10.9.1 Bank borrowings

Repayment of the above facilities is secured with:

• power of attorney over bank accounts, blank promissory notes, sureties and bank guarantees,
• registered pledges on assets, bank accounts, inventory, shares
• mortgages,
• assignment by way of security of rights under insurance agreements, including insurance of inventories,
• assignment by way of security of rights under inventory storage agreements,
• assignment of receivables,
• representation on voluntary submission to enforcement.

Bank borrowings by currency

Bank borrowings bear interest based on:

• 1M, 3M or 6M LIBOR (USD), depending on the interest period selected at a given time − in the case of USD-denominated facilities,
• 1M EURIBOR – in the case of EUR-denominated facilities,
• 1M or 3M WIBOR − in the case of PLN-denominated facilities.

As at December 31st 2021, the average effective interest rate for the credit facilities denominated in US dollars was approximately 1.49% (December 31st 2020: 1.96%). The average effective interest rate for PLN-denominated facilities (excluding the syndicated facilities contracted by the Parent) was approximately 4.66% (December 31st 2020: 2.03%).

Bank borrowings of the Parent

Inventory financing and refinancing facility

On October 28th 2021, the conditions stipulated in the consent letter, which confirmed the approval of the financing banks for the contribution of the organised part of the enterprise by Grupa LOTOS S.A. to LOTOS Asfalt Sp. z o.o., were fulfilled. As a result, technical changes were made in the credit facility agreement to reflect the transfer to LOTOS Asfalt Sp. z o.o. of the tank depot which is now part of the refinery in Gdansk.

On December 7th 2021, an amendment was signed to the agreement for the financing and refinancing of inventories of October 10th 2012 to extend the term of the agreement until December 16th 2022.

As at December 31st 2021, the nominal amount drawn under the facility was PLN 406.0m (USD 100m). As at December 31st 2020, the amount was PLN 187.9m (USD 50m).

In connection with the credit facility incurred to finance and refinance inventories, Grupa LOTOS S.A. is required to maintain the Tangible Consolidated Net Worth (TCNW) as specified in the facility agreement. The Company is also required to comply with the covenant requiring it to maintain the Loan to Pledged Inventory Value Ratio at or below the level specified in the facility agreement. As at December 31st 2021 and December 31st 2020, the Company complied with these requirements.

Refinancing of the 10+ Programme credit facilities

On July 2nd 2019, Grupa LOTOS S.A. and a bank syndicate signed credit facility agreements for a total amount of USD 500m to refinance credit facilities contracted in 2008 to finance the 10+ Programme.

Under the agreements, the bank syndicate extended to the Company:

• a USD 400m term facility,
• a USD 100m working capital facility, disbursable in USD, EUR or PLN.

On October 28th 2021, the conditions stipulated in the consent letter, which confirmed the approval of the financing banks for the contribution of the organised part of the enterprise by Grupa LOTOS S.A. to LOTOS Asfalt Sp. z o.o., were fulfilled. As a result, the credit facility agreement was automatically amended, with new provisions added whereby additional security was created in the form of a guarantee provided by LOTOS Asfalt Sp. z o.o. The surety agreement of October 15th 2021 whereby LOTOS Asfalt Sp. z o.o. guarantees repayment of liabilities by the Company entered into force on the date of transfer of an organised part of business to LOTOS Asfalt Sp. z o.o., i.e., on November 2nd 2021.

As at December 31st 2021, the nominal amount drawn under the term facility was PLN 974.4m (USD 240m). As at December 31st 2020, the nominal amount drawn under the term facility was PLN 1,202.7m (USD 320m). The Company also had liabilities of PLN 222.2m under the working capital facility.

Under the facility agreements discussed above, Grupa LOTOS S.A. is required to maintain its net debt/ EBITDA ratio at a specified level. As at December 31st 2021, the Company complied with these requirements. As at December 31st 2020, one of the ratios specified in the credit facility agreements was not complied with. In anticipation of the breach of covenants, the Company requested a waiver from the financing banks. On December 29th 2020, the Company received a letter from the banks confirming their consent for the breach of covenants as at December 31st 2020.

Bank borrowings at other Group companies

Credit facilities contracted by LOTOS Asfalt Sp. z o.o.

On June 21st 2021, LOTOS Asfalt Sp. z o.o. made voluntary and full repayment of the credit facility contracted under an agreement of June 30th 2015 to finance the EFRA Project. At the same time, a working capital facility under the agreement was cancelled and settled, and interest rate hedging transactions related to the facility were settled. Also, repayment of the credit facility resulted in the release of related security interests, including a ceiling mortgage over LOTOS Asfalt Sp. z o.o.’s rights to property, registered pledges over a set of LOTOS Asfalt Sp. z o.o.’s all movables and rights, inventories, receivables from bank accounts, and shares in LOTOS Asfalt Sp. z o.o. held by the Parent. The facility was repaid from the company’s own funds and a PLN 400m loan provided to the company by the Parent. Repayment of the principal of USD 223m (PLN 840.5m) was disclosed in the statement of cash flows from financing activities, under Repayment of bank and non-bank borrowings.

Credit facilities contracted by LOTOS Paliwa Sp. z o.o.,

On September 30th 2021, LOTOS Paliwa Sp. z o.o. made voluntary and full repayment of the credit facilities contracted under agreements of March 6th 2013 with a syndicate of PKO BP S.A. and Pekao S.A. and agreements with Pekao S.A. and mBank S.A. of January 26th 2015 to finance expansion of the service station network. Expenses incurred on early repayment of the principals of USD 70.8m were disclosed in the statement of cash flows from financing activities, under Repayment of bank and non-bank borrowings.

Proceeds from and repayment of bank borrowings

In 2021, proceeds from the Group’s bank borrowings were PLN 558.6m (2020: PLN 74.4m), while cash outflows on repayment of borrowings were PLN 1,640.2m (2020: PLN 563.6m). These amounts are presented in the consolidated statement of cash flows as cash flows from financing activities under Proceeds from bank borrowings and Repayment of bank and non-bank borrowings, respectively.

In 2021, proceeds from bank borrowings included:

• proceeds from the inventory financing and refinancing facility (PLN 1m),
• proceeds from credit facilities contracted by LOTOS Terminale A. (PLN 4.5m).

In 2021, repayments of bank borrowings included:

• repayment of the investment credit facilities contracted by the Parent (PLN 9m),
• repayment of the inventory financing and refinancing facility (PLN 4m),
• repayment of credit facilities contracted by LOTOS Asfalt z o.o. (PLN 840.5m).
• repayment of investment credit facilities contracted by LOTOS Paliwa z o.o. to finance and refinance purchase of service stations (PLN 84.1m),
• repayment of an investment facility contracted by SPV Baltic z o.o. to finance purchase of a multi-purpose platform (PLN 7.7m),
• repayment of a credit facility contracted by LOTOS Terminale A. (PLN 5.1m),
• repayment of a credit facility contracted by LOTOS Exploration and Production Norge AS (PLN 5m).

In 2021 and 2020, there were no defaults under the facilities.

For more information on the Group’s bank borrowings, see the Directors’ Report on the operations of Grupa LOTOS S.A. and the LOTOS Group in 2021.