NHC / Apollo — LBO Lender Analysis

1. Executive Summary — Lender Position Credit Memo

Apollo Global Management proposes to acquire New Hope Corporation (ASX: NHC) via a leveraged buyout at an offer price of AUD 2.85 per share, representing a 35% control premium to the prevailing spot price of ~AUD 2.11 and implying a transaction enterprise value of AUD 2,235M — or 2.95× LTM EBITDA. The depressed acquisition multiple reflects the significant ESG-driven discount applied to thermal coal equities by public markets.

As the senior lender, my analysis focuses on three questions: (1) How much debt can NHC's cash flows safely support? (2) What are the realistic stress scenarios for a wasting-asset commodity business? (3) Are covenant protections sufficient to give us early warning? I recommend conditional approval of a total debt commitment of AUD 1,400M (AUD 750M TLB + AUD 350M HY bonds + AUD 300M undrawn revolver), subject to a minimum 40% equity contribution from Apollo and the covenant package set out in Section 7.

The key analytical tension in this deal: NHC's LTM EBITDA is AUD 757M, which looks comfortable at 1.45× total leverage. But the company's 10-year EBITDA range spans AUD 88M to AUD 1,792M — a 20× difference driven entirely by the thermal coal price cycle. As a lender, I must size debt against normalized and stress EBITDA, not the LTM. On a through-cycle basis (normalized EBITDA AUD 456M), total leverage is 2.41×. In a coal price trough (stress EBITDA AUD 280M), leverage rises to 3.93× — manageable but tight, with fixed charge coverage falling to 1.41× (just above my 1.25× covenant floor). I am not willing to lend more than AUD 1,100M in funded debt for this transaction.

Coverage — LTM

8.2×

EBITDA / Cash Interest

Coverage — Normalized

5.0×

EBITDA 456M / Int 92M

Coverage — Stress

3.0×

EBITDA 280M / Int 92M

Fixed Charge Cov — Stress

1.41×

(EBITDA−MaintCapex) / Int

2. NHC Financial Profile — 10-Year Historical Data AUD Millions

NHC is an ASX-listed thermal and metallurgical coal producer with operations primarily at Bengalla (NSW, 80% stake) and New Acland (QLD). The 10-year financial record shows extreme earnings cyclicality: EBITDA collapsed to AUD 88M in FY2016 during the last coal price trough, surged to AUD 1,792M in FY2023 on post-Ukraine energy security demand, and has since normalized sharply to AUD 757M in FY2025. This cyclicality is the defining credit risk.

Metric (AUD M)	FY16	FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25
Revenue	531	844	1,078	1,306	1,080	1,042	2,552	2,755	1,802	1,796
EBITDA	88	287	469	517	280	360	1,577	1,792	886	757
EBITDA Margin %	16.6%	34.0%	43.5%	39.6%	25.9%	34.5%	61.8%	65.1%	49.2%	42.1%
EBIT	13	189	376	397	129	210	1,436	1,650	718	566
D&A (incl. depletion)	75	98	93	120	151	150	141	142	168	191
Net Income	(54)	141	187	210	(157)	79	983	1,087	476	439
Cash from Operations	32	287	423	294	255	296	1,139	1,525	562	571
Capex	(83)	(82)	(88)	(98)	(109)	(38)	(51)	(178)	(272)	(282)
Free Cash Flow (CFO−Capex)	(51)	205	335	196	147	258	1,088	1,347	290	289
Total Debt	15	13	10	361	439	598	289	85	362	359
Cash & Investments	91	237	480	59	70	425	816	751	825	707
Net Debt / (Net Cash)	(76)	(224)	(470)	302	369	173	(527)	(666)	(463)	(348)

EBITDA Cyclicality — Lender Stress Benchmarks

FY2025 LTM

757

FY2024

886

FY2023 (supercycle)

1,792

FY2022 (supercycle)

1,577

FY2021

360

FY2020 ← Stress floor

280

FY2019

517

Normalized (ex-supercycle)

