AS VALMIERAS STIKLA ŠĶIEDRA files for legal protection proceedings to ensure sustainable continuation of Group-level operations

17. June, 2019

The Management Board of AS VALMIERAS STIKLA ŠĶIEDRA (the ‘Company’, with registration no: 40003031676, legal address: Cempu iela 13, Valmiera, LV-4201) informs that on 17 June 2019 an application for initiation of legal protection proceedings (‘LPP’) of the Company has been submitted with the Vidzeme District Court in Valmiera.

On 9 May 2019, the Company announced the commencement of a due diligence process at P-D VALMIERA GLASS USA Corp., the majority-owned US subsidiary of the Company (the ‘US facility’). Please refer to the respective announcement here.

Despite subsequent discussions a firm proposal has not been received, while an additional unrelated third party has also registered their interest in the overall US assets (both Phase 1 and Phase 2 operations). No firm proposal has been received thus far from them.

Investments totalling more than EUR 80 million have been made into the US Phase 2 facility thus far (with a total of USD 110m planned for the period 2014 – 2022). Unfortunately, within the process of carrying out this project a number of unforeseen obstacles have arisen. The consequences of these, despite multiple innovative approaches by management have not been fully eliminated to this day. Due to these reasons the Phase 2 facility (the vertically-integrated fibreglass yarn producing operation) production line is still not able to reach the required capacity utilisation and is operationally loss-making, effectively consuming operational cash from other parts of the Company.

Within the framework of attraction of financial resources for the establishment of the US Facility and the Phase 2 operations, the US facility entered into an Uncommitted revolving credit line agreement with a financial intermediary (‘Bank A’) incorporated in the USA (the ‘Credit Line Agreement’). In order to secure the implementation of debt liabilities deriving from the Credit line Agreement, the Company issued a guarantee for the benefit of Bank A. Since the US facility failed to meet the obligations deriving from the Credit line Agreement, Bank A, on the basis of surety liabilities established beforehand, has requested the Company to immediately repay the loan together with interest accrued in the amount of USD 3 013 148.92 (three million thirteen thousand one hundred forty eight US dollars and 92 cents) on June 10, 2019. There are no possibilities for the Company to repay the guaranteed loan immediately.

Moreover, the Company has substantial debt liabilities in the amount of at least EUR 67 014 370 (sixty-seven million fourteen thousand three hundred seventy euros) and at least USD 17 836 071 (seventeen million eight hundred thirty-six thousand seventy-one US dollars) towards a second and third financial intermediary respectively (‘Bank B’ and ‘Bank C’). The claim of Bank A puts the Company in cross default in respect of the loan agreements with Bank B and Bank C.

As a result of the circumstances indicated above the Company has entered into a stage of financial difficulty. In order to continue sustainable operations and to ensure for the possibility of reaching a sustainably-workable agreement with its creditors, the Company needs to ensure unhindered and continuous operation of its key production lines and gain time to reach agreement with its creditors on the procedure to meet liabilities of all creditors.

Successful future development of the Company remains a clear goal of the Management and Supervisory Boards. Therefore, in the present circumstances the most appropriate solution is the filing an application for initiation of legal protection proceedings (‘LPP’).

Therefore, having performed a thorough analysis of the situation and having consulted with the Company’s Supervisory Board, auditors and lawyers, the Management Board of the Company decided to take this measure and submit to the Vidzeme District Court the request to initiate LPP status of the Company.

The operations of the Company in Latvia and its subsidiary in the UK have consistently generated strong cash flows and profitability through recent years. In parallel they have effectively supported the expansion of the Company into the US.

The Company has been experiencing healthy demand for its various products and the completion of such orders will ensure the cash flow necessary to the Company to engineer a restructuring of its financial liabilities without the burden of supporting the Phase 2 US operations in the short to medium term.

In the meantime, the Management Board is continuously ensuring professional communication with its creditors. After receiving the court’s decision on initiation of the LPP, the task of the Management Board of the Company will be to develop and submit to the Company’s creditors for approval the recovery plan of the Company in accordance with the requirements of Latvian law. It is envisaged that this would require reorganization of the US facility activities, as well as optimization of the cash flow and strengthening the balance sheet of the Company.

The Company informs that no decision in respect of the sale of the Phase 2 operations of the US facility has been taken and the management of the US facility continues negotiations with potential investors to potentially acquire its Phase 2 facility. In parallel it cannot be ruled out that a thorough restructuring of the Phase 2 operations (with both existing and future potential stakeholders) will in time enable a successful utilisation of the facility.

Further details on the LPP and associated activities will be disclosed by the Company as soon as available.