Metinvest offers 25% upfront payment to holders of 2015 notes

Ukraine’s largest steelmaker and iron ore miner Metinvest (METINV) sent an improved offer to its bondholders twelve days ahead of May 20, when its 2015 Eurobond matures. This comes after the first offer, published on April 8, wasn’t supported. The holders of 2015 bonds are asked this time to approve a postponement for a USD 85.2 mln principal redemption (75% out of the total) to Jan. 31, 2016, while USD 28.4 mln (25%, up from 10% previously) may be repaid on June 20, 2015, if this consent solicitation gets enough approval (no less than 75% of votes).

In addition, the holders of 2015 bonds will get a proportionate share of debt owed to them in advance of this proposed amortization schedule, if PXF lenders are paid more than USD 28.4 mln after the consent offer is approved. Holders of the 2015 bond will get a 0.25% consent fee to shifting the maturity, and another 0.25% for waiving the cross-default provision. Holders of notes maturing in 2017 and 2018 are also offered a 0.25% consent fee for waiving the cross-default clause, and the effectiveness of the maturity shift for the 2015 notes is conditional upon whether this clause is waived.

Three bondholder meetings to approve the voting are scheduled for June 1. This is the first business day that follows a 10-day grace period after the maturity date of the 2015 Eurobond (May 20) elapses and the Eurobond may be claimed for default. The deadline for submitting electronic votes is May 29 for all the notes.

As supplementary information, Metinvest disclosed that it is in default regarding USD 178 mln in PXF financing (up from USD 113 mln, as of April 8, while total PXF debt outstanding is around USD 1,100 mln). According to Metinvest, PXF lenders have finalized the formation of their coordinating committee on May 5 and both sides started negotiating a standstill agreement and waivers.

Roman Topolyuk: With the amended offer, the holders of the existing 2015 notes of Metinvest would get the same outright payment as those who have already restructured the same notes in December. The improved offer is more beneficial for the holders of 2015 notes than the previous one, so we expect they may approve the consent solicitation. The voting date was chosen by the company to underline that it’s the last and best possible offer to creditors, otherwise a full-scale restructuring could be launched.

At the latest price of the 2015 notes (69% of par), the improved offer implies a yield-to-extended-maturity (Jan 31, 2016) of 120% (not accounting for possible amortization of the notes, as outlined in the recent offer). At the same time, we see this offer is just an intermediate solution of Metinvest’s debt issue. This means a risk remains that Metinvest will have to offer another extension of maturity for the remainder of the nearest Eurobond, as well as longer notes.

The recent formation of the coordinating committee, representing PXF lenders, is a positive development, we think. It could make negotiations on rescheduling the PXF debt more constructive and effective, as the consent of the providers of PXF financing is crucial for redesigning Metinvest’s debt profile into more sustainable shape.