456

Balance Sheet Snapshot (FY2025, AUD M)

Item	FY2025
Cash & Investments	707
Total Debt	359
Net Cash Position	348
Total Assets	3,539
PP&E (mining assets)	2,104
Intangibles	62
Book Equity	2,628
ROIC (FY2025)	15.5%
Shares on Issue (M)	906

Note: NHC enters the transaction with net cash of AUD 348M — a significant structural advantage. This cash is applied to fund the purchase price, reducing the equity check required from Apollo and limiting new debt issuance. PP&E of AUD 2,104M provides 1.91× asset coverage against proposed new debt of AUD 1,100M.

3. LBO Candidacy Assessment — Rosenbaum & Pearl Framework 7 Criteria

Per the standard LBO framework, strong candidates exhibit predictable cash flow, defensible market position, low capex needs, a strong asset base, and proven management. NHC scores a mixed result — it has some attributes of a quality LBO candidate but is fundamentally constrained by its cyclical, wasting-asset nature.

⚠

Cash Flow Generation — MIXED

FY2025 FCF of AUD 289M is strong, but the 10-year range is AUD (51M) to AUD 1,347M. Thermal coal prices fully drive the outcome. No long-term offtake contracts at fixed pricing. Cash flow is anything but "stable and predictable" — the core R&P criterion for strong LBO candidates.

✓

Market Position — STRONG

Bengalla is one of Australia's lowest-cost open-cut coal mines with a long reserve life. NHC is a top-tier thermal coal exporter with established Japanese and Korean utility customer relationships. Defensible cost position (C1 cash costs typically <USD 60/t at Bengalla).

✗

Low Capex Requirements — FAILS

Capex has risen sharply: AUD 282M in FY2025, AUD 272M in FY2024. Mining is capex-intensive by nature. Maintenance capex alone (sustaining output at existing mines) is estimated at AUD 150–180M/yr, representing ~20–25% of normalised EBITDA. This materially reduces free cash flow available for debt service.

✓

Strong Asset Base — STRONG

PP&E of AUD 2,104M (net book value) underpins security for bank debt. In a liquidation scenario, the Bengalla mine asset alone has been valued by analysts in excess of AUD 2B. This provides meaningful collateral coverage for senior secured lenders — a key comfort factor for my credit assessment.

⚠

Growth Opportunities — LIMITED

New Acland Stage 3 represents the primary near-term growth vector, but ESG headwinds are crimping capital access and offtake appetite. No meaningful organic growth pathway beyond existing reserves. Apollo's thesis likely centres on cash extraction (dividend recapitalisation potential) rather than growth. Limited EBITDA multiple expansion at exit.

✗

Wasting Asset — CRITICAL LENDER CONCERN

This is the defining credit risk. Unlike manufacturing or services companies where assets have indefinite life, coal mines deplete. D&A of AUD 191M includes significant depletion — meaning EBITDA overstates maintainable earnings. A lender using EBITDA to size debt is structurally overpaying for risk. I use EBIT (AUD 566M LTM) as my primary sizing metric. At 3.95× EV/EBIT, the deal still looks inexpensive, but lender sizing must reflect the wasting nature.

⚠

ESG / Refinancing Risk — ELEVATED

Major Australian banks (CBA, NAB, ANZ, Westpac) have all adopted coal lending restrictions. A 7-year TLB maturing in 2033 faces real uncertainty about which banks will be willing to refinance. HY bonds face a similar challenge in ESG-constrained capital markets. This is not a standard credit risk — it's a structural market access risk that must be priced in via shorter tenors and higher spreads.

✓

Management Team — ADEQUATE

NHC's management team has successfully navigated the coal price cycle and delivered strong shareholder returns during FY2022–FY2023. Apollo would likely retain existing management with equity roll incentives. No CEO succession risk in the near term. Management track record in capital allocation (including the Malabar acquisition) is solid.

