Interpipe to finalize lockup agreement with creditors by Feb. 20, media report

Ukraine’s largest pipe producer Interpipe (INPIP) has
postponed the deadline for its lenders to join the lockup agreement to Feb. 20
from Feb. 8, according to a Feb. 13 report by Reorg Research, a distressed debt
information provider. Interpipe and a coordinating lenders committee signed the
agreement on Jan. 11, Reorg Research said.

In comparison with the mid-2018 proposition to the creditors,
on which we reported in August, Interpipe hiked the coupon rate on the new USD
310 mln six-year bond to 10.25% from 9.35%, Reorg Research reported. Another
change is the option for certain bank creditors to convert their debt into
either a new loan or the new bond, instead of only into the new bond
previously, according to Reorg Research.

Interpipe’s restructuring plan has sufficient support
to be implemented by way of an English scheme of arrangement or through a
consent solicitation, Reorg Research said, citing a source close to the
situation.

Dmytro Khoroshun: As we
reported in August, Reorg Research previously said that Interpipe planned to
offer a substantial restructuring fee and EBITDA-linked value-recovery instruments
to creditors other than Ukrainian banks. These restructuring parameters, on
which the fair value of the deal depends heavily, remain unknown. In comparison
with our August estimate of the NPV to Interpipe’s bondholders, which is 32-35% of par, the 90 bps
coupon rate hike increases the value by about 1.3 pp. Interpipe’s bond is
currently quoted at 28.7/33.5, according to Bloomberg.

Pragmatically, after more than five years of
Interpipe’s default, it does not seem like its creditors have been successful
in pressing the company for substantial concessions, like a debt-for-equity
swap. Therefore, a haircut to Interpipe’s debt seems unavoidable, and we think
that Interpipe’s latest proposal is reasonable, in part because the company’s
leverage would remain substantial after the restructuring (3.3x using the 2017
EBITDA), as Reorg Research reported previously.