Photon Energy N.V. (PEN) Earnings Call Transcript & Summary

Well, good evening. If I see it correctly, lady and gentlemen, very welcome. It's 5:00 p.m. and well, welcome to our little web conference on the Photon bond recommendations for investors. Just let me -- one little note, please. We are making a little video of this. So if you decide to say something later on, you will be heard by everybody, and you would be on tape. But we have been asked by some clients who can't join today to make such a tape for them. So we decided to do so. If you want to participate, you can either speak by giving a sign or write into the F&A section. I have prepared a couple of slides for you that will take me about 20 minutes to walk you through, hopefully showing you where our clients and our law firm are standing. And I'll be very happy to discuss with you what your take on the action is and what you want to share with us. Well, who are we? Just one minute. My name is Wolfgang Schirp. I'm a German Rechtsanwalt, solicitor, a lawyer from Berlin, Germany. And my partner and I, Susanne Schmidt-Morsbach, we are operating a small capital markets law firm for about 30 years now. We have been active in some very well-known cases such as Wirecard, Ernst & Young, but we do also represent a group of institutional and private investors in the Photon bond, and we are trying to organize an opposition against the trouble that is brewing there if we see it correctly. What is today's call about? Well, as you have seen, the issuer of Photon Energy N.V. has invited to a written vote in the period from 1st to 8th September 2026. It is not the final solution for the company yet. But on the agenda, we find preparatory measures for a restructuring, which is yet to come. First of all, appointment of Klaus Nieding, a very well-known German lawyer, as joint representative of the bondholders, then a waiver of transparency obligations. The 2025 numbers will not be published until end of September. Then the issuer is seeking a relaxation of the equity ratio. And we have an announcement of an IBR that is to be completed until 15th of October, but they don't give us the name of the author yet, nor do they tell us anything about this intended scope of the IBR. So there are many reasons to fear that something evil comes this way. For the decisions which are to be taken now, a simple majority is sufficient. Under German law, we need an initial quorum of 50%. We feel that there is already a certain alignment between Photon and the major bondholders that will make it possible to reach that quorum in this first vote already. And then a simple majority of those 50% will be enough to make free way for the issuer. Why do we think you need to take action now and why did our clients call upon us to represent them? As you have seen, two coupon payments have already been postponed on 23rd of February and 23rd of May, and another one is going to be postponed on the 23rd of August of this year. It is open if and when there will be -- the back payments will be made. That is to be determined by the IBR and will be agreed upon at a later date. So we don't know anything except that money is not coming now. There is a complete lack of transparency. The audited annual reports have been postponed and Photon itself has stated that the proposed changes may affect its financial position. There will be a call on Thursday explaining the numbers of the second quarter of 2026. But we are wondering what information that can bring us if the year 2025 has not been audited yet. So our clients feel that they should not give up any legal positions until complete and verifiable information is available. Photon has been in serious trouble for some time. On the upper half of this slide, I put down the net profits of the company, better to say, the net losses since 2014. And as you can see, the company has been deep in the red for many years with just two exceptions in the past years. The 2022 exception certainly helped by the Ukraine war and the rise of energy prices, but then followed by very bad years in 2023 and 2024. And as I said, for 2025, we don't have numbers yet. So the company has been burning money for many years. It's not a new situation. There has been an insolvency of major subsidiaries in the recent past, among them, Photon Energy Corporate Services in the Czech Republic and Photon Energy Trading in Poland. All these facts also don't predict a good future for the company. So there is trouble, and there is certainly a need for action. So coming to the joint representative that the issuer is proposing. Our general feeling is do not grant a blank power of attorney to somebody who was not elected by you and who was not selected by you. A joint representative under German law, the Schuldverschreibungsgesetz, consolidates the right to information and is the only channel of communication vis-a-vis the issuer, and he's excluding the normal bondholders from direct interaction and from the direct channels they should normally have; he is monopolizing that. The issuer Photon wants to enforce the appointment of this joint representative until the restructuring is completed. So this person is going to have a lot of influence over a long period of time. It would be possible to dismiss him again by a majority resolution. But once he is in place, that becomes much harder beginning with the need for a new meeting to dismiss him, which cannot just be called like that. So if there is to be opposition, it should now consolidate itself now and make itself known. And prior to the disclosure of the financial fundamentals, and this is what we're really missing, the creditors must remain independently organized and capable of acting. They must not have this joint representative stand in the way. Hence, our demands transparency first and a limited mandate and a person appointed by creditors. If -- well, as you can see, Photon has only proposed a so-called weak joint representative. Let me explain in two sentences what that means under German law. If you have a strong joint representative, he can take all necessary decisions for the