Lender Assessment: NHC is a below-average LBO candidate on the R&P framework — not because it is a poor business, but because it fails the criteria that matter most to lenders: predictable cash flow and low capex requirements. Apollo is acquiring the asset at a cyclical trough on multiples, and the thesis is primarily about coal price sustainability and cash-generative hold. This is a legitimate PE strategy, but it constrains both leverage capacity and IRR expectations. As a lender, I must be especially conservative on sizing to protect against the inevitable coal price normalization.

4. Transaction Structure — Sources & Uses AUD Millions

Sources of Funds	AUD M	% Total	Pricing
Revolving Credit Facility (undrawn)	—	—	BBSY+275bps
Term Loan B (TLB)	750	25.0%	BBSY+340bps
Senior Unsecured HY Bonds	350	11.6%	9.25% fixed
NHC Cash on Balance Sheet	707	23.5%	N/A
Apollo Equity Contribution	1,195	39.8%	N/A
Total Sources	3,002	100.0%

Uses of Funds	AUD M	% Total	Notes
Purchase NHC Equity (906M × $2.85)	2,583	86.0%	35% prem.
Refinance Existing NHC Debt	359	12.0%	Clean exit
Financing Fees (~1.75% on bank, 2.25% on HY)	30	1.0%	Capitalised
M&A Advisory, Legal, Other Fees	30	1.0%	Expensed
Total Uses	3,002	100.0%

Transaction Multiples

EV / LTM EBITDA (FY2025)	2.95×
EV / LTM EBIT (FY2025)	3.95×
EV / Normalized EBITDA	4.90×
Equity / Book Value	0.98×
Offer / Spot ($2.11)	35% prem

Capital Structure at Close

Revolver (undrawn)	300
TLB (funded)	750
HY Bonds (funded)	350
Total Funded Debt	1,100
Sponsor Equity	1,195
Total Capitalisation	2,295
% Debt / Total Cap	47.9%

Leverage at Close

Senior (TLB) / LTM EBITDA	0.99×
Total / LTM EBITDA	1.45×
Total / Normalized EBITDA	2.41×
Total / Stress EBITDA	3.93×
PP&E / Total Debt	1.91×

Lender note on NHC cash: NHC brings AUD 707M of balance sheet cash into the transaction — equivalent to 0.93× LTM EBITDA. This cash is applied to the purchase price, reducing the equity check Apollo needs to write. From a lender's perspective, this is a structural positive: less leverage is needed to acquire the business at any given offer price.

5. Credit Statistics — Base, Normalized & Stress Three Scenarios

Rosenbaum & Pearl (Chapter 5) emphasise that lenders must stress-test financial projections to ensure debt can be serviced under "challenging circumstances." For NHC, I model three scenarios: LTM (current conditions), Normalized (ex-supercycle average of AUD 456M EBITDA), and Stress (FY2020 trough of AUD 280M EBITDA). The stress scenario represents a coal price collapse to ~USD 85/t FOB Newcastle — a level seen as recently as 2020.

Credit Metric	At Close (PF)	LTM EBITDA $757M	Normalized $456M	Stress $280M	Covenant Threshold
Total Debt (AUD M)	1,100	1,100	1,100	1,100	—
Cash Interest (AUD M)	92	92	92	92	—
Total Debt / EBITDA	1.45×	1.45×	2.41×	3.93×	≤ 4.50× (step-down)
EBITDA / Cash Interest	8.2×	8.2×	5.0×	3.0×	≥ 2.50×
(EBITDA − Maint. Capex) / Interest	—	6.6×	3.3×	1.41×	≥ 1.25×
EBIT / Cash Interest	6.2×	6.2×	—	—	—
Senior Secured Debt / EBITDA	0.99×	0.99×	1.64×	2.68×	≤ 3.00×
Net Debt / EBITDA	1.45×	1.45×	2.41×	3.93×	—
PP&E / Total Debt (asset coverage)	1.91×	1.91×	1.91×	1.91×	≥ 1.50×
% Debt / Total Capitalisation	47.9%	47.9%	47.9%	47.9%	≤ 65%

Critical observation — wasting asset adjustment: Per the equity report skill and academic literature on extractive industries (D&A in mining includes depletion — a genuine cash cost of exhausting the orebody), I prefer to use EBIT rather than EBITDA as the primary sizing metric. NHC's D&A of AUD 191M includes substantial depletion. Sizing debt off EBITDA systematically overstates the sustainable cash flow available to service debt. At 3.95× EV/EBIT, the transaction is still modestly priced, but I have capped debt at levels where EBIT covers interest at 6.2× on a current basis.

