 2023 guaranteed unsecured notes. 

For further information on the details of the exchange and consent solicitation offer, please see the attached offer release announcement. Copies of the Exchange Offer and Consent Solicitation Memorandum and the related Supplements thereto are available for eligible holders of 2017 notes from the Exchange and Tabulation Agent, Lucid Issuer Service (for information by telephone: +44 20 7704 0880; Attention: Thomas Choquet/Yves Theis; Email: norskeskog@lucid-is.com). A separate stock exchange release will be available on www.newsweb.no under the Norske Skogindustrier ASA ticker "NSG" (IssuerID).

New equity and liquidity initiatives
As a consequence of the impairment write-downs made as part of the year-end consolidated financial statement closing process announced earlier, Norske Skogindustrier ASA's book equity is below 50% of the share capital. In accordance with the requirements of the Norwegian Public Limited Liability Companies Act section 3-5, the board of directors will account for Norske Skogindustrier ASA and the group's financial position in the upcoming annual general meeting in April 2016.

Norske Skog has entered into a financing arrangement with GSO Capital Partners LP (GSO) and Cyrus Capital Partners, L.P. (Cyrus) relating to a number of initiatives intended to strengthen Norske Skog's equity and liquidity position. The implementation of the initiatives are subject to certain conditions, including satisfactory definitive documentation. The equity and liquidity initiatives are not contingent on a successful outcome of the amended 2017 exchange offer.

GSO and Cyrus have committed to subscribe for cash EUR 15 million of new ordinary shares of Norske Skog at a price of NOK 2.24 per share prior to March 31, 2016. Norske Skog's board of directors has today approved this private placement. Norske Skog will offer existing shareholders the opportunity to subscribe for shares in a subsequent repair offering.

GSO and Cyrus have committed to provide a new securitization facility of approximately EUR 95 million. The facility will be secured by the receivables and inventory of the Norwegian mills and related collection bank accounts, and the inventory of the Golbey mill. The proceeds will be used to replace the SpareBank 1 Finans AS factoring agreements in Norway and for general corporate purposes in the operating subsidiaries of the Group.

In addition, if requested by Norske Skog, GSO and Cyrus have committed to purchase for cash, on or before 30 December 2016, up to EUR 10 million aggregate principal of senior secured debt instruments.

Norske Skog has also started sales processes for the disposal of certain non-core assets.

- These equity and liquidity initiatives in the total range of 120-140 EUR million will significantly strengthen the Group's liquidity position going forward. After these transactions, we will now concentrate our efforts in developing and improving our business units, says Mr. Sven Ombudstvedt, President and CEO of Norske Skog.

Trading update and outlook for 1H16
No consolidated financial statements have been prepared for any period in 2016. The information in this trading update and outlook in respect of 1H16 is based on preliminary internal management accounts and includes estimates and assumptions, and is subject to change as the group's consolidated financial statements are finalized, as further described herein. Undue reliance should not be placed on the information in this statement. 

P&L
The prices for publication paper in Europe have improved year-to-date from the level experienced in 2H15. Seasonally lower sales volumes in the first half of the year compared to the second half are expected to offset the positive price effect to a certain degree. Prices in Australasia have remained relatively stable year-to-date from 2H15, reflecting a higher export share offsetting improved Asian newsprint prices. Sales volumes in Australasia are also expected to be seasonally lower in the first half compared to the second half. A one-off cost benefit in Australasia in the fourth quarter of last year supported GOE in 2H15.

Year-to-date, NOK has on average been stronger to GBP and weaker to EUR and USD compared to 2H15. AUD has on average been stronger to NOK and somewhat weaker to USD. Underlying fixed costs continue to trend down and variable costs are positively impacted by lower energy costs. Other activities, a cost centre supporting the business units, were positively impacted by year-end effects in 2H15.

Cash flow
Cash flow from operations are expected to be positive before interest payments in 1H16, despite a seasonal build of working capital. Capital expenditures in 1H16 are expected to be at similar levels to the reported figure for 2H15. The Group's cash and cash equivalent balances at the end of February 2016 was in the range of NOK 500 million.

