FINANCIAL RESTRUCTURING

“On February 3, 2021, Vallourec reached a major step in its financial restructuring process by obtaining the agreement of its reference shareholders and main creditors on a financial restructuring plan that meets its objectives of reducing its debt and securing its liquidity. Although markets remain volatile and their evolution uncertain, this financial restructuring will complement the transformation plan of the Group and will enable it to roll out its strategic roadmap.

I would like to thank our clients and partners for their lasting trust in Vallourec in this unprecedented context, as well as our teams, in all regions, for their continued and exemplary commitment and determination.”

Edouard Guinotte

Chairman of the Management Board

Understand

Understand

OBJECTIVES OF THE FINANCIAL RESTRUCTURING

Allow Vallourec to operate efficiently with a sustainable leverage
New capital structure to improve strategic flexibility and strengthen the group’s leading position on premium markets

Reduce financial burden of the debt to lower Free Cash Flow breakeven point
New capital structure to support improving profitability and cashflow generation

Maintain robust liquidity allowing to stand for fluctuations of Oil & Gas markets

IMPACT OF THE AGREEMENT: REDUCTION OF VALLOUREC S.A.’S DEBT (€M)

Agreement in principle on financial restructuring

Fairness opinion

Questions & answers

Why was it necessary to implement a financial restructuring?

In 2020, Vallourec announced plans to launch a rights issue for an amount of approximately €800 million, to significantly reduce the Group’s debt, reduce its financial cost and provide the increased flexibility needed for the successful implementation of its strategy. At the same time, Vallourec had also obtained the agreement of its main commercial banks to refinance its credit facilities with a new revolving credit facility for an amount of €800 million, subject to the completion of the rights issue. These new credit lines were intended to provide Vallourec with a source of long-term liquidity thanks to a maturity of four years, i.e. until 2024.

The unprecedented drop in oil demand caused by the Covid-19 crisis was not immediately offset by reductions in oil supply from OPEC+ and non-OPEC+ countries. As a result, the price of oil dropped and oil and gas companies sharply reduced their capital expenditures with an impact on Vallourec’s operations.

Given the new environment and deteriorated market conditions in the context of the Covid-19 crisis as detailed above, the €800 million rights issue of Vallourec, approved by the General meeting of April 6, 2020 and the refinancing of the RCF could not be carried out.

During the summer of 2020, Vallourec continued to discuss with, in particular, its reference shareholders and its banks in order to try to define an alternative refinancing arrangement that would take into account the consequences of the Covid-19 and the oil markets crises on its business and enable it to deal with its upcoming debt maturities and rebalance its financial structure. These discussions did not lead to a successful outcome.

In this context, Vallourec considered it should extend the discussions to its main RCF and bond creditors and other stakeholders, with a view to achieving a financial restructuring that embraces all of the borrowings at the level of Vallourec S.A. and allows it to address its upcoming maturities (in particular the RCF for an amount of €1,712 million maturing as from February 9, 2021) and rebalance its financial structure, taking into account the consequences of the Covid-19 and oil markets crises on its business. The discussions were pursued under the aegis of the mandataire ad hoc appointed for that purpose in September 2020 by the President of the Commercial court of Nanterre. They led to the conclusion on February 3, 2021 of an agreement in principle between Vallourec S.A. and its main creditors on the terms and conditions of the financial restructuring of the Company (see press release dated February 3, 2021).

What are the objectives of this financial restructuring?

The main objectives that drove discussions between Vallourec and the different stakeholders in the financial restructuring were the following:

  • a major deleveraging of Vallourec S.A., representing more than half of the principal amount of its debt, in particular by way of a debt-to-equity conversion of part of its debt;
  • the reduction of interest expenses to a suitable level that takes into account the consequences and uncertainties related to the Covid-19 and oil markets crisis; and
  • the securing of the necessary liquidity that will enable the Company to implement its strategic plan in a volatile market environment.
What are the main principles of the February 3, 2021 Agreement as reflected in the Safeguard Plan?

