technicolor - 2020 Universal Registration Document

RISKS, LITIGATION, AND CONTROLS RISK FACTORS

INDEBTEDNESS

Risk identification

Risk monitoring and management

At December 31, 2020, the Group had €1,227 million of total gross nominal debt (corresponding to €1,142 million in IFRS, taking into account the fair value adjustment) comprising mainly the “New Money” debt and the “Reinstated Term Loans”, both issued in the framework of the Group’s financial restructuring, for a total nominal amount of €1,016 million (€931 million in IFRS) and lease liabilities for €178 million (see note 8.3 to the consolidated financial statements). The Group has a committed receivables facility with Wells Fargo (the “Committed Receivables Facility”) under which it may borrow up to $125 million on the basis of the amount of receivables available. For further information on the terms of these debt facilities and instruments, see Chapter 2: “Operating and Financial Review and Prospects”, section 2.3.3: “Financial Resources” of this Universal Registration Document and note 8 to the consolidated financial statements. The level of debt may have significant negative consequences for the Group and its shareholders. For example the terms of its New Money debt require the Group to dedicate a large portion of any net proceeds from disposals, that is not used for reinvestment, towards repayment of outstanding principal, thereby reducing the availability of cash flow for other purposes. In 2020, there were no disposals that required mandatory debt repayment. In addition, the significant level of debt (€1,227 million) relative to the Group’s Free Cash Flow generation (€(207) million in 2020): increases the Group’s vulnerability to adverse general economic • conditions and industry developments; may limit the Group’s flexibility in planning for, or reacting to, changes • in the business and the industries in which the Group operates; may limit the Group’s ability to raise additional debt or equity capital; • may limit the Group’s ability to make strategic acquisitions and take • advantage of business opportunities; and may place the Group at a competitive disadvantage compared to • competitors with less debt. Any of the foregoing could limit the Group’s ability to grow its business. The financial loans documentation of the Group’s USD New Money debt and Reinstated Term Loans as well as its Committed Receivables Facility use the London Interbank Offered Rate (“LIBOR”) as a reference rate. LIBOR is scheduled to be phased out by the end of 2021. When LIBOR ceases to exist, the Group will need to agree upon a replacement index with its lenders and such new rates may not be as favorable as those in effect previously. Failure to manage these risks effectively could adversely affect the financial condition and results of operations of the Group. The financial loans documentation of the Group’s debt as well as its credit facilities includes provisions which limit the Group’s flexibility in operating its business, a breach of which may (in certain cases following the expiration of a grace period) constitute a default hereunder.

The risks related to indebtedness are managed by a close monitoring of the level of the Group’s debt and debt maturity schedule, and the compliance with all covenants and restrictions (including operational restrictions) in the Group’s debt documentation. This monitoring is part of the Group’s management of its liquidity risk. With specific regard to indebtedness it consists of using the Group’s 13 week and monthly cash forecasts to project future leverage ratios, covenant ratios and respect of scheduled debt maturity payments. The results of this regular monitoring is reported regularly to the Chief Financial Officer, the Audit Committee and the Board of Directors and may lead the Group to take action such as reducing debt levels, refinancing or renegotiating its debt, or raising equity. This monitoring led the Group to launch on February 13, 2020 a comprehensive balance sheet restructuring consisting of: a €300 million rights issue; • an 18 month extension of the RCF and the Wells Fargo facility; and • a new short-term credit facility in the amount of $110 million. • The short-term credit facility was put in place in March, but due to the deterioration of both the Group’s financial situation and the financial markets caused by the Covid-19 pandemic, the rights issue and the credit line extensions were not executed as planned. In June 2020, the Group announced a financial restructuring plan consisting of €420 million of net proceeds from new debt, deleveraging of €660 million through the equitization of existing debt and the extension of the $125 million Wells Fargo facility. These transactions were successfully executed and as a result the Group’s balance sheet was strengthened and the risks related to indebtedness considerably reduced. For more information on this financial restructuring, please see note 1.1 to the Group’s consolidated financial statements.

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TECHNICOLOR UNIVERSAL REGISTRATION DOCUMENT 2020