Ukraine, creditors ink terms to restructure $18 billion of eurobonds

By Caroline Salls

Pittsburgh, Aug. 27 – Ukraine and an informal creditors’ committee agreed on the non-binding terms of a restructuring of 14 sovereign and sovereign-guaranteed eurobonds with an outstanding principal amount of $18 billion, according to a news release.

The committee is comprised of Franklin Advisers, Inc., BTG Pactual Europe LLP, TCW Investment Management Co. and T. Rowe Price Associates, Inc.

The agreement includes all 11 outstanding sovereign eurobonds of Ukraine and three sovereign guaranteed eurobonds of FinInPro.

According to the release, this agreement will allow Ukraine to fulfill a key element of the implementation of an IMF-supported extended fund facility agreed to in March.

Restructuring terms

The main features of the agreement include the following:

• A 20% nominal haircut, yielding up to $3.6 billion of bond debt relief for Ukraine. This debt relief could reach up to $3.8 billion once the City of Kyiv eurobonds and sovereign-guaranteed international loans, which are outside of the scope of the agreement, are restructured;

• Eurobonds covered under the agreement will be rolled into nine new bonds, with principal payments rescheduled to fall outside of the 2015 to 2018 program period. Principal will instead be repaid in nine equal amounts from 2019 to 2027;

• A coupon of 7¾% on all nine series, representing an increase of 50 basis points compared to the blended average under current contractual agreements; and

• A value recovery instrument in the form of a real gross domestic product growth warrant, providing potential upside to holders from 2021 to 2040.

Specifically, the payment will be zero if real GDP growth is below 3%, 15% of the value of the GDP growth between 3% and 4% and 40% of the value of the GDP growth above 4%. Payments for years 2021 to 2025 will be capped at 1% of GDP for each year, and no payments will be made unless nominal GDP is higher than $125.4 billion.

Looking ahead

Ukraine said the terms of the agreement are non-binding and are subject to appropriate legal documentation. The Ukrainian authorities have agreed to procure necessary implementing legislation before exchange offers are launched in the market.

Ukraine is expected to re-enter the capital markets in 2017, the release said.

“Ukraine gets a very immediate and very significant debt reduction worth up to $3.6 billion while maintaining its status in capital markets, a significant plus for our economy and our banking system,” minister of finance Natalie Jaresko said in the release.

“We get some $11.5 billion financing for our IMF-supported program, giving us the necessary financial breathing space. Importantly, we align our interests with our creditors. I call on all bondholders to support this operation.”

Committee representatives Igor Hordiyevych of BTG Pactual, Michael Hasenstab of Franklin Advisers, Penny Foley of TCW and Mike Conelius of T. Rowe Price said in the release, “This agreement is confirmation of the private sector’s confidence and belief in Ukraine and our willingness to invest in its future recovery.”

Ukraine is advised by Lazard as financial adviser and global coordinator and White & Case LLP as international legal counsel. The committee is advised by Blackstone Group International Partners LLP as financial adviser and Weil Gotshal & Manges as international legal counsel.

© 2015 Prospect News.
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