bondholders, even such as a haircut, a prolongation of maturities, a reduction of interest rates. These things, a weak joint representative can't. So Klaus Nieding, if he is elected, cannot move in right away and agree to some reduction of the bond volume or the interest rate, but he still holds very powerful rights in the process. As I said, he has a monopoly on information and determines which information is forwarded to the bondholders and how it is communicated. He is the person to negotiate with Photon. He also influences the IBR, which is the second major screw that Photon is -- was screwing into the bondholders. He has a right to initiate further votes, which a normal bondholder can't. And so he lays the groundwork on which a majority will later be persuaded to make concessions. So what my clients feel and I share their feeling is that what we are currently seeing is just a first step in a 2- or 3-step process that is intended to lead to a very painful haircut. But obviously, I cannot look into the future. Nobody can do that, but it is the only explanation that makes sense. So as I said, if we want to form an opposition, we should do so early on, beginning with the joint representative who must be someone who is selected and appointed by the creditors themselves. What are the criteria for selection? Well, there have been some decisions by Bundesgerichtshof in Germany. It's obviously his professional experience. And then which is even more important, the assurance that the mandate will be exercised exclusively in the interest of the creditors. And that is -- and the creditors, the bondholders bear the risk that the joint representative is not representing them well. This is what Bundesgerichtshof decided just in October last year. So we need to ask a candidate for joint representative to disclose who he's representing, what his financial links are, what his conflicts of interests are. And when there are problematic situations in the past, we need some explanation for that. And speaking of the candidate that Photon is presenting, he has just incurred some -- well, he has just been confronted with some major criticism in the Windreich bond and has been dismissed by the bondholders there. So we need to get some explanations on that before he can be given such a powerful mandate within Photon. Then well, the guidelines for remuneration. As you will have seen in the proposals by Photon, there is a lump sum fee proposed and then an additional cap fee for further services. In principle, there is nothing wrong with that. There is also nothing wrong with the amounts that Photon is suggesting. But there is -- in the same Federal Court of Justice decision that I just cited, the Federal Court of Justice has said that such a lump sum remuneration is not in line with German Schuldverschreibungsgesetz. But the joint representative has to agree to a time-based salary that will reflect the -- well, the scope of work, but also the amount of work which he has. And he has to provide transparent time recording and cost control. So as we see it, this proposal by the issuer is not in line with the -- what German law requires. And even for that reason, we cannot agree with that. Coming to the IBR, we think that it's almost a scandal. It's certainly -- it's not an honest communication by Photon with their bondholders that they are not naming the IBR adviser they intend to employ, although they are sure to know him by now because they want to appoint him before the end of the vote and the report is to be available by 15th October 2026. So how can that be brought about if they are only now beginning to search for someone? It's impossible. So obviously, they have already agreed on a person. They have already agreed on a mandate and -- but they are not telling us. They are not telling the bondholders. Obviously, my question is why do they keep us in the dark if they have all the facts on the table? Then show them, show the facts and let us let the bondholders decide. The IBR is prepared in collaboration with the management. So it's Georg Hotar and his colleagues who will eventually decide what the result of the IBR will be. So our criticism is, without a reasonable selection process, without the terms of reference and disclosure of prior involvement, We really don't know what -- who we are -- well, we are not electing anybody anyway, but who is going to decide the fate of the company and who is going to decide the next proposal that will be brought to the bondholders. So our demand: no engagement without prior disclosure of the provider, scope of the mandate, remuneration, and the declaration of independence. I've never seen a process like the one that Photon is now engaged in. And I think it's really scandalous. Coming to the interest behind the situation, we do have within Photon Energy, a serious conflict of interest between the equity and the debt side. We still have the two major shareholders, Georg Hotar and Michael Gartner, who have founded the company and are still holding large portions of the stock. And Georg Hotar is still actively leading the company to this very day. And obviously, they benefit from any restructuring that preserves the company's value for themselves and the other equity holders. And the bondholders, on the other hand, bear the risk of, well, maturity extension at the least, interest waivers or even a haircut, which is probably coming. And to share some gossip. We are -- there is hearsay in the market that the major London-based fund, Robus are actively buying into the bond to help with an aggressive haircut as they have done in other situations. We do know them from other incidents in the German market. So something evil comes this way. And the issuer is already applying for an extension of the exemptions from the covenant relating to the modified equity ratio. So what we will see, I think, after this vote has taken place in a second step will be a demand for a haircut. And our guiding principle in that context can only be no concessions from the bondholders without a demonstrable contribution from the equity side. So we need to see