Following comments from the Securities Authority: Midroog places five series of Nofar bonds under review

Following objections filed by the Israel Securities Authority regarding the presentation of Nofar's debt in its financial statements, the rating agency Midroog has decided to place five series of Nofar's bonds under review. This is a process that could potentially lead to a downgrade of Nofar's rating, which currently stands at A3.il.

The Israel Securities Authority claims that Nofar's leverage ratios and financial covenants, as presented in the company's reports, do not include a portion of the group's actual leverage. The Authority's position is that Nofar has breached the financial covenants applicable to four bond series, A through D, for two consecutive quarters, and this grants bondholders the right to demand immediate repayment.

The covenants referred to by the Authority are the ratio between the company's net financial debt and its EBITDA (earnings before interest, taxes, depreciation, and amortization). The covenants stipulate that the ratio for these series shall not exceed 15, and for series E, it shall not exceed 18. While the debt for these series stands at 2.2 billion shekels, Nofar's EBITDA at the end of March this year stood at 109 million shekels. Therefore, the Authority claims that the ratio for the first four series is greater than 15, and in fact argues that Nofar's debt is double what was presented in the first-quarter reports.

Nofar, on the other hand, claims that according to its interpretation, the company's net financial debt stands at 1.06 billion shekels, and therefore the ratio to EBITDA is 9.76. The discrepancy stems from Nofar's position that the debt should not include the portion of associated companies, and that debts taken for the company's projects through subsidiaries, and those for which a year has not passed since their operation or acquisition, should be deducted from the net financial debt. The company is supported in its arguments by the Herzog law firm and the accounting firm KPMG.

Nofar convened a meeting where it presented its position, which disputes the Authority's stance. This is not yet a vote on whether to amend the trust deed, which is expected to take place on Wednesday. If the covenants are not amended, there may be holders who will demand immediate repayment of the debt. However, even then, Nofar will argue that there has been no breach whatsoever. Institutional investors holding the company's shares will also be among the voters at this meeting. Some of them said yesterday that they support the company's position. However, the vote for each bond series is separate and a different result may be obtained between them. The bond trustee is the Mishmeret company of Rami Katzav.