Ad Hoc Creditor Committee concludes consultation period with the Government of Ukraine

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The Ad Hoc Creditor Committee of holders of Ukraine’s Eurobonds

Jun 17, 2024, 03:28 ET

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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.

Creditor Committee Feedback Pro Forma Debt-to GDP (%)

Creditor Committee Feedback Pro Forma GFN-to-GDP (%)

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 3^rd 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 3^rd 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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SOURCE The Ad Hoc Creditor Committee of holders of Ukraine’s Eurobonds