27. Loans and borrowings

Loans and borrowings are recognised initially at fair value, net of transaction costs incurred. Loan and borrowings are subsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Transaction costs incurred during the (re)financing of loans and borrowings are capitalised and amortised over the estimated useful lives of the loans and borrowings. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan if it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs. If it is not probable that some or all of the facility will be drawn down, the fee for the facility is capitalised and amortised over the period of the facility to which it relates. Loans and borrowings are presented net of transaction costs.

Loans and borrowings are classified as current liabilities unless TMF Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

TMF Group derecognises financial liabilities when, and only when, TMF Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in the income statement.

TMF Group's primary source of finance is secured bank borrowings provided by a syndicate of banks. On 17 July 2023, amendment and extension of the existing senior loan agreement was executed resulting in principal loans Facility B1 of €955 million, Facility B2 of $400 million; both senior loans with maturity of May 2028 and Revolving Credit Facility of €181 million with maturity February 2028. Revolving Credit Facility is not used as per 31 December 2023. The interest for Facility B1 is 4.5% plus 3 month EURIBOR (floored at 0%). Interest for Facility B2 is 5.0% plus 3-month USD TERM SOFR CME. The refinancing is considered to be a substantial modification and as a result extinguishment accounting is applied, any difference in carrying amount of the original liability and the fair value of new modified liability is recognised in statement of profit or loss. This refinancing resulted in extinguishment of original loan liability, Lien 1 with principal of €950 million and Lien 2 with principal of €200 million and a loss on extinguishment of €15.4 million. The loss is reported as part of net finance costs in the Income statement. 

The intercompany receivables are pledged up to this amount. The deferred consideration payable relates to deferred payments and earn-out agreements with the former shareholders of acquired companies and sellers of acquired assets.

The interest payable is, for a significant part, the 3-month accrued interest for the senior bank borrowing. The senior bank borrowing is valued at amortized cost and this accrued interest is directly related to that amount.

Terms and repayment schedules

The terms and conditions of outstanding loans, excluding deferred consideration payables and transaction costs on loan notes, are as follows:

The transaction costs amounted to €31.8 million at 31 December 2023 and fully relate to transaction costs on the senior bank borrowings. The carrying value of the non-current deferred consideration approximates to the fair value.

The financial covenants are tested each quarter as from 30 September 2023. Refer to note 4.5 for additional information. The Senior Secured Net Leverage Ratio must not exceed 9.50X EBITDA and is calculated by applying the Consolidated Senior Secured Net Debt and divide by the EBITDA. TMF Group has met the requirements in the facility agreement for the years subject in this Annual report.

Each of the lenders within the syndicate of banks can require TMF Group to repay the secured bank borrowings in case of a change of ownership in TMF Group. The secured bank borrowings and revolving credit facility, including unpaid interest, are secured by a pledge over certain shares of several entities within TMF Group. The shares are pledged up to €3.2 million which comprises the shareholder’s equity of TMF Sapphire Bidco B.V.. 

The effective interest rate of the Senior Secured Bank Loan - Facility B1 (EUR) is 4.9% and for Senior Secured Bank Loan - Facility B2 (USD) is 8.9% and is higher than the nominal interest rate due to capitalised finance costs.

Measurement of TMF Group's liabilities is presented in the following table:

* Excluding deferred income, rent deposits, social security and other taxes.

Reconciliation of liabilities arising from financing activities

The following table details changes in the liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the consolidated cash flow statement as cash flows from financing activities.