The financial restructuring plan set forth by the February 3, 2021 Agreement, which has then be reflected in a draft safeguard plan (the “Safeguard Plan”), is based on the following three key principles:

  • A significant balance sheet deleveraging through a debt reduction of €1,800 million, representing more than half of the principal amount of its debt, through:
    • the equitization of the claims with respect to the RCF and the Bonds held by creditors other than the main Commercial Banks in the amount of approximately €1,331 million (through a reserved share capital increase at the subscription price of €8.09 per share);
    • a €300 million rights issue for the benefit of Vallourec shareholders (at a subscription price of €5.66 per share), fully backstopped by creditors with respect to the RCF and the Bonds (other than the Commercial Banks), the proceeds of which will be used to partially repay the claims of these creditors;
    • a debt write-off granted by the Commercial Banks in the amount of €169 million, combined with a better fortunes instrument (instrument de retour à meilleure fortune) in the form of share subscription warrants (bons de souscription d’actions) issued by the Company to the benefit of the Commercial Banks; the warrants would entitle the Commercial Banks to subscribe to 11.7% of the share capital (on a fully diluted basis post issuance transactions provided for by the Safeguard Plan, including the exercise of the warrants), 1 warrant giving the right to subscribe for 1 new share, at the exercise price of €10.11 per share (representing a 25% premium over the subscription price of the reserved capital increase) over a five-year period.
  • the refinancing of the residual debt and the securing of significant liquidity and operational financing through:
    • a new senior notes issuance of €1,023 million subscribed (by way of set off of claims) by certain creditors under the RCF and the Bonds (other than the Commercial Banks), over a period of 5 years;
    • a revolving credit facility of €462 million by the Commercial Banks;
    • A state-guaranteed loan (prêt garanti par l’Etat) in the total amount of €262 million by the Commercial Banks; and
    • bonding lines of €178 million provided by the Commercial Banks over a 5-year period.
What are the next steps of financial restructuring?

In order to allow the Company to seize any future growth opportunity on its markets, it is in the interest of all stakeholders that this operation be implemented as soon as possible. As a result, Vallourec’s objective is to finalize all operations provided for by the Safeguard Plan by end of June 2021.

Since February 3, 2021, the Company has already achieved the following steps:

  • The Company prepared the Safeguard Plan dated March 12, 2021, reflecting the financial restructuring set forth in the agreement in principle, which has been approved by the financial lenders’ committee and the bondholders’ general meeting by a majority of 100% of the votes cast on March 29, 2021,
  • On March 30, 2021, the independent expert appointed by the Supervisory Board concluded that the contemplated financial restructuring of the Company was fair for the Company’s shareholders,
  • On March 31, 2021, the Autorité des marchés financiers (AMF) approved under number 21-093 the prospectus relating to the share capital increase reserved to the creditors under the RCF and the Bonds and the issuance of the warrants. It is reminded that the approval of this prospectus by the AMF should not be construed as a favorable opinion on the issuer and on the quality of the securities concerned herein.

On April 20, 2021, all of the resolutions necessary for the implementation of the financial restructuring have been approved at the Company’s general shareholders meeting.

The indicative timetable for implementation of the next steps is the following:

  • During the course of May 2021:
    • Obtaining of the required regulatory and government approvals
    • Approval of the Safeguard Plan by the Commercial Court of Nanterre
  • Beginning of June 2021: launch of the €300 million rights issue, which will require the prior approval by the Autorité des marchés financiers of the prospectus relating to this operation
  • June 30, 2021: closing of the financial restructuring transaction as contemplated by the Safeguard Plan

Restructuring operations provided for by the Safeguard Plan shall in any event be implemented no later than July 31, 2021 (or such later date as may be agreed in accordance with the Safeguard Plan and the agreement in principle dated February 3, 2021).

Are existing shareholders benefitting from a fair deal in the framework of this financial restructuring?

The Supervisory Board has voluntarily appointed the firm Finexsi as an independent expert, to assess the fairness of the terms and conditions of the restructuring of Vallourec for the Company’s shareholders. This report dated March 30, 2021, that is available on the Group’s website as well as in the prospectus relating to the share capital increase reserved to the creditors under the RCF and the Bonds, concludes that on the date of the report, the terms and conditions of the financial restructuring Transaction are fair from a financial perspective for the shareholders.

Shareholders are invited to read in detail the report of the independent expert, in particular the section entitled “Conclusion”.

> Report of the independent expert – Fairness opinion

What is offered to existing shareholders?

The financial restructuring contemplated by the Safeguard Plan provides that all existing shareholders will have the possibility to subscribe in cash to a €300 million rights issue, at a subscription price of €5.66 per share.

This subscription price of the rights issue reflects a 30% discount compared to the €8.09 subscription price of the share capital increase reserved to creditors under the RCF and the Bonds other than Commercial Banks (to be subscribed by way of set-off). This share capital increase aims in particular at giving the shareholders the opportunity to reduce the dilutive effect of the reserved share capital increase as well as of the potential exercise of the warrants.

For illustrative purposes, a shareholder holding 1% of the share capital of the Company would see its shareholding decrease, after completion of the restructuring, to (i) 0.05% if it does not exercise its preferential subscription rights (0.04% after exercise of all the warrants) and (ii) 0.28% if it exercises all its preferential subscription rights (0.25% after exercise of all the warrants).