6. Projected Debt Schedule & Free Cash Flow — Base Case FY2026–FY2030

The base case projects EBITDA normalizing from AUD 720M in FY2026 to AUD 545M by FY2030, reflecting thermal coal price moderation from current levels. Under this scenario, NHC generates sufficient FCF to fully repay the TLB within 3 years, consistent with R&P's emphasis that bank debt should be repayable within the proposed tenor. The 100% cash flow sweep is assumed throughout.

Item (AUD M)	PF FY25	FY26E	FY27E	FY28E	FY29E	FY30E
Revenue	1,796	1,750	1,650	1,550	1,500	1,480
EBITDA	757	720	640	580	555	545
EBITDA Margin	42.1%	41.1%	38.8%	37.4%	37.0%	36.8%
D&A (incl. depletion)	191	200	205	210	210	215
EBIT	566	520	435	370	345	330
Cash Interest Expense	—	(92.0)	(72.7)	(53.0)	(33.9)	(33.9)
Income Tax (30%)	—	(128.4)	(108.7)	(95.1)	(93.3)	(88.8)
Capital Expenditures	(282)	(240)	(200)	(170)	(160)	(155)
Change in Working Capital	—	(10)	(5)	(5)	(5)	(5)
Free Cash Flow (for debt service)	—	249.6	253.6	256.9	262.8	262.3

TLB — Beginning Balance	750	750	500.4	246.8	—	—
Mandatory Amortisation (1%)	—	(7.5)	(5.0)	(2.5)	—	—
Optional Repayment (cash sweep)	—	(242.1)	(248.6)	(244.3)	—	—
TLB — Ending Balance	750	500.4	246.8	0	0	0
HY Bonds (bullet, no pre-pay)	350	350	350	350	350	350
Total Debt	1,100	850.4	596.8	350	350	350
Cash Balance (excess after debt svc)	0	0	0	10.1	272.9	535.2
Net Debt / (Net Cash)	1,100	850.4	596.8	339.9	77.1	(185.2)

Net Debt / EBITDA	1.45×	1.18×	0.93×	0.59×	0.14×	NM
EBITDA / Cash Interest	—	7.8×	8.8×	10.9×	16.4×	16.1×
% TLB Repaid (cumulative)	—	33.3%	67.1%	100.0%	100.0%	100.0%

Base case assumes 100% excess cash flow sweep applied to TLB until fully repaid. Post-TLB repayment, excess FCF builds as cash on the balance sheet. HY Bonds are non-callable for 4 years; model assumes bullet repayment at maturity (FY2033). Forward BBSY assumed at 4.35% throughout (current).

7. Apollo IRR Sensitivity — Lender Context Returns Analysis

Per R&P Chapter 5, lenders perform IRR analysis to understand how much equity cushion the sponsor has — and therefore their incentive to support the business through downturns. At the proposed leverage and equity contribution, Apollo's IRR is materially constrained. At the base case (3.5× exit, 5-year hold), Apollo generates ~11.9% IRR — well below the historical PE threshold of 20%+. This is the defining commercial tension in the deal.

IRR — Exit Year 5 (FY2030), Exit EBITDA = AUD 545M

Exit Multiple	Exit EV	Equity at Exit	MoIC	5-Year IRR
2.5×	1,362	1,548	1.30×	5.3%
3.0×	1,635	1,820	1.52×	8.8%
3.5× (base)	1,908	2,093	1.75×	11.9%
4.0×	2,180	2,365	1.98×	14.6%
5.0× (bull)	2,725	2,910	2.44×	19.5%

Cash & debt at exit (Year 5): Cash = AUD 535M, Total Debt = AUD 350M (HY). Initial equity = AUD 1,195M.

