Interpipe to offer creditors large restructuring fees, media report

Ukraine’s largest
pipe producer Interpipe (INPIP) secured 100% lender consent for a restructuring
proposal and plans to finish the restructuring by June 30, according to Reorg
Research, a distressed debt information provider.

In addition to
details previously reported by Reorg
Research and by Debtwire, in its Apr. 8 report Reorg Research
said, citing its
sources, that the fees to be paid on the restructuring will be large,
consisting of the interest accumulated starting February 2018 for bondholders
and starting November 2017 for other creditors at LIBOR+8%.

Reorg Research also
said that the threshold for a share pledge enforcement was recently lowered to
66.6% from 75%.

Out of the total USD
1.297 bln of debt, working-capital creditors holding USD 125 mln of claims will
receive a USD 45 mln loan. Other creditors, including bondholders, with a total
of USD 1.17 bln of claims, will receive a new six-year USD 310 mln bond with a
10.25% coupon, a USD 45 mln loan paying 6.65% interest, and a value-recovery
instrument (VRI) linked to Interpipe’s EBITDA, Reorg Research said. Interpipe will
have an option to settle the VRI at a minimum of 100% of its annual EBITDA and
USD 125 mln (within the first three years), or USD 175 mln (afterwards).

Dmytro Khoroshun: We calculate that the holders of
the USD 200 mln Eurobond stand to receive USD 30 mln in fees outright upon
restructuring, which increases the NPV to 58% of the nominal from about 39% we had estimated assuming much smaller fees. This
estimate discounts flows from the new bond at a 15% rate and the VRI flows at a
25% rate.

If Interpipe’s
shares are to be pledged as security against some event such as a default, the
risks to the holders of the new debt will be lower and the NPV will be higher.

It appears that
although Interpipe’s owners will not lose any shares in Interpipe right away,
they had to pledge a stake in the company (details yet unknown) and lure the
creditors into agreeing to haircuts with large fees (likely partially financed
by a funds injection from the owner), which makes the deal more balanced.