Metinvest concedes court protection if debt is accelerated

Ukraine’s largest steelmaker and iron ore miner Metinvest (METINV) may claim court protection against an acceleration of debt repayment. That is if the company fails to reach an agreement with creditors regarding the redesigning of debt profile, and if some of creditors demand early redemption. This came from a comment made by the Metinvest management during a conference call on Apr. 27.

Court protection may be claimed in some suitable jurisdiction, and may put a legal moratorium on debt repayment. Thus, the management has indicated its defense line, if voting for maturity extension of 2015 Eurobond (USD 114 mln outstanding) and for waving the cross-default provisions of other Eurobonds, scheduled to be held on April 29 and May 1 does not get the necessary approval rate. Metinvest stated that it is not inclined to improve the offer to holders of its notes maturing in May 2015 (earlier, it asked for the maturity extension to January 2016, and offered a 10% of the outright cash payment and 0.5% consent fee).

There is no certainty whether or not the 90% of 2015 notes outstanding could be extended one more time. As the base scenario to be offered to holders of the 2015 Eurobond and providers of PXF financing, the company sees that it may be able to resume repayment of principal in late 2016, while duly servicing the interest payments. A new amortization schedule is a subject for discussion between holders of the 2015 notes and PXF lenders, on the one side, and the company, on the other. If bond holders won’t approve the maturity extension, full-scale restructuring involving holders of 2017 and 2018 Eurobonds may be launched, the company commented.

Roman Topolyuk: The management sounds resolved not to improve the restructuring conditions for 2015 Eurobond holders and seem ready for a worst case scenario. Holders of in the shortest Eurobond may not support the offer, thus bringing the company to a stand-off with its creditors to another extreme. Their support is not a deal breaker for Metinvest’s debt reprofiling. The company had USD 1.3 bln in short-term debt, as of December 2014, USD 719 mln of which was held in banking debt. So, the consent of providers of PXF financing (USD 662 mln maturing by January 2016) would be crucial for adjusting the redemption schedule of Metinvest. Until such an agreement is reached, which could take an extended period of time, we reiterate our negative view on METINV Eurobonds.

Another cause of concern is the building up of Russian and pro-Russian military forces along the frontline in Donbas, and a possible new offensive against the Ukrainian army. This implies a severe risk of operations disruptions for Metinvest, which steel mills are located near the frontline.