Details on Interpipe value-recovery instrument emerge

Ukraine’s largest pipe producer Interpipe (INPIP)
intends to offer its international creditors a ten-year value-recovery
instrument (VRI) linked to the greater of EBITDA and CFADS (cash available for
debt service), Debtwire reported on Feb. 26. The payouts would amount to 15% of
CFADS or EBITDA in years 1-4, 20% in years 5-7, and 25% in years 8-10, Debtwire
said, adding that Interpipe would retain an early settlement option.

In addition, Debtwire reported that the restructuring
fee would amount to USD 5.9 mln, and that there would be additional lockup fees
for several classes of creditors.

Recall, Feb. 20 was the deadline
for Interpipe’s creditors to enter into lockup agreements in relation to the
company’s latest restructuring proposal. Interpipe will be able to simply sign
restructuring documents if it secures 100% creditor approval, Debtwire said. If
not, the company will need to use an English scheme of arrangement.

Dmytro Khoroshun: We estimate
that the VRI increases the value of Interpipe’s proposal by up to 7-8% of
nominal. In detail, Reorg Research previously reported
that the international creditors, with a total of USD 936 mln in debt
(including USD 199 mln in Eurobonds), will be offered a six-year USD 310 mln
bond and a USD 45 mln loan. Using the recently-hiked bond coupon rate of
10.25%, and discounting the bond flows at 15%, we arrive at
an NPV of USD 295 mln, or 31.5% of the nominal amount of international creditor
debt, and this is without the VRI.

Now, assuming as a reasonable better case yearly
EBITDA of USD 120 mln (the 2017 value reported previously by Reorg Research),
and discounting the VRI flows to the creditors at 25%, we come to an NPV of USD
365 mln, or 39.0% of nominal.

Considering that Interpipe’s bond is currently quoted
at 28.7/33.5, according to Bloomberg, Interpipe’s offer with such VRI
parameters appears to offer up to 7-8pp in upside.