Balance sheet
A successful completion of the proposed equity and liquidity initiatives and the exchange offer to 2017 note holders would significantly improve cash balances and equity level for the group. The contemplated transactions, if completed, would also directly enhance liquidity through reduced cash interest payments. To allow for daily volatility in working capital, the group needs a liquidity buffer of around NOK 200 million beyond restricted cash of approximately NOK 250 million.

Reported debt will, if the current NOK appreciation to EUR and USD from year-end were to remain unchanged, decrease somewhat. This positive translation effect would mitigate the negative equity effect from interest and depreciation charges through the P&L. The completion of the proposed exchange offer to 2017 note holders would significantly reduce reported debt.

Outlook
The market balance for newsprint and magazine paper in Europe is continuing to improve with recent announcements of capacity closures adding to the benefits experienced from closures last year. This gives momentum to the positive pricing environment. Gross operating earnings (GOE) for the first six months of 2016 is expected to be above NOK 500 million. Reflecting closures and planned conversion projects out of publication paper in the industry, European operating rates for newsprint and LWC are expected to remain above 90% in both 2016 and 2017, after taking into account an expected secular decline in demand.

The European SC market is gaining support from closures in North America. The Asian export market for newsprint, of increasing importance to Norske Skog due to a smaller domestic market in Australasia, is encouraging with prices improving. Favourable energy costs for our European mills and efficiency measures at all mills are expected to reduce variable costs by 2-3% per tonne in 2016. Fixed costs initiatives continue at all mills towards a run-rate group level of NOK 600 million per quarter by year-end 2016. The growth initiatives announced last year are expected to start to contribute to gross operating earnings this year and are expected to reach full run-rate within a timeframe of 3-4 years.

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.

Norske Skog
Communications and Public Affairs

This information has been prepared by, and is the responsibility of, our management, and has not been audited, reviewed or verified; no procedures have been completed by our auditors with respect thereto, and undue reliance should not be placed thereon. This information is subject to confirmation in the group's unaudited quarterly reports for the quarter ending March 31, 2016 and June 30, 2016.

This press release may include projections and other "forward-looking" statements within the meaning of applicable securities laws. Any such projections or statements reflect the current views of Norske Skogindustrier ASA or its subsidiaries ("Norske Skog") about further events and financial performance. Although Norske Skog believes that these views and assumptions are reasonable, the statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. No assurances can be given that such events or performance will occur as projected and actual results may differ materially from these projections.

This press release shall not constitute an offer to sell or a solicitation of an offer to purchase any securities in the Unites States, and shall not constitute an offer, solicitation or sale in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful. The securities have not been and will not be registered under the Securities Act of 1933 (the "Securities Act").  The securities may not be offered or sold in the United States absent registration under the Securities Act or an applicable exemption from registration requirements. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer and that will contain detailed information about the company and management, as well as financial statements. This press release is being issued pursuant to and in accordance with Rule 135e under the Securities Act.

In member states of the European Economic Area, this press release (and any offer of the securities referred to herein if made subsequently) is only addressed to and directed at persons who are "qualified investors" within the meaning of Article 2(1)(e) of the Prospectus Directive.

This press release is directed only at (i) persons who are outside the United Kingdom or (ii) persons who 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 (the "Order") or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2) of the Order or (iv) 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 (the "FSMA")) in connection with the issue or sale of any notes may otherwise be lawfully communicated or caused to be communicated (all such persons together being referred to as "relevant persons"). Any investment activity to which this communication relates will only be available to and will only be engaged with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

This press release does not constitute an offer to sell or buy or the solicitation of an offer to sell or buy the existing bonds  and/or the new unsecured notes, as applicable (and offers of existing bonds for exchange pursuant to the offers will not be accepted from holders), in any circumstances in which such offer or solicitation is unlawful.

Norske Skog exchange offer equity and liquidity