some selling, for example, some selling of assets by the equity side to bring down the debt. We need to see that what Hotar and Gartner are bringing to the table before we can decide what the bondholders' position can be. So I'm nearing the end of my slides. What are our claims? Well, no appointment of a joint representative without a transparent selection process and the creditors' own right to propose candidates, no lump sum advanced remuneration. IBR only following disclosure of the contractor and the scope of the mandate. We want to see the 2025 numbers. Well, hearsay has it that the auditors find it hard to give a going concern thumbs up for the numbers. And that is why they have refused to certify the numbers. But still, we need to know something how the company is moving along, and we need some reliable liquidity information to make an informed decision. No relaxation of covenants without a sound economic basis and no haircut and no -- nothing from the bondholders until we have a separate informed resolution. This is going to be my last slide -- my second to last slide already. As you may know, the biggest bondholder is the EBRD, the European Bank for Reconstruction and Development. So it's a European institution. And I have no full insight into the number of -- into the amount of the bond they are holding, but it's something between EUR 17 million and EUR 20 million. So they are by far the largest bondholder. And they are not a normal private fund who has full discretion over its investments, but they are a public institution. And if you look into their regulatory stuff, there is a distinction between their operational investment business and their own funds management, the treasury. But in both -- on both sides of their financial decisions, they have to apply reason. In the investment business, there is a sound banking principle saying that a project must generate a return and risk must be controlled. And obviously, in their own treasury, they have to be very defensive and careful and only highly secure liquid financial instruments are permitted. So the EBRD is bound by public law under duties to retain control and act transparently. And they are also being the biggest bondholder under a duty of solidarity towards all of us other creditors. So we think we do have some contact with them, but it's not satisfactory to this date, not at all. We need to -- the EBRD to play an active role in whatever is going to come here and be in line with the other bondholders because otherwise, they are not only wasting their own money, they are also acting against their legal obligations. So what can we do? We -- over here, we are now representing, I don't have a precise figure for you. We have some institutions, some private investors behind us that may amount to EUR 3 million, EUR 3.5 million of the bond together. So we are not a big player yet. But we want to play a role and take part in a formation of an opposition and in a strengthening of the bondholders as a whole. And what means do we have? We can, of course, submit counterproposals and that is what we intend to do. Please note that the issuer put a deadline for submission on 27th of August. The German law says that counterproposals can be submitted until the vote begins, but they have to be communicated to all other bondholders. So since this is a vote without a formal meeting, the issuer needs some time to inform the others. So this deadline is realistic. And whatever the law says, we should respect the deadline and submit our counterproposals before it. And our counterproposals are, obviously, after what I just said, postponement of the appointment of the joint representative, and a full right for bondholders to submit own proposals and have a free election. The IBR only with previously published terms of reference and an independent selection and well defined reporting obligations and budget limits and conditions for approval. Now what is our appeal to you? You can grant us a power of attorney, which is downloadable from our website. This is free of charge because at this stage, we are trying to form as big an opposition as we can and make it easy for you. And if there are later steps that may entail some whatever kind of fee that would have to be agreed beforehand. So this step, you can take without any financial risk on your side, and I would really appreciate if you would strengthen our group or submit counterproposals of your own and let us know what they are so that we can really combine forces. Whatever you decide to do, please obtain proof of ownership and custody account statement in good time so that there will be no formal reasons to dismiss your counterproposals or our action for you. So this is what I have prepared. Now please -- I'm very curious to hear what you are saying. As I said, you can either write in the chat section or raise your hand and speak to us. So please do so and go ahead. Thank you for the moment. Well, I have either been extremely clear or extremely unclear. Nobody feels like speaking. Ladies and gentlemen, you're still out there. There is somebody in the F&A section.

POA must be verified by notary? No, it's not necessary. It's a simple writing and a PDF to us, please. Well, is there anything else? If there are no questions, -- there is one in the F&A section. Can we submit the same form like Photon issued as confirmation for holding? If you can, please provide something by the bank where your deposit is, and that will be perfect. Then there is the T&C require presence, not voting without. Please help me understand, what is T&C? Somebody requiring a vote in presence. Well, there would be nothing wrong with that. If they call us to Amsterdam, I'd love to go there. It's a lovely city. Well, ladies and gentlemen, if there is nothing else, since there are some of you who ask for the POA, I read that as a certain degree of support, and I'm glad to hear that. If there's anything that you would like to discuss afterwards, please call us or send us an e-mail. Well, then let me say thank you for today. Thank you for your time, and have a lovely evening, and goodbye.