Current Report No. 33/2016: Resolution of the KRUK S.A. Management Board to issue unsecured bonds

The Management Board of KRUK S.A. (the “Issuer” or the “Company”) announces that, acting pursuant to Art. 371.1, 371.2 and 371.3 of the Commercial Companies Code of September 15th 2000 in conjunction with Art. 2.1 and Art 33.2 of the Act on Bonds (the “Act on Bonds”) of January 15th 2015, on 25th April 2016 it passed Resolution No. 103/2016 (the “Resolution”) on the issue of unsecured Series AC1 bonds (the “Bonds”).

The Company intends to use the issue proceeds for financing of debt purchases by the KRUK Group (the “Group”), refinancing of the Group’s debt, or financing of the Group’s growth through acquisitions.

The Company resolved to issue up to 100 000 unsecured Series AC1 bearer bonds with a nominal value of PLN 1 000 per bond, maturing 72 months after the allotment date.

The Bonds will be offered at the issue price equal to their nominal value. The Bonds will bear interest, with the rate of interest determined by the Company Management Board based on the book building process, by way of a separate resolution. Interest on the Bonds will be payable every three months. The Bonds will be issued in accordance with, and will be governed by, Polish law.

Invitations to acquire Bonds will be submitted to no more than 149 entities, pursuant to Art. 33.2 of the Act on Bonds.

Only the entities to whom an invitation to acquire Bonds is submitted will be eligible to participate in the offer and acquire the Bonds.

The issue of the Bonds will be carried out by September 30th 2016.

The Bonds will be issued as securities in book-entry form. The Issuer intends to register the Bonds, after the Issue Date, with the Central Securities Depository of Poland (the “CSDP”) in accordance with Art. 8.5 of the Act on Bonds and Art. 5a.1 of the Act on Trading in Financial Instruments of July 29th 2005 (Dz. U. of 2014.94 cons. text). The Issuer will seek to introduce the Bonds to trading in the Catalyst alternative trading system, operated by the WSE or BondSpot S.A. of Warsaw (the “Catalyst”).

All activities related to registration of the Bonds with the CSDP and exercise of rights attached to the Bonds registered with the CSDP will be performed by the CSDP under an agreement with the Issuer. The CSDP Rules and Detailed Rules of Operation of the CSDP will apply in this respect. Upon registration of the Bonds with the CSDP, cash payments related to the exercise of rights under the Bonds will be made by the Issuer, who will make cash funds available to the CSDP for making cash payments under the Terms and Conditions of the Series AC1 Bonds, and such cash payments will be effected through the CSDP. Prior to registration of the

Bonds with the CSDP, cash payments under the Bonds will be effected through the Bonds Depositary, in accordance with the Terms and Conditions of the Bonds.

The Bonds will be redeemed against payment of an amount equal to their nominal value. The Bonds will only confer the rights to cash payments. Rights attached to the Bonds will be freely transferable. The Bonds will not be secured.

The Company Management Board reports that, as at the last day of the quarter immediately preceding the submission of invitations to purchase Bonds, i.e. as at December 31st 2015, the Issuer’s liabilities totalled PLN 942m, including liabilities under borrowings and other debt instruments of PLN 890m, and none of the Issuer’s liabilities were past due.

The growth prospects of the debt collection market, and particularly the significant supply of cases expected to be outsourced for collection by the banking sector within the next several years, is an opportunity for the Issuer and its Group to purchase a large volume of debt portfolios. The Issuer expects the KRUK Group to make significant investments in debt portfolios over those years. As before, such investments will be financed with the KRUK Group’s internally generated funds from all segments of its business, including proceeds from debt portfolios purchased and from credit management services, as well as with borrowed funds, in particular bank loans and bonds issued by the Issuer. The degree of financial leverage expected by the Company in connection with its investment objectives will depend on several factors. These will include:

 (1) the size, type and price of portfolios available on the debt market,

 (2) steps taken by the KRUK Group’s competitors and their financial resources,

 (3) the availability of financing, including credit, and terms on which such financing will be made available to the KRUK Group,

 (4) the amount of the KRUK Group’s own funds it will be prepared to invest.

Given in particular the factors specified above, the Management Board assumes that the KRUK Group’s and the Issuer’s debt may continue to grow until the Bonds are fully redeemed, as well as in the coming years.

Irrespective of the nominal amount of its debt, in the Terms and Conditions of the Bonds the Management Board will undertake to maintain the KRUK Group’s Debt Ratio at or below 3.0 until the Bonds are redeemed. In the Terms and Conditions of the Bonds, the Debt Ratio will be defined as the Net financial debt to Equity ratio, where: (i) Net financial debt represents the KRUK Group’s financial liabilities less cash and (ii) Equity is the KRUK Group’s equity.

Financial liabilities means the sum of financial liabilities arising under: (i) bonds or other debt securities similar to bonds; or (ii) loans; or (iii) bank borrowings; or (iv) finance leases; or (v) promissory notes issued by way of security for liabilities of non-KRUK Group entities; or (vi) guarantees or sureties provided in respect of repayment of liabilities of non-KRUK Group entities under bank borrowings, loans, finance leases, bonds or other debt securities similar to bonds, or (vii) accession to debt owed by non-KRUK Group entities under bank borrowings, loans, finance leases, bonds or other debt securities similar to bonds; or (viii) assumption of liabilities of non-KRUK Group entities under bank borrowings, loans, finance leases, bonds or other debt securities similar to bonds; or (ix) liabilities arising under derivatives contracts.

The Debt Ratio will be tested on the basis of the consolidated financial statements of the KRUK Group prepared in accordance with the IFRS.

The Issuer’s commitment to keep its Debt Ratio from exceeding a certain level gives investors assurance that any decisions by the Group and by the Issuer to contract new financial liabilities will be made in a controlled manner. The Issuer does not expect any difficulties in being able to meet its obligations under the unsecured Bonds.

In addition, the Issuer will undertake that in certain extraordinary circumstances defined in the Terms and Conditions of the Bonds, for instance if the Issuer shares are delisted from the Warsaw Stock Exchange, if the Debt Ratio exceeds 3.0 or if the Issuer files a petition in bankruptcy or is declared bankrupt, it will redeem the Bonds early on the Bondholder’s demand, with the proviso that the Bondholders will have the right to demand mandatory early redemption of their Bonds at such time as is defined in the Terms and Conditions of the Bonds.

Projects to be financed with proceeds from the issue of the unsecured Bonds will be comparable to similar projects undertaken by the Company to date.

Detailed legal basis: Par. 5.1.11 of the Regulation of the Minister of Finance of February 19th 2009 on current and periodic information […]