NOT FOR DISTRIBUTION IN ANY JURISDICTION IN WHICH SUCH
DISTRIBUTION WOULD BE PROHIBITED BY APPLICABLE LAW.
LONDON, June 17, 2024 /PRNewswire/ -- On Friday,
14 June 2024, the Ad Hoc Creditor
Committee of holders of Ukraine's
Eurobonds (the "Committee") concluded a constructive 12-day
consultation period with representatives of the government of
Ukraine ("Ukraine").
Held at Ukraine's request, the
consultation period was part of the ongoing process to assist
Ukraine with the potential
restructuring of Ukraine's
Eurobonds listed in Annex A.
The purpose of the consultation period was to facilitate an
exchange of ideas between Ukraine
and the Committee enabling the Committee to engage in constructive
conversations with Ukraine and its
advisors, the International Monetary Fund (the "IMF") and
the Group of Creditors of Ukraine
(the "GCU"). While it was understood at the outset that the
consultation period was unlikely to result in a deal, the
consultation period marked a constructive step in the ongoing
discussions.
Earlier today Ukraine announced
details of the outcome of the consultation period, together with
details of the various restructuring proposals shared between the
parties, including: (i) Ukraine's
initial restructuring proposal (the "Sovereign Proposal");
(ii) the Committee's initial restructuring proposal (the
"Original Committee Proposal"); (iii) certain details of
Ukraine's reaction to the Original
Committee Proposal (the "Sovereign Response"); and (iv) a
revised Committee restructuring proposal (the "Adjusted
Committee Proposal").
In addition to the details shared by Ukraine earlier today, the Committee seeks to
provide further context on these materials by providing further
detail on the Committee's response to the Sovereign Proposal set
out in Annex B (the "Committee Feedback").
The Committee remains committed to working with Ukraine to find a solution that is compliant
with the July 2023 IMF Debt
Sustainability Analysis targets under the IMF's baseline scenario
and to the solution being compatible with the GCU's principles of
comparability of treatment (subject to further clarification from
the GCU on assessment criteria).
The Committee looks forward to their advisors continuing the
discussions going forward.
The Committee is being advised by Weil, Gotshal and Manges
(London) LLP and PJT Partners (UK)
Ltd.
Annex A
Eurobonds
Instrument
|
Coupon
|
Maturity
|
USD 912 mln7.75%
note
|
7.75 %
|
Sep-24
|
USD 1.355bn 7.75%
note
|
7.75 %
|
Sep-25
|
USD 750m 8.994%
note
|
8.994 %
|
Feb-26
|
USD 1.34bn 7.75%
note
|
7.75 %
|
Sep-26
|
USD 1.33bn 7.75%
note
|
7.75 %
|
Sep-27
|
EUR 1bn 6.75%
note
|
6.75 %
|
Jun-28
|
USD 1.32bn 7.75%
note
|
7.75 %
|
Sep-28
|
USD 1.31bn 7.75%
note
|
7.75 %
|
Sep-29
|
USD 1.6bn 9.75%
note
|
9.75 %
|
Nov-30
|
USD 1.75bn 6.876%
note
|
6.876 %
|
May-31
|
EUR 1.25bn 4.375%
note
|
4.375 %
|
Jan-32
|
USD 3bn 7.375%
note
|
7.375 %
|
Sep-34
|
USD 2.6bn 7.253%
note
|
7.253 %
|
Mar-35
|
Annex B
Committee Feedback
UKRAINE EUROBOND
TREATMENT
RESPONSE TO SOVEREIGN PROPOSAL
On Monday 3 June 2024,
Ukraine and its advisers presented
a restructuring proposal ("Sovereign Proposal") in relation
to Ukraine's Eurobonds to the
Creditor Committee under NDA. As a follow-up, Ukraine and its advisers requested feedback
on, amongst other things, the Sovereign Proposal. The Creditor
Committee has considered the Sovereign Proposal and outline below
their collective feedback which they hope will assist Ukraine and its advisers to discuss the
re-formulation of the Sovereign Proposal with the official
creditors of Ukraine
("GCU") and the International Monetary Fund ("IMF").
The feedback is also the result of extensive discussions that took
place before the restricted period as part of a market feedback
gathering exercise with significant bondholders outside of the
Creditor Committee and accordingly represents widely canvassed
views of market participants. The Creditor Committee and its
advisors remain committed to working with Ukraine to structure a transaction which may
attract the requisite support from market participants. N.B.
This is an indicative and non-exhaustive response and does not
address all of the points raised or made in the Sovereign Proposal
(or may only address elements thereof). This should not be
construed as, and does not constitute, acceptance of any such
points or elements not addressed and nothing in this response shall
constitute a waiver, acceptance or suspension of any rights of any
party in respect of the Eurobonds and/or the Warrants.
This response does not constitute (nor will it be construed
as) (i) an offer to sell or the solicitation of an offer to buy any
securities nor shall there be any sale of the securities referred
to herein in any jurisdiction in which such offer, solicitation or
sale would be unlawful prior to registration, exemption from
registration or qualification under the securities laws of any such
jurisdiction or (ii) a solicitation of any consent to any action,
it being understood that such an offer or solicitation of consents,
if any, will only be made in compliance with applicable provisions
of securities, bankruptcy, and/or other applicable laws.