In its report dated March 30, 2021, the independent expert gave an opinion on the situation of the existing shareholders. Shareholders are invited to read the report of the independent expert, in particular the section entitled “Conclusion”

> Report of the independent expert – Fairness opinion

Will I have the obligation to exercise the preferential rights I will receive in the framework of this €300 million rights issue?

No. Preferential rights are subscription rights automatically granted to the shareholders. However, in case you do not sell them at least two days before the end of the subscription period of the rights issue or if you do not exercise them during the subscription period, these rights will lose all value.

For illustrative purposes, a shareholder holding 1% of the share capital of the Company would see its shareholding decrease, after completion of the restructuring, to (i) 0.05% if it does not exercise its preferential subscription rights (0.04% after exercise of all the warrants) and (ii) 0.28% if it exercises all its preferential subscription rights (0.25% after exercise of all the warrants). In its report dated March 30, 2021, the independent expert gave an opinion on the situation of the existing shareholders. Shareholders are invited to read in detail the report of the independent expert, in particular the section entitled “Conclusion”.

What if the €300 million right issue is not entirely subscribed by existing shareholders?

In accordance with the Safeguard Plan, certain creditors under the RCF and the Bonds (other than the Commercial Banks) fully backstop the €300 million rights issue. Therefore, should the rights issue not be fully subscribed by shareholders, the transaction will nevertheless be carried out.

For illustrative purposes, a shareholder holding 1% of the share capital of the Company would see its shareholding decrease, after completion of the restructuring, to (i) 0.05% if it does not exercise its preferential subscription rights in the context of the €300 million rights issue (0.04% after exercise of all the warrants) and (ii) 0.28% if it exercises all its preferential subscription rights in the context of the €300 million rights issue (0.25% after exercise of all the warrants).

Why did Vallourec requested the opening of a safeguard proceeding?

The safeguard proceeding opened on February 4, 2021 aims at, in particular, implementing the agreement in principle as reflected in the Safeguard Plan. Indeed, the Safeguard Plan can be enforced to all RCF and Bonds creditors as a result of its approval by a two-thirds majority of the financial creditors’ committee (comité des établissements de crédit et assimilés) and the bondholders’ single general meeting (assemblée générale unique des obligataires), subject to its approval by the Commercial court of Nanterre. Without a safeguard proceeding, the implementation of the agreement in principle would have required the unanimity of the affected creditors.

The safeguard proceeding opened to the benefit of Vallourec S.A. on February 4, 2021 also suspended the obligation of payment of the Vallourec S.A.’s debts incurred prior to the opening of such proceeding, in particular the repayment of the RCF (€1,712 million) that were due as from February 9, 2021 and for which Vallourec did not have sufficient cash. The implementation of the Safeguard Plan aims in particular at enabling the Company to solve the difficulties relating to this shortfall

Does this safeguard proceeding mean that Vallourec is going bankrupt or that Vallourec is cash insolvent?

Vallourec S.A. is neither going bankrupt nor cash insolvent.
Indeed, safeguard proceedings are only available to companies that are not cash insolvent (en état de cessation des paiements) and are designed to allow them to restructure their debt with minimal disruption to their business, while protecting the value of their assets.
Furthermore, the safeguard proceeding is limited to Vallourec S.A. only, and do not concern the group operating subsidiaries which continue to run their day-to-day activities and to meet their obligations towards all their partners

GLOSSARY

What is a share capital increase?

A share capital increase consists in increasing the amount of a company’s share capital by issuing new shares, which allows the company to strengthen its equity and thus improve its financial structure.

A share capital increase may be subscribed to in different ways: in cash, which allows the company to receive liquidities, in kind by way of contribution of assets or by way of set-off against a claim (the claim of the Company with respect to the subscription price is then offset against a claim in the same amount of the subscriber on the Company). In case of removal of the preferential subscription right, the share capital increase may be reserved (or not) for designated persons or a category of persons, in which case one refer to a “reserved share capital increase”.

What is a rights issue?

A rights issue is a share capital increase with preferential subscription right, that allows existing shareholders, if they so wish, to subscribe to new shares in proportion to the number of shares they hold in the Company. Consequently, if they exercise their preferential subscription rights, shareholders may not suffer from any dilution resulting from the rights issue. Shareholders have preferential subscription rights, which they may exercise or sell on the market, depending on market conditions. Before being launched, such rights issue must be the subject of a prospectus submitted for approval to the Autorité des marchés financiers.

What is a preferential subscription right (PSR)?

