[27] Financial liabilities and shareholder loan

The financial liabilities reported by the KION Group essentially comprise interest-bearing liabilities to banks and capital market liabilities in connection with the corporate bond that was issued. The liabilities to banks stem largely from a loan agreement. Interest is also payable on the shareholder loan, which is reported as a separate line item.

The table below shows the contractual maturity structure of the financial liabilities and the shareholder loan.

Loan agreement

In connection with its acquisition of Linde AG's material-handling business the KION Group signed a loan agreement (a senior facilities agreement and a subordinated facility agreement, referred to below as 'SFA') for a total original amount of €3,300,000 thousand with the lead banks Barclays Bank Plc, Bayerische Hypo- und Vereinsbank AG, Credit Suisse (London branch), Goldman Sachs International Bank, Lehman Commercial Paper Inc. (UK branch) and Mizuho Corporate Bank Ltd. on 23 December 2006. The loans provided under the SFA carry variable interest rates. Transaction costs of €20,175 thousand reduced the carrying amount of the loans as at the reporting date. These costs have been allocated pro rata to each of the tranches and expensed over their respective terms.

The following material amendments were made to the SFA in subsequent years:

• Under amendments made to the SFA on 8 March 2007 the subordinated facility agreement was totally replaced by a senior facilities agreement and unused credit lines totalling €200,000 thousand were returned, thereby reducing the total amount of the SFA to €3,100,000 thousand.
• Under amendments made to the SFA on 23 September 2009 the financial covenants applicable during the term of the loan were modified. At the same time, an additional credit line of €100,000 thousand and an increase in the collateral security provided for this facility were agreed. Furthermore, the interest rates payable on existing credit lines were raised by between 0.25 and 1.50 percentage points. The amounts of these interest-rate increases primarily fall due in the form of bullet payments at maturity (payments in kind, or PIKs). All the interest payable on the new credit line of €100,000 thousand falls due in the form of a bullet payment at maturity. The company making this credit line available is Superlift Funding S.à r.l., Luxembourg, which is a related party to the KION Group.

Corporate bond

The KION Group issued a corporate bond for €500,000 thousand through the consolidated subsidiary KION Finance S.A., Luxembourg, in April 2011. Of the bond's total par value of €500,000 thousand, €325,000 thousand is repayable at a fixed interest rate of 7.875 per cent p.a., while €175,000 thousand carries a floating interest rate based on three-month EURIBOR plus a margin of 4.25 percentage points. The interest on the fixed-rate tranche is paid semi-annually, while interest on the floating-rate tranche is paid once a quarter. The bond's principal is redeemed as a bullet payment on maturity. Borrowing costs of €12,492 thousand reduced the carrying amount of the bond as at the reporting date. These costs have been allocated pro rata to each of the tranches and expensed over their respective terms. The corresponding liability is reported as a capital market liability.

Shareholder loan

KION Holding 1 GmbH and Superlift Holding S.à r.l., Luxembourg, signed an agreement on a shareholder loan for the amount of €500,000 thousand on 27 December 2006. The last maturity date for repayment of the loan was most recently (in April 2011) stipulated as 31 December 2021. The loan principal and the associated interest are both unsecured and are repayable on the due date. The interest rate was fixed at 5.5 per cent p.a. effective 1 September 2007 and is payable on the outstanding loan principal.

Changes in net financial debt

The KION Group uses its financial debt as a key internal figure for analysing the changes in its financial liabilities. Financial liabilities take into account the gross carrying amounts of the liabilities to banks and the capital market liability before borrowing costs. The key figure 'net financial debt' is calculated by deducting cash and cash equivalents.

The table below gives a breakdown of the KION Group's net financial debt as at 31 December 2011:

€483,000 thousand of the total corporate bond issue proceeds of €500,000 thousand was used to repay existing SFA liabilities. In addition, loans made available under a SFA credit line (the capex line) were reduced by an additional €54,018 thousand to €71,596 thousand in 2011 in accordance with the contractual repayment agreement. On 7 November 2011, the KION Group reacted to the uncertainty prevailing in financial and banking markets by drawing down €132,691 thousand under a revolving SFA credit line and holding it as cash.

The table below gives details of the changes in financial debt and lists the applicable terms and conditions:

Financial covenants

The SFA and the contractual terms and conditions governing the issuance of the corporate bond require compli-ance with certain requirements, or undertakings and certain covenants among other things. The SFA also re-quires compliance with specific financial covenants during the term of the agreement. The financial covenants specify required ratios for the financial position and financial performance of the KION Group. The covenants are expressed in the form of key figures relating to leverage, available liquidity, EBITDA, interest paid and capital expenditures. If these requirements or financial covenants are breached, this may, for example, give lenders the right to terminate the SFA or permit bondholders to call the corporate bond prior to its maturity date.

All the financial covenants were met in the past financial year.

Loan collateral

Under the SFA, the KION Group is under an obligation to provide collateral for its obligations and liabilities. This obligation also includes to the corporate bond (newly added SFA tranches H1a und H1b), under which the funds from the corporate bond accrued to the KION Group. By the reporting date a total of 26 (31 December 2010: 21) KION Group companies (guarantors) in five countries – Germany, the UK, France, Spain and Italy – had provided the necessary collateral. The year-over-year change in the companies participating in the SFAS was largely attributable to the fact that the financial services companies established in 2011 had become a party to the SFA.

The collateral includes guarantees, the assignment of shares in the guarantors (with the exception of shares in KION GROUP GmbH), the assignment of bank accounts and guarantor receivables, the assignment of claims arising from and in connection with the share purchase agreement between Linde Material Handling GmbH and Linde AG dated November 5, 2006, relating to the shares in the former KION GROUP GmbH, the assignment of shares in KION Information Management Services GmbH and assignments and transfers of title to intellectual property rights by guarantors in Germany. The statutory provisions in the United Kingdom and the agreements entered into require that all the assets of the UK guarantor are pledged as security.

The carrying amounts of the financial assets pledged as collateral amounted to €791,985 thousand as at the reporting date (31 December 2010: €709,051 thousand).

No liabilities to banks were secured by pledges of real property at the end of 2011 (31 December 2010: €125 thousand).