Mriya bondholders demand recognition of debt obligations in Ukrainian court

A local Ukrainian economic court will begin hearing on Dec. 16 arguments in a complaint filed by a U.S.-based trust company acting in the interest of bondholders in Ukrainian agricultural holding Mriya (MRIYA). They are asking the court to officially recognize the debt obligations of 68 Mriya subsidiaries, which acted as guarantors on the issued bonds. The claim was filed in the city of Ternopil since the defendant’s largest assets are located in that region. The claim amounts to USD 573 mln, which consists of the outstanding principal amount and the accrued interest due since August 2014, when the company defaulted on the Eurobonds by not paying contractual interest. 

Mriya structured its Euroband issuance in standard fashion for Ukraine-based holdings: a non-resident holding company acted as the issuer of the Eurobonds, a large bank acted as trustee for the bondholders and the issuer’s Ukrainian operating companies acted as guarantors of the non-resident holding company’s obligations. The complaint marks the first time that Western Eurobond holders filed a claim in a Ukrainian court to recover debt on the bonds from the local subsidiaries of a non-resident holding company.

Igor Zholonkivskyi: Since there is no historical precedent for such an event, the proceeding will be unchartered territory and a valuable indicator of the competence of the Ukrainian judicial system with regards to international business and contract law.  We do not think that the plaintiff is likely to receive any financial or other benefits, apart from those that have been already agreed upon during restructuring negotiations in September 2016. So whatever the court’s ruling, it is not likely to have any tangible impact on the ongoing restructuring of Mriya’s USD 1.1 bln debt.

While we abstain from rating Mriya Eurobonds at this stage, our best case-scenario for Mriya Eurobonds assumes the NPV of cash flow to bondholders at 30-35 cents per dollar, given a discount rate of 20-25%, compared to the current quotations of Eurobonds of around 6-8 cents.