The PSR aims at protecting the interests of the shareholders of a company which implements a share capital increase. The PSR is a negotiable right which may be detached from existing shares and which enables its holder to subscribe for new shares during the subscription period in order to allow him to maintain his percentage of shareholding and thus not to suffer from any dilution resulting from the rights issue.

In order to participate in a rights issue, new investors will have to acquire PSR from existing shareholders.

The PSR of a company listed on a regulated market is itself listed on the same market and is transferable up to two trading days prior to the end of the subscription period of the share capital increase. At the end of the subscription period, unexercised PSR become null and void and thus lose all value.

What is a share subscription warrant?

A share subscription warrant is a security issued by a company, which gives the right to subscribe to one or more new shares at a determined price (exercise price), during a certain period (the exercise period). At the end of their exercise period, warrants that have not been exercised become null and void.

In the context of the financial restructuring of Vallourec, the share subscription warrants would be subscribed solely by the Commercial Banks as defined below.

What are the Bonds?

The term Bonds refer to all notes issued by the Company and still outstanding: (i) the two New York State law bond issues by Vallourec S.A., (a) the first in the aggregate principal amount of €550 million, maturing in October 2022 and bearing interest at 6.625% per annum, and (b) the second in the aggregate principal amount of €400 million, maturing in October 2023 and bearing interest at 6.375% per annum, (ii) the OCEANEs with a principal amount of €250 million maturing in October 2022 and bearing interest at a rate of 4.125% per annum, (iii) French law bonds with a principal amount of €500 million maturing in September 2024 and bearing interest at a rate of 2.25% per annum and (iv) French law bonds with a total principal amount of €55 million maturing in August 2027 and bearing interest at a rate of 4.125% per annum.

What are the RCFs?

The term RCFs refer to all revolving credit facilities entered into by the Company and which were maturing on February 2021.

Who are the Commercial Banks?

These creditors are BNP Paribas, Natixis and BFCM (and, if applicable, CIC if BFCM transfers its claims to CIC), which are historical partners of the Company and which, in light of their commitments under the Safeguard Plan, benefit from a different treatment from that of the other creditors under the RCFs and the Bonds.

Disclaimer

The documents and information concerning the general meeting, in particular the report of the management board and the report of the independent expert on the fairness of the restructuring for the shareholders, are available on the Company’s website (www.Vallourec.com) and are made available to the shareholders under the conditions provided for by the regulations in force.

It is reminded that the issuance of the new shares in the context of the reserved share capital increase as well as the issuance of the warrants have been the subject of a Prospectus consisting of (i) the Company’s 2020 Universal registration document, filed with the AMF (Autorité des marchés financiers) on March 29, 2021 under number D.21-0226 and (ii) the securities note (including the summary of the Prospectus) having received approval number 21-093 on March 31, 2021. Copies of the Prospectus are available free of charge at the registered office of Vallourec, located at 27, avenue du Général Leclerc, 92100 Boulogne-Billancourt, France, as well as in electronic form on the Company’s website (https://www.vallourec.com/fr/investisseurs) and on the website of the AMF (www.amf-france.org). The approval of the Prospectus by the AMF should not be construed as a favorable opinion on the securities concerned herein. Investors are invited to read the Prospectus before making an investment decision, in order to fully understand the potential risks and benefits associated with the decision to invest in the relevant securities. In particular, we draw your attention to the “Risk Factors” section of the aforementioned Prospectus, and in particular to paragraph 5.1.4. of the Universal registration document and the corresponding securities note. A €300 million rights issue is also contemplated as part of the safeguard plan prepared by the Company. This rights issue shall be the subject of a prospectus submitted for approval to the AMF.

This document is a promotional document and the information contained herein does not constitute an offer to sell or subscribe for, or a solicitation of an order to buy or subscribe for, Vallourec securities in the United States, Canada, Australia, Japan or any other country in which such an offer or solicitation would be prohibited.

Press releases

Press releases

20 April 2021

Shareholders’ general meeting approves resolutions necessary for the implementation of the financial restructuring plan with a very large majority

29 March 2021

Approval of the draft safeguard plan by the financial creditors’ committee and the bondholders’ general meeting

04 February 2021

New step in the financial restructuring of Vallourec SA : opening of a safeguard proceeding

03 February 2021

Vallourec reaches a major step with an agreement in principle on financial restructuring with main creditors

21 September 2020

Vallourec Announces Required Consents Received in its Consent Solicitation Relating to Certain of its Notes

01 September 2020

Request for the consent of certain lenders in view of discussions to be held with all stakeholders on a financial restructuring and potential appointment of a mandataire ad hoc

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