European Energy Financial Overview

Risk Factors, continued Financial Risks == EUROPEAN ENERGY An increase in interest rates may have an adverse effect on the Group A substantial proportion of the Group's renewable energy projects are financed with up to 80% debt, usually obtained as project financing. While some loans carry a fixed interest rate others have a floating rate interest. Consequently, an increase in the interest rates could adversely affect the profitability of the Group's projects and could also render projects in the development stage unviable due to the higher cost of financing. Furthermore, in some instances bridge financing is obtained in order to construct a project without a corresponding long-term financing having been secured at the same time. This exposes the Group to an increase in the interest rate of the long-term financing prior to it being secured which could affect the Issuer negatively. This could also be the case where the duration of a long-term financing is limited so that a new long term financing must be secured when the first one expires. The Group is exposed to currency risks which may negatively affect the Issuer's financial position The Group conducts most of its business in EUR and the annual accounts are prepared in EUR. Changes in the exchange rate between EUR and other currencies to which the Group is exposed may therefore influence the Group's financial results, also negatively. This is particularly relevant where the currency in question is not subject to an exchange rate mechanism such as ERM II (which limits the exchange rate fluctuations between DKK, the currency in the Issuer's home country, and EUR). In some cases, both income and expenses are incurred in the local currency which provides a natural hedge to some extent but in other cases there are no such match. This could increase the losses due to currency risk if no separate hedging agreements are concluded. The Group does not have a general hedging strategy in place for currency risks. A reduction in the availability of financing will have an adverse impact on the Group as could any breaches of covenants in existing financing arrangements The Group finances a substantial proportion of its renewable energy projects with debt. Reduced availability of financing on acceptable terms could consequently lead to delays in the development and construction of renewable energy projects or prevent their realisation altogether. This would have an adverse effect on the Group's business. Furthermore, the Group has covenants related to some of its existing loans, requiring the borrowing entities to inter alia - maintain certain ratios (such as debt service coverage ratios). Should it not be possible to comply with such a covenant (e.g. due to unpredicted interruption of the production) this could e.g. entitle the lender to require that an extraordinary repayment is made or could constitute a default under the terms of the loans. This would affect the Issuer's financial position negatively. Additionally, where a construction financing has been obtained in order to construct a project without a corresponding long term financing having been secured at the same time, there is a risk that long-term financing cannot be obtained at the relevant time or at acceptable terms. This could also be the case where the duration of a long-term financing is limited so that a new long term financing must be secured when the first one expires. This could have an adverse impact on the Group. The Group is required to maintain an effective management of its liquidity since many of the Group's activities have substantial liquidity needs while the timing of the income generated by such activities can be unpredictable The Group is to a large extent dependent on an effective management of its liquidity. Many of the Group's activities are liquidity intensive (e.g. the acquisition or construction of projects) and also to some extent unpredictable with regard to the timing of the income they generate. For instance, the construction of a project may be delayed which can postpone the income generated by the power produced by the project or if the project is sold prior to construction being complete the payment of the purchase price. This requires the Issuer to maintain comprehensive monitoring of its current and future cash flow and failure to do so could have a negative effect on the Issuer's ability to satisfy its obligations under the Bonds. | 44

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