Key IRR Insight — Why This Matters for Lenders

Apollo's base-case IRR of ~12% is well below the traditional 20% threshold. This creates several lender implications:

Sponsor exit timing pressure: Apollo may attempt to exit early (Year 2–3) while EBITDA is higher, or pursue a dividend recapitalisation to extract cash before the cycle turns further.
Covenant sensitivity: Apollo requires ~5.0× exit multiple to hit 20% IRR. This is only achievable if coal prices remain elevated — a non-base-case scenario that we as lenders cannot underwrite.
Equity cushion adequacy: Despite low IRR expectations, Apollo's AUD 1,195M equity contribution provides meaningful protection for lenders. Even in a severe stress scenario where enterprise value falls 30%, equity is impaired before lenders face losses.

Lender note: The compressed IRR paradoxically improves our credit risk — Apollo overpaid on equity relative to expected returns, creating a thick equity cushion. The real risk is a distressed sale at 2.5× exit multiple (IRR 5.3%) — in which case Apollo exits with minimal return but lenders are still protected.

8. Recommended Covenant Framework — Credit Agreement Terms R&P Exhibit 4.22

Per R&P Chapter 4, financial maintenance covenants require the borrower to "maintain" a designated credit profile on a quarterly basis. For NHC, I recommend a covenant package that provides early warning of coal price deterioration while not being so tight that it creates unnecessary technical defaults in normal operating conditions. The step-down schedule reflects expected deleveraging as the TLB is repaid.

Covenant	Close (PF)	Year 1	Year 2	Year 3	Actual (Base)	Actual (Stress)
Max. Total Leverage Ratio Total Debt / EBITDA (TTM)	≤ 4.50×	≤ 4.00×	≤ 3.50×	≤ 3.00×	1.45× ✓	3.93× ✓
Min. Interest Coverage EBITDA / Cash Interest	≥ 2.50×	≥ 2.50×	≥ 2.50×	≥ 2.50×	8.2× ✓	3.0× ✓
Min. Fixed Charge Coverage (EBITDA − Capex) / Interest	≥ 1.25×	≥ 1.25×	≥ 1.25×	≥ 1.25×	5.2× ✓	1.41× ✓
Min. Asset Coverage PP&E / Senior Secured Debt	≥ 1.50×	≥ 1.50×	≥ 1.50×	≥ 1.50×	2.81× ✓	2.81× ✓
Max. Annual Capex Fiscal year limit	≤ AUD 300M (Year 1); ≤ AUD 250M (Year 2+)				FY26: 240M ✓	Unchanged ✓
100% Cash Flow Sweep Excess cash → TLB prepayment	100% until TLB fully repaid; 50% thereafter				Compulsory
Restricted Payments No dividends to sponsor	Prohibited until Net Debt / EBITDA < 2.0× AND no covenant breach				Compulsory
Reserve Life Covenant Coal-specific protection	Proved + probable reserves ≥ 10× annual production at all times				Coal-specific

Additional negative covenants (credit agreement): Limitations on additional debt; limitations on asset sales (require 100% net proceeds applied to TLB); limitations on acquisitions above AUD 200M without lender consent; limitations on dividends and share buybacks; limitations on transactions with affiliates at non-arm's length terms.

ESG-specific carveout: I recommend an ESG margin ratchet: TLB spread steps up by 25bps per annum in Years 5–7 if AUD-denominated coal price indices fall below USD 100/t FOB Newcastle for two consecutive quarters — this compensates lenders for refinancing risk if ESG pressures intensify.

