Cemex 2012 Annual Report Download - page 138

Notes to the
financial
statements
138
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Pursuant to the Facilities Agreement, CEMEX is prohibited from making aggregate annual capital expenditures in excess of
US$800 (excluding certain capital expenditures, and, joint venture investments and acquisitions by CEMEX Latam and its
subsidiaries, which capital expenditures, joint venture investments and acquisitions at any time then incurred are subject to a
separate aggregate limit of US$350 (or its equivalent). In the Facilities Agreement, and subject in each case to the permitted
negotiated amounts and other exceptions, CEMEX is also subject to a number of negative covenants that, among other things,
restrict or limit its ability to: (i) create liens; (ii) incur additional debt; (iii) change CEMEX’s business or the business of any obligor
or material subsidiary (in each case, as defined in the Facilities Agreement); (iv) enter into mergers; (v) enter into agreements
that restrict its subsidiaries’ ability to pay dividends or repay intercompany debt; (vi) acquire assets; (vii) enter into or invest in
joint venture agreements; (viii) dispose of certain assets; (ix) grant additional guarantees or indemnities; (x) declare or pay cash
dividends or make share redemptions; (xi) issue shares; (xii) enter into certain derivatives transactions; (xiii) exercise any call option
in relation to any perpetual bonds CEMEX issues unless the exercise of the call options does not have a materially negative impact
on its cash flow; and (xiv) transfer assets from subsidiaries or more than 10% of shares in subsidiaries into or out of CEMEX
España or its subsidiaries if those assets or subsidiaries are not controlled by CEMEX España or any of its subsidiaries.
The Facilities Agreement also contains a number of armative covenants that, among other things, require CEMEX to provide
periodic financial information to its lenders. However, a number of those covenants and restrictions will automatically cease to
apply or become less restrictive if (i) CEMEX’s consolidated leverage ratio for the two most recently completed semi-annual testing
periods is less than or equal to 3.5 times; and (ii) no default under the Facilities Agreement is continuing. Restrictions that will
cease to apply when CEMEX satisfies such conditions include the capital expenditure limitations mentioned above and several
negative covenants, including limitations on CEMEX’s ability to declare or pay cash dividends and distributions to shareholders,
limitations on CEMEX’s ability to repay existing financial indebtedness, certain asset sale restrictions, the quarterly cash balance
sweep, certain mandatory prepayment provisions, and restrictions on exercising call options in relation to any perpetual bonds
CEMEX issues (provided that creditors will continue to receive the benefit of any restrictive covenants that other creditors receive
relating to other financial indebtedness of CEMEX in excess of US$75). At such time, several baskets and caps relating to negative
covenants will also increase, including permitted financial indebtedness, permitted guarantees and limitations on liens. However,
CEMEX cannot assure that it will be able to meet the conditions for these restrictions to cease to apply prior to the final maturity
date under the Facilities Agreement.
In addition, the Facilities Agreement contains events of default, some of which may be outside of CEMEX’s control. CEMEX cannot
assure that it will be able to meet any or all of the above milestones for repaying indebtedness pursuant the Facilities Agreement
or redeeming, converting into equity, purchasing, repurchasing or extending the maturities of CEMEX’s other indebtedness.
Failure to meet any of these milestones will result in a spring back of the maturity date of CEMEX’s indebtedness under the
Facilities Agreement, and CEMEX cannot assure that at such time it will be able to repay such indebtedness. Moreover, CEMEX
cannot assure that it will be able to comply with the restrictive covenants and limitations contained in the Facilities Agreement.
CEMEX’s failure to comply with such covenants and limitations could result in an event of default, which could materially and
adversely affect CEMEX’s business and financial condition.
Financial Covenants
The Facilities Agreement requires the compliance with financial ratios calculated on a consolidated basis, which mainly include:
a) the ratio of net debt to operating EBITDA (“leverage ratio”); and b) the ratio of operating EBITDA to interest expense (“coverage
ratio”). Pursuant to the Facilities Agreement, beginning on September 17, 2012, at each compliance date, financial ratios should
be calculated according to the formulas established in the debt contracts using the consolidated amounts under IFRS. During
2011 and 2010, financial ratios were calculated according to the formulas established in the Financing Agreement using the
consolidated amounts under MFRS. The determinations of financial ratios require in most cases pro forma adjustments, according
to the definitions of the contracts that differed from terms defined under IFRS and MFRS.