ULF asks to capitalize nearest coupons, amend cross-default covenant

Ukraine’s leading farmer Ukrlandfarming (ULF, UKRLAN) launched a consent solicitation to amend certain conditions of its USD 500 mln in Eurobonds on March 30. ULF is offering to pay only 1.25% in semi-annual coupon payments due March 26 and Sept. 26, 2016 (instead of the regular 5.4375% semi-annual coupons), with the rest to be capitalized.

Secondly, ULF is asking to waive a cross-default clause related to three loan facilities (with Intesa Sanpaolo, Export Development Canada, Sberbank & Deutsche Bank) until Oct. 31, 2016. ULF currently has overdue payments of EUR 1.6 mln to Intesa, USD 5.0 mln to EDC and USD 163.2 mln to Sberbank/DB, it reported. Thirdly, ULF is asking to waive until May 27, 2016 the condition requiring that total assets (or the revenue) of all surety providers under the Eurobond should not be less than 75% of ULF’s consolidated total assets (revenue). All surety providers account for 69% of ULF’s fixed assets as of end-2015, according to ULF. Other amendments are related to limits to restricted payments, bans on payments with respect to share capital, and limits to capital expenditures to USD 75 mln p.a.

ULF said it will offer a 0.125% consent fee to the bondholder that will deliver electronic voting instructions by an April 19 deadline, provided the offered conditions are accepted by the majority of bondholders. The meeting of noteholders to vote for the decisions has been called for April 21. The quorum at the meeting is 75%, and 75% of the attendees need to support the resolution for it to be passed. ULF may also call an adjourned meeting for May 3 with a quorum of 25%.

Besides amending Eurobond conditions, ULF is planning to reschedule payment of USD 212 mln in loans due this year, as well as halve interest payments under the loans this year, as can be concluded from the holding’s cash flow guidance. In ULF’s base-case scenario, if all its restructuring efforts succeed, its end-2016 cash balance will be USD 17 mln (down from USD 39 mln as of end-2015). In case all of ULF’s restructuring efforts fail, its end-2016 cash deficit would be USD 282 mln.

Alexander Paraschiy: It looks that this offer to ULF noteholders is not the last one. From the holding’s memorandum, it’s clear that even if all the debt restructuring efforts are successful this year, it will have a cash deficit of USD 19 mln at the end of 2017, under the base-case operating assumptions. We maintain our bearish view on ULF bonds.