9. Lender Recommendation & Term Sheet Summary Final

⚖ CONDITIONAL CREDIT APPROVAL — Subject to Terms Below

✓ TLB Commitment (AUD 750M): 7-year term; BBSY + 340bps; 1% mandatory amortisation per annum; 100% excess cash flow sweep until fully repaid; first lien secured over all NHC assets; full financial maintenance covenant package as set out above.

✓ Revolving Credit Facility (AUD 300M): 6-year tenor; BBSY + 275bps on drawn amounts; 50bps commitment fee on undrawn; undrawn at close; available for working capital, letters of credit, and general corporate purposes. Springing fixed-charge covenant (1.0×) if availability < 15%.

⚠ HY Bond Participation (AUD 350M): We are willing to participate as a bookrunner for HY bond issuance. Indicative at 9.25% fixed, 8-year non-call 4; however, this will require independent bond investor due diligence given coal ESG restrictions at many fund managers. Proceeds available only if successfully syndicated — bridge loan commitment required from Apollo at our discretion.

⚠ Non-Negotiable Conditions: (1) Minimum Apollo equity contribution of AUD 1,195M (≥39.8%); (2) full covenant package as detailed above — no covenant-lite; (3) ESG margin ratchet as described; (4) Reserve life covenant at all times; (5) restricted payments prohibition until Net Debt/EBITDA < 2.0×.

Why We Will Not Lend More Than AUD 1,100M in Funded Debt

✓ Cyclicality floor: Even at conservative stress EBITDA of AUD 280M, fixed charge coverage only reaches 1.41× — just above the covenant floor. Adding more debt brings this below 1.25×, triggering a breach at the first coal price trough.

✓ Wasting asset discipline: Unlike ValueCo in R&P Chapter 5 — a stable manufacturing business where EBITDA can be assumed to grow — NHC's coal reserves deplete. I cannot assume EBITDA recovers after a trough because mine life is finite. Conservatism is the correct posture.

✓ ESG refinancing risk: A TLB maturing in 2033 must find willing refinancers in an increasingly ESG-constrained market. Lower leverage now means less refinancing pressure later — and better optionality if we need to sell the debt to a specialist credit fund.

✓ Apollo's thin IRR at this leverage: Apollo generates only ~12% IRR at 3.5× exit multiple. While below typical 20% PE hurdles, the deal still makes sense for Apollo as a cash extraction play. The equity cushion remains thick at AUD 1,195M, protecting lenders even in a covenant breach scenario.

Final Term Sheet Summary

Borrower	NHC OpCo (Apollo NewCo HoldCo guarantee)
Revolver size	AUD 300M / 6yr / BBSY+275bps
TLB size	AUD 750M / 7yr / BBSY+340bps
HY Bonds	AUD 350M / 8yr / 9.25% fixed NC-4
Total commitment	AUD 1,400M
Total funded debt at close	AUD 1,100M
Interest rate (blended)	~8.36% (Year 1)
Financing fees (total)	~AUD 30M (capitalized)
Security	First lien over all NHC assets (TLB); unsecured (HY)
Covenants	Full maintenance (TLB); incurrence only (HY)
Dividend restriction	Until ND/EBITDA < 2.0× and no default
Administrative Agent	This institution

Comparison: Apollo Request vs. Lender Maximum

Metric	Apollo Ask	Lender Max
Total Funded Debt	~AUD 1,800M	AUD 1,100M
Equity Contribution	~AUD 500M (16%)	AUD 1,195M (40%)
Total Debt/LTM EBITDA	~2.4×	1.45×
Total Debt/Norm. EBITDA	~3.9×	2.41×
Stress Coverage	~1.4×	3.0×
Fixed Charge Cov (stress)	~0.6×	1.41×
Covenants	Covenant-lite	Full maintenance
Apollo IRR (base, 3.5× exit)	~18%	~12%

Apollo's request for ~AUD 1,800M in funded debt at 16% equity would reduce stress FCF coverage to negative territory in a coal trough — an unacceptable credit outcome. We are offering AUD 1,100M, which still provides Apollo with material leverage amplification given NHC's strong FCF characteristics, while protecting lenders against the coal price cycle.