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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