Sovereign
Proposal
|
Committee
Feedback
|
Vanilla
Bonds
- Principal amount:
- Option 1: 40.0¢ of Eurobond
Principal + accrued interest
- Option 2: 47.5¢ of Eurobond
Principal + accrued interest
- Cash coupon per annum:
- H2'24 – 2025: 1.00%
- 2026 – 2027: 3.00%
- 2028 onwards: 6.00%
Maturity: five
issuances of equal size maturing in 2034, 2035, 2036, 2038 and 2040
with bullet maturity
|
- Haircut significantly in excess of
market expectation, which is consistent with a 20% haircut
- Sovereign Proposal materially exceeds
both advisor and market estimates of the nominal debt relief
required to restore debt sustainability in line with the
3rd review DSA and
would risk substantial damage to Ukraine's future investor base and
core objective of re-accessing capital markets at the earliest
opportunity.
- Sovereign Proposal does not optimise to
the 3rd review DSA;
advisors have acknowledged that it would leave the debt/GDP ratio
materially inside target in both 2028 and 2033
- Proposed coupon levels will not create
a representative yield curve of new securities to act as a reliable
benchmark for future debt issuance.
- Concessional coupon rates over the
program period and beyond need to better reflect the international
interest rate environment for real money investors to be willing to
hold the securities and willing to provide significant debt relief
through nominal debt reduction and duration extension.
- A Bond A/B structure would enable a
higher coupon 'market bond' to serve as a representative benchmark
for future issuance, with the post programme period coupon on Bond
B subject to a contingent ratchet based on upside triggers.
- Bond A (market bond):
- Principal: 40¢ of Eurobond Principal +
accrued interest
- Coupon: 7.75% cash coupon
- Maturities: two issuances maturing in
2030 and 2036
- Bond B (recovery bond):
- Principal: 40¢ of Eurobond Principal +
accrued interest
- Coupon: post programme period coupon to
be subject to contingent ratchet based on upside (e.g. 0.5% in
2024-27, 2.5% in 2028-33, 7.75% in 2034 onwards)
- Maturity: three issuances maturing in
2032, 2034 and 2038
- Bond A/B structure would deliver the
DSA targets as set out in Annex 1
- To include contingent reinstatement
features (described below)
|
Ukraine Recovery
Instrument ("URI")
- Principal amount:
- Option 1: 35.0¢ of Eurobond
Principal + accrued interest
- Option 2: n/a
- Contingent instrument that entitles
holders to receive Vanilla Bonds in Jun-27 subject to:
- Exchange Condition: real 2025A-2026E
GDP is at least 85% of 2021A real GDP levels (in UAH);
- Exchanged Principal Amount: calculated
as the average outperformance of tax revenues in USD in 2025-26A
(relative to the IMF baseline) multiplied by a coefficient of 1.10,
and capped at 35¢ of existing outstanding Eurobond principal plus
accrued interest
|
- The URI is neither debt nor index
eligible and would likely be widely viewed as uninvestable
- Bondholders are being asked to give up
a debt claim upfront, with no path to recover 100¢ nominal
recovery, in return for a highly complex and contingent
instrument
- URIs represent a significant part of
the potential nominal recovery (up to half) and are in principle
highly likely to be unacceptable to many market participants as a
route to delivering recovery value.
- Real money investors would likely be
amenable to limited contingent recovery features being incorporated
into the debt instruments, possibly using a Bond A, Bond B
structure.
- Contingent reinstatement to be embedded
in Bond B, subject to satisfaction of Macro Test (to be
defined):
‒ 20¢ of Eurobond Principal + accrued interest reinstated as
additional Bond B maturing 2040
‒ Coupon step-up of Recovery Bonds to 7.75%
|
Risk Factor Language /
CoT
- Identifies the possibility of a further
bondholder restructuring in two scenarios: (i) below IMF Baseline
(sensitivities related to the IMF fan chart approach); and (ii) IMF
Downside
- GCU prepared to provide a commitment to
undertake further treatment if macroeconomic performance is below
IMF Baseline through Comparability of Treatment ("CoT")
|
- IMF's Baseline scenario to be
adjusted for the fourth review
- Transparency
- CoT assessment criteria remain unclear;
further clarity required on weighting of criteria and methodology
(i.e. NPV change, duration change and debt flow relief during IMF
programme period)
- Investors will need to understand how
CoT will be assessed and will require transparency on this point
from the GCU
- It must be clear on legal terms that
Ukraine will require the GCU to make comparable concessions on a
transparent basis before any further restructuring of the Eurobonds
is undertaken (if issues remain with debt sustainability)
- Asymmetric Treatment scenario
- There may be a scenario where at the
time debt sustainability is tested, it can be achieved by the GCU
restructuring on more favourable terms than those agreed between
Ukraine and bondholders (i.e. where full comparability of treatment
between the GCU and bondholders is not required to achieve
debt sustainability)
- Treatment of Vanilla Bonds in such
circumstances to be discussed
|
Loss
Reinstatement
Loss reinstatement
concept included for the earlier of: (i) the end of the period of
exceptionally high uncertainty and (ii) the end of the IMF program
in 2027
|
- Concept of loss reinstatement aligns
with market feedback
- Loss reinstatement must endure for at
least the current IMF programme period
- The reinstated amount should be the
pre-2022 restructuring claim of bondholders plus accrued and unpaid
interest thereon plus a top-up amount to reflect lost economics
during the period of any default adjusted for cash received
(calculation to be discussed between advisers)
|
Other
- Warrants:
- Sovereign Proposal is silent on
treatment
- Removal of cross-default from Warrants
in the Vanilla Bonds
|
- Investors are unable to respond in
absence of further information or agreement on other elements of
any proposed restructure
- Ukraine to confirm that no events of
default will occur during the implementation period or until the
call exercise period has expired
|
Note (1): Forecasts reflect certain assumptions, including (i)
financing assurances by Official Sector in line with IMF Baseline,
(ii) treatment of GDP-linked warrants and (iii) GDP figures
adjusted for latest actual figures.
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