Midroog Reviews Nofar's Five Bond Series Ratings Following Securities Authority Objections

Following objections raised by the Israel Securities Authority (ISA) regarding Nofar's financial reporting, the rating agency Midroog has placed five of Nofar's bond series under review. This process could lead to a downgrade from the current A3.il rating. The ISA claims that Nofar's leverage ratios and financial covenants, as presented in its reports, omit portions of the group's actual leverage. According to the ISA, Nofar has breached financial covenants applicable to four bond series (A to D) for two consecutive quarters, granting bondholders the right to demand immediate repayment. The key covenant is the ratio of net financial debt to EBITDA, which should not exceed 15 for the first four series and 18 for the fifth. Nofar's debt in these series totals 2.2 billion shekels, while its EBITDA at the end of March was 109 million shekels. The ISA contends that the ratio exceeds 15, effectively arguing that Nofar's debt is double what is reported in the first-quarter financials.

Nofar disputes this, asserting that its net financial debt stands at 1.06 billion shekels, yielding a net debt to EBITDA ratio of 9.76. The discrepancy arises from Nofar's interpretation that debt should exclude portions related to subsidiaries and that certain debts taken for projects via subsidiaries or those less than a year old should be deducted. Nofar supports its position with legal counsel from Herzog Law Firm and auditing by KPMG. The company convened a meeting to present its stance opposing the ISA's view. A vote on whether to amend the trust deed is scheduled for Wednesday. If covenants are not amended, some bondholders may demand immediate repayment, though Nofar maintains it has not violated any terms.

Institutional investors holding company shares will participate in the vote, with some expressing support for Nofar's position. However, voting will occur separately for each bond series, potentially resulting in varied outcomes. The bond trustee is the custodian company of Rami Katz.